Opinion
93 Civ. 3707 (LAP)
February 5, 2001
MEMORANDUM AND ORDER
This action arises out of defendant American Telephone and Telegraph's ("ATT") denial of telecommunication services to plaintiff National Communications Association, Inc. ("NCA") at a tariff rate equivalent to that offered other resellers of ATT. NCA has brought the instant action pursuant to §§ 201(a), 201(b), and 202 of the federal Communications Act of 1934. Previously, ATT moved to stay the action and refer it to the Federal Communications Commission ("FCC") under the doctrine of primary jurisdiction, and that motion was granted. The Court of Appeals reversed and remanded the action to the district court. National Communications Assoc., Inc. v. American Tel. Tel. Co., 46 F.3d 220 (2d. Cir. 1995). Plaintiff then moved for summary judgment with respect to ATT's liability under § 201(a), and defendant opposed and cross-moved for summary judgment under § 201(b) of the Communications Act. Both plaintiff's and defendant's motions were denied. National Communications Assoc., Inc. v. American Tel. Tel. Co., 93 Civ. 3707, 1997 WL 466556 (S.D.N.Y. Aug. 14, 1997). Defendant now moves for summary judgment on the issue of causation of injury. For the reasons set forth below, defendant's motion is granted.
BACKGROUND
A fuller account of the facts surrounding this action is set forth in National Communications Association, Inc. v. American Telephone Telegraph Company ("NCA v. ATT"), 46 F.3d 220, 221-23 (2d. Cir. 1995), NCA v. ATT, 813 F. Supp. 259 (S.D.N.Y. 1993) and NCA v. ATT, 808 F. Supp. 1131 (S.D.N Y 1992), and only some of the essential facts will be repeated herein.
Prior to the end of 1992, NCA subscribed to ATT's long distance telecommunications service known as software designed network ("SDN"), the rates of which were governed by ATT's FCC Tariff No. 1. This tariff provided a discount to subscribers such as NCA that committed to a minimum volume of monthly usage. NCA then resold the services it purchased from ATT to numerous end-users who individually did not have the monthly volume required to qualify for the discount.
In 1992, ATT and Tel-Save, Inc., another reseller of telecommunication services, negotiated a new tariff, Contract Tariff No. 54 ("CT-54"), that governed the rates to be charged for SDN. Under the applicable federal communications law, ATT is obligated to extend the same favorable tariff terms to other customers similarly situated. See Competitive Telecommunications Ass'n v. FCC, 998 F.2d 1058, 1063-64 (D.C. Cir. 1993); Western Union Int'l, Inc. v. FCC, 568 F.2d 1012, 1014 (2d Cir. 1977); 47 U.S.C. § 202(a) ("It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges . . . for . . . like communication service."). CT-54 set forth the following criteria for other resellers' eligibility for the new SDN rate:
Deposit/Advance Payment — No deposit will be due if the Customer (1) has during the immediately preceding calendar year, no history of late payments with ATT Tariff F.C.C. No. 1 of at least 5,000,000 minutes per month and (2) is current, at the time of ordering this Contract Tariff, in its payment to ATT for any other ATT Tariff F.C.C. No. 1 Service. If the Customer does not meet each criterion, the following will be required:
i) An advance payment of $640,000;
ii) A deposit of $1,280,000; and
iii) Payment of all outstanding amounts due ATT for any ATT Tariff F.C.C. No. 1 services.
(ATT App. Tab G, CT-54, § 6.I.) CT-54 reflected the method of billing known as "network billing." Under network billing, ATT sent Tel-Save a single monthly bill reflecting all charges incurred by Tel-Save's end-users at their various locations.
In February 1993, NCA timely requested from ATT the lower rates available through CT-54, contending that it had complied with all of the conditions of the tariff and was not required to make either a deposit or an advance payment. (ATT App. Tab H, Letter from George Schoenberg, NCA, to Stu Morris, ATT (2/22/93).) ATT notified NCA that it would provide the lower-rate services under CT-54 to NCA as soon as NCA provided the deposit and the advance payment. (ATT App. Tab I, Letter from Greg Brown, ATT, to George Schoenberg, NCA (2/25/93).) In March 1993, ATT told Mr. George Schoenberg, President of NCA, (Schoenberg Aff. ¶ 1), that ATT would waive the $640,000 advance payment requirement, but that the $1,280,000 deposit had to be posted by April 8, 1993. (ATT App. Tab L, Letter from Greg Brown, ATT, to George Schoenberg, NCA (3/12/93).) NCA did not post the deposit requested. (ATT App. Tab A, Schoenberg Dep. at 1265.) ATT did not provide service to NCA under CT-54. (First Amended Compl. ¶ 24.)
On June 2, 1993, NCA filed this lawsuit alleging that ATT's refusal to provide service to NCA without posting the deposit had damaged NCA "by not less than 10 Million Dollars." (Compl. ¶ 14; First Amended Compl. ¶ 29.) For purposes of this motion for summary judgment, it is presumed that ATT had no right to deny NCA access to CT-54.
NCA's damage study prepared by Mr. Gregory M. Duncan, Ph.D. dated October 4, 1999 claims that NCA was damaged in the amount of $21.9 million from lost profits from failing to obtain service from ATT under CT-54. (ATT App. Tab N, Analysis of Economic Damages, prepared by Gregory M. Duncan at 25 (10/4/99).)
I. Summary Judgment Standard
"A motion for summary judgment may not be granted unless the court determines that there is no genuine issue of material fact to be tried and that the facts as to which there is no such issue warrant judgment for the moving party as a matter of law." Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 36 (2d Cir. 1994); see Fed.R.Civ.P. 56(c); see generally Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986). An issue of fact is genuine when "a reasonable jury could return a verdict for the nonmoving party," and facts are material to the outcome of the particular litigation if the substantive law at issue so renders them. Anderson, 477 U.S. at 248.
The burden of establishing that no genuine factual dispute exists rests on the party seeking summary judgment. Chambers, 43 F.3d at 36. "In moving for summary judgment against a party who will bear the ultimate burden of proof at trial," however, "the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim." Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995); accord Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1223-24 (2d Cir. 1994) ("[T]he moving party may obtain summary judgment by showing that little or no evidence may be found in support of the nonmoving party's case."). The moving party, in other words, does not bear the burden of disproving an essential element of the nonmoving party's claim.
If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); accord Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). The nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Instead, the nonmovant must "`come forward with enough evidence to support a jury verdict in its favor, and the motion will not be defeated merely . . . on the basis of conjecture or surmise.'" Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d 186, 188 (2d Cir. 1992) (citation omitted).
In assessing materials such as affidavits, exhibits, interrogatory answers, and depositions to determine whether the moving party has satisfied its burden, the court must view the record "in the light most favorable to the party opposing the motion" by resolving "all ambiguities and draw[ing] all factual inferences in favor of the party against whom summary judgment is sought." Chambers, 43 F.3d at 36. "If, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Id. at 37.
II. NCA Was Not Entitled To "Self-Help"
A. The Filed Rate Doctrine
Section 203(a) of the Communications Act requires every common carrier such as ATT to file a schedule, i.e., a tariff, with the FCC detailing all charges and showing all classifications, practices, and regulations which affect such charges. American Tel. Tel. Co. v. Central Office Tel., Inc., 524 U.S. 214, 221 (1998); 47 U.S.C. § 203(a). Under the Communications Act, "it [is] unlawful for a carrier to `extend to any person any privileges or facilities in such communication, or employ or enforce any classifications, regulations, or practices affecting such charges, except as specified in such schedule.'" Id. at 221-22 (quoting 47 U.S.C. § 203(c)).
The filed rate doctrine, also known as the filed tariff doctrine, "is the central principle of the regulatory scheme for interstate telecommunications carriers." Fax Telecommunicaciones Inc. v. ATT, 138 F.3d 479, 488 (2d Cir. 1998). The doctrine forbids ATT from charging rates for its services other than those rates which are properly filed with the FCC. Id. Neither the customer's ignorance nor the carrier's misquotation of an applicable rate will serve as a defense to the collection of a filed rate. Id. The filed rate is considered the legal rate as between the carrier and the customer, and the rights "`defined by the tariff cannot be varied or enlarged by either contract or tort of the carrier.'" Id. (quoting Keogh v. Chicago Northwestern Ry. Co., 260 U.S. 156, 163 (1922)).
NCA argues that "[j]udicial enforcement of an obligation by NCA to comply with a demand in violation of the tariff would contradict . . . the filed rate doctrine's motivating principles" of nondiscrimination and nonjusticiability. (NCA Opp. Br. at 11.); see Fax Telecommunicaciones Inc., 138 F.3d at 489 (noting that "filed rate doctrine `prevent[s] carriers from engaging in price discrimination as between ratepayers (the "nondiscrimination strand")'" and "`preserv[es] the exclusive role of federal agencies in approving rates for telecommunications services that are "reasonable" by keeping courts out of the rate-making process (the "nonjusticiability strand")'") (internal citations omitted). First, NCA argues that it "would suffer discrimination vis-a-vis other customers who received service without paying a deposit, violating the nondiscrimination strand. Second, the substitution of a jury's assessment of economically reasonable conduct for the conduct specifically required by the express terms of the tariff would violate the nonjusticiability strand." (NCA Opp. Br. at 11.) In arguing that ATT's refusal to provide access to CT-54 to NCA amounted to a denial of service under Section 201(a) of the Communications Act, NCA relies heavily upon two FCC cases: In Re Hawaiian Telephone Company, 78 F.C.C.2d 1062 (1980) and Elkhart Telephone Company v. Southwestern Bell Telephone Company, 11 F.C.C. Rcd. 1051 (C.C.B. 1995).
In In Re Hawaiian Telephone Company, the Department of Defense (the customer) requested the Hawaiian Telephone Company (the carrier) to provide interconnection circuitry "for 19 private line interstate communication circuits." 78 F.C.C.2d at ¶ 1. The carrier refused to provide the interconnection requested by the Department of Defense. Id. The Department of Defense filed a complaint requesting that the FCC mandate Hawaiian Telephone Company to provide the requested service. Id. The FCC found that the carrier's failure to meet the service request "avoided its legal responsibilities as a common carrier pursuant to section 201(a) of the Act" and held that the carrier was required to supply the requested circuitry. Id. at ¶ 8.
The FCC also ruled that the carrier was liable pursuant to the Communications Act for a forfeiture to the FCC for failing to provide the circuits to the customer. Id. at ¶ 8.
The FCC stated that:
In the future, we expect that carriers who are requested to provide service should make all efforts to do so, such as providing them under protest pending the resolution of complaints, petitions, or litigation, rather than refusing to meet a questionable obligation until after the complaint or litigation is resolved. Those who choose the course of non-compliance are on notice that they will be acting at their own peril, should the question of the legitimacy of their refusal to meet common carrier obligations be decided against them.
Id. at ¶ 9.
Similarly, in Elkhart Telephone Company, Elkhart, a small local exchange carrier, alleged that Southwestern Bell Telephone Company had failed to provide Elkhart interconnection to Southwestern Bell's network. 11 F.C.C. Rcd. at ¶ 1. Southwestern Bell had refused to provide access to the service because of a dispute with Elkhart over the proper billing methodology to be used to activate the facilities. Id. at ¶ 9. Elkhart sought an order from the FCC requiring Southwestern Bell to provide the service. Id. at ¶ 1. The FCC found that Southwestern Bell's failure to provide the interconnection requested amounted to a denial of service in violation of Section 201(a) of the Act and held that the carrier was required to provide the interconnection requested by Elkhart. Id. at ¶¶ 34, 26. The FCC, quoting from In Re Hawaiian Telephone Company, noted that the FCC has "consistently required common carriers to meet their Section 201(a) obligations." Id. at ¶ 34.
Elkhart also requested monetary damages that it incurred as a consequence of the violations. Id. at ¶ 1. The FCC did not rule on the issue of damages, but instead permitted Elkhart to file a supplemental complaint for damages. 11 F.C.C. Rcd. at ¶ 45. There is no subsequent decision on the issue of damages.
B. A Carrier Has A Right To Collect Its Tariffed Charges
ATT argues that the law is clear that a carrier has a right to collect disputed charges from its customers. (ATT Reply Br. at 5.) ATT relies on several cases in support of its view, including Tel-Central of Jefferson City v. United Telephone Company, 4 F.C.C. Rcd. 8338 (1989) and Business WATS, Inc. v. American Telephone and Telegraph Company, 7 F.C.C. Rcd. 7942 (1992).
In Tel-Central of Jefferson City v. United Telephone Company, Tel-Central filed a complaint against United Telephone Company of Missouri, Inc. seeking damages allegedly suffered from the disconnection of service of numerous "WATS lines for the alleged non-payment of disputed charges, claimed to be in violation of Sections 201(b), 202(a), and 203(c) of the Communications Act." 4 F.C.C. Rcd. 8338 at ¶ 1. Tel-Central had vigorously disputed and refused to pay certain charges that United Telephone had claimed were outstanding. Id. at ¶ 5. After providing notice that United Telephone would terminate service if it did not receive the full amount of the claimed charges, United Telephone suspended Tel-Central's service. Id. The FCC denied Tel-Central's complaint for damages resulting from the disconnection of services and found that "the law is clear on the right of a carrier to collect its tariffed charges, even when those charges may be in dispute between the parties." Id. at ¶¶ 22, 9.
In Business WATS, Inc. v. American Telephone and Telegraph Company, Business WATS sought an order from the FCC to prevent ATT from requiring Business WATS to pay disputed charges, disconnecting service to Business WATS, and "imposing security or advance payment requirements on [Business WATS] for all tariffed services, pending hearing of [its] complaint." 7 F.C.C. Rcd. 7942 at ¶ 1 (1992). Denying Business WATS's petition, the FCC noted that it:
previously has stated that a customer, even a competitor, is not entitled to the self-help measure of withholding payment for tariffed services duly performed but should first pay, under protest, the amount allegedly due and then seek redress if such amount was not proper under the carrier's applicable tariffed charges and regulations. The Commission generally is disinclined to intervene in matters involving a carrier's decision to terminate service of a particular customer that has failed to pay legally effective and overdue tariffed charges for tariffed service that the carrier has duly rendered. Nor is the Commission inclined to second guess a carrier's decision, with respect to a particular customer, to impose deposit, advance payment or other security arrangements provided for in its tariff. Such determinations properly are matters within the carrier's business judgment and, as such, ordinarily will be left undisturbed, absent a showing that the carrier acted unreasonably or unduly discriminated.
Id. at ¶ 2-3; see also In re Communique Telecommunications, Inc., 10 F.C.C. Rcd. 10,399 at ¶¶ 1, 36 (1995) (denying reseller of interstate telecommunications services' request for ruling that carrier did not have authority to bill reseller for certain charges and for ruling that carrier may not disconnect reseller's services during pendency of action and noting that "[c]ustomers who claim that tariff rates are unreasonable may file complaints with the Commission under Section 208 of the Communications Act, but may not automatically withhold payments of legally tariffed charges merely by asserting that the rates are unreasonable"); In re MCI Telecommunications Corp., 62 F.C.C.2d 703 at ¶¶ 6-7 (1976) (refusing to condone customer's refusal to pay tariffed rate for voluntarily ordered services, finding that self-help is not acceptable remedy, and noting that if customer thought that carrier acted unlawfully, customer had recourse to Sections 206-209 of the Communications Act).
ATT also argues that there is no "merit to NCA's argument that excluding the alleged lost profits which NCA could have avoided by posting the deposit would represent a denial of service under Section 201(a)." (ATT Reply Br. at 5.) ATT asserts that "[t]here was no denial of service from ATT [because] NCA continued to receive SDN service from ATT." (Id.)
C. NCA Was Not Refused Service Of The SDN Network
The facts of this case do not fall squarely within the authorities cited by either NCA or ATT. Rather, this action is a hybrid of the two lines of authority. NCA was receiving SDN service from ATT under ATT's Tariff No. 1. A new tariff, CT-54, filed by ATT established a better rate for SDN service in exchange for an agreement by the customer to commit to a higher volume of sales of the SDN service. ATT refused to allow NCA to take advantage of CT-54 in the absence of the deposit. Yet, NCA was never denied access to the SDN network. Unlike the Elkhart and Hawaiian Telephone cases cited by NCA, NCA was never refused the requested connection. Rather, ATT refused to give NCA the better rate available under CT-54 for the SDN network in the absence of a deposit.
These facts lead me to conclude that this situation is more akin to the line of cases cited by ATT which support the right of a carrier to collect its tariffed charges. The dispute between NCA and ATT was over the applicable rates. The clear line of authority regarding rate disputes is that the customer may not resort to self-help; that is, the customer may not merely refuse payment of the disputed rate but must pay the rate and then bring an action to determine the validity of the carrier's actions. In essence, NCA resorted to self-help by refusing to pay the disputed deposit and incurring the alleged lost profits resulting from ATT's refusal to allow NCA to take advantage of the better rates under CT-54. NCA had no right to pursue such a course of action, or rather inaction, and cannot now lay claim to untold amounts of "lost profits" caused by its own failure to act.
Even assuming that ATT violated certain provisions of the Communications Act, however, NCA still cannot prove that ATT caused the lost profits it claims to have suffered.
III. NCA Failed To Mitigate Damages
In order to recover damages for lost profits, an injured party must "`demonstrate with certainty that such damages have been caused by the breach.'" Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 332 (2d Cir. 1993) (quoting Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986)); see also Toltec Fabrics, Inc. v. August Inc., 29 F.3d 778, 781 (2d Cir. 1994) (holding that plaintiff seeking lost profits must prove amount of loss "with reasonable certainty" and that such loss was not "result of other intervening causes") (internal quotations and citations omitted); Treasure Lake Assocs. v. Oppenheim, 993 F. Supp. 217, 220 (S.D.N.Y. 1998), aff'd, 165 F.3d 15 (2d Cir.). Because NCA failed to mitigate its damages, it cannot demonstrate that its alleged lost profits were caused by ATT's conduct.
A. NCA Had A Duty To Mitigate Its Damages
A claimant cannot recover damages for "loss that the injured party could have avoided without undue risk, burden or humiliation." Restatement of Contracts (Second), § 350(1) (1981); see Van Syckle v. C.L. King Assocs., Inc., 822 F. Supp. 98, 102 (N.D.N.Y. 1993) (noting "universally accepted common law principal [sic] that a harmed plaintiff must mitigate damages"). An aggrieved party is "required to make reasonable effort to mitigate its damages." Matsushita Elec. Corp. of Amer. v. Gottlieb, 90 Civ. 3010, 1991 WL 152615, at * 9 (S.D.N.Y. Aug. 1, 1991). To show mitigation, the injured party must demonstrate only that it took reasonable steps to cut its losses, not that it necessarily did what the defendant would have done or what, in hindsight, would have been most effective in reducing the amount of damages. Id. A plaintiff who fails to take reasonable steps to avoid the alleged loss "has broken the chain of causation, and loss resulting to him thereafter is suffered through his own act[; i]t is not damage that has been caused by the wrongful act of the [defendant]." McClelland v. Climax Hosiery Mills, 252 N.Y. 347, 359, 169 N.E. 605, 609-10 (1930) (concurring opinion of Judge Cardozo) (noting that injured party who "unreasonably reject[s]" cannot then "be heard to say that the loss . . . shall be deemed the jural consequence of the" wrongful act); see also Ellerman Lines, Ltd. v. The Steamship President Harding, 288 F.2d 288, 289-90 (2d Cir. 1961) (noting that "defendant is not liable for `avoidable consequences'" because "the community's notions of fair compensation to an injured plaintiff do not include wounds which in a practical sense are self-inflicted"); Van Syckle, 822 F. Supp. at 102 (N.D.N.Y. 1993) (stating that "part[ies] cannot recover the part of their loss caused by their own failure to take reasonable steps to avoid further harm once they had reason to know of the wrongdoing"); Restatement of Contracts (Second), § 350(1) cmt. b (1981) (noting that injured party incurs no liability for failure to act, but rather amount of loss that "could reasonably have [been] avoided by stopping performance, making substitute arrangements or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages").
NCA argues that "[t]he defense of causation and mitigation of damages is not available to a defendant when the wrongdoer had the same opportunity as the injured party to mitigate damages and did not do so." (NCA Opp. Br. at 15 (citing S.J. Groves Sons Co. v. Warner Co., 576 F.2d 524, 530 (3d Cir. 1978) and Travelers Indem. Co. v. Maho Mach. Tool Corp., 952 F.2d 26, 31 (2d Cir. 1991))). The cases relied upon by NCA involve factual scenarios in which the defendant breached a contract and both the defendant and the plaintiff had an opportunity to minimize the effects of that breach by making additional expenditures. See S.J. Groves Sons Co., 576 F.2d at 529-30 (holding that plaintiff was not obligated to mitigate damages by contracting with another subcontractor when it became apparent that defendant would not perform contract satisfactorily, where presence of two independent suppliers acting individually might create more severe problems than existed before and defendant itself was in better position to seek another subcontractor); Travelers Indem. Co., 952 F.2d at 31 (holding that defendant that had breached contract by delivering non-conforming product had same opportunity as plaintiff to pay for engineer to inspect damaged product). The alleged breach by ATT in this case was its insistence that NCA pay the deposit to receive the reduced billing under CT-54. NCA argues that because ATT had the opportunity to waive the deposit, and thus mitigate NCA's damages, but did not do so, ATT cannot now raise the defense of NCA's failure to mitigate. In essence, NCA is arguing that ATT could have mitigated the damages caused by its breach by not breaching. This is an inaccurate and illogical application of the principle cited by NCA. Accordingly, I find that NCA had a duty to mitigate. The remaining issue is whether NCA's actions in light of that duty were reasonable.
B. NCA's Actions Were Unreasonable As A Matter Of Law
NCA asserts that certain factual issues exist regarding "the reasonableness of NCA's refusal to post the deposit . . . which must be resolved by the jury." (NCA Opp. Br. at 17.) First, NCA asserts that questions of fact exist as to whether the deposit required by ATT was inconsequential to NCA given its financial resources and whether it was reasonable for NCA to believe that the payment of the deposit would have drained it of working capital. (NCA Opp. Br. at 18-19.) NCA states that a claimant is required to mitigate damages only if the "new terms are trivial or inconsequential in relation to the amount of foreseeable damages the plaintiff would otherwise suffer from the breach." (NCA Opp. Br. at 18 (emphasis omitted) (citing 999 v. CIT Corp., 776 F.2d 866, 871 (9th Cir. 1985))). NCA alleges that "NCA could not pay or borrow the money itself" and that "George Schoenberg could have borrowed it by `hocking the ranch' but had no legal obligation to risk his family's net worth to post the deposit." (NCA Opp. Br. at 18-19.)
NCA could have obtained service under ATT's CT-54 had it provided the deposit required by ATT. (ATT App. Tab A, Schoenberg Dep. at 1176, 1265; ATT App. Tab C, Duncan Dep. at 219.) NCA decided not to approach its banks to inquire about obtaining a loan or letter of credit to pay for the deposit. (See ATT App. Tab A, Schoenberg Dep. at 232, 316, 889-91; ATT App. Tab C, Duncan Dep. at 228.) NCA does not dispute that "Mr. Schoenberg could have borrowed" the deposit money on NCA's behalf. (NCA Opp. Br. at 18; ATT App. Tab C, Duncan Dep. at 228.) Although NCA attempts to color the fact that Mr. Schoenberg should not have been required to put his personal finances at stake to get a loan, Mr. Schoenberg conceded that it was routine practice for him to do so to obtain funds for NCA:
I had already obtained financing for NCA on two occasions; first, to post the $375,000 deposit to ATT for NCA's initial SDN subscription, and second, to raise the One million dollars in working capital NCA needed to survive ATT's slow provisioning and consequent cash flow crisis. On both occasions I had to secure the financing with my personal assets. I had longstanding banking relations with Citibank and Atlantic Bank and did not believe other banks in New York City would follow different lending practices.
(Schoenberg Aff. ¶ 6; see also NCA Opp. Br. at 20 (acknowledging that Mr. Schoenberg's personal credit was used to provide NCA's working capital needs).) It was Mr. Schoenberg's "unwilling[ness]" to post the deposit, not his inability to do so, that prevented NCA from having the money necessary to provide funds for the deposit. (See Schoenberg Aff. ¶ 7; ATT App. Tab A, Schoenberg Dep. at 232, 316, 889-91.)
NCA cites to Bank One, Texas N.A. v. Taylor, 970 F.2d 16, 29-30 (5th Cir. 1992) in support of its argument that Mr. Schoenberg should not have been required to encumber his personal property in order to get the loan. The plaintiff in Bank One, however, did not have a history of securing financing with her personal assets to obtain financing for her company.
Although NCA asserts that Mr. Schoenberg never sought a bank loan for the deposit because he "wasn't sure that [NCA] could ever pay it back" because of "what ATT could do" to NCA's business through "dirty tricks" (ATT App. Tab A, Schoenberg Dep. at 890-91), NCA fails to provide any factual support regarding such anti-competitive conduct by ATT in this case.
The actual cost to NCA of providing the requested deposit was minimal compared to the amount of foreseeable damages NCA would otherwise suffer from the breach and from the amount of damages actually alleged to be suffered by NCA. Had NCA properly obtained a bank loan or letter of credit, the only out-of-pocket expenses would have been the interest on that loan, not the entire $1.28 million deposit as NCA alleges. Even crediting NCA's claim that it "could not estimate what [CT-54] was worth at the time [Schoenberg] was asked for the deposit," (NCA Opp. Br. at 19), the cost of posting the deposit was clearly far less than the price advantage CT-54 would confer.
Additionally, NCA would have earned interest from ATT on the deposit money. (ATT App. Tab B, ATT Tariff FCC No. 1, § 2.5.6.A.2 ("Interest will be paid to a Customer for the period that a cash deposit is held by the Company. The interest rate used will be a simple interest rate at the rate of six percent annually unless a different rate has been established . . . ."); see ATT App. K, CT-54 Contract signed by George Schoenberg, § 7.10 (CT-54 and Tariff No. 1 "constitute entire agreement between the parties")).
I note that a mere two months after the alleged breach occurred, NCA filed this suit and was able to estimate damages of "not less than 10 Million dollars" for lost future profits. (Compl. ¶ 14; First Amended Compl. ¶ 31.)
NCA also claims that because it reasonably believed that ATT's demand was illegal, it was not required to take steps to mitigate damages. (NCA Opp. Br. at 20 (citing Gerber Prods. Co. v. Fisher Tank Co., 833 F.2d 505, 508 (4th Cir. 1987)).) NCA misinterprets the cases it relies upon. The actual rule is that an injured party is not required or expected to act unlawfully in order to minimize damages. See Gerber Prods. Co., 833 F.2d at 508 (4th Cir. 1987) (finding that manufacturer was not required to mitigate damages by marketing contaminated baby food when there was abundant reason to believe that such marketing activity would be unlawful). NCA would not have been acting unlawfully had it mitigated its damages by paying under protest the deposit required by ATT.
NCA also cites to Smith v. Rowe, 761 F.2d 360, 367-68 (7th Cir. 1985), a prisoner rights case with no factual similarities to this action.
Finally, NCA states that it "reasonably believed that payment of money to ATT would subject it and its owner to great risks" and that NCA believed that ATT would "illegally sabotage NCA." (NCA Opp. Br. at 21, 18.) NCA provides no factual evidence to support these alleged concerns. (See Schoenberg Aff. ¶ 7.)
NCA's complete failure to make any attempt to acquire a loan or letter of credit to pay the deposit demonstrates as a matter of law that no reasonable effort was made by NCA to mitigate its damages. See Alonzo v. Chase Manhattan Bank, N.A., 70 F. Supp.2d 395, 399 (S.D.N.Y. 1999) (finding that although plaintiff's efforts to find work following job termination were quite limited, and despite the fact that jury possibly would conclude plaintiff's efforts were not reasonable, they were not nearly as limited as virtual inactivity that led a court to conclude as matter of law that no reasonable effort had been made) (citing Greenway v. Buffalo Hilton Hotel, 951 F. Supp. 1039, 1060-61 (W.D.N.Y. 1997), modified, 143 F.3d 47, (2d Cir. 1998)). Instead of attempting to get the loan or letter of credit or even seeking a stay of ATT's demand for the deposit, NCA decided to do nothing (other than filing this multi-million dollar lawsuit).
The cost of avoiding the alleged multi-million dollar loss was not unreasonable. There is no dispute that NCA could have avoided the entire multi-million dollar lost profits alleged by posting the requested deposit in the manner it had funded prior capital needs. Accordingly, NCA's failure to provide the requested deposit is a bar to its claim for lost profits premised on ATT's refusal to provide service under CT-54.
CONCLUSION
For the reasons stated above, defendant's motion for summary judgment is granted.
The Clerk of the Court shall mark this action closed and all pending motions denied as moot.
SO ORDERED.