2010 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-25-2010

ASCH Webhosting Inc v. Adelphia Business

Solutions In

Precedential or Non-Precedential: Non-Precedential

Docket No. 09-2296

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Recommended Citation

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NOT PRECEDENTIAL

IN THE UNITED STATES COURT 

OF APPEALS

FOR THE THIRD CIRCUIT

 

NO. 09-2296

 

 ASCH WEBHOSTING, INC.,

d/b/a 1104net.com,

 Appellant

v.

ADELPHIA BUSINESS SOLUTIONS INVESTMENT, LLC,

d/b/a Telcove

 

On Appeal From the United States 

District Court

For the District of New Jersey 

(D.C. Civil Action No. 3-04-cv-02593)

District Judge: Hon. Mary L. Cooper

 

Submitted Pursuant to Third Circuit LAR 34.1(a)

January 15, 2010

BEFORE: AMBRO, CHAGARES and

STAPLETON, Circuit Judges

(Opinion Filed: January 25, 2010)

 
2

 

OPINION OF THE COURT

 

STAPLETON, Circuit Judge:

Appellant Asch Webhosting, Inc. (“Asch”), filed this civil action against Adelphia

Business Solutions Investment LLC, doing business as Telcove (“Telcove”), alleging

breach of contract, breach of the covenant of good faith and fair dealing, and intentional

interference with contractual relations. Asch appeals the order of the District Court

granting summary judgment in favor of Telcove.

Because we write only for the benefit of the parties, we assume familiarity with the

facts of this civil action and the proceedings in the District Court. We will affirm

essentially for the reasons stated by the District Court. 

I. 

Telcove is an internet service provider (“ISP”), which purchases capacity from

“upstream” providers of internet services and sells that capacity to smaller ISPs

“downstream,” like Asch. Telcove and Asch entered into a three-year agreement

(“Agreement”) under which Telcove agreed to provide internet services to Asch. Shortly

after activating Asch’s internet service in February 2004, Telcove began receiving

complaints about emails sent from internet protocol (“IP”) addresses associated with

Asch. Telcove eventually received nearly fifteen hundred complaints about emails sent
3

from these IP addresses. In addition, one of Telcove’s upstream providers notified

Telcove that it risked losing its internet service because of the content of an email sent

from an IP address associated with Asch. On April 28, 2004, Telcove informed Asch by

letter that it was terminating its internet service on April 30, 2004. The letter notified

Asch that the Agreement was being terminated in accordance with sections (b) and (g) of

the Acceptable Use Policy set forth in the Agreement. However, after a discussion

between counsel, Telcove agreed to continue providing internet service to Asch so that it

would have time to procure internet services from another provider. On June 10, 2004,

Telcove stopped providing internet service to Asch. 

Asch did not reach agreement with another internet provider and ceased

operations. Asch then initiated this civil action against Telcove. Telcove moved for

summary judgment on these claims, arguing that an exculpatory clause in the Agreement

prevented Asch from recovering the damages it sought. The District Court granted

summary judgment in favor of Telcove and subsequently denied Asch’s motion for

reconsideration. Asch filed a timely appeal. 

II. 

The District Court granted summary judgment in favor of Telcove, concluding that

Asch’s claim for damages was precluded by the exculpatory clause included in the

Agreement between the parties and that the exculpatory clause was enforceable. Under

New Jersey law, exculpatory clauses in private contracts are “generally sustained so long
 The parties agree that New Jersey law applies to the Agreement. 1

4

as they do not adversely affect the public interest.” Chem. Bank of N. J. Nat’l Ass’n v.

Bailey, 687 A.2d 316, 322 (N.J. Super. 1997). They are ordinarily upheld in the 1

commercial context because “[t]he judiciary will not undertake the writing of a different

or better contract between the parties.” See id. (quoting Swisscraft Novelty Co. v. Alad

Realty Corp., 274 A.2d 59, 62 (N.J. Super. 1971)). Thus, an exculpatory clause will be

enforced if “1) it does not adversely affect the public interest; 2) the exculpated party is

not under a legal duty to perform; 3) it does not involve a public utility or common

carrier; or 4) the contract does not grow out of unequal bargaining power or is otherwise

unconscionable.” Gershon v. Regency Diving Ctr., Inc., 845 A.2d 720, 727 (N.J. Super.

2004). Asch argues that the first and fourth exceptions apply to the exculpatory clause at

issue here. 

The exculpatory clause at issue states as follows: 

Warranties/Disclaimers 

TELCOVE’S INTERNET SERVICE IS PROVIDED ON

AN “AS IS, AS AVAILABLE” BASIS UNLESS STATED

OTHERWISE IN THE TELCOVE’S SERVICE LEVEL

AGREEMENT (SLA). NO WARRANTIES, EXPRESS OR

IMPLIED, INCLUDING, BUT NOT LIMITED TO,

THOSE OF MERCHANTABILITY OR FITNESS FOR A

PARTICULAR PURPOSE, ARE MADE WITH RESPECT

TO TELCOVE’S INTERNET SERVICES(S) OR ANY

INFO R M A TION OR SOFTW ARE THER EIN .

CUSTOMER RELEASES TELCOVE FROM ALL

LIABILITY OR RESPONSIBILITY FOR ANY DIRECT,

INDIRECT, INCIDENTAL OR CONSEQUENTIAL

DAMAGES, INCLUDING BUT NOT LIMITED TO
5

DAMAGES DUE TO LOSS OF REVENUES OR LOSS OF

BUSINESS, SUFFERED BY CUSTOMER IN

CONNECTION WITH THEIR USE OF OR INABILITY

TO USE THE TELCOVE INTERNET SERVICES.

WITHOUT LIMITING THE GENERALITY OF THE

FOREGOING, TELCOVE DISCLAIMS TO THE FULL

EXTENT PERMITTED BY APPLICABLE LAW ANY

R ESP O NSIB IL IT Y FO R (A N D U N D E R NO

CIRCUMSTANCES SHALL BE LIABLE FOR) ANY

CONDUCT, CONTENT, GOODS AND SERVICES

AVAILABLE ON OR THROUGH THE INTERNET OR

TELCOVE SERVICES. IN NO EVENT SHALL

TELCOVE’S AGGREGATE LIABILITY EXCEED THE

AMOUNT PAID BY CUSTOMER TO TELCOVE FOR

THE TELCOVE SERVICES. USE OF ANY

INFORMATION OBTAINED VIA TELCOVE’S

INTERNET SERVICE IS AT THE CUSTOMER’S OWN

RISK. TELCOVE SPECIFICALLY DISCLAIMS ANY

RESPONSIBILITY FOR THE ACCURACY OR QUALITY

OF THE INFORMATION OBTAINED THROUGH ITS

SERVICES. 

[PA 56] (emphasis in original). 

In this litigation, Asch argued that Telcove’s termination of the Agreement

destroyed its business. Accordingly, as damages, it sought the fair market value of its

business, allegedly $1.43 million, in consequential damages. If the exculpatory clause is

enforceable, by its terms it relieves Telcove of any liability for the damages Asch seeks

because Asch agreed to release Telcove from “all liability or responsibility for any direct,

indirect, incidental or consequential damages . . . . suffered by [Asch] in connection with

[its] use of or inability to use the Telcove internet services.” Id. (emphasis added). Thus,

the District Court correctly concluded that the exculpatory clause, if enforceable, barred
 Asch does not dispute the District Court’s interpretation of the exculpatory clause, 2

arguing only that the clause was unenforceable. 

6

Asch from recovering the damages it sought in this action. 

2

The District Court also determined that the exculpatory clause was enforceable

under New Jersey law because enforcement of the clause was neither adverse to the

public interest nor unconscionable. We agree with both of these conclusions.

On appeal, Asch argues that the District Court erred by concluding that enforcing

the clause would not adversely affect the public interest. Asch contends that a willful and

predatory breach of contract would be contrary to the public interest. Cf. Lucier v.

Williams, 841 A.2d 907, 913–16 (N.J. Super. 2004) (holding that a limitation of liability

clause in a home inspection contract essentially operated as an exculpatory clause and

could not be enforced because it contravened New Jersey public policy). Assuming that

enforcing an exculpatory clause in the case of such a breach would affect the public

interest, Asch has not established that Telcove’s actions were “predatory.” Telcove

produced evidence demonstrating that it had received numerous complaints about activity

related to Asch’s IP addresses and decided to terminate Asch’s internet service on that

basis. Importantly, Asch has not presented evidence suggesting that Telcove had a

reason, other than the explanations it gave, for terminating its services to a paying client. 

Although Asch points to a series of emails sent among Telcove employees regarding

Asch’s request for additional IP addresses, these emails do not demonstrate that Telcove

acted predatorily by terminating the Agreement. Furthermore, assuming that Telcove
7

breached the Agreement, enforcing an exculpatory clause after a willful breach of

contract does not necessarily violate public policy. See Printing Mart-Morristown v.

Sharp Elecs. Corp., 563 A.2d 31, 38 (N.J. 1989) (“Where a person interferes with the

performance of his or her own contract, the liability is governed by principles of contract

law. . . . Contract law serves contractual parties’ economic interest, such as enabling them

efficiently [to] breach the contract, free from the threat of punitive damages.” (internal

citations and quotations omitted)); Saxon Constr. & Mgmt. Corp. v. Masterclean of N.C.,

Inc., 641 A.2d 1056, 1059 (N.J. Super. 1994) (discussing factors to consider when

determining if enforcing a contractual term violates public policy). Because the public

interest would not be adversely affected by the enforcement of this clause, the District

Court properly enforced it. 

Next, Asch contends that the District Court erred by concluding that the

exculpatory clause in the Agreement was not unconscionable. “In determining whether a

contract is unconscionable, courts focus on the bargaining power of the parties, the

conspicuousness of the putative unfair term, and the oppressiveness and unreasonableness

of the term.” Carter v. Exxon Co. USA, 177 F.3d 197, 207 (3d Cir. 1999). Here, the

District Court found there was no evidence of unequal bargaining power between the

parties because Asch was a commercial entity that had previously entered into internet

service agreements with several other service providers and was managed by an

experienced businessman who had graduated from law school. In addition, the Court
8

noted that the term was prominently presented in the parties’ agreement and was not

unreasonable or oppressive.

We agree with the District Court’s conclusions about the bargaining power of the

parties and the conspicuousness of the exculpatory clause. See id. Moreover, we agree

that the clause is not unconscionable as applied to the facts of this civil action. See id.

(“It is only when the circumstances of the transaction, including the sellers’ breach, cause

the consequential damage exclusion to be inconsistent with the intent and reasonable

commercial expectations of the parties that invalidation of the exclusionary clause would

be appropriate. . . .” (quoting Kearney & Trecker Corp. v. Master Engraving Co., 527

A.2d 429, 437–38 (N.J. 1987)). Here, Telcove provided Asch with notice of its intent to

terminate the Agreement and continued providing internet service to Asch while it

negotiated service agreements with other internet providers. One provider offered a

monthly fee that was within $200 of Telcove’s monthly fee, but Asch declined that offer

and ceased operations. Thus, Telcove gave Asch notice and the opportunity to find

another provider before terminating its service to Asch. Enforcing the exculpatory clause

under these circumstances is not oppressive or unreasonable, and, therefore, the clause is

not unconscionable. 

Finally, Asch claims that the District Court erred by granting the motion for

summary judgment by relying on Telcove’s assertion that it received 1500 complaints

related to Asch’s IP addresses. Asch argues that the great majority of these complaints
9

were anonymous and were not verified by Telcove. However, the District Court did not

make a finding that the complaints Telcove received were accurate or that Asch was

involved in “spamming” or sending emails with pornographic content. Instead, the Court

found that Telcove relied on the complaints in good faith and that Asch did not

demonstrate any bad faith of the part of Telcove. Accordingly, the Court did not err by

considering this evidence when granting summary judgment. 

III.

The judgment of the District Court will be affirmed.