Opinion
Docket No. 216-2020-CV-00312
12-09-2020
Vermont Telephone Company, Inc. v. FirstLight Fiber, Inc.
ORDER
Plaintiff, Vermont Telephone Company, Inc. ("VTel"), has brought this action against Defendant, FirstLight Fiber, Inc. ("FirstLight"), arising out of FirstLight's termination of the parties' contract. The original complaint alleged claims for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II), violation of the New Hampshire Consumer Protection Act (Count III), and attorney's fees (Count IV). On July 23, 2020, the Court granted FirstLight's motion to dismiss Count III, but gave VTel leave to amend. On August 24, 2020, VTel filed an amended complaint, in which it replaced Count III with a claim for violation of Vermont's Consumer Protection Act ("VCPA"). FirstLight again moves to dismiss Count III. VTel objects. For the reasons set forth below, FirstLight's motion to dismiss is GRANTED.
Factual Background
Because the amended complaint is virtually identical to the original, and because FirstLight seeks to dismiss a substantively similar claim, the Court incorporates herein the recitation of facts set forth in its prior order. On April 28, 2014, VTel entered into a lease agreement with 186 Communications, LLC ("186"), whereby VTel agreed to lease two dark fiber optic lines from 186. The lines run between Lebanon, New Hampshire and Boston, Massachusetts. The lease agreement was initially for two years but contained fourteen automatic options to renew, each for a two-year term.
Sometime after the execution of the lease, FirstLight acquired 186 and became 186's successor under the terms of the lease. In 2018, FirstLight sought to enter into an interconnection agreement with VTel. However, VTel had concerns about FirstLight's use of equipment manufactured by a company called Huawei Technologies Co., Ltd. ("Huawei"). Because Huawei was under scrutiny by the United States government related to potential national security threats, VTel asked FirstLight to represent and warrant that it would not use Huawei products while the parties' interconnection agreement was in effect. Rather than provide the requested representation and warranty, FirstLight filed a petition with the Vermont Public Utilities Commission ("VPUC"), seeking arbitration of the dispute. The arbitration proceedings received attention from Vermont-based news companies, such as Vermont Public Radio and VTDigger.org ("VTDigger").
On February 19, 2019, Vermont's Agency of Digital Service issued a cybersecurity directive, Directive 19-01, prohibiting the acquisition or use of Huawei equipment in Vermont's information technology or telecommunications systems, or by any vendor that provides services to the State of Vermont. A few days after Directive 19-01 went into effect, FirstLight withdrew its arbitration petition and notified VTel that it no longer sought an interconnection agreement between the companies.
After FirstLight withdrew its petition, the Managing Editor of VTDigger, Colin Meyn, contacted the CEO of VTel, Michel Guite, to ask about FirstLight's use of Huawei equipment in its network. During this conversation, Guite offered to show Meyn VTel's network facilities in Montpelier and Stowe, Vermont. At the time that Meyn toured the facilities in June 2019, FirstLight was maintaining some of its equipment in the facilities. Some of this equipment was manufactured by Huawei. Because the equipment was in plain view, Meyn was able to take photographs of it. On July 1, 2019, VTDigger published an article that included pictures of the equipment and accused FirstLight of using banned Huawei equipment.
On July 3, 2019, FirstLight notified VTel that it would be terminating the lease agreement due to VTel's violation of the non-disclosure and confidentiality provisions of the agreement. Upon receipt of this notice, VTel filed a complaint with the VPUC and moved for a preliminary injunction to prevent FirstLight from terminating the lease. On November 6, 2019, the VPUC determined that it lacked jurisdiction over the dispute and dismissed the complaint. On November 21, 2019, FirstLight sent a final notice to VTel, stating that FirstLight was terminating the lease agreement because VTel "breached its duty of confidentiality to FirstLight set forth in Section 35 of the Agreement when it invited a reporter with the VTDigger publication into the secure central offices . . . to view FirstLight's collocated network equipment." (Am. Compl., Ex. 4.) FirstLight explained that it could not allow VTel a chance to cure its breach, because the disclosure of confidential information had already occurred.
Section 22 of the lease agreement provides, in pertinent part:
Lessee shall be in default if . . . Lessee breaches any . . . material term or obligation hereunder and fails to cure such breach within thirty (30) days of receipt notice from [FirstLight] . . . . Following the expiration of the thirty (30) day cure period provided for in this section, [FirstLight] may . . . terminate the affected Fibers and recover the Fibers, the [FirstLight] Cable System and any other facilities without further notice.(Am. Compl., Ex. 1 at 13.) Moreover, Section 35 provides that:
[a]ny other confidential information relating to a Party's business or customers which is so designated by a Party, or which by its nature would be reasonably understood to be confidential, are proprietary . . . and shall not be divulged to any third parties.(Id. at 16.) The lease agreement also contains a choice of law provision, which states that the agreement shall be governed by New Hampshire law. In addition to the foregoing, the Court notes the following facts from the amended complaint that are pertinent to the present motion: FirstLight holds itself out to the public as a seller or lessor of dark fiber, and markets dark fiber to consumers. (See Am. Compl. ¶¶ 29-32; 75.)
Analysis
In ruling on a motion to dismiss, the Court determines "whether the allegations contained in the pleadings are reasonably susceptible of a construction that would permit recovery." Pesaturo v. Kinne, 161 N.H. 550, 552 (2011). The Court rigorously scrutinizes the facts contained on the face of the complaint to determine whether a cause of action has been asserted. In re Guardianship of Madelyn B., 166 N.H. 453, 457 (2014). The Court "assume[s] the truth of the facts alleged by the plaintiff and construe[s] all reasonable inferences in the light most favorable to the plaintiff." Lamb v. Shaker Reg'l Sch. Dist., 168 N.H. 47, 49 (2015). The Court "need not, however, assume the truth of statements that are merely conclusions of law." Id. "The trial court may also consider documents attached to the plaintiff's pleadings, or documents the authenticity of which are not disputed by the parties[,] official public records[,] or documents sufficiently referred to in the complaint." Beane v. Dana S. Beane & Co., P.C., 160 N.H. 708, 711 (2010). "If the facts do not constitute a basis for legal relief, [the Court will grant] the motion to dismiss." Graves v. Estabrook, 149 N.H. 202, 203 (2003).
In Count III of its amended complaint, VTel maintains that FirstLight's conduct surrounding the termination of the lease agreement violated the Vermont Consumer Protection Act, 9 V.S.A. § 2451 et seq. FirstLight argues Count III ought to be dismissed on two grounds: (1) it is barred by res judicata or collateral estoppel; and/or (2) the conduct complained of did not occur in commerce, and VTel is not a "consumer" as contemplated by the statute. The Court shall address each argument in turn.
I. Res Judicata/Collateral Estoppel
Res judicata seeks to "avoid repetitive litigation in order to promote judicial economy and a policy of certainty and finality in our legal system." Osman v. Gagnon, 152 N.H. 359, 362 (2005). Thus, "[r]es judicata precludes the litigation in a later case of matters actually decided, and matters that could have been litigated, in an earlier action between the same parties for the same cause of action." Meier v. Town of Littleton, 154 N.H. 340, 342 (2006). A "cause of action" is "the underlying right that is preserved by bringing a suit or action." In re Estate of Bergquist, 166 N.H. 531, 535 (2014). It encompasses "all theories upon which relief could be claimed on the basis of the factual transaction in question." Id. (brackets omitted). "Thus, if several theories of recovery arise out of the same transaction or occurrence, they amount to one cause of action." Finn v. Ballentine Partners, LLC, 169 N.H. 128, 147 (2016). Three conditions must be met for res judicata to apply: "(1) the parties must be the same or in privity with one another; (2) the same cause of action must be before the court in both instances; and (3) a final judgment on the merits must have been rendered in the first action." Meier, 154 N.H. at 342.
"Collateral estoppel may preclude the relitigation of findings by an administrative board, provided that the following requirements are satisfied: (1) the issue subject to estoppel must be identical in each action; (2) the first action must have resolved the issue finally on the merits; (3) the party to be estopped must have appeared in the first action or have been in privity with someone who did; (4) the party to be estopped must have had a full and fair opportunity to litigate the issue; and (5) the finding must have been essential to the first judgment." Barry v. N.H. Dep't of Health and Human Servs., 170 N.H. 364, 367 (2017). Collateral estoppel should not be mechanically applied, but "should be employed with reason, equity, and fundamental fairness as ultimate goals." Id. at 368.
FirstLight argues that VTel raised a claim under the VCPA before the VPUC and maintains that the VPUC's dismissal of the claim constituted a final determination on the merits, preventing VTel from raising it again in this action. In its decision, the VPUC noted that "VTel raised the possibility of a violation of the Consumer Fraud Act for the first time in its post-hearing brief. Therefore this issue has not been properly presented and the Commission does not need to address this argument." (Mot. Dismiss, Ex. A at 7.) Nevertheless, the VPUC did make several comments touching upon the merits of the argument, stating it was unpersuaded that a violation of the VCPA had occurred. (Id. at 7, 15-16.) Ultimately, the VPUC dismissed the action for lack of subject matter jurisdiction, stating that "this dispute should be resolved in the courts." (Id. at 8, 13, 16-17.)
"If issues are determined but the judgment is not dependent upon the determinations, relitigation of those issues in a subsequent action between the parties is not precluded. Such determinations have the characteristics of dicta." Tyler v. Hannaford Bros., 161 N.H. 242, 247 (2010) (quoting Restatement (Second) of Judgments § 27). The VPUC's commentary on the VCPA claims had no apparent substantive impact on its dismissal of the action before it. Instead, the VPUC dismissed the action as it found it lacked jurisdiction over the contractual claims underlying the original complaint. "The rule that a dismissal for lack of jurisdiction does not bar another action by the plaintiff is one of general acceptance." McAuliffe v. Colonial Imports, Inc., 116 N.H. 398, 399 (1976); see Berg v. Kelly, 134 N.H. 255, 258-59 (1991) (finding clerk's refusal to accept defective writ akin to dismissal for lack of jurisdiction, which "does not constitute a judgment on the merits"). Therefore, because the VPUC decision did not constitute a judgment on the merits, neither res judicata nor collateral estoppel bars VTel's VCPA claim.
II. Applicability of the VCPA
The VCPA prohibits "[u]nfair methods of competition in commerce and unfair or deceptive acts or practices in commerce." 9 V.S.A. § 2453(a). FirstLight first argues the conduct underlying Count III did not occur "in commerce." "The Legislature passed the CFA as a complement to federal law to promote honest competition and to protect the public." Foti Fuels, Inc. v. Kurrle Corp., 90 A.3d 885, 891 (Vt. 2013). The Court finds the discussion and application of the law in Foti Fuels, as set forth below, instructive.
"The CFA does not define 'in commerce,'" and there is a dearth of Vermont case law interpreting the term. Id. at 892. "Courts in states with similar statutes have found that the 'in commerce' requirement narrows the statute's applicability." Id. Relying on decisions from Massachusetts and New Hampshire, the Court in Foti Fuels held that "the 'in commerce' requirement narrows the CFA's application to prohibit only unfair or deceptive acts or practices that occur in the consumer marketplace." Id. "To be considered 'in commerce,' the transaction must take place in the context of an ongoing business in which the defendant holds himself out to the public." Id. at 892-93. "Further, the practice must have a potential harmful effect on the consuming public, and thus constitute a breach of a duty owed to consumers in general." Id. at 893. "By contrast, transactions resulting not from the conduct of any trade or business but rather from private negotiations between two individual parties who have countervailing rights and liabilities established under common law principles of contract, tort and property law remain beyond the purview of the statute." Id.
"Statutory protection of consumers serves an important function because, in certain respects, the consumer marketplace is tilted against buyers in favor of sellers. Individual buyers often hold less bargaining power and knowledge about the products they are purchasing than do sellers, and they face barriers to pursuing their claims if they are wronged in a transaction." Id. By contrast, "[i]n purely private transactions, remedies available through well-established principles of contract, tort, and property law are adequate to redress wrongs." Id. "[E]xpanding the CFA to cover purely private transactions would allow the act to subsume the common law claims traditionally employed to remedy contractual wrongs." Id.
The court in Foti Fuels found the transaction before it did not occur "in commerce" for three reasons. "First, plaintiff held his offer out to defendant only, not to the public at large." Id. at 894. "Second, the transaction did not involve products, goods or services purchased or sold for general consumption, as those terms are generally understood, but rather the sale of an entire business from one party to another." Id. "Third, the transaction's high level of customization—which was achieved through particularly negotiated contract terms rather than boilerplate language—does not typically occur in the consumer marketplace." Id.
Here, with respect to the origination of the underlying dark fiber lease, it is not clear from the complaint how widespread 186's solicitation of new lessees of its fiber network was in or around 2014. However, as noted by VTel in its amended complaint, "VTel and 186 entered into the Lease when 186 had few customers, was in start-up mode, had completed its network build with the help of federal funds, and was in need of reliable long-term customers." (Am. Compl. at ¶ 12.) As a startup, and based on the size of transaction at issue, 186 was likely not reaching out to the general public at this time, but was instead engaging in a niche market transaction between industry-related corporations. In addition, while FirstLight does hold itself out to the general public as offering dark fiber solutions for both businesses and carriers, (see id. ¶¶ 29-31), the specific lease at issue was not made with FirstLight, but with 186, whom FirstLight acquired after the lease was executed. The fact that FirstLight generally engages in commerce in the ordinary course of its business does not alter the nature of the underlying lease or the circumstances of its creation.
Moreover, the dark fiber originally leased consisted of approximately 306 miles of fiber running from Lebanon, New Hampshire to Boston, Massachusetts. (Am. Compl. at ¶ 10.) This is certainly not a transaction that the general public would engage in, and is markedly different from the types of transactions that VTel engages in with its own regular customers. Rather, it is the type of transaction that occurs at a high level between sophisticated corporate parties and results in highly negotiated contracts.
Indeed, the underlying lease in this case suggests a high degree of customization as opposed to boilerplate language. (See generally id., Ex. 1.) The clear implication of VTel's characterization of 186's start-up status is that VTel was able to negotiate favorable terms under the contract, and this is reflected in the provisions of the lease. "The original term of the Lease was for two (2) years with fourteen (14) options to extend the Lease by additional two-year terms, for a total term of 30 years." (Id. ¶ 13.) "These options were at VTel's sole discretion under the Lease and commenced automatically unless otherwise noticed by VTel." (Id.) In addition, VTel's payments under the lease had "no monthly Consumer Price Index escalator." (Id. ¶ 12.) In other words, VTel secured the use of 306 miles of dark fiber for three decades at a set price that would never increase. Such favorable terms are certainly not likely to appear in agreements with the average member of the public.
While both VTel and FirstLight may themselves independently engage in commerce as part of their regular business dealings, the Court finds the specific transaction in question did not occur in commerce as understood by the VCPA. There is no indication that any of the policy justifications for the VCPA, such as an imbalance in bargaining power or knowledge between VTel and 186 or FirstLight, exist here. Moreover, the circumstances surrounding the termination of the lease in question does not implicate potential harm to the consuming public. Rather, the facts set forth in the complaint indicate that the creation of the lease and the dispute over its termination is private in nature, and therefore not subject to the protections of the statute.
FirstLight additionally argues that VTel does not qualify as a "consumer" under the VCPA. The VCPA defines "consumer" as follows:
"Consumer" means any . . . person who purchases, leases, contracts for, or otherwise agrees to pay consideration for goods or services not for resale in the ordinary course of his or her trade or business but for the use or benefit of his or her business or in connection with the operation of his or her business.9 V.S.A. § 2451a(a) (emphasis added). The Vermont Supreme Court has determined that "goods used by a consumer for commercial purposes are not 'consumer goods.'" Barrett v. Adirondack Bottled Gas Co. of Vt., 487 A.2d 1074, 1078 (Vt. 1984) (finding landlord was not "consumer" when purchasing propane tank for use in apartment building); see also Corey v. Furgat Tractor & Equip., Inc., 520 A.2d 600, 601 (Vt. 1986) (finding purchase of tractor for use in a logging business was a commercial purpose and therefore plaintiffs were not "consumers").
Here, the complaint makes clear that the leased dark fiber was used for a commercial purpose, and not for the benefit of VTel's own business beyond generating revenue. As noted above, VTel leased 306 miles of dark fiber, an amount obviously well in excess of what would be needed to service its own business needs. (Am. Compl. at ¶ 10.) VTel states that the leased fibers "provide[d] VTel with network capacity and redundancy necessary for VTel to serve its customers in Vermont and elsewhere." (Id.) VTel states that FirstLight's termination of the lease "inflicted significant competitive harm on VTel, which has suffered an astronomical decrease in [its] available network capacity and has endangered its ability to expand its network to meet customer demand." (Id. ¶ 70.) VTel also alleges that it "therefore lost the ability through 2044 to offer to its customers access to at least 44 light paths . . . on a diverse route across New Hampshire to Boston." (Id. ¶ 71.)
It is clear from the complaint that VTel leased the dark fiber not for its own internal use but for the purpose of resale to its own customers. As it was intended for a commercial purpose, the dark fiber does not constitute a "consumer good" under Vermont law. Therefore, under the facts of this case, the Court finds VTel was not a "consumer" when it leased the dark fiber at issue.
As a result of the foregoing, the Court finds VTel has failed to state a claim under the VCPA. Accordingly, FirstLight's motion to dismiss Count III of the amended complaint is GRANTED. SO ORDERED. December 9, 2020
Date
/s/_________
Judge David A. Anderson