Opinion
216-2020-CV-00312
01-10-2024
Vermont Telephone Company, Inc. v. FirstLight Fiber, Inc.
ORDER ON DEFENDANT'S MOTION FOR JUDGMENT NOTWITHSTANDING THE VERDICT
David A. Anderson Associate Justice
Plaintiff Vermont Telephone Company, Inc. ("VTel") brought this action against Defendant FirstLight Fiber, Inc. ("FirstLight") arising out of FirstLight's termination of the parties' contract. Plaintiff's amended complaint alleges a claim for breach of contract.Defendant filed a counterclaim for breach of contract. The Court held a nine-day jury trial beginning on September 25, 2023. On October 11, 2023, the jury returned a verdict in VTel's favor on its breach of contract claim and awarded it $1,250,000 in consequential damages. FirstLight now moves for judgment notwithstanding the verdict ("JNOV"). (Doc. 241.) VTel objects. (Doc. 243.) For the reasons set forth below, FirstLight's motion for JNOV is DENIED.
The Court granted FirstLight's motion for directed verdict on VTel's breach of the implied covenant of good faith and fair dealing claim.
Factual and Procedural Background
Facts that the jury could have found in connection with FirstLight's alleged bad faith are summarized beginning at page 7.
FirstLight terminated a Dark Fiber Lease Agreement ("the Lease") after VTel employee Samuel Coleman escorted newspaper reporter Colin Meyn into a collocation facility owned by Consolidated Communications ("Consolidated") at which both parties maintained equipment. Relevant to the present motion, Section 35 of the Lease provides, in pertinent part: "_[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, [is] proprietary ("Confidential Information") and shall not be divulged to any third parties." (Doc. 241 at 5.) FirstLight terminated the Lease because it believed that VTel's act of escorting Meyn into Consolidated's facility violated Section 35 of the Lease. In response, VTel maintains that FirstLight's equipment configuration is not confidential and FirstLight's termination of the Lease was done without legal excuse and thus constitutes a breach.
Relevant to damages stemming from breaches of the Lease, Section 21 provides, in part: "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." (Id. at 5.) Throughout this litigation, the parties have argued whether VTel would be entitled to damages under Section 21 of the Lease. FirstLight has maintained that Section 21 bars recovery of VTel's sought lost profit damages. However, VTel contends that Section 21 is not enforceable because FirstLight terminated the Lease in bad faith. In a summary judgment order dated January 14, 2022, this Court agreed with VTel, finding "that New Hampshire would adopt the rule that a limitation clause may not be enforceable in instances where the party seeking to enforce it has acted in bad faith." (Doc. 81 at 12.)
At the close of VTel's case, FirstLight orally moved for directed verdict on the issue of bad faith, advancing arguments largely mirroring those FirstLight made at the summary judgment stage. The Court denied FirstLight's motion on the record, relying on the rationale of its previous ruling. The Court submitted a special verdict form to the jury, including questions asking whether FirstLight breached the Lease and if so, whether it terminated the Lease in bad faith. The jury answered both in the affirmative and awarded VTel $1,250,000 in lost profit damages. This motion followed.
Analysis
"[M]otions for directed verdict and judgment notwithstanding the verdict are essentially the same, and they are governed by identical standards." 101 Ocean Blvd., LLC v. Foy Ins. Grp., Inc., 174 N.H. 130, 145 (2021). "A motion for JNOV relates to the sufficiency of the evidence and presents a question of law." Halifax-American Energy Co., LLC v. Provider Power, LLC, 170 N.H. 569, 576 (2018). "A party is entitled to JNOV only when the sole reasonable inference that may be drawn from the evidence, which must be viewed in the light most favorable to the non-moving party, is so overwhelmingly in favor of the moving party that no contrary verdict could stand." Id. "The court cannot weigh the evidence or inquire into the credibility of the witnesses, and if the evidence adduced at trial is conflicting, or if several reasonable inferences may be drawn, the motion should be denied." Id.
FirstLight moves for JNOV on two grounds. First, FirstLight argues that the Court impermissibly injected a moral quality into a breach of contract action by instructing the jury to consider whether FirstLight terminated the Lease in bad faith. Second, FirstLight contends that even if evidence of bad faith was necessary, the evidence adduced at trial can only show that FirstLight acted reasonably in terminating the Lease because VTel escorted Meyn into the facility. The Court will address each argument in turn.
I. Bad Faith Instruction
FirstLight maintains that it is entitled to JNOV because Lease Section 21 bars VTel from recovering lost profit damages. FirstLight takes particular exception to the Court's decision to instruct the jury that it could only award VTel its sought damages if VTel proved that FirstLight terminated the Lease in bad faith. FirstLight now argues that the procedural posture of the case-namely the fact that the jury only considered VTel's breach of contract claim independent from its breach of the implied covenant of good faith and fair dealing claim-means that bad faith has no bearing on VTel's lone breach of contract claim. VTel disagrees, instead arguing that assessing bad faith in this context does not go to FirstLight's liability for breach but rather toward calculating the remedies VTel is so entitled. VTel also points out that FirstLight's arguments are merely a re-hash of arguments that this Court has previously denied.
The Court agrees with VTel. FirstLight advances arguments that largely mirror the same arguments that this Court has ruled against on multiple occasions. In denying FirstLight's motion for directed verdict on the very same issue, the Court rejected the same arguments FirstLight now makes using the same standard that it must use to determine the present motion. See 101 Ocean Blvd., LLC, 174 N.H. at 145.
In particular, the Court is not persuaded that the different procedural posture of VTel's claims after the Court granted FirstLight's directed verdict motion as to VTel's breach of the implied covenant claim means that the jury could not consider bad faith. In essence, FirstLight insists that without a claim for breach of the implied covenant of good faith and fair dealing, considering whether FirstLight terminated the Lease in bad faith unlawfully interjects a moral quality into a breach of contract claim. That is not so. As VTel points out, the jury did not consider whether FirstLight acted in bad faith when it found that FirstLight was liable for breaching the Lease. Indeed, the special verdict form the jury filled out asked it to determine FirstLight's liability independently of any determinations of bad faith. The jury only considered whether FirstLight acted in bad faith to determine whether Section 21 of the Lease barred VTel from recovering any consequential damages. As the Court noted in its summary judgment order, at least one other jurisdiction that does not even recognize an implied covenant of good faith and fair dealing nevertheless recognizes that bad faith conduct can make a damages limitation provision unenforceable. See Zachry Const. Corp. v. Port of Hous. Auth. of Harris Cnty., 449 S.W.3d 98, 116-18 (Tex. 2014).
FirstLight continues to insist that the authority the Court used in its summary judgment order is distinguishable from the case at bar. Broadly, FirstLight argues that many of the cases the Court relied on and that VTel now cites involve cases sounding in tort or clauses-unlike Section 21-that completely immunize a party from having to pay damages. For example, FirstLight contends that Zachry Construction involves a clause analogous to a fully exculpatory clause and thus is distinguishable from the case at bar. See id. Additionally, FirstLight points to other case law finding that in pure breach of contract actions not involving fully immunizing damages provisions, wrongful conduct cannot defeat said clause's enforceability. See, e.g., Matter of Part 60 PutBack Litig., 165 N.E.3d 180, 188 (N.Y. 2020) ("When the clause limiting liability is negotiated at arm's length by sophisticated parties, provides for more than nominal damages, and does not wholly exculpate the breaching party, the rationales underlying the gross negligence public policy exception fail to overcome the public policy in favor of freedom of contract, where, as here, the only causes of action raised in the complaint sound in breach of contract.")
The Court is not persuaded to overturn its previous rulings in this case. As explained in the January 14, 2022 order, FirstLight's approach to the issue is too narrow. Indeed, dicta from the New Hampshire Supreme Court that this Court relied on contains no such limitations on the kind of clauses that bad faith conduct could render unenforceable. See PK's Landscaping, Inc. v. New England Tel. and Tel. Co., 128 N.H. 753, 757 (1986) ("If the [defendant] 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."). Moreover, at least one other court has found that a limitations clause similar to Section 21 is only enforceable if the breaching party did not act in bad faith. See Valve Corp. v. Sierra Ent. Inc., 431 F.Supp.2d 1091, 1101 (W.D. Wash. 2004) (acknowledging that if plaintiff establishes at trial that defendant acted in bad faith, the parties' limitation of liability clause as to "special, incidental, consequential, or punitive damages" may not be enforceable). Ultimately, the Court remains unpersuaded to overturn its previous ruling. Accordingly, the Court finds that it was not error for the jury to consider whether FirstLight breached the Lease in bad faith.
II. Sufficiency of the Evidence Regarding Bad Faith
Next, FirstLight argues that even if the jury properly considered whether it acted in bad faith, the Court should enter judgment in its favor because the evidence presented at trial was so one-sided that the only rational inference that could be drawn is that FirstLight acted reasonably in terminating the Lease. In particular, FirstLight points to testimony from its employee Brandon Peyton and expert Robert Renzulli that FirstLight executives genuinely and reasonably believed that VTel's act of escorting Meyn into the collocation facility divulged FirstLight's confidential information. Thus, according to FirstLight, it did not act recklessly in terminating the Lease. For its part, VTel argues that there is sufficient conflicting evidence in the record about the confidential nature of FirstLight's equipment configuration to defeat FirstLight's motion.
The Court notes that FirstLight's argument goes to the sufficiency of the evidence presented, and not its weight, and thus it has to meet a more stringent standard to be entitled to judgment without a new trial. See Amabello v. Colonial Motors, 117 N.H. 556, 561 (1977) (describing the standard for JNOV or directed verdict as more "rigorous" than the standard for a new trial). At trial, the Court's jury instruction defined "bad faith" as the following: "A party acts in 'bad faith' when it acts with an improper intent, purpose, or motive. Bad faith encompasses fraud, dishonesty, and other intentionally misleading conduct. A party acts in bad faith where it acts recklessly, maliciously, or with wanton and willful conduct intended to cause harm." (Jury Instructions (Doc. 236) at 16-17.)
i. Facts Relating to Bad Faith
The jury could have found the following facts pertaining to FirstLight's bad faith actions. FirstLight's employees as well as its expert testified that they considered the configuration of FirstLight's equipment to be confidential and were deeply troubled by the fact that Meyn took photographs of the equipment. They also testified that any reasonable person in the telecommunications industry would likewise consider the equipment configuration to be confidential. In particular, Renzulli testified that the pictures left FirstLight vulnerable to potential phishing attacks that could compromise its network security. FirstLight Chief Marketing Officer Maura Mahoney testified that although Meyn reached out to FirstLight before he published the photographs, FirstLight could not engage with him because of federal law protecting customer information.
The FirstLight executive team all testified that the week prior to the publication of the photographs, they were attempting to do damage control. Former FirstLight CEO Kurt Van Wagenen testified that he made the decision to terminate the Lease shortly after the photographs were published and that he would make the same the decision again. FirstLight employees further testified that the decision to terminate the Lease, which was against FirstLight's economic interests, highlights how grave of a situation VTel's actions caused for FirstLight. Additionally, the evidence demonstrated that VTel should have been on notice through Consolidated's tariff that it could only bring Meyn into the collocation facility with Consolidated's prior approval, which it did not seek or acquire. Consolidated initially revoked Coleman's access to the collocation facility in the wake of him escorting Meyn into said facility without prior approval.
VTel's witnesses painted a different picture of events. VTel's witnesses testified that it did not consider its own equipment configuration to be confidential nor did it consider FirstLight's equipment to be, especially considering that FirstLight never deemed it to be confidential. VTel's expert Fred Goldstein disagreed with Renzulli's assessment and testified that there was no way that any hackers or other cybercriminals could access FirstLight's network remotely because there was no IP address or other identifying information clearly visible on the published photographs.
Moreover, Coleman testified that it was standard practice to bring third-parties into collocation facilities and that he did not believe that he was showing Meyn any confidential information. For example, the evidence established that VTel once escorted John Quinn, the former Secretary of the Vermont Agency of Digital Services, into facility, where Quinn took photographs of equipment displayed on open racks and posted them online. Meyn also testified that he consulted with experts in network security before publishing the pictures because he wanted to make sure that he was not publishing anything confidential. Additionally, Meyn explained that he went to great lengths to contact FirstLight prior to publishing the photographs, including directly contacting FirstLight's in-house counsel. FirstLight never responded to any of Meyn's repeated attempts to contact FirstLight.
VTel's president, Dr. Michel Guite, testified that he had no knowledge that Meyn intended to or actually took photographs while at the collocation facility and that he did not ask Meyn to publish said photographs. Dr. Guite also testified that he reasonably believed that Section 35 applied only to financial information, not equipment configurations. The evidence also demonstrates that FirstLight made no effort between June 25 and July 1, 2019, to obtain possession of the photographs or otherwise bolster its network security. Mahoney testified that she had drafted an email to send to Meyn regarding the photographs but that she never sent the email. After FirstLight decided to terminate the Lease but before it sent notice to VTel, FirstLight employee Brian Kurkowski sent an email to the executive team stating that it would make VTel walk the plank, to which a fellow employee responded with a picture of Jack Sparrow. The first notice of termination that VTel received on July 3, 2019, only indicated that FirstLight was terminating the Lease because VTel breached its obligations under confidentiality and non-disclosure agreements.
ii. Application of Facts Showing Bad Faith to the JNOV Standard
FirstLight argues that the above evidence demonstrates that the only rational and reasonable inference that a jury could make was that FirstLight acted reasonably in terminating the Lease because it reasonably believed that the act of escorting Meyn into the collocation facility divulged confidential information. The Court disagrees. At best, the evidence in front of the jury was conflicting as to the confidentiality of Consolidated's equipment configuration. The jury could have credited Renzulli and Peyton's testimony and found that FirstLight's belief was reasonable. However, the jury just as easily could have found that Goldstein was credible and any of FirstLight's claims that its configuration was confidential was not reasonable based on prevailing industry standards. At this stage, it is not the Court's role to weigh the credibility of witnesses, as that was the jury's role. See Halifax-American Energy Co., 170 N.H. at 576. Although FirstLight's evidence of its belief regarding confidentially may weaken VTel's claim that it reasonably believed the configuration was not confidential, a reasonable jury could still find that FirstLight's belief was unreasonable. See id. (finding the fact that the defendants' evidence "may have cast doubt" on the plaintiffs' evidence was insufficient for the defendants to show that it was entitled to JNOV).
Moreover, the Court finds that a reasonable jury could conclude based on the above evidence that at the very least, FirstLight acted recklessly, which would be sufficient to negate Section 21, in terminating the Lease. Reckless conduct is "characterized by the creation of a substantial and unjustifiable risk of harm to others by a conscious (and sometimes deliberate) disregard or indifference to that risk." Reckless, Black's Law Dictionary (10th Ed. 2014). Additionally, "reckless conduct is much more than mere negligence: it is a gross deviation from what a reasonable person would do." Id. In other words, for conduct to be reckless, it must be so unreasonable that a reasonable person would never engage in it. As the Court discussed above, the evidence as to the parties' reasonable belief of the confidentiality of FirstLight's equipment configuration is conflicting. However, a reasonably jury could infer that based on the evidence VTel presented that FirstLight should have known its equipment configuration was not confidential and that terminating the Lease without initially explaining in any detail why was not reasonable. Thus, a jury could reasonably infer that FirstLight's actions in terminating the Lease were pre-textual and that a reasonable person would not have sent a sparse termination notice that did not point to which Lease provision FirstLight claimed VTel breached.
FirstLight further argues that at worst, the evidence at trial establishes that it terminated the Lease for legitimate economic reasons, which legally is not evidence of bad faith. (See Doc. 241 at 23) (citing Leeds v. BAE Sys., No. 2009CV0557, 2012 WL 10829265, at *5 (N.H. Super. June 11,2012) ("While bad faith or malice arises in a variety of circumstances, it is not bad faith to terminate an employee for legitimate business reasons."). However, there was sufficient evidence submitted to the jury from which they could reasonably infer that any decision to terminate was not necessarily economic in nature. For example, the jury heard evidence about the so-called pirate email. As VTel pointed out at trial, one reasonable inference from sending such an email during negotiations about whether to terminate a significant contract could suggest that the termination was not done in good faith. As multiple inferences can be drawn from this email and other evidence presented, a reasonable jury could find that FirstLight acted recklessly in terminating the Lease. See Halifax-American Energy Co 170 N.H. at 576.
Ultimately, the jury considered plentiful evidence from which it could infer that FirstLight acted in bad faith when it terminated the Lease. The jury heard conflicting testimony over the parties' understanding of the confidentiality of FirstLight's equipment. For a sufficiency of the evidence argument, the existence of conflicting evidence from which multiple reasonable inferences can be drawn demonstrates that FirstLight is not entitled to JNOV. See id. FirstLight may be correct that the jury could have reasonably concluded in its favor based on the evidence. However, the same could be said for VTel's evidence. Accordingly, FirstLight is not entitled to judgment oi the issue of bad faith. See id.
VTel also argues that the jury had sufficient information to find that FirstLight breached the Lease even if there was insufficient evidence relating to the confidentiality provision. Because the Court finds that the evidence is not so overwhelmingly one-sided as to confidentiality, it declines to consider the parties' other arguments on the issue. See Antosz v. Allain, 163 N.H. 298, 302 (2012) (declining to address parties' other arguments where the court's holding on one issue was dispositive).
Accordingly, for the foregoing reasons, FirstLight's motion is DENIED.
SO ORDERED.