Harbor Communications, LLC v. Southern Light, LLC

          ORDER

          KRISTI K. DuBOSE, CHIEF UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Defendants' motion for summary judgment (Doc. 46), Plaintiffs' Response (Doc. 48) and Defendants' Reply (Doc. 51). The motion is DENIED, except as otherwise indicated herein regarding damages.

         This case involves Plaintiffs Harbor Communications, LLC, Boihem Investment Company, LLC, and J&L, LLC (Plaintiffs collectively / individually Harbor, Boihem, J&L), and Defendants Southern Light, LLC (Southern Light) and Uniti Fiber Holdings, Inc., (Uniti). On February 3, 2018, Plaintiffs initiated a state court litigation against Southern Light and Uniti in the Circuit Court of Baldwin County, Alabama (05-CV-2018-900143.00) alleging breach of the 2016 settlement agreement (the contract) related to resolution of a prior state court case (CV-2013-900392). (Doc. 1-1). Plaintiffs seek damages including costs and attorneys' fees.

         On March 9, 2018, Defendants removed the case to this Court on the basis of federal diversity subject matter jurisdiction. Subsequently, Defendants filed an answer and Southern Light asserted a counterclaim against Harbor for breach of contract. (Docs. 2, 5 (amended)). Southern Light seeks damages from Harbor including interest, costs, and reasonable attorneys' fees.

         I. Breach of Contract Claim & Counterclaim ^[1]

         Plaintiffs' breach of contract claims are rooted primarily in the alleged failure of Southern Light to "properly build out" the seven (7) COs -- to leave or create space to accommodate a MUX in the buildout Southern Light performed. Plaintiffs specify the following "non-exhaustive list of the ways" the Defendants breached:

(a) Defendants failed to timely transfer to Harbor certain equipment located in seven COs in Mobile and Baldwin Counties. Defendants failed to consult and work together with Harbor to facilitate the buildout and transfer. Defendants failed to pay for and build the new rack space which was required to facilitate the transfer of all such equipment to Harbor.

(b) Defendants failed to pay all costs and fees (including certain fees owed to AT&T) arising as part of the transfer and buildout.^[2]

(c) Defendants failed to perform the transfer and buildout “as soon as [could] be reasonably coordinated” after the execution of the parties' settlement agreement in December of 2016. The work required by the settlement agreement should have been completed on or before June of 2017.

(d) Throughout 2017, Southern Light demonstrated a general lack of diligence in regard to performance of its obligations under the settlement agreement. In or around September of 2017, Southern Light repudiated the settlement agreement by stating that it was not obligated to perform its terms. Specifically, Southern Light has refused to complete the transfer and buildout contemplated by Paragraph 3 of the settlement agreement.

(e) Defendants breached the settlement agreement by failing to give Harbor a ten percent discount below its real wholesale pricing on certain services.

(f) Harbor has approximately 600 voice line customers being serviced out of the seven COs affected by the settlement agreement. 370 of those lines are connected to equipment in four of the COs to which Harbor lacks direct access. The Defendants' failure to perform under the settlement agreement restricts Harbor's access to this equipment. In the event Harbor's equipment in these COs is in need of service, Harbor is unable to access it. The revenue stream which is put in jeopardy by this lack of access is approximately $290, 000.00 per year.

(g) Southern Light failed to provide Harbor with 6 strands of dark fiber between all 8 of the COs in Mobile and Baldwin Counties for Harbor's use.

(Doc. 1-1 at 7). Plaintiffs also allege a "non-exhaustive list" of damages stemming from the breach. (Id. at 8-9).

         Defendants respond that Harbor -- unilaterally and mistakenly -- assumed Southern Light would leave space for a MUX while never making it a settlement agreement (contract) term. Also, Southern Light counterclaims that "Harbor's refusal to accept colocation space under the terms of the settlement agreement constitutes a breach[, ]" which has damaged Southern Light. (Doc. 5 at 4).

         Plaintiffs attempt to rebut Defendants stance by asserting that it is common knowledge a MUX would be required, even if not specified in the contract. Plaintiffs argue that the implied covenant of good faith and fair dealing supports their claims. For same, Plaintiffs argue a MUX space was essential to the contract -- an impliedly known or understood necessity for carrying out the purpose for which the contract was made, such that its rejection of the buildout is excused due to Southern Light's non-performance (failure to leave/accommodate for MUX space). See, e.g., Lloyd Noland Fdn., Inc. v. City of Fairfield Healthcare Auth., 837 So.2d 253, 267 (Ala. 2002) (when a contract fails to specify an obligation intended to be assumed, the law implies an agreement for that obligation -- "that according to reason and justice the parties should do…to carry out the purpose for which the contract was made[]"). In sum, Plaintiffs claim the need for MUX space was a known or understood obligation among the parties to implement the buildout (as necessary to make things work), and that Southern Light's failure to meet this obligation (by not leaving MUX space and failing to use best efforts to remedy this) is the breach for which they seek to recover damages.

         Defendants respond that industry practice/knowledge requires precise rack design -- i.e., that telecommunication companies do not make assumptions for other entities about rack space and require exact disclosure (diagrams/specs). Thus, rack space for a MUX is not an implied term of the agreement.

         The Court finds that there are issues of material fact regarding the claims made by each party. Specifically, whether MUX space was an impliedly known or understood necessity for carrying out the purpose for which the contract was made must be resolved by a factfinder. However, as to available damages for each claimed breach, the Court makes the following findings of fact and conclusions of law.

         II. Findings of Fact

         Pertinent to the settlement -- and the current dispute arising from same -- are four (4) documents executed by the parties: 1) the Settlement and Services Agreement (SSA - Doc. 48-1 at 2-14), 2) the Mutual Release which incorporates the SSA (Release - Doc. 48-1 at 108-115), 3) the Optical Fiber IRU Agreement (IRU - Doc. 48-1 at 16-50), and 4) the Master Services Agreement (MSA - Doc. 48-1 at 52-68). The SSA specifies that the MSA and the IRU, together with the SSA, "shall constitute the entire relationship between the parties. Any and all prior agreements….are…terminated." (Doc. 48-1 at 3-4 at ¶6).

         By incorporation, the SSA is part of the Release: “The Settlement and Services Agreement is hereby adopted and incorporated as if set forth fully herein." (Doc. 48-1 at 109 at ¶2). Regarding damages, the Release provides: "NO PARTY TO THIS AGREEMENT SHALL BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES." (Doc. 48-1 at 110 at ¶9) (emphasis in the original).^[3]

         Harbor argues that the Release covers claims in the prior litigation and does not speak to anything in the future concerning the parties' obligations (arising after the effective date of the Release). As such, Harbor argues that this limitation on damages in the Release is inapplicable to the current claims of breach of the SSA. The Court finds that adopting Harbor's interpretation would make the limitation provision nonsensical. Earlier in the Release, the parties released each other from “any and all…damages” and “liabilities of any kind” arising from the prior claims. (Doc. 48-1 at 109). Logically the more narrow limitation of liability provision (which does not exclude “liabilities of any kind” or “any and all damages”), found later in the Release, would not apply to prior claims. Thus, the provision could only be construed to apply to future claims related any alleged breach of the incorporated SSA.

         As to Harbor's allegations related to Southern Light's obligation to build out racks (delineated above as claims (a), (c), (d) and (f)), and Southern Light's ...