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IDT Corp. v. Tyco Group, S.A.R.L.

Supreme Court of New York, First Department

December 27, 2012

IDT Corp., et al., Plaintiffs-Appellants,
v.
Tyco Group, S.A.R.L., et al., Defendants-Respondents. Index 652097/10

Plaintiffs appeal from the order of the Supreme Court, New York County (Melvin L. Schweitzer, J.), entered June 20, 2011, which granted defendants' motion to dismiss the complaint pursuant to CPLR 3211(a)(7).

Robins, Kaplan, Miller & Ciresi L.L.P., New York (Hillel I. Parness, Richard A. Mescon and Oren D. Langer of counsel), for appellants.

Dewey Pegno & Kramarsky LLP, New York (Thomas E.L. Dewey of counsel), for respondents.

Peter Tom, J.P. David Friedman James M. Catterson Rolando T. Acosta Helen E. Freedman, JJ.

CATTERSON, J.

The parties in this breach of contract action have been engaged in a highly contentious business relationship since they agreed to form a joint venture to build a multi-billion dollar undersea fiber optic telecommunications network almost 15 years ago. Between periods of litigation, the parties have spent the last 12 years unhappily and unsuccessfully negotiating the details of the plaintiffs' usage of such a network. We now find that the prior decisions of this Court and the Court of Appeals in favor of the defendants did not extinguish the defendants' obligation to continue negotiations with the plaintiffs in good faith.

The record reflects the following: In November 1999, IDT Corp. and IDT Europe, B.V.B.A.'s (collectively "plaintiffs") and Tyco Group, S.A.R.L., Tycom (US), Inc., Tyco International, Ltd., Tyco International (US) Inc., and Tycom Ltd. (collectively "defendants") agreed to form a joint venture to construct a global fiber optic telecommunications network spanning more than 70, 000 undersea kilometers and connecting more than 25 cities in Europe, North America, and Asia. The efforts to form the joint venture failed, and the parties spent the next year bringing various federal and state actions against one another. In October 2000, the parties entered into a settlement agreement in which the plaintiffs agreed to release the defendants from all of their pending claims in exchange for the right to use a different undersea fiberoptic network for 15 years.

The defendants agreed to provide the plaintiffs, for their exclusive use, an "indefeasible right to use" (hereinafter referred to as an "IRU") two wavelengths, free of charge, for 15 years, beginning in 2002 for one wavelength and 2003 for the second. The defendants also agreed to provide operations, administration and management (hereinafter referred to as "OAM") for the wavelengths used by the plaintiffs for the same periods.

The settlement agreement further stated that the plaintiffs' IRU "shall be documented pursuant to definitive agreements to be mutually agreed upon and, in any event, contain [] terms and conditions consistent with those described" in the settlement agreement (emphasis added). The future agreements were to include terms governing, among other things, resale of capacity; provisioning, installation and commissioning of wavelengths; portability of capacity; and collocation services. Those agreements, including the IRU, were to be in writing and consistent with the defendants' standard agreements (which did not yet exist) with similarly situated customers or market rates, subject to any future negotiations between the parties.

After several years of unsuccessful negotiations, on May 4, 2004, the plaintiffs commenced a breach of contract action in Supreme Court. The plaintiffs alleged that the settlement agreement was a valid contract that obligated the defendants to provide IRU and OAM, and that the defendants had failed to supply the IRU and OAM in accordance with the terms of the agreement. The plaintiffs moved for partial summary judgment on the issue of liability, and the defendants cross-moved for summary judgment dismissing the complaint.

The motion court granted the plaintiffs' motion for partial summary judgment on the issue of liability and denied that portion of the defendants' cross motion seeking dismissal of the complaint. The defendants appealed, and this Court reversed. IDT Corp. v. Tyco Group, S.A.R.L., 54 A.D.3d 273, 863 N.Y.S.2d 30 (1st Dept. 2008). We reasoned that the settlement agreement was a preliminary agreement that although "incomplete" nonetheless bound the parties to "their ultimate contractual objective upon the subsequent occurrence of a contingency" — namely, "either the insistence of one party on the terms of the standard agreements after they come into existence or a resolution of the remaining terms through further negotiation" (54 A.D.3d at 275, 863 N.Y.S.2d at 33 (internal quotation marks omitted)). We further found that under this agreement the parties were obligated to negotiate the open issues in good faith "unless and until one party were to insist on the terms of the standard agreements." Id. We concluded that the plaintiffs had erroneously asserted a breach of the agreement on the ground that the defendants' proposals for an IRU were inconsistent with those contemplated by the settlement agreement. Instead, we held that because the defendants' proposals were "hardly the sort of definite and final communication of an intent to forgo their obligations that is necessary to justify a claim of anticipatory breach, " the defendants did not, as a matter of law, breach the settlement agreement. 54 A.D.3d at 275, 863 N.Y.S.2d at 33 (internal quotation marks omitted).

The plaintiffs appealed and on October 22, 2009, the Court of Appeals affirmed. IDT Corp. v. Tyco Group, S.A.R.L., 13 N.Y.3d 209, 890 N.Y.S.2d 401, 918 N.E.2d 913 (2009). The Court held that the record did not support a finding that the defendants breached any of their obligations but that "under the settlement agreement, the parties were required to negotiate the terms of the IRU and other agreements in good faith." 13 N.Y.3d at 214, 890 N.Y.S.2d at 405. The Court found that the settlement agreement was valid, but that it "contemplated the negotiation and execution of four additional agreements, most importantly the IRU." 13 N.Y.3d at 214, 890 N.Y.S.2d at 404. The Court reasoned that although there was a valid contract, the defendants "obligation to furnish capacity never became enforceable because agreed-upon conditions were not met." Thus, the Court concluded that the defendants did not "breach[] the settlement agreement by merely proposing an IRU which allegedly contained [three] terms inconsistent with settlement." 13 N.Y.3d at 214, 890 N.Y.S.2d at 404, 405.

Subsequently, the parties resumed negotiations, but on November 15, 2010, the plaintiffs commenced this action in Supreme Court alleging that the defendants had breached the settlement agreement and their duty to negotiate in good faith. The defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7)(failure to state a cause of action), CPLR 3211(a)(1) (documentary evidence), and 3211(a)(5)(collateral estoppel/res judicata). The defendants argued that their obligations under the settlement agreement were extinguished by the Court of Appeals decision. The motion court agreed and granted the defendants' motion.

On appeal, the plaintiffs contend that the motion court erred, and should not have dismissed their complaint. For the ...


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