Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

VANGUARD TELCOMS., INC. v. SOUTHERN NEW ENGLAND TE

May 31, 1989

Vanguard Telecommunications, Inc.
v.
Southern New England Telephone Company, CSX Corporation and Lightnet, a joint venture



The opinion of the court was delivered by: LECHNER, JR.

 Counsel:

 SNET is incorporated, headquartered and has its principal place of business in the State of Connecticut. SNET is a diversified telecommunications services company. CSX is incorporated, headquartered and has its principal place of business in the State of Virginia. CSX owns and operates a number of railroad companies with extensive tracks and rights-of-way in various parts of the United States. SNET and CSX formed the Lightnet joint venture to market inter-city fiber optic long distance telecommunications capacity in a system designed to connect numerous Mid-Western and Eastern cities. Lightnet's headquarters is currently in Rockville, Maryland. Subject matter jurisdiction over this action is conferred by 28 U.S.C. § 1332(a)(1).

 Vanguard moves to file a second amendment to the Complaint to include a fraud count against Lightnet. Specifically, the proposed amendment would add an additional count comprised of two paragraphs. The first proposed additional paragraph incorporates by reference earlier provisions of the Complaint. The second proposed additional paragraph states:

 
At the time of entering into the said Agreement, it was defendants' intention not to honor the said Agreement; defendants intended plaintiff to rely upon their conduct in entering into the Agreement, which plaintiff did to its injury. Defendants' conduct as set forth above, as well as in other regards, was fraudulent, and was part of and constituted a scheme to defraud plaintiff.

 Proposed Second Amendment to the Complaint para. 25.

 Lightnet moves for summary judgment pursuant to Federal Rule of Civil Procedure 56 to dismiss the Complaint and Vanguard's proposed second amendment to the Complaint. Lightnet presents four arguments in support of its motion: (1) the agreement between the parties provided that Vanguard would receive a commission only if Vanguard was the effective or producing cause of a sale; (2) Vanguard did not cause the sale and lease of Lightnet capacity to United and Americall; (3) Vanguard is not entitled to punitive damages for either the economic loss sustained due to the alleged breach of contract or for the allegations of fraud in Vanguard's proposed amendment to the Complaint; and (4) the asserted claim of fraud does not set forth a viable claim under the law of the State of New Jersey and, even if it does, summary judgment is appropriate because of a lack of evidence to support it. *fn2"

 Factual Background

 The concept of Lightnet as a partnership was conceived by Robert E. LaBlanc Associates ("LaBlanc") in 1982 when that firm was retained by CSX as a consultant. Robert LaBlanc, the president of the firm, is an expert in the telecommunications field. LaBlanc recommended that CSX use its railroad rights-of-way to build a fiber optic network by forming a joint venture with a major telecommunications carrier. As LaBlanc saw it, the joint venture would install a high capacity fiber optic transmission system along CSX's rights-of-way and sell that capacity to interested parties. After advising CSX of its concept, LaBlanc submitted a business plan to implement its ideas. CSX then asked LaBlanc to locate a partner with whom CSX could collaborate. United and SNET were among the several partnership candidates LaBlanc considered.

 Lightnet currently operates a communications network consisting of approximately 5,000 miles of fiber optic cable, *fn3" much of which has been laid alongside CSX owned railroad rights-of-way in the eastern part of the United States. Lightnet originally planned to sell its capacity to customers who would themselves operate over the network. These customers would include common carriers, such as GTE or United, large corporations with internal telecommunications needs, and government agencies. In 1983 and 1984, the relevant period for purposes of this motion, Lightnet's principal objectives were to build the network and sell capacity.

 On April 19, 1983, CSX and SNET publicly announced their intention to study the market potential of a fiber optic telecommunications system using the CSX rights-of-way. The announcement was carried in the press. Four months later, at a press conference on August 23, 1983, the formation of Lightnet as a going entity was made public.

 Vanguard appears to be the corporate entity under which its president and sole shareholder, Donald Van Doren, does business. The business of Vanguard is "brokering long distance telephone capacity." Complaint para. 1. It appears that from the beginning of events relevant to this matter, Vanguard has held itself out to Lightnet as a broker.

 From the submissions, it appears Vanguard became aware of the CSX/SNET joint venture through the August 23, 1983 press conference announcing the formation of Lightnet. From the newspaper accounts of the joint venture, Vanguard considered Lightnet to be a "target of opportunity."

 It further appears Vanguard did not have experience in selling telecommunications capacity. Nevertheless, it sought out and solicited Lightnet, offering to broker Lightnet's capacity to "resellers," firms which purchase capacity in bulk and resell it in smaller quantities. Vanguard claimed it had an understanding of resellers. Vanguard was directed to La Blanc which was then acting as a marketing representative for Lightnet.

 In September, 1983, negotiations were initiated between Vanguard and La Blanc. Vanguard was represented by Van Doren, and its Vice-President James Rice ("Rice"). *fn4" La Blanc was represented by its Vice-President, Richard Wolf ("Wolf"). Vanguard again expressed interest in acting as broker for Lightnet capacity. Vanguard was later retained by Lightnet to assist in the marketing of Lightnet's services, principally in the carriers' market. The terms of this contractual relationship form the subject matter of the instant lawsuit.

 The October 20, 1983 Meeting

 Following the negotiations between Vanguard and La Blanc, Vanguard was notified by letter on October 19, 1983 by Robert La Blanc that Lightnet had rejected the proposal from Vanguard that it be retained to sell Lightnet capacity pursuant to Vanguard's terms. Vanguard was informed that Lightnet would sell capacity to Vanguard on a non-exclusive basis which could be resold by Vanguard. It is Vanguard's contention that on October 20, 1983 it reached an oral agreement with Wolf "to assist in the marketing of Lightnet's services . . . ." Complaint para. 6. Vanguard contends an October 20, 1983 letter of introduction indicates Vanguard "has been retained as a representative by Lightnet to act in their behalf in marketing Lightnet." Id. at para. 6 (citing Exhibit A to Complaint, October 20, 1983 letter from Wolf). With regard to the oral agreement of October 20, Vanguard stated in answers to interrogatories:

 
On that date [October 20, 1983], it was agreed that Vanguard would be paid a minimum commission of 2% on any sales that Vanguard brought to Lightnet.

 Plaintiff's Appendix at 37 (Plaintiff's Response to Interrogatory No. 1 of Defendants' First Set of Interrogatories (emphasis added)).

 The October 20, 1983 meeting was held by Wolf, Rice and Carroll Bowen ("Bowen"), partner in Carroll Bowen Associates, a telecommunications firm that collaborated with Vanguard. During the meeting, the representatives of Vanguard and Lightnet discussed Lightnet's potential market and Vanguard's proposed marketing strategies. Vanguard began drafting an agreement in principle to memorialize the understanding it contends was achieved with Wolf. The common thread running through the Vanguard drafts was that Vanguard would be compensated for sales of Lightnet capacity which it made. A written agreement was subject to Lightnet's approval.

 The two percent commission arrangement is at the crux of the current dispute between the parties. Vanguard claims it negotiated for a commission provision with no causation requirement. That is, Vanguard would be entitled to two percent of all sales made to customers on an account list regardless of whether its marketing efforts produced those sales. Vanguard contends that if a potential customer was placed on the account list and that customer then purchased Lightnet capacity, Vanguard would be paid its commission without deciding whether Vanguard or someone else had actually "caused" the sale.

 Vanguard claims that based on its discussions with Wolf during the October 20 meeting, Rice and Vanguard devoted significant time to marketing Lightnet. During the period between October 20 and December 29, 1983, Vanguard contends it actively engaged in the marketing of Lightnet, including "packaging the product," "competitive analysis" and "pricing." *fn5" Opposition Brief at 17-20.

 While Rice and Van Doren were pursuing these projects, the parties worked toward finalizing a written agreement. A series of drafts of the arrangement was prepared. A first draft was prepared by Rice some time after the October meeting. Rice noted on the face of this document that the draft "reflects results of conversations with [Wolf]." Van Doren Dep. Ex. 11 at 302451. The draft stated:

 
Vanguard will receive a commission of not less than 2% of any sales that are created by Vanguard's efforts.

 Id. at 302452 (emphasis added). Another draft agreement which Vanguard also prepared for Wolf was described by Rice as "true to our verbal agreement on most points." Van Doren Dep. Ex. 9, Ltr. from Rice to Wolf, dated November 8, 1983 at 1. This draft refers to Vanguard's obligation to "market full or partial LIGHTNET fiber pairs," and to Lightnet's obligation to "exercise its best efforts in obtaining financing for the purchase or lease of LIGHTNET facilities by Vanguard obtained customers." Van Doren Dep. Ex. 9, Agreement in Principle paras. 1 and 4 (emphasis added). The draft stated the commission arrangement and pricing system were designed "to provide LIGHTNET the opportunity of receiving orders immediately from Vanguard . . . ." Id. at para. 5.4 (emphasis added).

 On November 15, 1983, Rice sent to Wolf another version of the Agreement in Principle. *fn6" This document provided:

 
4. LIGHTNET will provide Vanguard, at no cost, sales literature and collateral material in reasonable quantities made available to LIGHTNET or other marketing representatives of LIGHTNET services and facilities. Technical support will also be provided at no cost and may include visits by Western Electric or LIGHTNET personnel to locations where potential customers need solutions to interconnection problems, technical questions answered or to assist Vanguard close a sale.
 
5. LIGHTNET may assist in obtaining financing for the purchase or lease of LIGHTNET facilities by Vanguard obtained customers. LIGHTNET will extend credit terms to Vanguard's prospective customers on the same basis as other prospective customers with similar qualifications.

 Plaintiff's Appendix at 46, paras. 4 and 5 (emphasis added).

 Vanguard contends this draft constituted a "final" version of the parties' agreement. A final written agreement in principle was never reached. None of the draft agreements were signed by either party. As for the intended duration of the Vanguard-Lightnet arrangement, the November 8, 1983 draft indicated it may be superceded by a "different and/or more definitive agreement." The November 15, 1983 draft contained a similar clause reading: "This Agreement in principle will remain in effect until July 1, 1984, and will be renewed automatically unless notification is given by either party sixty days prior to the scheduled termination date." Plaintiff's Appendix at 47.

 On December 29, 1983, Van Doren met in New Haven, Connecticut with Frank Wollensack ("Wollensack"), president of Lightnet, Dennis Evans ("Evans"), division manager of marketing and sales at Lightnet, and Gerald Clement ("Clement"), marketing manager of Lightnet. Among the issues discussed was how Vanguard would be compensated under the Draft Agreement in Principle. Vanguard claims that during this meeting Van Doren reiterated the importance of Vanguard's account list concept, i.e., the notion that if a sale occurred to a customer on Vanguard's account list Vanguard would get paid without getting into judgments as to whether Vanguard had caused the sale or was responsible for it.

 Lightnet disputes this characterization of what transpired and points to the deposition of Van Doren. Van Doren testified he was not able to recall whether a discussion of the "cause/commission" issue took place at the December 29 meeting.

 
Q. Is it your testimony, Mr. Van Doren, that at the meeting of December 29th you specifically addressed the question whether there should be an agreement that in part would provide a commission for Vanguard in the event a customer on some list bought Lightnet capacity even though Vanguard had not been responsible for the actual sale?
 
[Colloquy of counsel omitted.]
 
A. I don't recall whether that particular example or discussion came up.

 Van Doren Dep. at 371-372. However, later in the deposition, Van Doren restated Rice and Bowen's concerns with the potential confusion of a "beauty contest" approach.

 
A. We didn't want to get into a position where we would be assigning that responsibility or trying to decide whether or not a sale belonged because of Lightnet's efforts or because of Vanguard's efforts or whatever.
 
Q. And all this was discussed on the 29th.
 
A. To the best of my recollection, yes. All of this was discussed. Now, I'm sorry. I would just like to say one other thing.
 
You had asked a question, you know, Did anyone say you mean that Vanguard could get a commission if they did nothing, or words to that effect? I don't know if that came up or not. It's not inconceivable based on the kinds of discussions that we were having about this issue. Again, it certainly wouldn't be our intent for that to happen.

 Id. at 373 (emphasis added).

 Clement disputes Van Doren's account of what took place during this meeting:

 
Q. On December 29, 1983, was there any discussion with Van Doren about the difficulty in assigning the "credit" for a sale? In other words, who had really caused the sale.
 
A. I believe that there were some discussions on that.
 
Q. Wasn't there a discussion concerning the fact that in any sales process, there would have to be involvement not just by Vanguard but by people from LightNet and, perhaps, SNET, and, perhaps, Western Electric?
 
A. Yes.
 
Q. Wasn't there a discussion on December 29, 1983 of the fact that, in Van Doren's view, at least, the only system that would make sense, given that reality as to how the sales process would have to come about, was to have a list and say, if anybody on that list buys within a specified period of time, Vanguard gets a commission, without trying to make a determination as to who caused the sale or whether Vanguard had earned that commission on that sale?
 
* * * *
 
THE WITNESS: The answer would be yes, from Van Doren. You are saying, that came from Don Van Doren?
 
MR. JACOBS [Counsel for Vanguard]: Right.
 
THE WITNESS: The answer would be yes.
 
BY MR. JACOBS:
 
A. The response at that meeting would be that that would be totally unacceptable to LightNet.
 
Q. Somebody told Don Van Doren that would be totally unacceptable to LightNet?
 
A. I believe they did.

 Clement Dep. II at ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.