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Spherenomics Global Contact Centers v. Vcustomer Corp.

March 31, 2006


The opinion of the court was delivered by: James Orenstein, Magistrate Judge


Plaintiff Spherenomics Global Contact Centers ("Spherenomics") has filed a complaint alleging four causes of action against defendant vCustomer Corporation ("VCC"). Its two contract-based causes of action assert that VCC breached an agreement dated November 25, 2002, by violating, respectively, a provision barring VCC from soliciting business from Spherenomics' customer (Count One) and the implied covenant of good faith and fair dealing (Count Two); its remaining counts assert equitable claims based on theories of promissory estoppel (Count Three) and unjust enrichment (Count Four). Docket Entry ("DE") 66 ("Amended Complaint"). With the parties' consent pursuant to 28 U.S.C. § 636(c), I presided over a non-jury trial of these claims on August 1, 2005. Upon review of all the evidence and the parties' post-trial submissions, I now find that VCC had an enforceable obligation not to solicit Spherenomics' customer Fingerhut and that VCC breached that obligation but that Spherenomics has failed to prove by a preponderance of the evidence that it was damaged by VCC's breach. As a result, for the reasons set forth below, VCC is entitled to judgment in its favor on all of Spherenomics' claims.

I. Findings of Fact

A. The Entities

Spherenomics provides outsourced call-center services to retail and direct marketing companies primarily through call centers in India. Transcript Of Trial ("Tr.") at 15-16. During the relevant time period, Spherenomics did not own any call centers; rather, it acted as a middleman between merchants and the call centers it engaged as subcontractors. Tr. 99. Spherenomics did provide training to call center agents about its clients' brands, services, policies and procedures. Ex. 6. Spherenomics was formed in 2002 as a partnership among Ralph Bulle ("Bulle"), Richard Hoffman ("Hoffman"), and Rakesh Kaul ("Kaul"). These three partners were its only employees at that time. Tr. 64-66. In October 2002 Spherenomics secured its first major customer, non-party Fingerhut Direct Marketing, Inc. ("Fingerhut"), a general merchandise catalog and Internet retailer. Stipulated Fact ("Stip.") 4, 7. Both Hoffman and Kaul had formerly worked for Fingerhut and anticipated a long-term, symbiotic business relationship between the two companies. Tr. 17-18.

VCC is a United States company that owns and operates three call centers in New Delhi, India. Stip. 1. Operators at these centers answer customer service calls and order requests for some of the largest retailers in the United States. Stip. 2.

Non-party Tracmail is another call center service provider that owns and operates call centers in Bombay, India. Call center operators at both VCC and Tracmail take incoming calls and also place outgoing calls to customers. The former are known as retail inbound calls, and are typically requests for catalogs or inquiries about statements. The latter are typically follow-up or collection calls concerning overdue payments. Bulle testified on direct examination that in late 2002, Tracmail and VCC were the only two call centers in India with experience handling retail inbound calls. Tr. 23. VCC sought to undermine that proposition in its cross-examination of Bulle but did not produce any evidence that rebuts Bulle's contention. See Tr. 74-77.

B. The Initial Fingerhut Call Center Service Account

1. The Letter Agreement Between Spherenomics And Fingerhut

The dispute in this case has its origin in Fingerhut's change of ownership and the temporary shutdown of its retail business during the transition. Fingerhut's former owner ceased doing retail business for several months starting in the Fall of 2001. Tr. 16. Early in 2002, in anticipation of the company's return to retail sales, Fingerhut and Spherenomics discussed entering into a joint venture. Spherenomics provided substantial assistance to Fingerhut during this period leading up to the re-launch of Fingerhut's retail business. Spherenomics was not compensated for its efforts, but its members (who had a long-standing relationship with Fingerhut) anticipated that their work would pay off in a long-term contract for Fingerhut's call center work. Tr. 20, 27. Fingerhut's new owners ultimately re-launched the retail business in the Fall of 2002; and prospective customers first received its new catalogs in November of that year. Tr. 26.

Fingerhut officially retained Spherenomics on October 4, 2002, to provide call center services through January 31, 2003. Trial Exhibit ("Ex.") 6. The terms of the relationship were memorialized in a "Letter Agreement" that specified in great detail the nature, time frame, and cost of the services to be provided. Id. The cost of services was based on the average monthly number of full time equivalent ("FTE") call center workers. Depending on the number of workers, the rate varied from $13.25 to $14.75 per active hour. This was the only cost to Fingerhut of Spherenomics' services. Id. at 5. Fingerhut agreed to provide Spherenomics with monthly volume projections estimating the number of FTEs it would require for each month, and the parties agreed on a minimum staffing schedule for the initial period for which Fingerhut assumed payment responsibility. In recognition of the "uncertainty in the volume and staffing projections," Spherenomics agreed to "make a good faith effort to have available" an additional 15% capacity for which Fingerhut would not be charged unless the reserve services were used. Id. at 1-2. The parties agreed to "negotiate in good faith" regarding a successor agreement to supersede the October 2002 letter agreement. At the time of the Letter Agreement, the parties to it anticipated that a subsequent agreement would extend the parties' relationship through May 1, 2004. Id. at 8. Fingerhut and Spherenomics never entered into a subsequent agreement, and their contractual relationship ended on December 31, 2003. Ex. 15.

Spherenomics initially hired Tracmail to provide the actual call center services for the Fingerhut account. After several weeks of training, Tracmail began to take calls for Fingerhut on November 9, 2002. Tr. 24. Almost immediately, call volume exceeded Fingerhut's projections by a factor of ten. Tr. 24-25. Despite the 15% buffer Tracmail provided pursuant to the Letter Agreement, and an additional 25% buffer that Tracmail independently provided, Tracmail simply did not have the capacity to handle all of the calls. Tr. 24, 26-27, 85.

2. The November Agreement Between Spherenomics And VCC

Once it became clear that Tracmail could not service all of Fingerhut's calls, Spherenomics began to look for additional call center service providers. It was essential to Spherenomics that it quickly find a provider that could absorb the unanticipated call volume of its only customer. Tr. 85. Spherenomics was familiar with VCC's services from prior discussions concerning a possible joint venture. Tr. 27. Spherenomics also knew that VCC had agents trained in retail calls who were immediately available because one of VCC's retail customers was underperforming. Tr. 28. After Bulle and VCC Senior Vice President Howard Lee ("Lee") discussed the possibility of VCC absorbing Fingerhut's excess call volume, Spherenomics obtained authorization from Fingerhut to add VCC as a provider. Tr. 28, 119; Ex. 36. Lee initially proposed a one-year contract for the services of 500 agents, Ex. 4, but the parties ultimately adopted a much more limited agreement.

The parties entered into that agreement by means of a writing dated November 25, 2002. Ex. 1 (the "November Agreement"). Pursuant to the November Agreement, VCC agreed to provide agents to cover 25 seats from November 29 through December 21, 2002, at the rate of $10.50 per hour. Id. The parties twice agreed to extend the term of the November Agreement: on December 19, 2002, they extended its term through January 10, 2003, Ex. 28, and they subsequently extended the term through January 31, 2003, Ex. 35.

At the heart of the instant dispute is the following provision, which appeared under the caption "Non-Disclosure and No Solicitation Agreement" in the November Agreement:

VCC agrees to sign a mutually agreeable non-disclosure and no solicitation agreement with Spherenomics limited to Fingerhut. VCC agrees not to solicit or other provide call center services for Fingerhut for 24 months following the end of VCC services for this Spherenomics client.

Ex. 1 at 2 (the "No Solicitation Provision"). A separate provision specified that all communication about the Fingerhut business, including performance reporting and billing, was to be made through Spherenomics. Id.

As was his personal practice and an industry norm, Bulle sent a copy of Spherenomics' standard three-page Non-Disclosure Agreement ("NDA") to VCC when he first approached the company about servicing the Fingerhut account. Tr. 92, 95. The need for such a protective agreement was plain: as Bulle testified (in explaining why even in advance of sending out the NDA, he had insisted on the No Solicitation Provision in the November Agreement), "[VCC] was in fact a potentially very serious competitor of ours. They were engaged in the same client work. And through engaging them as a [subcontractor], if you will, we were letting the fox in the hen house, if you will." Tr. 34. That risk was heightened by the fact that VCC was at the time saddled with more trained call center agents on its payroll than it needed to serve another customer whose call volume was below what VCC had expected. Tr. 27-28.

Unfortunately for Spherenomics, it was not able to prove that VCC ever executed the NDA. When the parties subsequently entered into discussions concerning a joint bid with Tracmail for a long-term Fingerhut contract, Bulle sent Lee another NDA for him to sign. Tr. 95. Lee apparently never signed that agreement either, despite Bulle's request that he do so. Tr. 92. I note in this regard that the record is somewhat murky on this issue: Bulle does not have a clear recollection, but believes he would normally have required VCC to execute the NDA; on the other hand, he was unable to find an executed copy. Thus, although it is entirely possible that the parties did in fact enter into an NDA that superseded the November Agreement, on this record I am constrained to conclude that they did not.

Spherenomics' standard NDA outlines in great detail the obligations of each party with respect to confidential information and "trade secrets" that the parties would necessarily have to disclose to each other in the course of their joint activities. Ex. 37 ¶ 1. For example, the NDA specified that the name of any client or supplier introduced to one party by another "for the purposes of jointly pursuing additional business" would be considered "confidential information" and, in a provision that substantially mirrors that in the November Agreement, prohibited that party from "unilaterally conduct[ing] any business with such clients or suppliers for a period of two years from the date of this agreement without the written agreement of the Disclosing Party." Id. ¶ 2. Unlike the November Agreement, however, the unexecuted NDA also contained a lengthy provision setting forth explicit remedies for breach -- the first clause of which contains a decidedly prescient description of Spherenomics' current predicament:

[a blank to be filled in with VCC's name] and [Spherenomics] hereby acknowledge and agree that the extent of damages to the other party in the event of a breach of the covenants contained in this Agreement by the breaching party would be difficult or impossible to ascertain and that there is and will be available to the Disclosing Party no adequate remedy at law in the event of any such breach. Consequently, the breaching party agrees that in the event of such breach, the non-breaching party shall be entitled, in addition to any other remedies it may have at law, to enforce any or all of the covenants contained in this Agreement by an injunction or other equitable relief.

Ex. 37 ΒΆ 10. In contrast, the No Solicitation Provision of the November Agreement -- that is, the relevant provision in the only written agreement that the parties in this case actually executed -- is silent with regard to the ...

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