Opinion
216-2020-CV-00312
01-14-2022
Vermont Telephone Company, Inc. v. FirstLight Fiber, Inc.
ORDER
David A. Anderson, Judge
Plaintiff, Vermont Telephone Company, Inc. ("VTel"), brought this action against Defendant, FirstLight Fiber, Inc. ("FirstLight"), for claims arising out of FirstLight's termination of a dark fiber lease between the parties. The amended 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 Vermont Consumer Protection Act (Count III), and attorney's fees (Count IV). On December 9, 2020, this Court granted FirstLight's motion to dismiss Count III. (See Dec. 9, 2020 Order (Anderson, J.).) FirstLight now moves for summary judgment on all remaining claims as well on its counterclaim for damages. (Def.'s Mot. Summ. J.) VTel objects. (Pl's Obj. Mot. Summ. J.) The Court held a hearing on the motion on November 17, 2021. For the reasons that follow, FirstLight's motion for summary judgment is DENIED.
Facts
Unless otherwise noted, the following relevant facts are undisputed. On April 28, 2014, VTel entered into a lease agreement ("the Lease") with 186 Communications, LLC ("186"), whereby VTel agreed to lease two dark fiber optic lines from 186. (Combined Statement of Material Facts ("SOMF") ¶¶ 2, 21, 58; see also Peyton Aff., Ex. A (Lease Agreement).) The two fiber optic lines run between Lebanon, New Hampshire and Boston, Massachusetts. (Id. ¶ 21.) Dark fiber is state-of-the-art infrastructure that allows the movement of large amounts of data; however, to utilize its full capacity, VTel would have to acquire the necessary equipment to "light" each channel, at a cost of up to about $3.3 million to $4.4 million. (Id. ¶¶ 23-25, 28.) VTel asserts that it has invested approximately $150,000 on equipment to light the two fibers. (Id. ¶ 27; First Am. Compl. (TAC")¶73.)
The Lease is not a standard form agreement and was entered into when 186 was in start-up mode and had recently completed its network with the help of federal funds. (SOMF ¶¶ 16, 19; Peyton Aff. ¶ 7; FAC ¶ 12.) The initial term of the Lease was two years, but there were fourteen automatic options to renew, each for a two-year term. (SOMF ¶¶ 7-8; Lease Agreement § 4.) The options were evergreen, in that they automatically renewed every two years in the absence of any contrary notice by VTel. (SOMF ¶ 8.) The potential total length of the Lease, with the evergreen options, was 30 years. (Id. ¶9.)
In return for the use of the two fibers, VTel was obligated to pay a one-time startup fee of $5,000, monthly charges of $11,500 per month for access to the fibers, and $1,600 per month for space at two colocation sites. (Id. ¶ 4; Lease Agreement, Ex. 1.) All undisputed portions of invoices under the Lease were due within thirty-days of VTel's receipt of the invoice, and were "payable without setoff, reduction or adjustment." (SOMF ¶ 5; Lease Agreement §11.) VTel had up to 180 days from the date of payment to send notice of dispute of any invoice. (Lease Agreement §11.1.)
Relevant to this dispute, the Lease contained the following limitation of liability (hereinafter, the "Limitation Clause"):
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR PUNITIVE, EXEMPLARY, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES REGARDLESS OF WHETHER SUCH DAMAGES MAY BE AVAILABLE UNDER APPLICABLE LAW. IN NO EVENT SHALL EITHER PARTY, THEIR DIRECTORS, OFFICERS, EMPLOYEES, CONTRACTORS AND AGENTS BE LIABLE IN CONNECTION WITH A LEASE, FOR MORE THAN THE TOTAL CHARGES PAYABLE BY LESSEE DURING THE TERM OF SUCH LEASE.(SOMF ¶ 13; see also Lease Agreement § 21) (capitalization in original). The Lease
Agreement also contained a confidentiality provision (hereinafter, the "Confidentiality Clause"), noting in relevant part that:
This Agreement, the terms of transactions conducted under this Agreement, and information communicated between the Parties related to the Agreement and said transactions, as well as any 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 ("Confidential Information") and shall not be divulged to any third parties. . . . Notwithstanding the foregoing, neither Party shall be liable for disclosing Confidential Information that is otherwise available to the general public, is disclosed after receipt of the same from a third party that does not owe a confidentiality obligation to the Disclosing Party, or is required by law to be disclosed, provided however, that the Recipient promptly notices the Disclosing Party to allow for the Disclosing Party an opportunity to seek a protective order or injunction.(SOMF ¶ 57; see also Lease Agreement § 35.)
The Lease also provided, in pertinent part:
Lessee shall be in default if: (i) Lessee fails to pay any undisputed portion of an invoice when due and has not cured such breach within thirty (30) days of receipt of notice from [Lessor] of such failure to pay; . . . (iii) if Lessee breaches any other material term or obligation hereunder and fails to cure such breach within thirty (30) days of receipt of notice from [Lessor]. In the event that any such breach hereunder cannot reasonably be cured within such thirty (30) day cure period, Lessee shall not be in default if it has (a) acted diligently to begin curing the breach, (b) made reasonable
progress towards curing the breach, and (c) continues diligent efforts and reasonable progress towards curing the breach. . . . Following the expiration of the thirty (30) day cure period provided for in this section, Lessor may . . . terminate the affected Fibers and recover the Fibers, the [Lessor] Cable System and any other facilities without further notice.(Lease Agreement § 22.) Finally, the Lease Agreement contained a dispute resolution procedure, (Id. § 24), as well as a choice of law provision that states the Agreement shall be governed by New Hampshire Law. (Id. § 30.)
FirstLight acquired 186 Communications in 2017 and ultimately became 186's successor in interest to the Lease. (SOMF ¶ 58.) In 2018, FirstLight sought to enter into an interconnection agreement with VTel. (FAC ¶ 38; Second Am. Ans. ("Ans.") ¶ 38.) At the time, the company Huawei was under scrutiny by the United States government concerning potential national security threats posed by its equipment, (see FAC ¶¶ 33-35; Ans. ¶¶ 33-35), and VTel asked FirstLight to warrant that it would not use Huawei equipment while the interconnection agreement was in effect. (Guite Aff. ¶ 27.) FirstLight refused, and instead filed a petition with the Vermont Public Utilities Commission ("VPUC") seeking arbitration of the dispute. (Id.; FAC ¶ 40; Ans. ¶ 40.) These VPUC proceedings generated the interest of Vermont-based news companies, including Vermont Public Radio and VTDigger.org ("VTDigger"), which published a story on the dispute. (See FAC ¶ 45; Ans. ¶ 45.)
On February 19, 2019, Vermont's Agency of Digital Service issued Cybersecurity Standard 19-01, prohibiting the acquisition or use of Huawei equipment in Vermont's information technology or telecommunications systems or by any vendor providing those services to the State of Vermont. (FAC ¶ 46; Ans. ¶46; see also FAC, Ex. 2.) On February 25, 2019, FirstLight withdrew its arbitration petition from the VPUC. (SOMF ¶ 62; Ans. ¶ 49.)
Sometime after FirstLight filed its arbitration petition, Colin Meyn, the managing editor of VTDigger, contacted the CEO of VTel, Michael Guite, to inquire about FirstLight's use of Huawei equipment in its network. (Guite Aff. ¶ 30.) During this exchange, Guite offered to show Meyn VTel's network facilities at the colocation sites in Montpelier and Stowe. (Id. ¶¶ 30-31.) A representative of VTel escorted Meyn into the colocation facilities on June 20 and 25, 2019. (SOMF ¶ 29.) Meyn was not authorized to visit by Consolidated Communications of Vermont Company, LLC ("Consolidated"), who owned the colocation facilities, though VTel disputes that this authorization was needed. (Id. ¶¶ 29-30.) At the time, FirstLight was maintaining some of its equipment in the facilities as well, including some equipment that was manufactured by Huawei. Meyn was able to take photographs of some of this equipment; FirstLight alleges that VTel allowed this to occur, (see SOMF ¶ 31), while VTel asserts that it was unaware Meyn took any photographs of FirstLight's equipment. (See Id.; Guite Aff. ¶ 32, Ex. 5 at 49-51.)
In any event, Meyn thereafter attempted to contact representatives of FirstLight via email, seeking comment on an impending article about FirstLight's use of Huawei equipment and providing advance copies of photographs. (See Pl's Mot. Supp., Ex. 1; Armillay Aff., Ex. C ¶ 11.) FirstLight did not respond to these requests, and took no action to prevent the publication of the article or the photographs. (SOMF ¶ 66; Armillay Aff., Ex. C¶ 11.) On July 1, 2019, VTDigger published an article that accused FirstLight of using Huawei equipment and that included high definition photographs taken of FirstLight's network equipment. (See SOMF ¶ 67; Guite Aff. ¶ 18, Ex. 2.) It was not until after the article and photographs were published that FirstLight contacted VTDigger asking it to retract the story because of concerns about network security. (Armillay Aff., Ex. C ¶ 11.) The parties disagree as to whether the photographed equipment was sensitive network infrastructure or whether the photographs posed a threat to network security. (See SOMF ¶¶ 32-33.)
On July 3, 2019, FirstLight notified VTel in writing that it would be terminating the Lease Agreement due to VTel's "egregious violations of its nondisclosure and confidentiality agreements." (Id. ¶¶ 34, 69-70; Peyton Aff., Ex. B.) After receiving this notice, VTel filed a complaint with the VPUC seeking an injunction to prevent FirstLight from terminating the Lease. (SOMF ¶ 35; Warecki Supp. Aff., Exs. 8-10.) Consolidated also sent VTel a notice on July 25, 2019 expressing its opinion that VTel had violated the colocation tariff and security policies. (Def.'s Mot. Supp., Ex. 14.)
On November 6, 2019, the VPUC determined that it lacked jurisdiction over the dispute and dismissed VTel's complaint. (SOMF ¶ 36; Warecki Aff., Ex. 6.) FirstLight then sent final written notice to VTel on November 21, 2019 informing VTel that it was terminating the Lease Agreement, effective December 14, 2019. (SOMF ¶¶ 34, 71; Peyton Aff., Ex. C.) FirstLight alleged that 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 and facilitating the taking and publication of photographs of FirstLight's confidential network equipment." (Peyton Aff., Ex. C.) FirstLight further explained that it could not afford VTel an opportunity to cure its breach, because the disclosure of confidential information had already occurred and could not be retracted. (Id.)
VTel did not pay the monthly charges for October, November, or December 2019 despite being sent invoices. (SOMF ¶¶ 41-47; see also Pinnell Aff., Exs. D-G (Invoices).) On May 1, 2020, VTel sent written notice to FirstLight disputing these invoices and indicating the dispute could not be resolved pending the outcome of this litigation. (Pinnell Aff., Ex. H.) VTel asserts that it was not obligated to pay the monthly charges because FirstLight materially breached the Lease. (See SOMF ¶¶ 42, 44, 47; Guite Aff. ¶ 59.) FirstLight avers that it is owed at least $44,076.77, inclusive of accruing late fees, though VTel disputes this amount. (SOMF ¶ 54; Pinnell Aff. ¶ 18.) VTel now seeks damages in excess of $25 million; FirstLight counterclaims for the last three payments owed under the Lease plus interest and late fees. (See Armillay Aff., Ex. A (Expert Report of FTI Consulting); FAC; Second Ans. & Counterclaim.)
Analysis
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits filed, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." RSA 491:8-a, III. "An issue of fact is 'material' for purposes of summary judgment if it affects the outcome of the litigation under the applicable substantive law." VanDeMark v. McDonald's Corp., 153 N.H. 753, 756 (2006). In evaluating a motion for summary judgment, the Court considers "the evidence in the light most favorable to the party opposing the motion, giving that party the benefit of all favorable inferences that may be reasonably drawn from the evidence." Arnica Mut. Ins. Co. v. Mutrle, 167 N.H. 108, 111 (2014). In order to defeat summary judgment, the non-moving party "must put forth contradictory evidence under oath sufficient to indicate that a genuine issue of material fact exists." Brown v. Concord Grp. Ins. Co., 163 N.H. 522, 527 (2012).
I. Summary Judgment on VTel's Claims
FirstLight now moves for summary judgment on all of VTel's claims. Principally at issue in FirstLight's motion is the enforceability of the Limitation Clause found in the Lease. As described above, the Limitation Clause bars the recovery of consequential damages entirely, and limits monetary recovery to the charges payable by VTel during the term of the lease. (See Lease Agreement, § 21.) In moving for summary judgment, FirstLight asserts that because VTel has only articulated consequential damages (i.e., stranded network investment and lost future opportunities), the Limitation Clause bars VTel's claims. (Def.'s Mem. Law in Supp. Mot. Summ. J. at 1, 8-12.) Alternatively, FirstLight asserts that the Limitation Clause caps the amount of damages at the "total charges payable by lessee during the term of such lease," which according to FirstLight, is all sums payable between July 1, 2014 and December 16, 2019, or $849,550. (Id. at 12-13 (quoting Lease Agreement § 21) (capitalization removed).)
The parties dispute whether the damages cap should be calculated based on the full thirty-year length of the Lease with all the automatic extensions, or just the length of the Lease at the point when FirstLight terminated. Because the Court is declining to enforce the Limitation Clause at this stage of the litigation, it need not determine the true measure of the damages cap.
For its part, VTel argues that the Limitation Clause is unenforceable because FirstLight has acted in bad faith. (Pl's Mem. Law in Supp. Obj. at 8-11.) Specifically, VTel contends that FirstLight's stated reason for termination of the Lease (breach of the Lease's Confidentiality Clause) was pretextual and retaliatory, that FirstLight actually terminated the Lease for competitive advantage, and that FirstLight should not be able to use the Limitation Clause to shield itself from liability when it terminated the Lease in bad faith. (Id. at 10.) VTel points to a bevy of case law it asserts supports that position. (See id. at 8, 10-11 (collecting cases).) FirstLight seeks to distinguish those cases as inapposite or narrower in scope. Stated another way, FirstLight asserts that limitation clauses such as the one at issue are generally enforceable unless they are unconscionable or there was bad faith or fraud at contract formation. (Def.'s Reply at 3-5.) Here instead, VTel does not-and could not-assert that the Limitation Clause is unconscionable, and alleges bad faith in contract termination. (Id. at 4-5.)
Both parties agree that the New Hampshire Supreme Court has not definitively ruled on this issue. (See Def.'s Reply at 3; Pl's Surreply at 4.) Generally, "[w]hen, as here, a transaction is between two commercial entities, contractual limitations on consequential and incidental damages are normally enforced." Colonial Life Ins. Co. v. Electronic Data Sys. Corp., 817 F.Supp. 235, 240 (D.N.H. 1993). However, VTel points to dicta in PK's Landscaping, Inc. v. New England Telephone & Telegraph Company, 128 N.H. 753 (1986) (2-2, per curiam), to support its contention that New Hampshire would adopt the rule that limitations clauses are unenforceable by a party that has acted in bad faith.
In PK's Landscaping, the New Hampshire Supreme Court addressed the enforceability of a limitation of liability clause in a Yellow Page advertisement agreement that limited damages to the advertising fees actually paid by the plaintiff. Id. at 754. The plaintiff argued that the provision was unconscionable and should not be enforced, due to the monopoly power of the telephone company and the parties' disparity in bargaining power. Id. at 755, 757. The Supreme Court, by an equally divided court, found the provision was not unconscionable and affirmed the trial court's grant of summary judgment in favor of the phone company. Id. at 758. However, the divided Court went on to caution that:
Although the limitation of liability clause is valid in this case, there are limits to the enforceability of such clauses. We agree with the jurisdictions which have held that wanton and wilful conduct intended to harm is not subject to the limitation of liability. If the telephone company acts in such a way that its actions can reasonably be construed as wilful and wanton, the protection afforded by the limitation of liability clause shall not be available.Id. at 757 (citations omitted).
Two justices dissented. They advocated for the minority view that such clauses are unconscionable. Id. at 758-59 (Batchelder, J., dissenting). Relevant here, the dissenting opinion agreed with the prevailing opinion that such clauses should not be enforced in cases of intentional misconduct. Id. at 758. The dissenting Justices differed from their colleagues in that they would remand the case for trial because there had been a finding that the phone company had acted intentionally in omitting the plaintiff's advertisement from the Yellow Pages. Id. When read together, the prevailing and dissenting opinions support the proposition that there are outer boundaries limiting the enforcement of limitation clauses, even when they are not found to be unconscionable.
Similarly, VTel relies on Colonial Life Insurance Co. v. Electronic Data Systems Corp., 817 F.Supp. 235 (D.N.H. 1993). There, the U.S. District Court, applying New Hampshire law, analyzed the enforceability of a substantially similar limitation on consequential damages under Article 2 of the Uniform Commercial Code. The plaintiff in Colonial Life asserted that the defendant knowingly sold a defective product because it was undeveloped at the time of contract. Id. at 243. The district court held that the limitation provision was not unconscionable as a matter of law, given that the contract was entered into by sophisticated businesses that were represented by counsel and after months of negotiations. Id. at 241-42. However, the court went on to observe that "[a]lthough the limitation of damages clause is valid as a matter of contract law, the clause is not necessarily binding as a matter of law, since there are limits to the enforceability of such clauses." Id. at 242 (emphasis added).
Relying on PK's Landscaping, the Colonial Life court then analyzed whether the provision was enforceable. Noting that the New Hampshire Supreme Court had not yet decided the issue, the Colonial Life court predicted that it would find that: (1) "a defendant is generally precluded from relying on limitation provisions of a contract entered into as a result of fraudulent actions on the defendant's part;" (2) "[limitations of damages for breach would likely be held ineffective when a party acts fraudulently, or in bad faith;" and (3) "a 'total and fundamental breach' would likely be held to nullify damage limitations in a contract." Id. at 242. It therefore followed, observed the court, that "the contractual limitation of liability is not enforceable under New Hampshire law if plaintiff's claims of fraud, bad faith and/or total and fundamental breach is proven at trial." Id. at 242-43. The Colonial Life court ultimately denied the defendant's motion for summary judgment, finding that there were unresolved factual disputes over whether the defendant's conduct was in bad faith. Id. at 243.
VTel relies on these cases to argue that "a party cannot avail itself of a limitation of liability provision in a contract when a party acts in bad faith." (Pl's Mem. Law Supp. Obj. Mot. Summ. J. at 8.) For its part, FirstLight points out that the pertinent language in these cases is dicta, and to the extent these cases are even relevant, they apply to situations in which the plaintiff's claims sound in tort or when the plaintiff alleges bad faith at contract formation. (Def.'s Reply at 3-5.) Given how other courts have addressed this issue, however, the Court is not persuaded by FirstLight's narrow construction of the rule. Like the Colonial Life court, this Court finds that New Hampshire would adopt the rule the rule that a limitation clause may not be enforceable in instances where the party seeking to enforce it has acted in bad faith. This is especially true in light of the courts' broad language in PK's Landscaping and Colonial Life.
Moreover, the Court is also persuaded by the many other jurisdictions that have recognized or adopted a version of this rule, both in the U.C.C. and non-U.C.C. context, and for bad faith both in contact formation as well as contract performance. See, e.g., 28A N.Y. Prac, Contract Law § 24:20 (Westlaw 2021) (articulating NY rule that "[e]ven if a limitation of liability clause is not unconscionable, a defendant may be estopped from asserting a contractual limitation of damages if the defendant acted in bad faith"); Zachry Const. Corp. v. Port of Houston Auth. of Harris Cty., 449 S.W.3d 98, 115-18 (Tex. 2014) (observing that court decisions in at least 28 jurisdictions support the adoption of this rule and finding that a no-damages-for-delay provision was unenforceable where a jury found that the delay was the result of the defendant's arbitrary and capricious conduct, active interference, bad faith and/or fraud); Airfreight Express Ltd. V. Evergreen Air Center, Inc., 158 P.3d 232, 239-40, 242 (Ariz.Ct.App. 2007) (observing that "several courts have approved of this or a similar rule and none has rejected it" and reversing the trial court's grant of summary judgment because there existed a dispute of fact over whether the defendant had performed the contract in bad faith and caused delays that resulted in the plaintiff losing an air cargo contract); City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d 1271, 1275 (Alaska 1994) (holding that "Liability for 'knowing' or 'bad faith' breaches can never be limited" by an exculpatory clause); Long Island Lighting Co. v. Transamerica Deleval, Inc., 646 F.Supp. 1442, 1458-59 (S.D.N.Y. 1986) (observing that "[a] defendant may be estopped from asserting a contractual limitation of consequential damages if the defendant has acted in bad faith," and holding that because there was a dispute of fact over the defendant's bad faith in breaching the warranty to repair or replace, the court would reserve judgment on the issue until trial); Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377, 385 (NY 1983) (explaining that "an exculpatory clause is unenforceable when, in contravention of acceptable notions of morality, the misconduct for which it would grant immunity smacks of intentional wrongdoing. This can be explicit, as when it is fraudulent, malicious or prompted by the sinister intention of one acting in bad faith. Or, when, as in gross negligence, it betokens a reckless indifference to the rights of others, it may be implicit."); see also 15 Corbin on Contracts, § 85:18, at 471 (Lexis 2003) ("A party may contract to limit liability in damages for nonperformance of promises .... Such a provision is not effective, however, if that party acts fraudulently or in bad faith.").
In response, FirstLight contends that even if the Court adopts the rule that the Limitation Clause is unenforceable for bad faith, New Hampshire has recognized an implied covenant of good faith and fair dealing in only three scenarios, none of which are implicated in this dispute. (Def.'s Reply at 7); see Skinny Pancake-Hanover v. Crotix, 172 N.H. 372, 379 (2019) (articulating New Hampshire's law on the subject). Here, however, FirstLight asserts it is undisputed that VTel allowed a reporter into the consolidated location facilities and then allowed him to take photographs, both actions in violation of the Confidentiality Clause, the CLEC Tariff, and industry standards. Thus, FirstLight maintains it simply invoked its contractual rights to terminate pursuant to the unambiguous Lease terms, and "the implied covenant does not preclude a contracting party from insisting on enforcement of the contract by its terms, even when enforcement might operate harshly or inequitably." (Def.'s Reply at 11 (quoting Moore v. Mortg. Bee. Registration Sys., Inc., 848 F.Supp.2d 107, 129 (D.N.H. 2012).)
However, at least one court of last resort has addressed this issue and found that "the law need not impose a duty of good faith on a party to prohibit him from attempting to escape liability for his future, deliberate, wrongful conduct." Zachry Const. Corp. v. Port of Houston Auth. of Harris Cty., 449 S.W.3d 98, 116-18 (Tex. 2014) (observing that Texas does not recognize the implied covenant of good faith, but nonetheless finding a "no damages for delay" provision in a construction contract unenforceable where the defendant was alleged to have acted arbitrarily, capriciously, and in bad faith in delaying the project); cf. Northern Heel Corp. v. Compo Indus., 851 F.2d 456, 470 (1st Cir. 1988) (observing that "[w]e do not doubt that a party's completely unwarranted departure from a 'done deal' would be a sufficient predicate for a showing of bad faith."); Kallsch-Jarcho, 58 N.Y.2d at 385, n. 5 ("Bad faith, the mirror image of good faith, connotes a dishonest purpose"). The Court is therefore not persuaded that only breaches of the implied covenant of good faith and fair dealing qualify as "bad faith" within the meaning of this rule.
Having found that under the common law the Limitation Clause would be unenforceable if FirstLight acted in bad faith, the Court next turns to whether VTel has put forth enough facts to create a triable issue regarding FirstLight's alleged bad faith. In support of its contention that FirstLight acted in bad faith, VTel asserts that FirstLight terminated the Lease a mere two days after the article's publication and without first conducting a proper investigation, giving VTel an opportunity to cure, or utilizing the contractual dispute resolution procedure, in violation of the terms of the Lease. Indeed, according to VTel, the July 3, 2019 Notice terminating the Lease incorrectly accuses it of providing the photos to VTDigger, when in fact, VTel asserts they were taken without its knowledge or permission. According to VTel, only after the decision to terminate the Lease was made did FirstLight conduct a proper investigation into the facts and circumstances surrounding the article. VTel also contends that neither the July 3, 2019 Notice nor the November 21, 2019 Notice identify violation of Consolidated's colocation tariff as a justification for termination, yet FirstLight now asserts this as a basis for termination as well. (SOMF ¶¶ 77-78.)
VTel disputes that it is even bound by this Tariff.
Additionally, VTel contends that, while initially claiming the Huawei equipment at issue was confidential, FirstLight has now conceded that it was not. (See Armillay Aff., Ex. E § A (stipulating that FirstLight's predecessor publicly disclosed its purchase of Huawei equipment). Moreover, Guite avers that it is not unusual for a member of the media to visit and/or publish photos taken in collocation centers and provides a few examples to support that contention. (Guite Aff. ¶¶ 38-41.) Finally, VTel also notes that Meyn provided the two photographs at issue to FirstLight before publication and asked for its comment on his impending article. Nonetheless, while it appears that many in the FirstLight organization were made aware of Meyn's impending article, FirstLight took no steps to prevent the publication of the photos until after they were already published. (Pl's Mot. Supp., Ex. 1; Armillay Aff., Ex. C ¶ 11.)
It should be noted that FirstLight still maintains that the configuration and physical layout of the equipment is confidential.
In the light most favorable to VTel, these facts at least raise an inference that FirstLight's stated reasons for termination were varying and pretextual. The Court therefore finds that these facts, combined with (1) FirstLight's status as a competitor or potential competitor in at least some markets, (see SOMF ¶ 59); (2) the admittedly favorable terms under which VTel originally negotiated the Lease Agreement with FirstLight's predecessor-locking in prices and favorable terms through 2044; and (3) the parties' previous interconnection dispute create a factual dispute concerning FirstLight's bad faith in terminating the Lease. Applying the rule articulated above, summary judgment is therefore inappropriate at this juncture. See Delphi Petroleum v. Magellan Terminals Holdings, LP, 2015 WL 3885947, at *23-24 (Del. Super. Ct. June 23, 2015) (noting that "it has been repeatedly recognized that the issue of whether limitation provisions are enforceable under the contractual relations of the parties and the nature of the contractual performance are matters which generally should not be decided on the pleadings or on summary judgment" and denying summary judgment because resolving the parties' bad faith claims required a factual analysis) (quoting J. A. Jones Const. Co. v. City of Dover, 372 A.2d 540, 553 (Del. Super. Ct. 1977)). The Court is not holding at this juncture that the Limitation Clause is unenforceable; only that the question of its enforceability cannot be resolved until findings of fact are made regarding whether FirstLight acted in bad faith in terminating the Lease.
II. Summary Judgment on FirstLight's Counterclaim
FirstLight also moves for summary judgment on its counterclaim for damages. Specifically, it argues that it VTel had access to the fibers through December 14, 2019, and that VTel had an obligation to pay the invoices for access through that date. (See Def.'s Mem. of Law at 18-19.) Moreover, FirstLight asserts that VTel has no good faith reason to dispute the invoices, and even if it did, it unambiguously waived its right to claim setoff in the Lease. (Id. at 19 (citing Lease Agreement § 11).) In response, VTel does not dispute that it did not pay the invoices for October, November, or December of 2019. (Pl's Mem. of Law at 17.) Rather, VTel asserts that FirstLight was in material breach, and therefore, VTel was no longer obligated to perform under the Lease. (Id. at 17-19.)
It is true, as FirstLight asserts, that the Lease contains a clause waiving "setoff, reduction, or adjustment." (Lease Agreement §11.) However, the Lease also contains a dispute procedure wherein the Lessee may withhold portions of disputed payments, with notice to the Lessor. (See id. ("All undisputed portions of invoices shall be due and payable in net 30 days from Lessee's receipt of invoice.") (emphasis added; /c/. §11.1 (requiring that the Lessee act in good faith in resolving the dispute and demanding that "[i]n the event it is determined that the disputed monies or any portion of such disputed monies are owed under this Agreement, Lessee shall pay the disputed monies."); id. § 22 ("Lessee shall be in default if: (i) Lessee has failed to pay any undisputed portion of any invoice when due . . . .") (emphasis added). Taking VTel's May 1, 2020 notice to FirstLight in the light most favorable to VTel, it served as timely notice of the disputed charges for all relevant invoices except one, for which it was two days late. (See Pinnell Aff., Ex. H; see also Lease Agreement §11.1 (requiring notice of dispute within 180 days).)
Regardless, VTel has alleged that FirstLight materially breached the Lease Agreement. "Under the material breach doctrine, a breach that is sufficiently material and important to justify ending the whole transaction constitutes a total breach that discharges the injured party's contractual obligation to perform." Kishan, Inc. v. Jalbert, No. 2016-0463, 2017 N.H. LEXIS 67, at *2 (Mar. 24, 2017) (non-precedential order). However, "[n]ot every breach of duty by one party to a contract discharges the duty of performance of the other." Fitz v. Coutinho, 136 N.H. 721, 724 (1993). "Only a breach that is sufficiently material and important to justify ending the whole transaction is a total breach that discharges the injured party's duties." Id. "A breach is 'material' if a party fails to perform a substantial part of the contract or one or more of its essential terms or conditions, the breach substantially defeats the contract's purpose, or the breach is such that upon a reasonable interpretation of the contract, the parties considered the breach as vital to the existence of the contract." Ellis v. Candia Trailers & Snow Equip., 164 N.H. 457, 467, 58 A.3d 1164 (2012) (emphasis omitted). "Whether conduct is a material breach is a question for the trier of fact to determine from the facts and circumstances of the case." Barrows v. Boles, 141 N.H. 382, 388 (1996) (quotation and brackets omitted).
As described above, VTel alleges that FirstLight breached the contract by terminating access to the fibers in bad faith, without conducting a proper investigation, affording VTel an opportunity to cure its alleged breach, or utilizing the contractual dispute resolution procedures, in contravention of the terms of the Lease. (See Lease Agreement §§ 22, 24.) The net effect of FirstLight's actions were to deprive VTel access to and use of the fibers many years before its automatic renewal options lapsed. Access to the fibers was clearly the ultimate purpose of the Lease. Thus, if VTel prevails at trial in proving that FirstLight breached the contract by terminating the Lease in the manner it did or for the reasons VTel alleges, it could very well be found that such a breach was "material" and discharged VTel's duties to further perform its obligations, notwithstanding VTel's waiver of setoff. Stated another way, the question of whether FirstLight materially breached the contract must necessarily be resolved prior to resolving whether VTel was in breach for nonpayment. Because, as noted above, there is a factual dispute over whether FirstLight terminated the Lease in bad faith, the Court DENIES FirstLight's motion for summary judgment on its counterclaim for damages.
Conclusion
For the foregoing reasons, FirstLight's motion for summary judgment is DENIED. This Order will be published under seal for ten (10) days from the date on the notice of decision accompanying this Order. During that time, the parties are to confer and determine whether any information in this Order is confidential or subject to protective order, and inform the Court of any redactions that they desire made. Hearing no notifications to the contrary, this Order will otherwise be made public in its entirety.
SO ORDERED.