Court Opinion

ID: 2971255
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:31:47.943097+00
Date Added: 2024-06-11T11:43:35.109854
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206            2     NetworkTwo Comm. Group v.                 No. 03-1283
    ELECTRONIC CITATION: 2004 FED App. 0184P (6th Cir.)         Spring Valley Marketing, et al.
                File Name: 04a0184p.06
                                                                             _________________
UNITED STATES COURT OF APPEALS                                                    COUNSEL
              FOR THE SIXTH CIRCUIT                       ARGUED: Cameron J. Evans, HONIGMAN, MILLER,
                _________________                         SCHWARTZ & COHN, Detroit, Michigan, for Appellants.
                                                          Daniel E. Morrisroe, POTTER, DeAGOSTINO, CAMPBELL
NETWORK TWO                        X                      & O’DEA, Auburn Hills, Michigan, for Appellee.
COMMUNICATIONS GROUP,               -                     ON BRIEF: Cameron J. Evans, HONIGMAN, MILLER,
INC.,                               -                     SCHWARTZ & COHN, Detroit, Michigan, for Appellants.
                                    -  No. 03-1283        Steven M. Potter, POTTER, DeAGOSTINO, CAMPBELL &
              Plaintiff/Counter- -                        O’DEA, Auburn Hills, Michigan, for Appellee.
           Defendant/Appellee, >
                                    ,                                        _________________
                                    -
            v.                      -                                            OPINION
                                    -                                        _________________
SPRING VALLEY MARKETING             -
GROUP and COMMUNITY ISP,            -                       BOYCE F. MARTIN, JR., Circuit Judge. CommunityISP,
                                    -                     Inc. appeals the district court’s award of summary judgment
INC.,
                                    -                     in favor of NetworkTwo Communications Group, Inc. with
          Defendants/Counter- -
                                                          respect to CommunityISP’s breach of contract counterclaim.
          Plaintiffs/Appellants. -                        For the following reasons, we AFFIRM.
                                    -
                                   N                          I. FACTUAL AND PROCEDURAL BACKGROUND
       Appeal from the United States District Court
      for the Eastern District of Michigan at Detroit.      This dispute arises out of a failed business relationship
No. 99-72913—Lawrence P. Zatkoff, Chief District Judge.   between CommunityISP, an internet business that specialized
                                                          in hosting online websites for other companies, associations
                 Argued: April 29, 2004                   and organizations, and NetworkTwo, a company that
                                                          CommunityISP hired to provide internet service to support its
           Decided and Filed: June 18, 2004               operations.      The parties entered into a “Master
                                                          Communications Services Agreement” on August 27, 1998,
 Before: KENNEDY, MARTIN, and ROGERS, Circuit             wherein NetworkTwo agreed to provide internet service to
                   Judges.                                CommunityISP, which CommunityISP would in turn sell to
                                                          subscribers, or “end users.” As part of this agreement,
                                                          NetworkTwo expressly undertook, among other obligations,
                                                          to have internet access “available no less than 95.5% of the

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                        Spring Valley Marketing, et al.                  Spring Valley Marketing, et al.

time per month” and to upgrade its “dial speeds” from “33.6            Soon after executing this agreement, the parties’ business
kbps” to “56 kbps” “within 60 business days of                      relationship began to disintegrate. Although NetworkTwo
NetworkTwo’s reasonable determination” that 56 kbps is the          provided internet service to CommunityISP for a few months,
dial speed that “has been properly established” as the industry     it became clear that NetworkTwo would be unwilling or
standard. For its part, CommunityISP agreed to pay for              unable to perform all of its obligations under the agreement;
internet services from NetworkTwo, and also to pay                  for example, it would not upgrade its access speed, nor would
NetworkTwo a $100,000 “commitment fee” pursuant to the              it make internet access available 95.5% of the month.
following provision in the agreement:                               Accordingly, CommunityISP hired another internet service
                                                                    provider, SplitRock Communications Group, Inc., to serve as
  B. Commitment Fee                                                 its primary internet service provider, and NetworkTwo was
                                                                    expected to serve as a secondary provider. CommunityISP
  In addition to any other fees and/or obligations to be paid       entered into an internet service agreement with SplitRock that
  by [CommunityISP] to NetworkTwo in connection with                was similar to its earlier agreement with NetworkTwo, and
  this Agreement, [CommunityISP] will pay a commitment              paid Split Rock a $100,000 commitment fee. Additionally,
  fee to NetworkTwo in the amount of $100,000.00 in                 CommunityISP paid $100,000 to a company called NetSurfer,
  order to partially compensate NetworkTwo for its                  Inc. to create a CD-ROM with the software that
  expenses in developing increased technical and service            CommunityISP customers would need to access the internet.
  infrastructure support in anticipation of increased               This software was to be provided by NetworkTwo at no
  subscription volume caused by [CommunityISP]’s                    additional cost as part of its agreement with CommunityISP.
  activities involving End Users.                                   Notably, after CommunityISP and NetworkTwo officially
                                                                    terminated their business relationship in December 1998,
The agreement also provided, however, that in the event that        NetworkTwo refused to return the $100,000 commitment fee
CommunityISP achieved a certain amount of subscribers by            that CommunityISP had paid.
a given date, CommunityISP would be entitled to a credit of
$100,000:                                                              On June 8, 1999, NetworkTwo filed a lawsuit against
                                                                    CommunityISP and its sister company, Spring Valley
  C. Volume Discounts and/or Penalties                              Marketing Group, seeking damages for unpaid commissions
                                                                    during the time the agreement was in effect. CommunityISP
  ...                                                               filed counterclaims alleging, among other claims, that
  If [CommunityISP] has reached a level of 200,000 paid             NetworkTwo had breached their agreement and caused
  subscribers as described above prior to the expiration of         CommunityISP to suffer in excess of $2.5 million in
  the 24th month, then NetworkTwo shall provide                     damages; these damages included the $100,000 commitment
  [CommunityISP] a bonus credit in the amount of                    fee that CommunityISP paid to Network Two, the $100,000
  $100,000 on its first invoice for service following the           commitment fee that CommunityISP paid to SplitRock and
  month in which [CommunityISP] has obtained 100,000                the $100,000 payment that it made to NetSurfer for the
  [sic] paid subscribers as described above.                        software. NetworkTwo filed two separate motions for
                                                                    summary judgment with respect to CommunityISP’s breach
                                                                    of contract counterclaim – the first on June 27, 2000, and the
No. 03-1283              NetworkTwo Comm. Group v.            5   6      NetworkTwo Comm. Group v.                   No. 03-1283
                        Spring Valley Marketing, et al.                  Spring Valley Marketing, et al.

second on August 21, 2000 – both of which argued that two             percentage of the monthly fee. For example, if
damage limitation provisions in the parties’ agreement                CommunityISP charged $30.00 a month to an End User
precluded recovery of the damages that CommunityISP                   for its service, and the service was down for three days
sought.                                                               out of thirty, then CommunityISP would return only ten
                                                                      percent of the monthly fee to that End User, or $3.00, as
  The first provision, contained in ¶ 7.C, provides as follows:       a prorated charge for the affected transmission.
                                                                      CommunityISP would then look to NetworkTwo to
  NETWORKTWO’S LIABILITY ARISING FROM                                 reimburse CommunityISP for that charge pursuant to the
  ANY CLAIM MADE BY CUSTOMER OR ANYONE                                Agreement.
  ELSE RELATIVE TO ANY NETWORKTWO
  OBLIGATION UNDER THIS AGREEMENT OR                              Neither party has disputed the accuracy of this explanation.
  RELATING TO NETWORKTWO’S NEGLIGENCE
  OR RELATING TO ANY OTHER CAUSE OR                                 The second provision, contained in Schedule C, ¶ B.2,
  REASON SHALL BE LIMITED TO AN AMOUNT                            provides as follows:
  EQUAL TO THE PRORATED CHARGE TO THE
  CUSTOMER FOR THE AFFECTED TRANSMISSION.                             In addition to the foregoing, if NetworkTwo fails to
  IN NO EVENT SHALL NETWORKTWO BE LIABLE                              substantially meet the network performance standards set
  F O R ANY SP EC IAL , IN D I R E C T OR                             forth in section I above for fifteen (15) consecutive days
  CONSEQUENTIAL DAMAGES, WHETHER OR NOT                               after issuance of a trouble ticket, Customer can notify
  SUCH DAMAGES WERE FORESEEABLE OR                                    NetworkTwo in writing that the performance standards
  ACTUALLY FORESEEN.                                                  are not being met. And describing in detail the
                                                                      deficiency and its likely causes. NetworkTwo will have
As the district court explained, the phrase “PRORATED                 five (5) days to provide Customer with a reasonable plan
CHARGE TO THE CUSTOMER FOR THE AFFECTED                               to cure network performance issues. NetworkTwo will
TRANSMISSION” means as follows:                                       thereafter have fifteen (15) business days to implement
                                                                      this plan. After NetworkTwo has implemented this plan,
  The parties anticipated that NetworkTwo would provide               if the network statistics fall below the network
  internet service to CommunityISP, which would sell that             performance standards in section I above based upon the
  service to the “End Users” or the “Subscribers.” The                same deficiency described in the first notice under this
  parties contemplated that, at times, the transmission of            section 2, for an additional period of fifteen (15)
  internet service from NetworkTwo to an End User may                 consecutive days, Customer will as its sole remedy have
  become affected, and unsatisfactory to that End User, (or           the option to terminate this agreement by providing
  to CommunityISP). In such instances, the End User                   NetworkTwo thirty (30) days written notice. In such
  would most likely look to CommunityISP for a refund                 event, neither party shall have any further obligation to
  equivalent to the time the service was “affected” or                the other.
  unsatisfactory. Since the End User would pay for the
  service as a monthly charge, the amount to be returned           The district court granted in part NetworkTwo’s first
  would be prorated over the course of the month as a             motion for summary judgment, holding that the damage
No. 03-1283              NetworkTwo Comm. Group v.           7    8    NetworkTwo Comm. Group v.                   No. 03-1283
                        Spring Valley Marketing, et al.                Spring Valley Marketing, et al.

limitation provisions in the agreement were not                   parties’ agreement. We review de novo the district court’s
unconscionable or illusory and were enforceable; the district     award of summary judgment in favor of NetworkTwo.
court clarified, however, that pursuant to ¶ 7.C                  Graham ex rel. Estate of Graham v. Cty. of Washtenaw, 358
CommunityISP was entitled to recover only the amount of           F.3d 377, 382 (6th Cir. 2004). Michigan law, which the
money that CommunityISP was forced to pay its customers           parties agree controls in this diversity case, provides that
as “PRORATED CHARGE[S]” for “AFFECTED                             “[t]he primary goal in interpreting contracts is to determine
TRANSMISSION[S],” and that pursuant to Schedule C, ¶ B.2          and enforce the parties’ intent.” Old Kent Bank v. Sobczak,
CommunityISP’s sole remedy in the event that NetworkTwo           620 N.W.2d 663, 666-67 (Mich. 2000). To do so, this Court
had failed to meet network performance standards was              “reads the agreement as a whole and attempts to apply the
termination of the agreement. Shortly after the issuance of       plain language of the contract itself.” Id. (citation omitted).
the district court’s decision, NetworkTwo filed for bankruptcy    “A contract is ambiguous if its words may reasonably be
and the entire action was stayed.                                 understood in different ways.” UAW-GM Human Res. Ctr. v.
                                                                  KSL Rec. Corp., 579 N.W.2d 411, 414 (Mich. 1998) (citation
  After the stay was lifted on May 17, 2002, the district court   and internal quotation marks omitted). “If the meaning of an
granted in full NetworkTwo’s second motion for summary            agreement is ambiguous or unclear, the trier of fact is to
judgment and dismissed CommunityISP’s breach of contract          determine the intent of the parties.” Id. (citation omitted).
counterclaim, holding that CommunityISP had failed to prove
that it was forced to pay its customers any “PRORATED                CommunityISP propounds two main arguments: first, the
CHARGE[S]” for “AFFECTED TRANSMISSION[S]” – the                   damage limitation provisions do not apply; and second, even
only damages that are recoverable under the agreement.            if they do apply, CommunityISP has suffered damages that
According to the district court, the $100,000 commitment fee      are recoverable under those provisions. Each argument will
that CommunityISP had paid to NetworkTwo could not be             be addressed in turn.
considered such a “PRORATED CHARGE.” Additionally,
the district court explained that while the $100,000                  A. Do the Damage Limitation Provisions Apply?
commitment fee paid to SplitRock and the $100,000 payment
to NetSurfer may have been recoverable under common law             CommunityISP argues that ¶ 7.C and Schedule C, ¶ B.2 are
damages principles, those damages were barred by ¶ 7.C,           ambiguous and, therefore, that a jury, not the court, should
which expressly provides that “IN NO EVENT SHALL                  determine their applicability to this dispute. CommunityISP
NETWORK TWO BE LIABLE FOR ANY SPECIAL,                            identifies two alleged ambiguities with respect to these
INDIRECT OR CONSEQUENTIAL DAMAGES,                                provisions.
WHETHER OR NOT SUCH DAMAGES WERE
FORESEEABLE OR ACTUALLY FORESEEN.” This                             The first alleged ambiguity is that ¶ 7.C “assumes that
timely appeal followed.                                           NetworkTwo would be providing services under the
                                                                  Agreement,” when in reality, it is alleged, no services were
                       II. ANALYSIS                               provided. In other words, CommunityISP argues that the
                                                                  provision is ambiguous because it “can reasonably be
  The sole issue in this appeal is whether CommunityISP has       understood to mean that it provides [CommunityISP] its
proven that it suffered damages that are recoverable under the    remedy for NetworkTwo providing substandard services and
No. 03-1283              NetworkTwo Comm. Group v.          9    10   NetworkTwo Comm. Group v.                    No. 03-1283
                        Spring Valley Marketing, et al.               Spring Valley Marketing, et al.

not for NetworkTwo providing no services under the               the agreement, as well as the amount of damages for which it
Agreement.”   This attempt to create ambiguity is                could be forced to pay in the event of liability. Schedule C,
unpersuasive.                                                    ¶ B.2, by contrast, speaks only to the particular situation in
                                                                 which “NetworkTwo fails to substantially meet . . . network
  The plain language of ¶ 7.C indicates that the only damages    performance standards . . . .” The provision sets forth the
that CommunityISP could recover for any claim against            procedures that are to be followed in the event of such a
NetworkTwo under the agreement are “LIMITED TO” the              failure by NetworkTwo, and provides that CommunityISP’s
“PRORATED CHARGE[S]” that CommunityISP was forced                “sole remedy” if those procedures are ineffective is “the
to pay its customers as a result of “AFFECTED                    option to terminate this agreement.”
TRANSMISSIONS . . . .” The provision further clarifies that
“IN NO EVENT SHALL NETWORKTWO BE LIABLE                            Even assuming that there is some ambiguity as to which
FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL                       remedy is exclusive, there is no ambiguity that benefits
DAMAGES, WHETHER OR NOT SUCH DAMAGES                             CommunityISP. No matter how ¶ 7.C is reconciled with
WERE FORESEEABLE OR ACTUALLY FORESEEN.”                          Schedule C, ¶ B.2, there is clearly no room for any remedy
CommunityISP may only be able to recover damages where           other than prorated charges or contract termination. In other
NetworkTwo is “providing services” (assuming that                words, even if ¶ 7.C permits a remedy that Schedule C, ¶ B.2
CommunityISP is able to meet the other requirements set          appears to preclude, or vice versa, there is no reading of these
forth in ¶ 7.C), but there is no basis for CommunityISP’s        provisions that permits a remedy other than prorated charges
assertion that ¶ 7.C only applies in such a situation. We find   or contract termination. If an ambiguity permits several
¶ 7.C unambiguous in both meaning and application.               possible readings of the overall contract, but none of those
                                                                 readings helps CommunityISP, then as to CommunityISP
   Second, CommunityISP argues that ¶ 7.C and Schedule C,        there is simply no ambiguity. The contract unambiguously
¶ B.2 are ambiguous because they are inconsistent with each      precludes contract remedies other than prorated charges and
other. According to CommunityISP, the provisions are             contract termination, even if there is some ambiguity as to
inconsistent because ¶ 7.C provides that NetworkTwo’s            whether the contract permits the remedies of prorated charges,
“liability” under the agreement is “LIMITED TO AN                contract termination, or both or neither of these.
AMOUNT EQUAL TO THE PRORATED CHARGE TO
THE C U S T O M ER F O R THE AFFECTED                               CommunityISP also makes a passing argument that the
TRANSMISSION,” but Schedule C, ¶ B.2 provides that the           remedy provided by the damage limitation provision in
“sole remedy” available to CommunityISP in the event of          Schedule C, ¶ B.2 – i.e., termination of the agreement – is
NetworkTwo’s failure “to substantially meet . . . network        “illusory.” CommunityISP argues that this provision
performance standards” is “the option to terminate this          ultimately provides no remedy at all to CommunityISP
agreement . . . .” This argument also lacks merit.               because the only remedy it offers is termination of the
                                                                 agreement, which has already been done in this case. The fact
   Although the two provisions do, indeed, provide different     that CommunityISP does not like the remedy provided in this
remedies, they also address and apply to completely different    particular provision, however, does not render the remedy or
situations. Paragraph 7.C sets forth the conditions under        the provision illusory. CommunityISP’s argument is solely
which NetworkTwo could be held liable for damages under          a reflection of its unhappiness with the agreement that it
No. 03-1283             NetworkTwo Comm. Group v.         11    12   NetworkTwo Comm. Group v.                 No. 03-1283
                       Spring Valley Marketing, et al.               Spring Valley Marketing, et al.

negotiated at arms length with NetworkTwo, and lacks any                           III. CONCLUSION
basis in fact or law.
                                                                 For the foregoing reasons, the district court’s judgment is
     B. Are CommunityISP’s Claimed Damages                      AFFIRMED.
Recoverable Under the Damage Limitation Provisions?
  CommunityISP next argues that even if the damage
limitation provisions do apply, CommunityISP has suffered
damages that are recoverable under those provisions. As
discussed, the only damages that are allowable under the
agreement are provided for in ¶ 7.C, as Schedule C, ¶ B.2
only provides for termination of the agreement. Paragraph
7.C states that the only damages that are recoverable under
the agreement are “LIMITED TO AN AMOUNT EQUAL
TO THE PRORATED CHARGE TO THE CUSTOMER
FOR THE AFFECTED TRANSMISSION,” and that “IN NO
EVENT SHALL NETWORKTWO BE LIABLE FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
WHETHER OR NOT SUCH DAMAGES WERE
FORESEEABLE OR ACTUALLY FORESEEN.”
   CommunityISP argues that the damages that it seeks fall
within the category of damages that are recoverable under
¶ 7.C because “when NetworkTwo pulled the proverbial plug
on [CommunityISP], all transmissions between
[CommunityISP] and NetworkTwo were affected; they
ceased. Thus, all of these transmissions were ‘affected
transmissions.’”     CommunityISP conspicuously fails,
however, to challenge the district court’s determination that
CommunityISP had not charged its customers any
“PRORATED CHARGE[S],” even though reimbursement for
these prorated charges constitutes the only damages to which
CommunityISP would be entitled under the agreement. There
is simply no indication in the record that CommunityISP
charged its customers any “PRORATED CHARGE[S]” for
“AFFECTED TRANSMISSION[S].” Therefore, ¶ 7.C
precludes CommunityISP from recovering any damages.