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
1
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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
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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
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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
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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
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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.