Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-00728/USCOURTS-cand-3_14-cv-00728-17/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

TELECOM ASSET MANAGEMENT, LLC,

Plaintiff.

v.

FIBERLIGHT, LLC,

Defendant.

Case No. 14-cv-00728-SI 

VERDICT IN CIVIL CASE: FINDINGS 

OF FACT AND CONCLUSIONS OF 

LAW

This is a civil case in which the parties jointly withdrew the jury demand. Dkt. No. 94 

(Stip.). Following a three-day bench trial, in consideration of the evidence presented, the Court 

enters the following findings of fact and conclusions of law.

FINDINGS OF FACT

I. The Relevant Stakeholders

Plaintiff Telecom Asset Management (“TAM”) is a limited liability company with its 

principal place of business in California. Dkt. No. 129 (Joint Prop. Findings) ¶ 1. TAM is a 

telecommunications services agent and consultant which uses its relationships and industry 

information to secure business transactions, in this case between two telecommunication carriers, 

defendant FiberLight, LLC (“FiberLight”) and Verizon Wireless (“Verizon”).1 Id. 

Steven Strong is TAM’s President and Timothy Burks is TAM’s Chief Operating Officer 

(“COO”). Id. at ¶ 2.

FiberLight, LLC is organized in Delaware with its principal place of business in Georgia. 

 

1

 Verizon is not a party to this matter.

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Id. at ¶ 3. Among other services, FiberLight builds telecommunication networks for a number of 

its clients. Id. 

Michael Miller served as Chief Executive Officer (“CEO”) of FiberLight until the end of 

his employment on February 4, 2013. Kevin Coyne is FiberLight’s Chief Financial Officer 

(“CFO”) and has also served as its President and COO. Benjamin Edmond served as FiberLight’s 

President of Sales & Marketing from November 30, 2010 until October 2012. Id. at ¶ 4.

II. The October 3, 2011 Meeting

On October 3, 2011, Strong and Burks of TAM met with Miller and Edmond of FiberLight

at an industry conference. Id. at ¶ 11. At the meeting Strong and Burks shared that they were in 

contact with Verizon, and that Verizon was looking for different products and services to put into 

its network. Id. at ¶ 12; Dkt. No. 130 (Plaintiff’s Prop. Findings) ¶ 9. Miller expressed a strong 

interest in this work, stating that he would “give his right arm” to do business with Verizon. Dkt. 

No. 130 ¶ 9. Previous to this, FiberLight had no success penetrating Verizon’s channels in order 

to secure business. Id.

Strong or Burks then asked Miller or Edmond what FiberLight paid its sales agents. Id. at 

¶ 10. Miller or Edmond explained that FiberLight’s agent commissions were “in line with 

industry standards.” Id. Strong or Burks then asked, “so, 10-15%?” Miller or Edmond responded 

to this question in the affirmative. The takeaway from the meeting was that Edmond would send 

to TAM a written agent agreement to formalize the parties’ discussions. In other words, at the 

October 3, 2011 meeting, the parties entered into an “agreement to agree” — the material terms of 

which would be worked out later. 

FiberLight, however, did not deter TAM from commencing work on FiberLight’s behalf 

prior the written agreement being signed. Id. at ¶ 14.

III. TAM’s Work for FiberLight, the Continued Negotiations and the Failure to Execute 

An Agency Contract

Three days later, on October 6, 2011, Burks contacted Edmond to put in motion the first 

FiberLight-Verizon deal, hereinafter referred to as the “Houston-Bryan” deal. Dkt. No. 129 (Joint 

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Prop. Findings) ¶ 17. On October 13, 2011, Edmond emailed to TAM a copy of FiberLight’s 

standard written agent agreement. Id. at ¶ 18; see also Plaintiff Exh. 10. This was the first legally 

operative offer for agent services exchanged between the parties.

Section 4.1.1 of the agreement provided for agent commissions of between 10-15% of 

monthly recurring revenue, or “MRR,” based on a sliding scale, with higher MRR for FiberLight 

yielding a higher percentage of commissions for the agent responsible. Dkt. No. 129 (Joint Prop. 

Findings) ¶ 19; see also Plaintiff Exh. 10 at 2.

Section 4.1.6 gave FiberLight the ability to modify the rates set forth in Section 4.1.1 by 

proposing new or different commission rates “on an individual case basis [ICB] to circuits that 

require special circumstances, such as construction, equipment or management.” Id. (emphasis 

added). Section 4.1.6 also provided that FiberLight “must present the ICB commission rate at the 

time of giving the agent pricing for the circuit. The Agent will agree in writing or electronic form 

i.e. email to the amended ICB Commissionable Rate.” Dkt. No. 129 (Joint Prop. Findings) ¶ 19; 

see also Plaintiff Exh. 10 at 3. 

This form agreement contained no provision for commissions on non-recurring revenue, or 

“NRR.” See Plaintiff Exh. 10.

On or about November 18, 2011, TAM put in motion the second FiberLight-Verizon deal, 

hereinafter referred to as the “West Texas” deal. Dkt. No. 129 (Joint Prop. Findings) ¶ 24. 

Sometime in December 2011, TAM put in motion the third FiberLight-Verizon deal, 

hereinafter referred to as the “Lubbock-Schertz” deal, as well as the fourth FiberLight-Verizon 

deal, hereinafter referred to as the “Central Texas” deal. Id. at ¶ 25; Dkt. No. 130 (Plaintiff’s 

Prop. Findings) ¶ 24; Dkt. No. 131 (Def. Prop. Findings) ¶ 17.

FiberLight and Verizon signed a written letter of intent for the West Texas deal on or about 

January 4, 2012. Dkt. No. 129 (Joint Prop. Findings) ¶ 30.

There was still no contract for agent services in place between TAM and FiberLight.

On January 13, 2012, TAM provided a written redline to Edmond’s initial written offer. 

Id. at ¶ 32; see also Plaintiff Exh. 32. This was TAM’s first legally operative counteroffer, which 

extinguished FiberLight’s initial offer. The redline retained the sliding scale of 10-15% MRR 

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commissions and added a blank “[___]” for NRR. Dkt. No. 129 (Joint Prop. Findings) ¶ 32; see 

also Plaintiff Exh. 32 at 3-4. TAM’s redline also retained the provision that projects requiring 

construction could be individually negotiated, or ICB. Dkt. No. 129 (Joint Prop. Findings) ¶ 32; 

see also Plaintiff Exh. 32 at 5.

On or about February 14, 2012, Strong emailed Edmond a summary of all of the projects 

TAM had brought to FiberLight along with a spreadsheet showing TAM’s commissions at a rate 

of 15% of MRR and 15% of NRR. See Plaintiff Exh. 43. Edmond immediately replied to 

Strong’s email, denying that the parties had agreed to “a flat 15% on everything.” Id.; see also

Dkt. No. 129 (Joint Prop. Findings) ¶ 33.

The next day, Edmond sent a written redline back to TAM. Dkt. No. 129 (Joint Prop. 

Findings) ¶ 34. This redline extinguished TAM’s counteroffer and became a new legally 

operative offer. The redline retained the 10-15% sliding scale commission payments for MRR, 

but provided for 2% of NRR.

2

 See Redline Agent Agreement 2/15/2012 (Def. Exh. 156-A and 

Def. Exh. 157) at 3-4. The requirement that any ICB Commission be made in writing prior to 

customer agreements being signed remained in the document. Def. Exh. 156-A and Def. Exh. 157

at 6.

The parties’ negotiations eventually broke down, although the parties made various efforts 

through December 2012 to negotiate TAM’s compensation in lieu of a signed agreement. Dkt. No. 

129 (Joint Prop. Findings) ¶ 52. TAM continued to work on FiberLight’s behalf for almost all of 

2012. Dkt. No. 130 (Plaintiff’s Prop. Findings) ¶ 52.

IV. The Four Deals at Issue

There are four deals for which TAM contends it is owed commissions: (1) HoustonBryan; (2) West Texas; (3) Central Texas; and (4) Lubbock-Schertz. Dkt. No. 129 (Joint Prop. 

Findings) ¶ 38. The Court finds that, at all relevant times, TAM was acting in an agent role for 

 

2

 FiberLight’s redline distinguished between “on net” MRR and “off net” MRR and made “off 

net” MRR subject to a 5-7% rate of commission. See Def. Exh. 157. NRR was also split into “on 

net” and “off net” categories. Id.; see also Dkt. No. 131 (Def. Proposed Findings) ¶¶ 69-70, 72-

73. These distinctions will be discussed in further detail below. 

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FiberLight’s benefit at FiberLight’s request, despite the absence of a contract. Contra Dkt. No. 

131 (Def. Proposed Findings) ¶¶ 16, 22.

The Houston-Bryan and Lubbock-Schertz deals were similar projects, under which 

FiberLight agreed to provide lit services with the option to convert to dark fiber. Dkt. No. 129 

(Joint Prop. Findings) ¶ 39. Ultimately, both deals required monthly recurring payments (MRR)

from Verizon to FiberLight, and they were solely MRR deals. Dkt. No. 131 (Def. Proposed 

Findings) ¶¶ 8, 15. The Houston-Bryan deal terminated in July 2016, the Lubbock-Schertz deal 

terminated in December 2015. Id. at ¶ 26.

The West Texas and Central Texas deals were similar projects, in that they involved large 

scale networks on which FiberLight would be paid for a twenty-year term for thousands of route 

miles of dark fiber. Dkt. No. 129 (Joint Prop. Findings) ¶ 40. The contracts for both West and 

Central Texas had large, non-recurring revenue (NRR) payments at the outset by Verizon to 

FiberLight to cover costs such as construction, in addition to monthly recurring revenue (MRR) to 

cover costs such as maintenance. See Dkt. No. 131 (Def. Proposed Findings) ¶¶ 13, 20. Unlike 

Houston-Bryan and Lubbock-Schertz, the MRR payments on West and Central Texas are to be 

paid over 20 years. Id. 

FiberLight and Verizon executed Master Service Agreements on or about March 4, 2012. 

Dkt. No. 129 (Joint Prop. Findings) at ¶ 41. FiberLight and Verizon executed a service order form 

(SOF) for Houston-Bryan on or about March 30, 2012. Id. at ¶ 42. FiberLight and Verizon 

executed an SOF for Lubbock-Schertz on or about March 30, 2012. Id. at ¶ 43. FiberLight and 

Verizon executed an indefeasible right of use (IRU) agreement and SOF for West Texas on or 

about June 28, 2012. Id. at ¶ 44. FiberLight executed an IRU agreement and SOF for Central 

Texas on or about November 27, 2012. Id. at ¶ 45. Both Edmond and Miller testified that the 

Houston-Bryan, West Texas, and Lubbock-Schertz projects between FiberLight and Verizon 

would not have happened without TAM’s involvement. Id. at ¶ 46. The Court finds this is also 

the case with Central Texas.

In terms of revenue received, West Texas and Central Texas are the largest deals in 

FiberLight’s history. Id. at ¶ 47. Both deals are expected to generate a profit on or around 2025. 

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Dkt. No. 131 (Def. Proposed Findings) ¶ 27. According to the parties, total MRR for the HoustonBryan and Lubbock-Schertz deals was $1,407,500; total expected MRR for the West Texas and 

Central Texas deals is $195,197,933; and total expected NRR for the West Texas and Central 

Texas deals is $102,770,076.3

To date, FiberLight has not paid TAM. Dkt. No. 129 (Joint Prop. Findings) ¶ 50. 

FiberLight continues to believe that it owes TAM money. Id. at ¶ 48. 

V. The Experts and “On-Net” versus “Off-Net”

Both parties called experts to testify at trial on the subject of telecommunication agents 

like TAM and the “industry standard” for a typical agent’s compensation structure. Both parties 

stipulated to admit the report of each expert, and the Court accepted the stipulation. See

McGinness Rpt. (Plaintiff Exh. 1); Gutshall Decl. (Def. Exh. 183).

Plaintiff’s expert McGinness opined in his report that telecommunications services are 

generally categorized either as “lit services,” which are offered over fiber networks that already 

pass telecommunications traffic and are operated by the providers, or as “dark fiber transactions,” 

which involve the carrier either constructing purpose-built fiber or providing fibers from the 

carrier’s or a third party’s inventory. He identified both types of services in the four transactions 

at issue. Defendant’s expert Gutshall recognized in his testimony the “lit” and “dark fiber” 

classifications, but further identified transactions, or parts of transactions, as “on-net” and “off 

net,” depending on whether the fiber involved was on (i.e., assets located on) the provider’s 

network or not. At trial, both experts testified regarding agent commission payments that would 

apply in “on-net” versus “off-net” deals; they disagreed in substantial part over the time at which 

the “on-net” or “off-net” assessment should be made. The Court finds that this “on-net”/“off-net” 

distinction is not dispositive of this dispute. The Court finds that the material distinction between 

 

3

 The parties stipulated to provide the Court with an Excel spreadsheet to assist the Court in its 

calculations, and stipulated that the amounts found in that spreadsheet were accurate. See

Demonstrative Aid (Def. Exh. 188) at VzW Long Haul Circuits Tab, VzW Monthly Recurring 

Revenue Tab, VzW Non-Recurring Gross Revenue Tab; see also Texas Scorecard (Def. Exh. 

187).

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these four deals is the difference between Houston-Bryan and Lubbock-Schertz on the one-hand 

(i.e., projects for lit services) and West Texas and Central Texas on the other (i.e., dark fiber 

transactions), as explained by plaintiff’s expert McGinness:

Lit services are generally offered over fiber networks that already 

pass telecommunications traffic and are operated by the providers. 

Agreements for lit services generally have a term of 1 to 5 years. 

The provider usually charges some non-recurring fees to the 

purchaser at the outset (NRR) and thereafter charges for usage on a 

monthly basis throughout the term of the agreement for services 

(MRR).

Dark fiber transactions generally involve carrier constructing 

purpose built fiber for the customer or providing the customer fibers 

from inventory on its network and require the purchaser to light and 

operate the fiber as part of their own network. Agreements for dark 

fiber often take the form of an indefeasible right of use (IRU) and 

have a term of 20 years or longer. The provider usually charges a 

large, non-recurring fee to the purchaser at the outset (NRR), which 

may or may not be broken into more than one payment, and 

thereafter charges operations and maintenance on an annual (or 

occasionally monthly or semi-annual) basis (MRR).

See McGinness Rpt. at 10.

The Court finds that the original written agent agreement sent by FiberLight to TAM on 

October 13, 2011 was intended by FiberLight to cover commissions for TAM pursuant to the 

Houston-Bryan deal — a project for lit services. See Dkt. No. 129 (Joint Prop. Findings) at ¶ 39. 

But the West Texas, Central Texas, and Lubbock-Schertz opportunities followed Houston-Bryan 

in quick succession, and the parties did not contemplate, nor could they reach agreement on, the 

appropriate agent commission structure for the dark fiber transactions. See id. at ¶ 40. 

Each party wrongly assumed that a lack of formal written agreement, and the ambiguities 

presented by the situation, would ultimately work in that respective party’s favor.4 This perilous 

path brought the parties before this Court.

 

4

 See, for example, Pl. Exh. 81, April 30, 2012 email from John Schmitt, FiberLight’s Vice 

President of Business Development, to Ben Edmond, FiberLight’s President of Sales and 

Marketing: “They [TAM] are scared relative to timing of us getting purchased. TIME is 

weighing VERY heavy on them right now Ben. Every tick of the clock hurts them. We need to 

use that to our favor.”

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CONCLUSIONS OF LAW

Four causes of action remain following TAM’s dismissal of several others at the start of 

trial: (1) breach of contract (Count 1); (2) breach of implied contract (Count 2); (3) 

restitution/unjust enrichment (Count 8); and (4) violation of the California Independent Wholesale 

Sales Representatives Contractual Relations Act (Count 14). See Dkt. No. 1. The Court finds that 

only restitution/unjust enrichment is supported by the evidence.

I. Breach of Contract

“[T]he elements of a cause of action for breach of contract are (1) the existence of the 

contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) 

the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 

(Cal. 2011) (citation omitted). But if the essential terms of the contract are “only sketched out, 

with their final form to be agreed upon in the future . . . the parties ha[ve] at best an ‘agreement to 

agree,’ which is unenforceable under California law.” Bustamante v. Intuit, Inc., 141 Cal. App. 

4th 199, 213-14 (Cal. Ct. App. 2006). “Preliminary negotiations or agreements for future 

negotiations are not the functional equivalent of a valid, subsisting agreement.” Id. (citations and 

internal alterations omitted). “[T]he failure to reach a meeting of the minds on all material points 

prevents the formation of a contract even though the parties have orally agreed upon some of the 

terms, or have taken some action related to the contract.” Id. at 213-214 (citation omitted).

The evidence shows that the parties’ discussion at the October 3, 2011 meeting was a 

preliminary agreement to enter into a written agreement, with the terms and conditions to be 

finalized at a later date. The parties’ discussion of the “industry standard” or 10-15% payment 

that FiberLight paid its agents was a broad sketch of what an agreement might look like, but the 

parties failed to achieve a meeting of the minds on all material points, as evidenced by the backand-forth on the issue of the appropriate commission percentage payment.

II. Breach of Implied-In-Fact Contract

Because the parties did not reach a mutual agreement expressed by conduct, there was no 

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implied-in-fact contract in this case. “A contract is either express or implied.” Cal. Civ. Code 

§ 1619. “An implied contract is one, the existence and terms of which are manifested by 

conduct.” Cal. Civ. Code § 1621. “[I]mplied-in-fact contracts are . . . more accurately described as 

express contracts proved by circumstantial evidence.” Desny v. Wilder, 46 Cal. 2d 715, 739 n.9 

(Cal. 1956). A commonly cited example is where parties continue to perform under the terms of 

their agreement after the written contract expires. See U.S. ex rel. Oliver v. Parsons Co., 195 F.3d 

457, 462 (9th Cir. 1999) (citing British Motor Car Distributors, Ltd. v. New Motor Vehicle Bd., 

194 Cal. App. 3d 81, 91 (Cal. Ct. App. 1987)).

As explained above, there was no ascertainable agreement of the parties in this case. What 

began as an attempt to reach agreement on commissions quickly deteriorated, as FiberLight’s

standard agent agreement on its face did not encompass the NRR components of the West and 

Central Texas deals, and the parties could not agree on how to structure TAM’s payment based on 

this expanded framework.

III. Restitution/Unjust Enrichment (Contract Implied-In-Law)

“The so-called ‘contract implied in law’ in reality is not a contract.” Weitzenkorn v. 

Lesser, 40 Cal. 2d 778, 794 (Cal. 1953) (citations omitted). Quasi-contracts arise under the law of 

restitution as a remedy against unjust enrichment; “unlike true contracts, [they] are not based on 

the apparent intention of the parties to undertake the performances in question, nor are they 

promises. They are obligations created by law for reasons of justice.” Id. (citations and internal 

quotation marks omitted). “Quasi contractual recovery is based upon benefit accepted or derived 

for which the law implies an obligation to pay. ‘Where no benefit is accepted or derived there is 

nothing from which such contract can be implied.’” Id. (citations omitted). The benefits 

conferred must ordinarily occur as a result of defendant’s request; otherwise, though there is 

enrichment, it is not unjust. See Nibbi Bros., Inc. v. Home Fed. Sav. & Loan Assn., 205 Cal. App. 

3d 1415, 1422 (Cal. Ct. App. 1988).

The Court finds that TAM operated at FiberLight’s request to secure Verizon’s business 

for FiberLight’s benefit. The Court finds that it must imply a contract in law where none existed 

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between these parties to prevent FiberLight’s unjust retention of the benefit of TAM’s efforts.

California courts have stated that there is no standard formula to measure unjust 

enrichment. Meister v. Mensinger, 230 Cal. App. 4th 381, 401 (Cal. Ct. App. 2014) (citation 

omitted). “But as with any other pecuniary remedy, there must be some reasonable basis for the 

computation.” Id. (citation omitted). Courts in California have favorably referenced the new 

Restatement (Third) of Restitution and Unjust Enrichment,

5 which provides ways to measure the 

benefit conferred, such as: (a) the value of the benefit in advancing the purposes of the recipient; 

(b) the cost to the claimant of conferring the benefit; (c) the market value of the benefit; or (d) a 

price fixed by agreement between the claimant and the recipient, if the recipient’s assent may be 

treated as valid on the question of price. Restatement (Third) Restitution and Unjust Enrichment

§ 49 (2011). On some occasions, 

[T]wo or more possible measures of enrichment will yield the same 

result . . . [W]hen a professional recovers in restitution for the value 

of the services rendered pursuant to an unenforceable contract, there 

will not necessarily be a meaningful distinction between the value of 

the services to the recipient, their cost to the claimant, their market 

value, and a price fixed by the unenforceable agreement.

Id. at § 49 cmt. a. 

The Court finds that there was no meaningful disagreement between the parties concerning 

the rate of MRR payments to be paid on lit services, in this case, the Houston-Bryan deal and later 

the Lubbock-Schertz deal. According to the terms of FiberLight’s standard agent agreement, the 

rate to be paid was 11% based on the commissionable revenue, which was $20,000/month for 

Houston-Bryan, and $12,500/for Lubbock-Schertz. See Agent Agreement 10/13/11 (Plaintiff Exh. 

10) at 2; Redline Agent Agreement 1/13/2012 (Plaintiff Exh. 32) at 3; Redline Agent Agreement 

2/15/2012 (Def. Exh. 156-A and Def. Exh. 157) at 3-4; Demonstrative Aid (Def. Exh. 188) at 

VzW Long Haul Circuits Tab. The Court will accordingly award $154,825 to TAM in restitution 

for its agent services on these projects.6

 

5

 See, e.g., Am. Master Lease LLC v. Idanta Partners, Ltd., 225 Cal. App. 4th 1451, 1491 (Cal. 

Ct. App. 2014); Uzyel v. Kadisha, 188 Cal. App. 4th 866, 894 (Cal. Ct. App. 2010).

6

This figure is based on an 11% commission rate on the total MRR received on these two 

projects, which was $1,407,500.

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The more difficult task is calculating the appropriate commission on the NRR and MRR 

for the West and Central Texas dark fiber deals. The Court finds that the market value of the 

benefit conferred is the most appropriate means of calculating restitution in this case. To 

determine the market value, the Court observed the competing expert testimony and reviewed the 

expert reports of TAM’s expert, Mark McGinness, as well as FiberLight’s expert, Eric Gutshall.

See McGinness Rpt. (Plaintiff Exh. 1); Gutshall Decl. (Def. Exh. 183); Gutshall Rebuttal Rpt. 

(Def. Exh. 184).

The Court finds FiberLight’s expert, Eric Gutshall, persuasive for the purpose of 

distinguishing between MRR and NRR; for example, as Mr. Gutshall explains, MRR and NRR are 

normally treated as separate rates and not as a combined rate in the telecommunications industry. 

Gutshall Decl. (Def. Exh. 183) at ¶ 21. The Court does not find credible, however, the explanation 

that agents are paid on an industry-wide basis based on the carrier’s net (as opposed to gross) 

revenue. See id. at ¶¶ 20-21. As TAM’s expert Mark McGinness explains:

[A]gents have no control over carrier pricing, the profitability of a 

transaction, or how the seller executes on its plans after the contracts 

are signed with the customer. Profitability of a transaction is not 

used to determine commission payments because commissions are 

typically paid during the first few years of the contract term, 

whereas the transaction’s profitability is neither known nor 

knowable until the end of the contract term . . . As a result, it is the 

carrier, rather than the agent, that bears the risk of cost overruns or 

inaccurate forecasting.

McGinness Rpt. (Plaintiff Exh. 1) at 11.

The Court will accordingly measure the market value of TAM’s commission rate based on 

the gross revenues received on the West and Central Texas dark fiber deals, separating NRR from 

MRR.

For MRR, McGinness opined that 10-15% of gross revenue is the industry standard for 

commissions. Id. at 11, 13-14. Gutshall opined that 0-15% is the industry standard for an “off 

net” MRR deal and 10-15% is the industry standard for an “on net” MRR deal. Gutshall Decl. 

(Def. Exh. 183) at ¶ ¶ 18-19. As the Court explained above, and as plaintiff’s expert McGinness 

opined, the distinction FiberLight tries to draw between “on net” and “off net” transactions has no 

material significance in this case. It is clear that FiberLight’s dilemma in its dealings with TAM, 

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as reflected in its initial redlines distinguishing between “on net” and “off net” commission 

payments, was how to calculate a payment percentage that still made the larger dark fiber deals 

favorable to FiberLight, given the lengthy MRR payment schedule (payments to be made over a 

20-year term), the large upfront NRR payments, and the costs, time of payout, and revenue risk. 

See Redline Agent Agreement 2/15/2012 (Def. Exh. 156-A and Def. Exh. 157) at 3-4; see also

Dkt. No. 131 (Def. Proposed Findings) ¶¶ 13, 20 (explaining the contract value of MRR and 

NRR). As McGinness explained, carriers must account for “costs (including changes/overruns), 

budgeting, financing, business cases, execution, timelines . . . and similar metrics that the carrier 

uses to set pricing and profitability targets.” McGinness Rpt. (Plaintiff Exh. 1) at 11. Testimony 

from FiberLight executives at trial, including Kevin Coyne its CFO, suggested that both the West 

and Central Texas deals were not as profitable as FiberLight initially anticipated, and FiberLight 

asserts that West and Central Texas “are currently in a significant loss position.” See Dkt. No. 131 

(Def. Proposed Findings) ¶¶ 27, 107-108. The Court finds that TAM is not responsible for, and 

had no control over, FiberLight’s initial pricing of these projects.

This is an important consideration in terms of the Court’s equity power. While 

FiberLight’s current economic position is unfortunate, both experts agree that a 10% commission 

payment on MRR is within the industry standard. The Court will accordingly award $14,239,978 

to TAM in restitution for the market value of their agent services on the MRR component of the 

West and Central Texas projects,

7

a figure which takes into account a discount rate of 11.6%.8

For NRR, McGinness again asserts that 10-15% of gross revenue is the industry standard 

for commissions. McGinness Rpt. (Plaintiff Exh. 1) at 11, 13-14. Gutshall contends that 0-5% is 

the industry standard for an “off net” NRR deal, with the “typical rate” being 2.5%. Gutshall 

Decl. (Def. Exh. 183) at ¶ 17. Guttshall does not opine on the industry standard for NRR on an 

 

7

 This figure is based on a 10% commission rate on the gross MRR received on these two 

projects, which was $195,197,933. See Def. Exhs. 187 and 188.

8

 This discount rate was established by FiberLight’s unopposed expert on this issue, Robert J. 

Taylor IV, who determined FiberLight’s expected weighted average cost of capital (“WACC”) 

based on the contractual or expected returns required by debt and equity investors in the business. 

See Bennett Thrasher Report (Def. Exh. 185) at 9-12. TAM did not object to the introduction of 

Mr. Taylor’s report, nor did TAM advance a rebuttal expert on this issue.

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“on net” deal, but believes that 0-2% is the industry standard where the agent’s role is limited to 

introduction and facilitation, basing this percentage on the net (as opposed to gross) collected 

revenue for either MRR or NRR, but not both. Gutshall Decl. (Def. Exh. 183) at ¶ 20; see also

Dkt. No. 131 (Def. Proposed Findings) ¶ 103. Again, the Court does not find the “on net” versus 

“off net” distinction meaningful or helpful in this case, nor does it find credible the contention that 

agents on an industry-wide basis are paid based on the carrier’s net revenue. 

The Court also does not find credible McGinness’s opinion on NRR (i.e., a flat 10-15% of 

gross revenue) for the reasons McGinness himself states in his report, namely, that “it is carrier, 

rather than the agent, that bears the risk of cost overruns or inaccurate forecasting.” McGinness 

Rpt. (Plaintiff Exh. 1) at 11. If the carrier bears the risk of inaccurate forecasting, the industry as a 

whole would not tolerate such a large percentage payment to the agent at the outset (unless this 

percentage were contractually agreed upon by the parties and submitted in the bid to the purchaser, 

neither of which occurred here).

Given these disparate competing opinions and the concerns they represent, the Court finds 

that equity favors an award of 2.5% for NRR. The Court will accordingly award $2,569,252 to 

TAM in restitution for the market value of their agent services on the NRR component of the West 

and Central Texas projects.9

IV. California Independent Wholesale Sales Representatives Contractual Relations Act

Despite TAM’s arguments to the contrary, the Court finds that its agent services securing 

the four lit service and dark fiber IRU deals solely within the State of Texas is not the type of 

wholesale transaction contemplated by the California legislature pursuant to the California 

Independent Wholesale Sales Representatives Contractual Relations Act (“the Act”). The intent 

of the Act is as follows:

The Legislature finds and declares that independent wholesale sales 

representatives are a key ingredient to the California economy. The 

Legislature further finds and declares the wholesale sales 

 

9

 This figure is based on a 2.5% commission rate on the gross NRR received on these two 

projects, which was $102,770,076.

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representatives spend many hours developing their territory in order 

to properly market their products, and therefore should be provided 

unique protection from unjust termination of the territorial market 

areas. Therefore, it is the intent of the Legislature, in enacting this 

act to provide security and clarify the contractual relations between 

manufacturers and their nonemployee sales representatives.

Cal. Civ. Code § 1738.10 (emphasis added).

In spite of this clear California-specific geographic delineation, TAM’s asserted at trial that 

the four deals at issue established a telecommunication network that could affect the California 

consumer given the interconnectivity of the nation’s fiber optic networks. This claim is far too 

attenuated. Subject to the Act’s personal jurisdiction requirement,

10 such an interpretation would 

allow any foreign corporation manufacturing a wholesale product with a connective cable 

component to be hauled into a California court and liable to their nonemployee sales 

representative pursuant to the Act. TAM has not cited, nor has the Court found, a California case 

that would permit the Court to interpret the Act in such an expansive manner. TAM has not cited, 

nor has the Court found in the evidence presented, evidence that the four deals at issue were within 

a California “territorial market area” subject to the Act’s protections. Finally, TAM has presented 

no evidence that FiberLight — assuming without deciding that it qualifies as a “manufacturer” 

pursuant to the act11 — intended that these four fiber optic networks would “eventually be resold 

or used by a California consumer.” See Reilly v. Inquest Tech., Inc., 218 Cal. App. 4th 536, 549 

(Cal. Ct. App. 2013) (holding that the phrase “intended for resale to, or use by the consumers of 

this state” ([Cal. Civ. Code] § 1738.12, subd. (a)), must be interpreted to simply require an 

intention by the manufacturer that its product will eventually be resold or used by a California 

consumer.”).

///

///

 

10

 See Cal. Civ. Code § 1738.14.

11 See Cal. Civ. Code § 1738.12(a) (“‘Manufacturer’ means any organization engaged in the 

business of producing, assembling, mining, weaving, importing or by any other method of 

fabrication, a product tangible or intangible, intended for resale to, or use by the consumers of this 

state.”)

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CONCLUSION

In light of the foregoing, FiberLight is found liable to TAM in the amount of $16,964,055, 

pursuant to the Court’s equitable authority to imply a contract at law to avoid the unjust retention 

of the value of TAM’s services, which benefited FiberLight. 

IT IS SO ORDERED.

Dated: August 19, 2016

______________________ 

SUSAN ILLSTON

United States District Judge

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