United States Court of Appeals
For the First Circuit
No. 02-1472
SPORTFOLIO PUBLICATIONS, INC. AND ANDREW P. BUCKLEY,
Plaintiffs, Appellants,
v.
AT&T CORP.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge]
Before
Howard, Circuit Judge,
Bownes and Stahl, Senior Circuit Judges.
Joseph L. Demeo with whom David W. Fanikos and Demeo &
Associates, P.C. were on brief for appellants.
James A.G. Hamilton with whom Susan E. Stenger, Thomas T.
Reith and Perkins, Smith & Cohen, LLP were on brief for appellee.
February 14, 2003
BOWNES, Senior Circuit Judge. This is an appeal by
plaintiffs-appellants Sportfolio Publications, Inc. ("Sportfolio")
and Andrew P. Buckley, its owner and manager, from a summary
judgment issued by the district court in favor of defendant-
appellee, AT&T Corporation ("AT&T").1 The main issue in this case
is whether AT&T improperly withheld monies due to Sportfolio. To
decide this issue, we must interpret a contract between Sportfolio
and AT&T. The parties agree that the contract is to be interpreted
under New Jersey law, but disagree as to how that law should be
applied to this case. After examining the contract and the
applicable law, we find that AT&T did not improperly withhold money
from Sportfolio and affirm the district court's ruling.
I. FACTS
There are no essential differences between the parties on
the underlying facts. Since 1989 Sportfolio has provided sports
prediction information through pay-per-call 900 number programs.
In September 1989, Sportfolio and AT&T entered into a billing
services agreement under which AT&T agreed to perform billing and
collection services in connection with Sportfolio's 900 number
program.2 The agreement provided, in part, that "[y]our customers
('Callers') will be billed for the charges associated with your
1
We treat appellants as one entity, Sportfolio.
2
The relevant contract provisions are affixed to this opinion
as an appendix.
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offer(s). AT&T will remit collected charges to you, less any loss
indicated in this agreement." The agreement also provided that
AT&T would undertake "good faith efforts to collect your charges
from your callers," less any amount which a "caller disputes or
refuses to pay."
The agreement between Sportfolio and AT&T further stated
that AT&T's billing mechanism for its 900 number accounts would
involve AT&T entering into agreements with local telephone
companies, which were referred to as local exchange companies
("LECs"). The LEC would track and bill incoming calls to a given
900 number and arrange for collection from the caller.
The parties also incorporated into their contract the
terms of AT&T's Federal Communications Commission tariff. A clause
in that tariff stated that "AT&T MultiQuest Service does not
provide for: . . . calls originating from coin telephones."
Also relevant for this appeal is a section of the
contract in which AT&T reserved the right to terminate the contract
immediately by notice to Sportfolio if AT&T determined, in its sole
discretion, that: (1) the provision of billing services to
Sportfolio adversely affected other AT&T services; (2) Sportfolio's
900 number adversely affected AT&T's public image or goodwill; or
(3) an LEC failed to provide necessary billing services at prices
acceptable to AT&T.
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In September 1989, AT&T contracted with NYNEX as the LEC
to provide billing service. Under the AT&T-NYNEX contract, AT&T
transmitted to NYNEX records for calls from telephone numbers in
the New England states. NYNEX would review the records for
"unbillable" calls (e.g., telephone numbers that were no longer in
service, or where the owner moved without providing a forwarding
address) and then purge such calls from the records. Once
unbillable calls were removed, NYNEX would purchase the remaining
billable calls from AT&T for a slight discount based on a formula
which included a bad debt allowance for "uncollectible" calls
(e.g., customer disputes or refusals to pay), and then bill the
callers.3
From the inception of the AT&T-Sportfolio contract in
September 1989 until May 1995, the relationship between the two was
uneventful. Sportfolio charged callers $25 per call for accessing
the program, from which AT&T deducted a 10 percent fee. AT&T made
monthly payments to Sportfolio based on the number of calls to
Sportfolio's 900 number during the prior month.
In early June 1995, however, AT&T noticed through routine
monitoring that Sportfolio's 900 number was receiving an unusually
3
This procedure is somewhat different from what the district
court found -- that the discount took care of unbillable and
uncollectible calls. The district court did not mention the
winnowing process that NYNEX took prior to its payment to AT&T.
This, however, does not affect our reasoning and is immaterial.
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high volume of short duration calls from telephone numbers assigned
to coin telephones. Although the actual source of the calls was
never determined, Sportfolio admitted at oral argument that all the
calls came from coin telephones. For the period of June, July and
August 1995, over 85,000 short duration calls were placed to
Sportfolio's 900 number. In comparison, during February, March and
April 1995, call records show that calls to Sportfolio's 900
numbers ranged between four and forty-five calls per month.
By letter dated June 19, 1995, AT&T informed Sportfolio
that, pursuant to their agreement, "AT&T will hold . . . $30,500.00
of your June 1995 funds . . . until an investigation of suspicious
calls . . . has been completed." When the aberrant calling pattern
continued into July and August 1995, AT&T sent similar letters
(holding $645,517.53 of July funds and holding $762,764.63 of
August funds). In September and October 1995, AT&T sent two more
letters to Sportfolio (holding $591,524.97 of September funds and
holding $23,989.76 of October funds).
On October 12, 1995, AT&T sent a written notice to
Sportfolio via overnight delivery, which Sportfolio received the
next day. In the notice AT&T stated:
Pursuant to Sections 7A and 7B of the Billing
Services Agreement between AT&T and Sportfolio
Publications, AT&T will terminate Premium
Billing Services for the above 900 numbers
effective immediately. AT&T has noticed
significant calling volume increases and
calling pattern changes that appear to
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indicate that the 900 service is being abused
in violation of AT&T's tariff.
Sportfolio immediately called an AT&T representative to dispute the
termination, but to no avail. Within six weeks of AT&T's
termination, Sportfolio set up new 900 numbers and billing services
through a different provider.
On October 10, 1997, Sportfolio filed a three-count
complaint against AT&T in Massachusetts Superior Court. In Count
I, Sportfolio alleged that AT&T breached the terms of the contract
by withholding revenues collected on calls made to Sportfolio's
sports information program. In Count II, Sportfolio alleged that
AT&T breached the contract when it terminated the agreement without
proper notice or cause. In Count III, which has not been appealed,
Sportfolio alleged that AT&T engaged in unfair and deceptive
business practices in violation of Mass. Gen. Laws ch. 93A.
The case was removed to the District Court of
Massachusetts, based on diversity jurisdiction. AT&T filed a
counterclaim that alleged Sportfolio owed AT&T $324,852.72 in
collection fees for the calls that came from coin telephones. On
November 13, 2001, the district court issued a lengthy opinion from
the bench granting AT&T's motion for summary judgment on all three
counts. The district court's ruling pertained only to the calls
that originated from coin telephones and were disputed by the
parties. The district court did not rule on the amount of money
AT&T owed Sportfolio for the legitimate calls that the parties did
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not dispute. The district court reserved for trial an "accounting
and payment to Sportfolio of the amounts improperly withheld" for
those calls. On February 14, 2002, the district court denied
AT&T's counterclaim.
On March 13, 2002, AT&T notified the district court that
it was prepared to pay Sportfolio a sum of money for the
legitimate, undisputed telephone calls. Sportfolio agreed to this
and on March 20, 2002, the district court ordered that AT&T pay
Sportfolio the agreed upon sum for the legitimate, undisputed
telephone calls. After the parties agreed to settle the claim for
the undisputed calls for $63,810, the district court entered a
final judgment for Sportfolio in that amount on April 16, 2002.
AT&T did not appeal this judgment. The parties agree that the case
now before us involves Sportfolio's appeal of the district court's
grants of summary judgment on its claim involving the disputed
calls made from coin telephones and its claim that AT&T breached
the contract by terminating without proper notice or cause.
II. THE LAW
As already noted, the operative law in the case is that
of New Jersey. In American Cyanamid Co. v. Fermenta Animal Health
Co., 54 F.3d 177, 181 (3d Cir. 1995), the Third Circuit quoted from
the New Jersey Supreme Court, which in discussing the
interpretation of contracts stated, inter alia,:
The judicial interpretive function is to
consider what was written in the context of
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the circumstances under which it was written,
and accord to the language a rational meaning
in keeping with the expressed general purpose.
(quoting Atl. N. Airlines, Inc. v. Schwimmer, 96 A.2d 652, 656
(N.J. 1953)).
The district court, in interpreting the contract under
New Jersey law, relied heavily on Kaufman v. Provident Life and
Casualty Insurance Co., 828 F. Supp. 275, 282-83 (D.N.J. 1992).
That court, in an opinion replete with case citations to the
interpretation of contracts under New Jersey law, held inter alia,
as follows:
The appropriateness of granting summary
judgment depends upon whether the contract
terms at issue in this case are questions of
contract construction or contract
interpretation. The construction of an
unambiguous term in a contract is exclusively
with [] the court. Construction of contracts
is a question of law.
Whether a term is clear or ambiguous is also a
question of law. An ambiguity in a contract
exists if the terms of the contract are
susceptible to at least two reasonable
alternative interpretations. The
interpretation of ambiguous terms in a
contract is generally a question of fact.
(citations and quotation marks omitted). We note the obvious, New
Jersey law on the interpretation of contracts is not significantly
different from that of most jurisdictions. See 5 Corbin, Contracts
§ 24.24 (Rev. ed. 1998); Restatement (Second) of Contracts § 206
(1981).
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Sportfolio strives mightily, as it did in the district
court, to convince us that the terms "callers" and "collected
charges" are ambiguous and they raise issues of material fact that
should be decided by a jury. Sportfolio asserted in Count I that
AT&T breached the terms of the contract by withholding "collected
charges" that AT&T obtained from "callers." On appeal, Sportfolio
says that the district court erred in interpreting the word
"callers," as that term is used in the contract. The parties
differ on what "callers" means. Sportfolio says that a "caller" is
the person or entity responsible for paying for telephone calls
from a given telephone number, regardless of whether that person or
entity actually placed the billable call. Thus, under this
interpretation, NYNEX is a "caller" because it owned the coin
telephones from which the disputed phone calls were made. To the
contrary, AT&T contends that a "caller" is a person or entity who
owns a phone that can be billed and because under the contract coin
telephones cannot be billed, NYNEX is not a "caller."
The district court held:
I find that read as a whole, the contract at
issue in this case is not ambiguous with
regard to Sportfolio's purported right to
payment from AT&T. It clearly provides that
Sportfolio is entitled to get a percentage of
payments that AT&T collects from customers who
are defined in section 1B of the contract as
callers.
Contrary to Sportfolio's contention, it is not
entitled to payment for calls which cannot be
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billed by AT&T to callers because they came
from pay phones or for some other reason.
We agree with the district court and further rule that
Sportfolio's admission at oral argument that the disputed calls
came from coin telephones bars any recovery by Sportfolio for those
calls because the contract clearly provides that AT&T is not
responsible for calls originating from coin telephones. Indeed, in
response to our questioning at oral argument, counsel for
Sportfolio agreed that his claim was that Sportfolio should collect
a $25 service charge on all of the approximately 85,000 disputed
calls made from coin telephones.
The contract unambiguously provides that AT&T does not
pay for calls originating from coin telephones. The relevant
tariff provision, which is incorporated into the contract by way of
section 12, states: "AT&T MultiQuest Service does not provide
for: . . . Calls Originating from Coin Telephones . . . ." Thus,
although it might be argued that the word "caller" is ambiguous,
this does not make any difference because the contract specifically
states that AT&T is not responsible for calls originating from coin
telephones. In our view, this was the point the district court was
making when it stated: "[c]ontrary to Sportfolio's contention, it
is not entitled to payment for calls which cannot be billed by AT&T
to callers because they came from pay phones or for some other
reason."
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Because we have ruled that calls from coin telephones
cannot be charged to AT&T under the contract-tariff provisions, it
follows inevitably that calls from coin telephones were not made by
"callers" as that term is used in the contract. Under the
contract, AT&T promised only to "collect charges" from "callers."
AT&T is, therefore, not responsible for "collecting charges" for
calls made from coin telephones. This conclusion means that we do
not need to address appellants' argument on the ambiguity of
"collected charges."
There is, however, another issue we must address.
Sportfolio claims that AT&T breached the terms of the contract by
terminating the agreement in (1) violation of an implied covenant
of good faith and fair dealing and (2) without proper notice.
Sportfolio claims that AT&T acted in bad faith when, during the
three month investigation, it charged Sportfolio for the service,
i.e., 10 percent of $25, on the disputed calls and then refused to
pay Sportfolio the remaining $22.50 for these calls. Sportfolio
maintains that AT&T knew the 900 number was being abused but still
allowed the abuse to continue for the purpose of collecting revenue
from NYNEX that it did not intend to pay Sportfolio. In effect,
Sportfolio says that AT&T increased its revenue while allowing
Sportfolio to be injured. Sportfolio further argues that AT&T
breached the contract by not giving advance notice. AT&T, on the
other hand, argues that the unusual volume and pattern of the
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aberrant calls constituted proper grounds for AT&T to exercise its
right to terminate the agreement "immediately by notice to you."
The termination provision of the contract states:
7. TERMINATION
A. AT&T reserves the right to
terminate this Agreement or
billing for any offer(s) provided
under this Agreement immediately
by notice to you, if AT&T
determines, in its sole
discretion, that (1) AT&T's
tariffed services may be adversely
affected by the offer(s) or the
provision of Billing Services
under this Agreement, (2) that the
offer(s) or the provision of
Billing Services may adversely
affect AT&T's public image or
damage AT&T's reputation or
goodwill, or (3) in any geographic
area served by a LEC where such
LEC fails to provide any necessary
billing services at rates
acceptable to AT&T.
(emphasis added).
We affirm the district court's grant of summary judgment
as to these two issues. AT&T's termination of the contract was
proper because the contract explicitly states that AT&T reserves
the right to terminate the agreement immediately, if it determined,
in its sole discretion, that its services, public image or goodwill
were adversely affected. We agree with the district court that the
suspicious calls gave AT&T a reasonable basis upon which to
terminate the agreement. In addition, AT&T gave adequate notice of
the termination. AT&T mailed a written notice of the contract
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termination on the same day that it terminated the contract. The
notice was sent via overnight delivery and was received by
Sportfolio the next day. The agreement simply required that AT&T
give notice; AT&T was not required to give advance notice.
In regard to the implied covenant of good faith and fair
dealing, Sportfolio never raised this argument in the district
court. This argument will not be considered on appeal because
"[t]he law in this circuit is crystalline: a litigant's failure to
explicitly raise an issue before the district court forecloses that
party from raising the issue for the first time on appeal." Boston
Beer Co. Ltd. P'ship v. Slesar Bros. Brewing Co., Inc., 9 F.3d 175,
180 (1st Cir. 1993).
The judgment of the district court is Affirmed. Costs on
appeal awarded to AT&T.
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APPENDIX
The relevant portions of the contract are as follows:
1. BILLING SERVICES
A. Acting as your agent, AT&T will
perform the following services
associated with your offer(s):
secure usage records; message
processing; bill processing; bill
rendering, inquiry, and collection
and remittance services.
B. Your customers ("Callers") will be
billed for the charges associated
with your offer(s). AT&T will
remit collected charges to you,
less any fees as indicated in this
Agreement.
C. To the extent necessary, AT&T's
undertaking will include good
faith efforts to secure billing
services from Local Exchange
Companies (LECs) where the same
arrangements for billing of AT&T
services are provided by the LECs
to AT&T. This Agreement is
expressly contingent upon AT&T's
ability to secure necessary
Billing Services, if any, from the
LECs.
2. CALLER INQUIRY AND ADJUSTMENTS
A. AT&T will undertake good faith
efforts to collect your charges
from your Callers. However, AT&T
may remove from a Caller's bill
any amounts associated with the
offer(s) which the Caller disputes
or refuses to pay.
B. Where amounts have been removed
from a Caller's bill, you will
remain obligated to AT&T and will
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be billed by AT&T for AT&T's
billing fee for the call, and for
the transmission charges and any
related AT&T charges for Network
Service (network services and
service features) actually
provided in connection with the
call.
3. CHARGES/REMITTANCE
A. Within 60 days after the month in
which the calls were made to Customer's
Program(s), AT&T shall remit to
Customer the net amount of Customer's
charges for the billing period provided
that AT&T may delay payment for up to
90 days a) based on the results of
credit checks obtained by AT&T under
Section 20 of the Agreement, or b) if
the Customer is being transitioned from
a 90 day payout. Notwithstanding the
above, AT&T may continue to delay all
or a portion of payment in accordance
with Section 19 of the Agreement.] The
Net Amount shall be calculated by
subtracting the following amounts from
the charges collected.
[ . . . ]
1. Charges for Network Services
provided in connection with your
offer;
2. Any amounts which have been
removed from callers' bills as a
result of a dispute or refusal to
pay;
3. Any federal, state, and local
taxes . . .;
4. AT&T billing service fee. The AT&T
MultiQuest Interacter and AT&T
MultiQuest HICAP billing fee is 10%
of your charge to callers for each
call made during the billing period.
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[ . . .]
6. TELEPHONE NUMBER CHANGES
You have no ownership or other interest in the
telephone number(s) assigned to you in
connection with AT&T's provision of Billing
Services, and AT&T reserves the right to
change such numbers(s) whenever AT&T
determines that such change is necessary to
effectively provide Billing Services,
including but not limited to a change in the
offer(s) or a change in your charges for the
offer(s). Upon termination of this Agreement,
AT&T will assign you a different telephone
number(s) if you elect to continue Network
Services.
7. TERMINATION
A. AT&T reserves the right to
terminate this Agreement or
billing for any offer(s) provided
under this Agreement immediately
by notice to you, if AT&T
determines, in its sole
discretion, that (1) AT&T's
tariffed services may be adversely
affected by the offer(s) or the
provision of Billing Services
under this Agreement, (2) that the
offer(s) or the provision of
Billing Services may adversely
affect AT&T's public image or
damage AT&T's reputation or
goodwill, or (3) in any geographic
area served by a LEC where such
LEC fails to provide any necessary
billing services at rates
acceptable to AT&T.
B. If you breach any provision of this
agreement, of if AT&T receives any
complaints regarding your AT&T
MultiQuest interacter/AT&T MultiQuest
HICAP/AT&T MultiQuest Broadcaster
and/or Card Counter messages,
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representations, promotions,
advertising, products or services, or
if any claims are made against AT&T
arising from them, then AT&T may
immediately terminate this Agreement
and all Billing Services rendered
under it. In addition, on receipt of
any claim or complaint, against you
in connection with its use of AT&T's
Billing Services, the parties agree
that AT&T may deposit all amounts
then or thereafter due to you in an
escrow account pending the resolution
of all such claims and complaints.
C. Either party may terminate the
Agreement without cause at least thirty
(30) days prior written notice to the
other party specifying the exact date
and time of such termination.
[ . . . ]
12. TARIFFED SERVICES
Your subscription to Network Services is
subject to any and all tariff provisions
related to such Network Services, to the
extent the services are tariffed. This
Agreement does not govern or affect tariffed
services. Where anything in this Agreement
conflicts with any tariff governing the
provision of Network Services, the tariff
shall apply. Charges under this Agreement
will not be abated or refunded in the event of
outages or degradation in tariffed services,
and charges for tariffed services will not be
abated or refunded in the event of delay or
failure of performance of this Agreement.
[ . . . ]
14. LIMITATIONS OF LIABILITY
[ . . . ]
C. [ . . . ] AT&T shall not be liable
for incidental, indirect, special
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or consequential damage or for
lost profits, savings or revenues
of any kind, whether or not AT&T
has been advised of the
possibility of such damages.
[ . . . ]
18. GENERAL
A. Any supplement, modification or
waiver of any provision of this
Agreement must be in writing and
signed by authorized
representatives of both parties.
[ . . . ]
F. This is the entire agreement
between the parties with respect
to the services provided hereunder
and supersedes all prior
agreements, proposals or
understandings, whether written or
oral.
G. This agreement shall be construed
in accordance with and governed by
the local laws of the State of New
Jersey.
19. AUTHORIZATION TO APPLY FUNDS TO
ANTICIPATED REFUNDS AND OUTSTANDING
DEBTS
Customer hereby authorizes AT&T to adjust
payment of funds to Customer in accordance
with AT&T's Caller Adjustment Process ("CAP")
to reflect anticipated caller refunds which
may be requested by callers for up to twelve
(12) months following the date of the call.
Customer authorizes AT&T to delay payment of
funds at any time during the contractual
relationship, continuing for up to twelve (12)
months following termination of Customer's
Premium Billing Services. Customer further
authorizes AT&T to apply any payments so
delayed to any outstanding debt incorrect by
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Customer. Customer understands and agrees
that AT&T may modify CAP from time to time.
[ . . . ]
The relevant portion of the tariff is as follows:
Tariff F.C.C. No. 1
5. 4. 1. General
AT&T MultiQuest Service calls are dialed and completed
without the assistance of a Company Operator. AT&T
MultiQuest Service does not provide for:
- Calling Card Calls
- Calls Originating from Coin Telephones
- Third Number Billed Calls
- Calls Requiring Charge Quotation
- Operator Assisted
- Hotel/Motel/Hospital Guest Extension Calls
- International Calls
- Collect Calls
[ . . . ]
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