Opinion ID: 2530632
Heading Depth: 1
Heading Rank: 8

Heading: California Residential Customers Breach of Contract Claims

Text: The district court denied AT & T's motion for summary judgment with respect to the breach of contract claims brought by the California residential customers. AT & T renewed its summary judgment motion with respect to the residential customers claims, and the district court similarly denied the renewed motion. After the jury found in favor of the California residential customers at trial, AT & T filed a motion for judgment as a matter of law and a motion for a new trial, both of which the district court denied. The district court's interpretation of the CSA, including its determination that the CSA was unambiguous, is reviewed de novo. Level 3 Commc'ns, LLC v. Liebert Corp., 535 F.3d 1146, 1154-55 (10th Cir.2008). The district court's jury instructions are reviewed de novo to determine whether, as a whole, they correctly stated the governing law and provided the jury with an ample understanding of the issues and applicable standards. O'Tool v. Genmar Holdings, Inc., 387 F.3d 1188, 1198 (10th Cir.2004). The parties agree the contract claims are governed by New York law. AT & T asserts that, as a matter of law, it could not have breached its obligations under the CSA because it always charged the UCC percentage specified in the applicable Consumer Service Guide. The proper interpretation and effect of the description of the UCC provided in the Consumer Service Guide is central to the resolution of AT & T's claim on appeal. That description reads: The AT & T Universal Connectivity Charge is a monthly charge to Customers to recover amounts AT & T must pay into a federal program called the Universal Service Fund (USF). The district court determined this description unambiguously allowed AT & T to recover amounts AT & T must pay into the USF, and no more. First, AT & T asserts that the Description sections of the Consumer Service Guides were not incorporated into the CSAs. AT & T is incorrect. The relevant language of the CSAs state: AT & T Service Guides contain the specific prices and charges, service descriptions and other terms and conditions not set forth here that apply to each of your Services.... THIS AGREEMENT INCORPORATES BY REFERENCE THE PRICES, CHARGES, TERMS AND CONDITIONS INCLUDED IN THE AT & T SERVICE GUIDES. The CSAs then repeatedly make reference to the incorporated AT & T Service Guides. The passage from the CSAs quoted above unambiguously incorporates the description of the UCC. The absence of the word descriptions from the capitalized sentence does not prevent the incorporation of the Description sections of the Service Guides. To the contrary, the use of the word other in the first sentence indicates the descriptions are in fact considered part of the terms and conditions that govern the contractual relationship. [5] Furthermore, the description of the UCC provided by the Service Guides contains a promise to set the UCC rate by reference to AT & T's own USF payments. This term is unambiguously incorporated into the CSAs by the CSAs' incorporation provision. Second, AT & T argues that the promise is unenforceable due to its location in a description section of the contract. For support, AT & T cites Phillips v. AIG, Inc., in which a district court refused to interpret a general description of the interest rate in an annuity contract as containing a separate, enforceable promise. 498 F.Supp.2d 690, 695 (S.D.N.Y.2007). Phillips's rejection of the plaintiff's argument was based upon the content, not location of the provision. Id. (stating the language at issue standing alone, merely explains that interest rates quoted elsewhere in the Annuity Contracts are `effective annual interest rates' and does not make any independent promise about what those interest rates are). The remaining cases cited by AT & T all address the effect of language found in introductory recital clauses such as Purpose and Whereas clauses. United States v. Hamdi, 432 F.3d 115, 123 (2d Cir.2005) (construing prefatory language of a plea agreement); Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir.2001) (holding because the plan specifies with such clarity which tax provisions are to be taken into account, we find it unreasonable to treat the imprecision of the general purpose clause as overriding the specificity of the detailed computation clauses); Genovese Drug Stores, Inc. v. Conn. Packing Co., 732 F.2d 286, 291 (2d Cir.1984) (holding an expression of intent in a `whereas' clause of an agreement between two parties may be useful as an aid in construing the rights and obligations created by the agreement, but it cannot create any right beyond those arising from the operative terms of the document); Jones Apparel Group, Inc. v. Polo Ralph Lauren Corp., 16 A.D.3d 279, 791 N.Y.S.2d 409, 410 (N.Y.App.Div.2005) (holding [s]ince the contract is unambiguous on its face, there is no need to refer to its recitals); Trump Vill. Section 3, Inc. v. N.Y. State Hous. Fin. Agency, 292 A.D.2d 156, 739 N.Y.S.2d 37, 38 (N.Y.App.Div.2002) (same). According to AT & T, the difference between such recital clauses and the Description sections of the Consumer Service Guides is irrelevant under New York law. See Sengillo v. Valeo Electrical Systems, Inc., 536 F.Supp.2d 310, 312 (W.D.N.Y.2008). The Sengillo case, however, merely stands for the proposition that introductory recitals which serve no operative purpose generally do not contain enforceable contractual term[s] regardless of how they are named. Id. at 312. In contrast, the Description sections of the AT & T Service Guides were incorporated into the CSAs for the purpose, according to the CSA language itself, of providing the the specific prices and charges, service descriptions and other terms and conditions not set forth here that apply to each of your Services. Rather than introduce terms more fully set forth in other sections of an operative agreement, the Service Guides provided the operative terms and conditions that were binding upon the parties and not set forth elsewhere in their agreements. Furthermore, unlike the introductory language at issue in the cases cited by AT & T, the description of the UCC in the Service Guides makes an independent promise as to the nature of that charge. It unequivocally states that the UCC is a monthly charge to Customers to recover amounts AT & T must pay into the USF. [6] None of the authorities cited by AT & T support invalidating this promise simply because it is located in a description section of an expressly incorporated service guide. Third, AT & T argues the description of the UCC cannot constitute a separate and independent promise under New York law because it merely explains what the UCC charge is without imposing any separate obligation on AT & T. Under New York law, [a] promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. Merritt Hill Vineyards, Inc. v. Windy Heights Vineyard, Inc., 61 N.Y.2d 106, 472 N.Y.S.2d 592, 460 N.E.2d 1077, 1081 (1984) (quotation omitted). This means that a contract contains any promises which a reasonable person in the position of the promisee would be justified in understanding were included. Sutton v. East River Savs. Bank, 55 N.Y.2d 550, 450 N.Y.S.2d 460, 435 N.E.2d 1075, 1078 (1982) (quotations omitted). As a result, words such as agree, will, or shall, are not required to form a promise under New York law. See id. (taking into account not merely literal language, but whatever may be reasonably implied therefrom). [7] A reasonable promisee would certainly read the phrase, The AT & T Universal Connectivity Charge is a monthly charge to Customers to recover amounts AT & T must pay into the [USF] as a promise that AT & T would charge a UCC in the amount it must pay into the USF and no more. Accordingly, the phrase constitutes a valid promise under New York law. Fourth, AT & T argues the district court impermissibly added language and terms to the agreements between the parties. AT & T's argument centers around the district court's conclusion as a matter of law that the contract unambiguously provides that AT & T could `recover amounts AT & T must pay' into the USF program, and no more, as well as its decision to imply AT & T had an obligation to balance the UCC amounts it recovered with the amounts it was required to pay over a reasonable period of time. Under New York law, it is well settled that courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing. Bailey v. Fish & Neave, 8 N.Y.3d 523, 837 N.Y.S.2d 600, 868 N.E.2d 956, 959 (2007) (quotation omitted). However, it is equally well-settled that [b]efore rejecting an agreement as indefinite, a court must be satisfied that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that make its meaning clear. Cobble Hill Nursing Home, Inc. v. Henry & Warren Corp., 74 N.Y.2d 475, 548 N.Y.S.2d 920, 548 N.E.2d 203, 206 (1989). The conclusion that a party's promise should be ignored as meaningless is at best a last resort. Id. (quotation omitted). The district court did not add a term to the CSAs by ruling AT & T could recover amounts AT & T must pay into the USF program,  and no more.  Rather, adding and no more merely emphasized the operative promise which governs the contractual relationship between AT & T and its customers. As previously discussed, that promise was that AT & T would collect via the UCC charge those amounts it must pay into the USF. Thus, the district court's addition of the phrase and no more merely emphasized the reality of what the parties had already agreed to. Interpreting the contract to allow AT & T to recover amounts in addition to what it must pay into [the USF], by contrast, involves a distortion of the contract's meaning not permissible under New York law. Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 892 N.Y.S.2d 303, 920 N.E.2d 359, 363 (2009). Further, the district court did not err in implying a reasonable time period into the CSAs. Under New York law, [w]hen a contract does not specify time of performance, the law implies a reasonable time. Savasta v. 470 Newport Assocs., 82 N.Y.2d 763, 603 N.Y.S.2d 821, 623 N.E.2d 1171, 1172 (N.Y.1993). What constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case. Id. 603 N.Y.S.2d 821, 623 N.E.2d at 1172; see also Haines v. City of New York, 41 N.Y.2d 769, 396 N.Y.S.2d 155, 364 N.E.2d 820, 822-23 (1977) (In the absence of an express term fixing the duration of a contract, the courts may inquire into the intent of the parties and supply the missing term if a duration may be fairly and reasonably fixed by the surrounding circumstances and the parties' intent.). The district court properly determined the contract to be sufficiently definite to require AT & T to calibrate its UCC collections to match its required USF payments over a reasonable period of time. Accordingly, AT & T could breach its promise by repeatedly overcollecting UCC charges without timely issuing refunds or revising its UCC rate to compensate for its overbilling. Fifth, AT & T argues the district court's reading of the CSA allows the general description of the UCC to improperly override the specific UCC rates listed in the incorporated Service Guides. This is not the case. Under New York law, a contract should be construed so as to give full meaning and effect to all of its provisions. Duane Reade, Inc. v. Cardtronics, LP, 54 A.D.3d 137, 863 N.Y.S.2d 14, 19 (N.Y.App.Div.2008). The provisions at issue impose separate obligations that can be read to give full meaning and effect to both. In the first promise, AT & T agreed to limit its UCC collections to amounts it was required to pay into the USF, and provided a mechanism for changing this rate. In the second promise, AT & T agreed to assess the UCC at a specific percentage. It is perfectly reasonable for the CSAs to include an obligation regarding how the UCC rate is set separate from an obligation to charge the stated rate. The second promise does not pertain to the permissible scope of UCC collections; rather, it only defines the mechanism for collecting funds for a particular period. Accordingly, the district court's reading did not allow general language of the CSAs to impermissibly override specific language. Rather, its reading properly gave full meaning and effect to both portions of the contract. [8] Finally, AT & T argues the California residential plaintiffs' construction of the contracts renders them absurd. AT & T correctly notes that under New York law, [a] contract should not be interpreted to produce a result that is absurd, commercially unreasonable, or contrary to the reasonable expectations of the parties. Lipper Holdings LLC v. Trident Holdings, LLC, 1 A.D.3d 170, 766 N.Y.S.2d 561, 562 (N.Y.App.Div.2003) (citations omitted); accord Fresh Del Monte Produce N.V. v. Eastbrook Caribe A.V.V., 40 A.D.3d 415, 836 N.Y.S.2d 160, 164 (N.Y.App.Div.2007). These cases, however, do not support excising an agreed upon promise merely because it imposes an inconvenient burden on one of the parties; rather, they address true absurdities. See, e.g., Fleischman v. Furgueson, 223 N.Y. 235, 119 N.E. 400, 402 (1918) (refusing to construe an ambiguous separation agreement to give the surviving husband greater access to the wife's property than he would have had if they had lived happily together); Fresh Del Monte Produce, 836 N.Y.S.2d at 164 (holding that an indemnification provision making a party liable for a company's decline in value did not encompass unrealized losses, such as a transitory decline in stock price); Lipper, 766 N.Y.S.2d at 562 (limiting general partner's discretion to revalue limited partners' capital accounts to prevent, inter alia, general partner from being permitted to retain incentive compensation based on phantom profits); Tougher Heating & Plumbing Co., Inc. v. State, 73 A.D.2d 732, 423 N.Y.S.2d 289, 289 (N.Y.App.Div.1979) (declining the invitation to interpret an ambiguous labor cost saving provision in a construction contract to allow the contractor to recover $100,000 if they performed the contract at a savings of $100,000, but only $500 if they performed at a savings of $101,000). In the present case, AT & T alleges that it was difficult for it to predict the amounts it must pay to the USF due to the methodology used to calculate its contribution level. Certainly, this made it virtually impossible for AT & T to charge exactly the correct amount each billing cycle. AT & T could, however, implement a mechanism to allow it to calibrate its charges over several billing cycles [9] to prevent repeated overbilling. [10] The fact that the lag between the calculation and the billing of the USF forced AT & T to charge its customers a higher percentage rate than the USF percentage rate does not render absurd AT & T's promise to charge a UCC in the amount it must pay. Finally, that AT & T was not required to recover the exact amount of its USF contributions is a non sequitur. As noted above, in addition to fulfilling its federal obligations under 47 U.S.C. § 201(b), AT & T promised its customers to charge a UCC only in the amount it must pay into the USF. This left AT & T with the option of either undercollecting the UCC or overcollecting the UCC and instituting a mechanism to calibrate its collections to match its required USF payments over a reasonable period of time. The difficulty AT & T experienced in fulfilling its contractual obligation does not render the underlying promise unreasonable or absurd. For all of the foregoing reasons, this court affirms the district court's denial of AT & T's motion for judgment as a matter of law. [11] AT & T's alternative argument, that it is entitled to a new trial on plaintiffs' breach of contract claim, is similarly premised on the district court's conclusion that the CSA unambiguously required AT & T to set its UCC so as to `recover amounts AT & T must pay' into the USF program, and no more. The district court gave the following jury instruction: AT & T's contract with ... plaintiffs permitted AT & T to impose a monthly USF charge on its customers to recover amounts AT & T was required to pay into the federal USF program. Thus, if you find that AT & T actually imposed charges greater than that necessary to recover amounts AT & T was required to pay into the federal USF program, you will find that AT & T breached its contract with the subclass of plaintiffs. AT & T argues that even if this court rejects its argument that, as a matter of law, the CSAs did not create an enforceable promise to match the UCC charge with AT & T's USF expenditures, the district court nevertheless should have regarded the CSAs as ambiguous and left the issue for the jury. Under New York law, a contract's meaning can be determined as a matter of law only when the relevant contract language is wholly unambiguous and conveys a definite meaning. Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir.2008). Ambiguity, in this context, hinges on whether the agreement on its face is reasonably susceptible of more than one interpretation. Chimart Assocs. v. Paul, 66 N.Y.2d 570, 498 N.Y.S.2d 344, 489 N.E.2d 231, 233 (1986); see also Palmieri v. Allstate Ins. Co., 445 F.3d 179, 191 (2d Cir.2006) (Ambiguous language is that which is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business. (quotation omitted)). The district court's jury instruction on the residential plaintiffs' breach of contract claim correctly stated the governing law and provided the jury with an ample understanding of the issues and applicable standards. O'Tool, 387 F.3d at 1198. The CSAs, and the incorporated Service Guides, unambiguously required AT & T to set the UCC charge at the amount AT & T must pay into the federal USF program. This language is not reasonably susceptible to more than one interpretation. Accordingly, AT & T is not entitled to a new trial on the residential customers' breach of contract claim.