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Globalrock Networks, Inc v. Mci Communications Services

May 6, 2013

GLOBALROCK NETWORKS, INC., PLAINTIFF,
v.
MCI COMMUNICATIONS SERVICES, INC., D/B/A VERIZON BUSINESS NETWORK SERVICES, DEFENDANT.



The opinion of the court was delivered by: Mae A. D'Agostino, U.S. District Judge:

MEMORANDUM-DECISION AND ORDER

INTRODUCTION

Plaintiff GlobalRock Networks, Inc. ("plaintiff" or "GlobalRock") commenced this action against MCI Communication Services, Inc., ("MCI") doing business as Verizon Business Network Services ("Verizon" or "defendant"), alleging causes of action for breach of contract, fraud and gross negligence in connection with Verizon's provision of telecommunication services to GlobalRock. Presently before the Court are three motions. Defendant moves for summary judgment and dismissal of plaintiff's complaint and for summary judgment and an award of damages on defendant's counterclaims pursuant to Fed. R. Civ. P. 56. (Dkt. No. 95). In the alternative, defendant moves to exclude the proposed expert testimony of Stu Sleppin and David J. Malfara (Dkt. Nos. 94 and 96). Plaintiff has opposed the motions.

BACKGROUND*fn1

Defendant is a provider of wholesale and retail long-distance telecommunications services. Plaintiff is a prepaid calling-card provider selling calling cards that have a preset value and function like debit cards. Customers who purchase the calling cards dial a toll-free access number printed on the cards to reach GlobalRock's calling card platform. The customer is then prompted to enter a PIN number, also printed on the calling card, which allows GlobalRock's calling card platform to authenticate the customer and ensure that the card has adequate funds. After the customer is authenticated, plaintiff is prompted to enter the destination number (the number of the person that the customer is trying to call). Plaintiff's calling card platform determines what rate will apply to the call and whether any surcharges will be imposed. The calling card platform also determines which outbound carrier plaintiff should send the call to for delivery to its destination (in telecommunications terms, "terminate" the call). This determination is made based on the least-cost routing process. This process identifies the possible carriers and sorts the carriers in an attempt to place the call through the carrier that will charge the lowest price. As the call progresses, plaintiff's calling card platform deducts money from the card until the call ends or until the fund's on the card are depleted.

Telecommunications Services Agreement

In 1999, plaintiff's predecessor-in-interest and defendant's predecessor-in-interest entered into a contract, the Telecommunications Services Agreement ("TSA"). The TSA governed plaintiff's purchase of wholesale services from defendant. The TSA included attachments describing the specific services that GlobalRock ordered from defendant and setting forth the rates and terms applicable to those services. One of the service-specific attachments is entitled, "Attachment for Access Based Billing Carrier Origination Service." This attachment governed the origination service (inbound toll-free service) that GlobalRock ordered from Verizon. That origination service enabled plaintiff's customers to dial a toll-free number in order to be connected to plaintiff's calling card platform. Other service-specific agreements entitled, "Attachment for Access Based Billing Carrier Termination Service" and "Attachment for Carrier IP Termination Service", governed termination service (outbound service). Both types of termination service enabled plaintiff to pass calls from its calling card platform to Verizon for delivery to the local telephone company (or wireless carrier) service the number that the calling card user was trying to reach.

In 2003, the parties' predecessors-in-interest entered into a contract called the Digital Services Agreement ("DSA") that governed plaintiff's purchase of digital services from Verizon. Information Digits

Telephone companies create networks and transmit a variety of information that enables the companies to complete telephone calls and then bill for them. Switches, which are computers that route calls through a telephone network, record the information so that it can later be used for billing purposes.

Call-signaling information is typically transmitted by Signaling System No. 7 ("SS7"). One field of data in an SS7 message is Information Digits. Information Digits are two-digit codes that provide information about the equipment used to originate the telephone call; for example, whether the call was placed from a land line, payphone or wireless phone. The local telephone company that originates the call generates the Information Digits that are placed in the SS7 message. If the originating carrier places an incorrect value in the Information Digits field of an SS7 message, that value is passed to the subsequent carriers.

GlobalRock uses an older signaling method called Multi-Frequency signaling ("MF"). MF signaling occurs in-band (on the same network that carries the telephone call). MF signaling uses different, and fewer, data fields than SS7 signaling. The MF signals that GlobalRock received from defendant had three fields of information: Automatic Number Identification ("ANI"), Dialed Number Identification Services ("DNIS") and Information Digits.

New York State Gross Tax Charges

Paragraph 5(b) of the TSA provides that GlobalRock "shall pay" for "any applicable federal, state or local use, excise, gross receipts, sales and privilege taxes, duties, fees or similar liabilities whether charged to or against [Verizon Business] or [GlobalRock] because of the Switched Services furnished to [GlobalRock,]" unless GlobalRock provides Verizon Business "with an appropriate exemption certificate."

Beginning in 2006, defendant began invoicing plaintiff for New York State gross receipts tax surcharges on certain services that defendant provided to plaintiff. Plaintiff disputed the application of the charges and refused to pay. On or around June 16, 2006, plaintiff recognized that it needed the assistance of a tax attorney to confirm whether the New York State gross receipts tax surcharges were properly applied to the services it received from defendant and whether an exemption certificate was required. On or around August 16, 2006, plaintiff was represented by independent tax counsel.

In April 2008, plaintiff and defendant entered into a settlement agreement resolving their dispute about the tax receipts charges. Plaintiff consulted with tax counsel before entering into the agreement. As part of the settlement agreement, plaintiff released all claims against defendant relating to the disputed tax charges. As consideration, defendant credited plaintiff $116,180.02 and plaintiff paid defendant $128,135.00.

Invoices and Demands for Payment

The TSA and DSA required plaintiff to pay all undisputed charges within thirty days of the date of each invoice. The TSA provided that, if plaintiff did not pay all undisputed charges on or before the due date, a late fee of 1.5% would apply. Both the TSA and DSA provided that if defendant denied plaintiff's disputes in writing, the disputed amounts would become due and the contractual late fees would apply to those amounts.*fn2

On October 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA during the month of September 2009 for account number 2100113660. The invoice contained charges of $769,324.22. Of these charges, $177,079.22 was for origination service. Plaintiff did not pay any portion of the charges. Plaintiff did not dispute any of the aforementioned invoice charges. On October 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA during the month of September 2009 for account number 2100116744. The invoice contained charges of $149,250.76. Plaintiff did not pay any portion of the charges. Plaintiff did not dispute any of the aforementioned invoice charges. On October 1, 2009, defendant issued an invoice to plaintiff for services provided under the DSA with charges of $2,373.51. Plaintiff did not pay any portion of the charges. Plaintiff did not dispute any of the aforementioned invoice charges.

On November 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA for October 2009 for account number 2100113660. This invoice contained charges of $928,860.17. Of these charges, $173,567.72 were for origination service. Plaintiff did not pay any portion of the charges. On November 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA for account number 2100116744 for October 2009. The invoice contained charges of $158,162.26. Plaintiff did not pay any portion of the charges. On November 1, 2009, defendant issued an invoice to plaintiff for services under the DSA with charges of $1,820.73. Plaintiff did not pay any portion of the charges.

On November 2, 2009, defendant sent a letter to plaintiff requesting that plaintiff pay the past-due, undisputed balance of $1,423,897.88 on the invoices issued by defendant on September 1, 2009 and October 1, 2009. The letter demanded payment of the undisputed portions of the two recent sets of invoices. Defendant did not include any demand for payment on disputed amounts and did not include any amounts that were more than 90 days overdue. Defendant notified plaintiff that if it did not pay the charges in quesition within five days, defendant would "terminate all telecommunications services currently being provided by Verizon Business and any of its affiliates, to [GlobalRock] on or after 12:00 Noon, CST, November 9, 2009". On November 16, 2008, plaintiff filed the within lawsuit.

On December 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA for November 2009 for account number 2100113660. The invoice contained charges for $518,924.58. Of those charges, $53,320.44 was for origination service. On December 1, 2009, defendant issued an invoice to plaintiff for services provided under the TSA for the month of November 2009 for account number 2100116744. The invoice contained charges of $115,530.28. Plaintiff did not pay any portion of the charges. On December 1, 2009, defendant issued an invoice to plaintiff for services under the DSA with charges of $2,226.10. Plaintiff did not pay any portion of the charges.

On January 31, 2010, plaintiff filed a written dispute challenging $17,181.90 of the invoiced charges relating to the November 2009 invoice to plaintiff for services provided under the TSA for October 2009 for account number 2100113660. On February 10, 2010, plaintiff received written notice that defendant denied the dispute. On February 23, 2010, plaintiff filed a written dispute challenging a portion of the December 2009 invoice on account numbers 2100113660 and 2100116744. Plaintiff disputed $4,336.41 in origination charges and $1,916.54 in termination service charges. On March 8, 2010, plaintiff received written notice that defendant denied this dispute.

Verizon terminated all telecommunications services that it was providing to GlobalRock under the TSA and DSA after GlobalRock failed to pay the past-due, undisputed charges demanded in the November 2009 letter. After Verizon terminated service to plaintiff, plaintiff continued providing its prepaid calling card services relying on other carriers, including Level 3 Communications, to provide the origination and termination services that plaintiff had previously purchased from defendant.

Amended Complaint

Plaintiff asserts eight causes of action against defendant alleging breach of contract, gross negligence, failure to negotiate in good faith and fraud. Plaintiff also seeks an order declaring the settlement agreement unenforceable. Specifically, plaintiff asserts a claim for damages as to payphone-specific Information Digits claiming that defendant delivered calls that originated from payphones but did not contain pay-phone specific Information Digits in the call signaling information. Plaintiff argues that it was unable to apply a surcharge that it imposes on payphone-originated calls.*fn3 Plaintiff also asserts a claim as to wireless-specific Information Damages but the parties dispute the measure of damages on that claim. Plaintiff also claims that it sustained $423,340.87 in damages due to the fact that defendant improperly classified interstate calls as intrastate. The damages represent the difference between the intrastate rate that plaintiff was charged and the interstate rate that plaintiff claims it should have been charged. Plaintiff did not pay defendant the amount referenced above and has admitted that it is not seeking to recover that amount. Plaintiff also asserts claims based upon incomplete calls but the parties dispute the relevant facts surrounding that issue.

Defendant filed an answer and asserted counterclaims for breach of contract.

Procedural History

In February 2010, defendant filed a motion to dismiss portions of the amended complaint as it related to the New York State tax charges, and also sought dismissal of GlobalRock's fraud claims, alleging that the claims fail to satisfy the heightened pleading requirements of Rule 9(b). In November 2010, Chief Judge Gary L. Sharpe issued an Order denying defendant's motion. With respect to the tax charges claims, "GlobalRock alleged that it was fraudulently induced to enter into the agreement; that there was a lack of 'equal bargaining power' between the parties in negotiating the agreement; that the agreement was procured through economic duress; and that the agreement was unconscionable." The Court held, "[w]hile Verizon offers admittedly compelling arguments in this regard, and while the counter-arguments asserted by GlobalRock will likely be insufficient to avoid summary judgment, the court permits the challenged portions of the amended complaint to survive at this juncture and denies Verizon's motion to dismiss as to this issue." (Dkt. No. 37). With respect to the fraud claims, the Court found that the allegations were sufficiently particular to provide fair notice and denied that portion of the motion.

DISCUSSION

DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Defendant moves for summary judgment and dismissal of plaintiff's amended complaint. In addition, defendant moves for summary judgment on the counterclaims and an award of $4,351,610.13 in damages.

I. Summary Judgment Standard

A court may grant a motion for summary judgment only if it determines that there is no genuine issue of material fact to be tried and that the facts as to which there is no such issue warrant judgment for the movant as a matter of law. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 36 (2d Cir. 1994) (citations omitted). When analyzing a summary judgment motion, the court "'cannot try issues of fact; it can only determine whether there are issues to be tried.'" Id. at 36-37 (quotation and other citation omitted). Moreover, it is well-settled that a party opposing a motion for summary judgment may not simply rely on the assertions in its pleading. See Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (quoting Fed. R. Civ. P. 56(c), (e)).

In assessing the record to determine whether any such issues of material fact exist, the court is required to resolve all ambiguities and draw all reasonable inferences in favor of the nonmoving party. See Chambers, 43 F.3d at 36 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)) (other citations omitted). Where the non-movant either does not respond to the motion or fails to dispute the movant's statement of material facts, the court may not rely solely on the moving party's Rule 56.1 statement; rather, the court must be satisfied that the citations to evidence in the record support the movant's assertions. See Giannullo v. City of N.Y., 322 F.3d 139, 143 n.5 (2d Cir. 2003) (holding that not verifying in the record the assertions in the motion for summary judgment "would derogate the truth-finding functions of the judicial process by substituting convenience for facts").

II. Affidavits

In opposition to defendant's motion, plaintiff submitted affidavits from Ivan Danilov ("Danilov") and David Malfara ("Malfara"). Defendant argues that both affidavits are improper and should not be considered by the Court in the context of the motion for summary judgment.*fn4

Local Rule 26.3 provides:

Production of Expert Witness Information

There shall be binding disclosure of the identity of expert witnesses. The parties shall make such disclosure, including a curriculum vitae and, unless waived by the other parties, service of the expert's written report pursuant to Fed. R. Civ. P. 26(a)(2)(B), before the completion of discovery in accordance with the deadlines contained in the Uniform Pretrial Scheduling Order or any other Court order. Failure to comply with these deadlines may result in the imposition of sanctions, including the preclusion of testimony, pursuant to Fed. R. Civ. P. 16(f). If a party expects to call a treating physician as a witness, the party must identify the treating physician in accordance with the timetable provided in the Uniform Pretrial Scheduling Order or other Court order.

N.Y.N.D.L.R. 26.3.

Fed. R. Civ. P. 37(c)(1) provides, "If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information . . . unless the failure was substantially justified or is harmless." "The purpose of Rule 37(c)(1) is to prevent the practice of 'sandbagging' an opposing party with new evidence." Ebewo v. Martinez, 309 F.Supp.2d 600, 607 (S.D.N.Y. 2004). In assessing whether to preclude an expert's report, courts should consider: (1) the party's explanation for the failure to comply with the discovery order; (2) the importance of the testimony of the precluded witness; (3) the prejudice suffered by the opposing party as a result of having to prepare to meet the new testimony; and (4) the possibility of a continuance. See Patterson v. Balsamico, 440 F.3d 104, 117 (2d Cir. 2006). "It [is] an exceedingly simple, perfunctory task to give notice of witnesses as required by Rule 26(a)(1)(A)(i) but one which was important to permit defendants to meet [the expert's] testimony." Kullman v. New York, No. 07-CV-716, 2009 WL 1562840, at *8 -9 (N.D.N.Y. May 20, 2009) (citing Reilly v. Natwest Mkts. Group Inc., 181 F.3d 253, 268--69 (2d Cir. 1999)).

On March 31, 2011, plaintiff served a Rule 26(a)(1) disclosure and included the names of possible witnesses: (1) Sleppin Stu, GlobalRock President; (2) Alexi Archinov, Consultant; (3) Bob Teeman, Telecom Switching, Inc.; and (4) Pete Golomb, EZ Call, Inc. Plaintiff also stated:

GlobalRock reserves the right to identify other individuals: at MCI and Verizon; at the New York State Department of Taxation and Finance; at Billing Concept; at other telecommunications carriers, including but not limited to those interconnecting with or delivering traffic to or from MCI; and at other entities who may also have discoverable information that GlobalRock may use to support its claims or defenses.

On June 14, 2012, United States Magistrate Judge Randolph F. Treece held a discovery hearing and issued an Order which stated, inter alia, that all discovery, other than expert discovery, had been completed. With respect to expert discovery, the Court permitted the parties to conduct additional expert depositions and afforded the parties the opportunity to exchange additional expert reports. The Court reset the discovery deadline for August 31, 2012. (Dkt. No. 84). On December 28, 2012, plaintiff filed opposition to defendant's summary judgment motion and included an affidavit from Ivan Danilov and an affidavit from David Malfara dated December 28, 2012. (Dkt. No. 101).

Defendant contends that plaintiff failed to identify Danilov as either a fact witness or expert witness during discovery and thus, his affidavit must be disregarded. Plaintiff responded to the argument in a sur-reply and set forth several arguments in support of the affidavit including: (1) it became necessary to identify Danilov because plaintiff's expert, Alexi Archinov ("Archinov"), recently became unavailable having relocated to Russia; (2) that Danilov assisted Archinov in his data processing and bill review and relied upon the same information in preparing his calculations; (3) Danilov was only "asked to step in and perform additional data review" based upon defendant's billing records; and (4) Danilov's affidavit is direct rebuttal evidence permitted in opposition to the motion for summary judgment. Plaintiff does not cite to any caselaw in support of these arguments.

Plaintiff attempts to justify the late disclosure, thereby conceding that defendant had no notice that plaintiff intended to use Danilov as an expert witness until its receipt of plaintiff's opposition to the motion for summary judgment. While plaintiff offers several explanations for the failure to timely disclose, none qualify as "substantial justification." Plaintiff claims that Archinov moved to Russia. However, the record does not contain any affidavit from Archinov attesting to his unavailability. Indeed, plaintiff only vaguely states that Archinov "moved to Russia," but failed to disclose when he actually became unavailable and when plaintiff was first notified of his unavailability. Moreover, plaintiff asserts, without support, that Danilov assisted Archinov with his expert analysis. However, that assertion is not supported by the record as ...


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