action, in which Production allegedly "admits" knowing how the disputed phone calls occurred and sets forth explanations. MCI argues that "all of Production's assertions about possible flaws in MCI's billing systems are baseless in light of Production's own unequivocal admissions." MCI Reply Mem. 12-16. This Court disagrees. At the very least, Production's allegations raise an issue regarding the amount of damages, if any, owed to MCI.
Finally, Production argues that MCI is not entitled to summary judgment because the fraudulent calls were the result of MCI's willful misconduct, in that MCI failed to warn Production of the prevalence of this type of phone fraud or provide means of preventing such fraud.
Willful misconduct by MCI, if proven, would discharge Production's liability for fraudulently made telephone calls. See MCI Telecommunications Corp. v. Management Solutions, Inc., 798 F. Supp. 50, 52 (D. Me. 1992), quoted in Human Resources, 833 F. Supp. at 974.
The definition of willfulness includes "the intentional omission of some act, with knowledge that such omission will probably result in damage or injury, or the intentional omission of some act in a manner from which could be implied reckless disregard of the probable consequences of the omission." Human Resources, 833 F. Supp. at 974 (quoting Berner v. British Commonwealth Pac. Airlines, Ltd., 346 F.2d 532, 536-37 (2d Cir. 1965), cert. denied, 382 U.S. 983, 15 L. Ed. 2d 472, 86 S. Ct. 559 (1966)).
MCI argues only that failure to warn of potential fraud is not willful misconduct because, as a matter of law, MCI had no duty to provide such a warning. Although the holding of the district court in Human Resources supports MCI's argument,
this Court declines to make such a finding as a matter of law. According to the above definition of willful misconduct, if MCI intentionally omitted to inform Production that the services provided by MCI were vulnerable to the type of fraudulent activity alleged here, and knew or should have known that such an omission would probably result in damage or injury to Production, then MCI's failure to warn Production may amount to willful misconduct. This would be true regardless of whether MCI had a general duty to warn its customers of the possibility of remote access fraud.
The court finds that MCI has not met its burden of establishing that there are no material issues of fact as to services "furnished" to Production within the meaning of MCI'S tariff, or as to whether MCI's actions amounted to willful misconduct. See Gallo, 22 F.3d at 1223. Therefore, MCI's motion for summary judgment is denied.
C. ALLTEL NEW YORK'S MOTION FOR SUMMARY JUDGMENT
In the third-party complaint, Production asserts three claims against Alltel New York and Alltel. In the first, Production demands indemnification and/or contribution from the third-party defendants, based upon alleged "carelessness, recklessness, negligence or other culpable conduct, breach of contract, and/or breach of warranty." Compl. P 10. The second cause of action seeks indemnification and/or contribution based upon breach of a December 19, 1990 contract and/or breach of warranty with respect to that contract. The third cause of action seeks to recover the monies paid by Production to AT&T for the fraudulent use of the 800 line, based, again, upon the third-party defendants' alleged "negligence, misfeasance, malfeasance, lack of due care, breach of contract and/or breach of warranty." Compl. P 17.
Neither side addresses Production's claims in the context of indemnification or contribution, but only in terms of negligence and breach of contract or warranty.
1. Summary Judgment on Breach of Contract Claim:
Production and Alltel New York disagree as to which contract is the subject of Production's claims. Alltel New York insists that the contract which Production claims was breached is the sales contract for the CTU. Production responds that there were two other contracts between Production and Alltel New York upon which its claim might rest: the agreement subscribing Production to Alltel New York's Centrex Service (also signed on December 19, 1990) and an agreement for servicing the CTU.
Production claims that it disconnected the CTU and that the unauthorized calls continued, implying that the problem lay with the Centrex Service. Mezzalingua Aff. P 16. Production's president, Daniel Mezzalingua, also claims that he was told by Judy Young, Alltel New York's Communications Consultant, that Alltel New York had put blocks on the Centrex system to prevent access to Production's dial tone by unauthorized third parties. Mezzalingua Aff. P 20, Ex. M. Alltel New York, on the other hand, contends that the calls were, and could only have been, made through the CTU, and that when the CTU was replaced with a live operator, the toll fraud ceased. Young Reply Aff. PP 3-5.
The Court finds that a material issue of fact remains as to how the fraudulent calls were made, and therefore cannot determine which contract to evaluate on a breach of contract claim. Summary judgment on this claim is accordingly denied.
2. Summary Judgment on Negligence Claim:
Alltel New York further argues that Production's negligence claim is barred by New York law. "New York law holds that a negligence action seeking recovery for economic loss will not lie." County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 62 (2d Cir. 1984). However, an exception to this "economic loss rule" exists, under limited circumstances, for claims of negligent performance of contractual services. Human Resources, 833 F. Supp. at 983.
As noted above, it is not clear whether the CTU sales contract (a contract for the provision of goods) or the Centrex Service contract (a contract for provision of services) is implicated in this case. If it is the CTU sales contract, Production's claim of negligence will be barred. If it is the Centrex Service contract, however, Production may be able to prove that the contract was negligently performed. Because a material issue of fact remains as to which contract is applicable, summary judgment on Production's negligence claim is also denied.
3. Summary Judgment as to Supplemental Jurisdiction:
Finally, Alltel New York argues that Production's claim for recovery of the $ 46,652.51 paid to AT&T in settlement of charges should be dismissed because this court lacks subject matter jurisdiction. Alltel New York argues that Production's prior payment to AT&T does not form a part of the case and controversy between MCI and Production, and thus the Court should decline to exercise supplemental jurisdiction over that claim. However, the calls that were the subject of AT&T'S charges to Production were apparently part of the process by which the unidentified third parties were able to place calls to the Dominican Republic, and are thus sufficiently related to MCI's claims to warrant the exercise of supplemental jurisdiction. 28 U.S.C. § 1367(a). Further, Alltel New York has not alleged that any of the factors in § 1367(c) are present so as to warrant the Court's rejection of supplemental jurisdiction over Production's claims.
The Court finds that Alltel New York has not met its burden of proving that no material issue of fact exists regarding Production's claims. See Gallo, 22 F.3d at 1223. Therefore, Alltel New York's motion for summary judgment is denied.
WHEREFORE, pursuant to the above decision, it is hereby
ORDERED that defendant/third-party plaintiff's motions to amend its answer and/or refer this matter to the FCC are DENIED, and it is further
ORDERED that third-party defendant Alltel Corporation's motion for summary judgment is GRANTED, and the third-party complaint is DISMISSED as against Alltel Corporation. It is further
ORDERED that plaintiff's motion for summary judgment is DENIED, and it is further
ORDERED that third-party defendant Alltel New York, Inc.'s motion for summary judgment is DENIED.
No jury demand was made. Therefore, this action will proceed to
a non-jury trial on November 4, 1996 at 10:00am in Syracuse, NY. If the parties are unable to complete discovery, by this date, a conference call with Hon. Frederick J. Scullin, Jr. should be requested.
IT IS SO ORDERED.
DATED: April 10, 1996
Syracuse, New York
Frederick J. Scullin, Jr.
U.S. District Judge