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Kargo, Inc. v. Pegaso PCS

July 29, 2008

KARGO, INC., ACK VENTURE HOLDINGS, LLC, AND UNITED MOBILE TECHNOLOGIES, LLC, PLAINTIFFS,
v.
PEGASO PCS, S.A. DE C.V., PEGASO TELECOMUNICACIONES, S.A. DE C.V., TELEFONICA MOVILES MEXICO, S.A. DE C.V., TELEFONICA MOVILES, S.A., AND TELEFONICA S.A., DEFENDANTS.



The opinion of the court was delivered by: Haight, Senior District Judge

MEMORANDUM OPINION AND ORDER

In this diversity action, plaintiff Kargo, Inc. ("Kargo") alleges that defendant Pegaso PCS, S.A. de C.V. ("Pegaso") breached a contractual agreement by terminating their business relationship without paying a "termination without cause" fee specified in the contract. Alternatively, Kargo asserts equitable claims against Pegaso based on quantum meruit, promissory estoppel, and equitable estoppel. In addition, Kargo claims that defendants Pegaso Telecomunicaciones, S.A. de C.V. ("Pegaso Telecomunicaciones"), Telefonica Moviles Mexico, S.A. de C.V. ("Moviles Mexico"), Telefonica Moviles, S.A. ("Telefonica Moviles"), and Telefonica S.A. ("Telefonica") (collectively, "the Telefonica Defendants") tortiously interfered with Kargo's contract and business relationship with Pegaso.

Several motions are pending before this Court. Kargo has moved for partial summary judgment on liability on its breach of contract and intentional interference with contractual relations claims. Pegaso and the Telefonica Defendants have filed cross-motions for summary judgment. This Opinion resolves the Telefonica Defendants' motion for summary judgment.

I. BACKGROUND

A. The Parties

Plaintiff Kargo is a corporation organized under the laws of Delaware, with its principal place of business in New York City. Kargo developed Internet-based messaging software and hosting services that enable cellular phone customers to send and receive mobile text messages. Kargo provided software and hosting services from its servers located in New York City. (Plaintiffs ACK Venture Holdings, LLC and United Mobile Technologies, LLC are assignees of Kargo's legal claims in this case.)

Defendant Pegaso is a Mexican corporation, based in Mexico City, Mexico, which provides cellular services throughout Mexico. Defendant Pegaso Telecomunicaciones is a Mexican corporation, based in Mexico City, Mexico, which is a holding company for Pegaso (and several related entities). Defendant Telefonica is a Spanish corporation, with its principal place of business in Madrid, Spain. Telefonica owns significant interests in a number of subsidiary corporations engaged in the telecommunications business. Telefonica Moviles is a Spanish corporation with its principal place of business in Madrid, Spain. Telefonica Moviles acquired Pegaso Telecomunicaciones (and Pegaso) in 2002. Defendant Moviles Mexico is a Mexican corporation with its headquarters in Mexico City, Mexico.

B. Factual Summary

In the summer of 2001, Harry Kargman, the President and CEO of Kargo, traveled to Mexico and met with employees of Pegaso, which was interested in providing text messaging services for its cell phone customers. Kargo subsequently integrated its software into Pegaso's network systems and website, and began providing messaging services for Pegaso in December 2001.

During the first several months of 2002, Pegaso and Kargo negotiated over a Software License and Hosting Agreement ("the Agreement") to govern Kargo's provision of text messaging services for Pegaso.*fn1 The parties vigorously dispute whether a final agreement was reached. Kargo claims that the Agreement was finalized shortly after April 23, 2002. Pegaso asserts that the Agreement was never approved by its legal department, and that it never signed the contract. For present purposes, I need not resolve this dispute; it will suffice to note several provisions in the Agreement. First, the Agreement specified a three-year term. See the Agreement, § 7.1 ("The initial term of this Agreement shall commence on the Effective Date [April 25, 2002] stated in the first paragraph above and shall continue for a period of thirty-six (36) months thereafter."). Second, the Agreement included an early termination provision:

Effect of Breach of Termination Without Cause by Licensee. Early termination of the Agreement as a result of Licensee's breach or a termination without cause by Licensee or any successor in interest of Licensee shall not relieve Licensee or such successor of the obligation to pay the greater of (i) all fees payable to Licensor, as described in Exhibit B, as would have been payable if the Agreement had continued for the full three (3) year term; or (ii) an early termination fee of (x) US two hundred thousand dollars (USD $200,000) if such termination occurs during the first twelve (12) months of the initial term, (y) US one hundred and fifty thousand dollars (USD $150,000) if such termination occurs during the second twelve (12) months of the initial term, or (z) US one hundred thousand dollars (USD $100,000) if such termination occurs during the last twelve (12) months of the initial term. The parties acknowledge that such early termination fees represent the fair market value of the costs incurred by Licensor in reliance on Licensee's covenants hereunder.

The Agreement, § 7.6.

Meanwhile, in March 2002 Telefonica Moviles announced that it was going to acquire Pegaso. On April 26, 2002, Telefonica Moviles entered into a Stock Purchase Agreement ("SPA") for the purchase of Pegaso. In May 2002, Luis Jorge Romero, a Telefonica Moviles employee, was assigned to Mexico City to help facilitate Pegaso's transition into Telefonica Moviles. He remained in Mexico for approximately ten months. The parties dispute the precise nature of Romero's powers and responsibility during this period. Kargo claims that Romero exerted managerial control over Pegaso's operations; the Telefonica Defendants contend that Romero's role was simply to gather information about Pegaso's operations and plan for the future.

In July 2002, Pegaso sent a revised draft of the Agreement to Kargo. The revised agreement eliminated the termination without cause fee and instead allowed Pegaso to terminate services (upon thirty days' written notice) without any penalty. Kargo claims that this was an attempt to "renegotiate" the Agreement, while defendants maintain that the prior Agreement had never been finalized.

Telefonica Moviles's purchase of Pegaso closed in September 2002.

On September 26, 2002, Pegaso informed Kargo that it had decided to discontinue the text messaging services provided by Kargo, effective September 30, 2002. Kargo claims that this decision was made by Romero of Telefonica Moviles (after Telefonica Moviles had decided to convert Pegaso from a CDMA-based network to a GSM-based network).*fn2 Romero states that he viewed sending text messages directly through a mobile telecommunications network as more efficient than through Kargo's Internet-based software, and that this was the reason Pegaso decided to stop using Kargo's services. Romero Decl., dated Nov. 8, 2007, ¶ 3.

In an October 26, 2002 letter to Pegaso, Kargo confirmed that it had discontinued the text messaging services as requested but claimed that, pursuant to Section 7.6 of the Agreement, Pegaso owed Kargo $112.6 million.*fn3 Kargo reiterated this claim on November 4, 2002. On January 21, 2003, Kargo sent a "ten day demand" letter to Pegaso seeking the termination without cause fee.

In a February 4, 2003 letter, Pegaso rejected Kargo's termination without cause claim. The letter, which was signed by Romero (and apparently drafted by Telefonica Moviles or Moviles Mexico lawyers), stated:

While Pegaso fully intends to continue complying with obligations it incurred prior to the acquisition, a review of Pegaso's files concerning its relationship with Kargo does not indicate that a binding agreement ever existed between the two companies. Therefore, we cannot at this time agree with your conclusion that Pegaso owes Kargo $112,587,384 for its ...


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