Telecom International America, Ltd. v. AT & T Corp.

67 F. Supp. 2d 189, 1999 U.S. Dist. LEXIS 12505, 1999 WL 615090
District Court, S.D. New York·Decided August 13, 1999·No. 96 Civ. 1366(AKH)·Published·Cited by 19 cases

Opinion

MEMORANDUM AND ORDER

HELLERSTEIN, District Judge.

Plaintiff, Telecom International America, Ltd. (“TIA”), a reseller of long-distance “800” service, and defendant AT & T Corp. (“AT & T”), a telephone company which provides both telecommunications services and equipment, are parties to three contracts. Two of the agreements cover purchases and sales of telephone equipment manufactured and designed by AT & T, and the other covers the utilization by TIA of certain of AT & T’s long-distance telephone services. TIA claims in this lawsuit that the contracts are parts of an “overarching” agreement to provide “end-to-end” service that AT & T breached, and that AT & T is liable to TIA for damages flowing from this breach and for various unfair and otherwise illegal practices. AT & T denies liability, denies the existence of any such “overarching” agreement and counterclaims for sums due under its contract tariff filed with the Federal Communications Commission (the “FCC”). The damages respectively claimed are substantial: TIA seeks an aggregate total of at least $187 million, while AT & T seeks approximately $59 million.

After eighteen months of extensive discovery, AT & T moved for summary judgment dismissing the bulk of TIA’s claims, and for partial summary judgment with respect to its four counterclaims. I grant AT & T’s motion in part, and deny it in part.

STATEMENT OF FACTS

In early 1994, TIA’s parent, Telecom International, Ltd. (“Telecom International”), undertook to provide a high quality, reliable long-distance telephone service to Japanese subscribers at lower rates than those available from other Japanese providers. The parent, Telecom International, was a reseller of telephone services and a dealer in telecommunications equipment to the Japanese market. Telecom International opened discussions with equipment manufacturers toward purchasing available and specially designed equipment to provide a “call-turnaround” application, to be marketed under the name “Diamond Net,” capable of linking two telephone calls: • a long-distance call over a toll-free line from Japan to a switching station in New York (the “inbound call”), with a linked call from New York to the number anywhere in the world dialed by the Japanese subscriber (the “outbound call”). (Affidavit of Eamon Joyce, dated Nov. 19, 1998 (“Joyce Aff.”), at ¶4 n. 1; AT & T’s Statement Pursuant to Local Civil Rule 56.1 (“AT & T 56.1”), at ¶¶ 5-8). Telecom International provided AT & T with projections estimating that Diamond Net would capture 15% of the Japanese long-distance market, sell over two million minutes per month of long-distance services and contract with over 2,000 customers during the first year of operations. (TIA’s Statement Pursuant to Local Civil Rule 56.1 (“TIA 56.1”), at ¶¶ 8, 21).

AT & T negotiated to provide both the telecommunications services and the equipment that were needed for Diamond Net, representing that its equipment, combined with its international long-distance network services, could provide the efficiency of “end-to-end” service, linking and completing the envisioned calls in “less than a nanosecond.” (TIA 56.1, at ¶ 12). AT & T promised better service and benefits than competitors like Northern Tele-com, even though the equipment available from such other companies was also compatible with AT & T telecommunications services, and there was no technological reason forcing TIA to purchase both equipment and long-distance services from one company. (Affidavit of Jacques Richard, dated May 8, 1997 (“Richard May 8 *193 Aff.”), at ¶ 6). Thus, AT & T represented in its effort to obtain TIA’s business:

When Telecom International selects Me-gacom 800 International and Megacom Wats Services [the AT & T services to be utilized for the inbound call to New York, and the switched outbound call], you are selecting a solution that is “all AT & T” from design through delivery. AT & T Bell Laboratories designed these services and engineered its software. AT & T Network Systems, which won the 1992 Malcolm Baldridge Quality Award, manufactures the network’s components. The AT & T Business Network Sales Division installs and maintains Megacom 800 International and Megacom Wats to AT & T’s rigorous standards.

(TIA 56.1, at ¶¶ 12-17). Furthermore, AT & T represented that its equipment had been utilized previously in conjunction with its network services in similar configurations as contemplated by TIA. (Id. at ¶ 3).

AT & T recommended the network services and the use of customized equipment to be purchased: AT & T’s Megacom 800 service for the incoming call from Japan to the U.S.; -AT & T’s Megacom service for the outbound call; a customized G3r switch to bridge the calls; a Conversant Series 4.0 automated voice response system to couple the inbound to the outbound call; and a T-45 cable to connect the Me-gacom 800 and Megacom services to the switching equipment. (TIA 56.1, at ¶ 24). AT & T’s materials stated that the configuration could support call volumes of up to 1775 calls per busy hour with an average duration of 3.5 minutes. (TIA 56.1, at ¶ 7). AT & T recommended that Tapestry Computing Co. (“Tapestry”), a company comprised mostly- of former AT & T employees, design and write the software necessary to implement the application. (Id. at ¶ 25). At the time of contracting, AT & T did not provide a single long-distance tariffed service, which could carry both the inbound and outbound calls without requiring a switch to connect the calls. (Richard May 8 Aff., at ¶ 7). A separate service and corresponding tariff 'would have had to have been developed and filed. The Equipment Purchase/Service Agreement of May 1994

On May 3, 1994, AT & T and TIA (which by then had been incorporated by Telecom International) entered into a written equipment purchase and service agreement (the “Equipment Agreement”) providing for the sale by AT & T to TIA of approximately 150 items of equipment for an aggregate price of $527,916.17. 1 The Equipment Agreement, a form contract used by AT & T for many years, provided the terms and conditions of the contractual relationship between AT & T and TIA with regard to these items of equipment. (Kelly Aff., at ¶ 10). The Equipment Agreement, however, did not incorporate the representations made by AT & T during the period of negotiations and in their proposals; indeed, it largely excluded them. In capital letters, the Equipment Agreement excluded any warranty of merchantability or fitness; Section 8 provided:

A. Except as stated in Sections 6 and 7, AT & T, its subsidiaries and their affiliates, subcontractors and suppliers make no warranties, express or implied, and specifically disclaim any warranty of merchantability or fitness for a particular purpose.

(Equipment Agreement, at § 8(A)). 2 Moreover, AT & T disclaimed any warranty of error-free operation, or that the *194

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Telecom International America, Ltd. v. AT & T Corp., 67 F. Supp. 2d 189, 1999 U.S. Dist. LEXIS 12505, 1999 WL 615090 (S.D.N.Y. 1999).

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