LLP v. Mary Hudson et al. (2012)

MEMORANDIJM OF DECISION

The plaintiff is in the business of providing wireless internet services to premises that accommodate both short- and long-term recreational vehicles and mobile homes generally referred to as RV parks.   The defendant St. Louis RV Park is a general partnership that operates an RV park in St. Louis, Missouri.   The defendants George Hudson and Mary Hudson are the two general partners that constitute the partnership during the relevant time frames.

During January 2010 the plaintiff and the defendant began communicating with regard to the plaintiff providing its equipment and service to the defendant RV Park. On behalf of the defendants this communication was through an individual named John Motor II. The defendants were aware of and approved this method of communication.   The plaintiff forwarded to the defendant RV Park a proposal dated February 26, 2010 and the plaintiff and the defendant RV Park executed a “license agreement” dated March 3, 2010 (hereinafter referred to as the agreement).   The agreement was entirely drafted by the plaintiff, and read thoroughly by the defendant Mary Hudson.

Prior to the execution of the agreement the plaintiff represented itself to be an experienced provider of wireless internet service with special expertise in providing that service to RV parks.   The plaintiff also represented that it would provide a variety of services to the defendants and the defendants' and the plaintiff's mutual customers, i.e., the consumers of both RV Park and wireless internet services (hereinafter the consumers.)   The defendants communicated to the plaintiff that they were looking for a turnkey operation and a provider of such services that would assist them in the various technological issues arising pursuant to the agreement.

The quality of wireless internet services received by the consumers can be affected by several factors including the quality of the internet service brought to the premises;  the quality of the wireless equipment and its installation provided by the plaintiff;  the quality of the computer utilized by the consumer;  the particular service purchased by the consumer from the plaintiff.

The agreement calls for the defendants to pay for “electrical, structures and high speed data costs.”   At the time of the execution of the agreement the defendants had provided the requisite internet services to the premises.   The agreement contemplates that the licensee shall “install construct operate maintain repair alter inspect and remove a communications facility which will include radio and microwave communications equipment to and from the premises.”   The agreement also calls for the licensee to “make its wireless services available to all residents, lessees, and guests of the location in accordance with its standard service agreements.”   The parties contemplated a system where the consumers would, through the internet, purchase one of a number of wireless service packages offered by the plaintiff and pay the plaintiff directly for the service.   The plaintiff in turn would remit to the defendant the defendant's share of the revenues as set forth in the agreement.

Subsequent to the execution of the agreement the plaintiff hired a local technician, Terry Mitchell, to install its equipment.

For a time during March and April of 2010, the system seemed to work well.   However, between later April thru June 2010 (which corresponded with defendants' busy season) a number of consumers experienced dissatisfaction with the system and communicated that dissatisfaction to both the defendants and the plaintiff.   It is not clear which of the multiple factors which can impact the quality of the service caused the dissatisfaction.   Nor is it clear what percentage of users were dissatisfied with the system.

In late June 2010 the system stopped working for a short period of time, a condition both the parties and the agreement refers to as an outage.   On June 29, 2010 plaintiff sent to the defendants a letter indicated that the defendants were in material breach of the agreement.   The equipment became operational but the communication between the parties from that point through the fall indicates a variety of issues.   The defendants indicated on multiple occasions to the plaintiff that the consumers were not satisfied with the quality of the service, the plaintiff communicated similar complaints to the defendants.   The defendants made various good faith efforts to attempt to improve the service at the park.   In July of 2010 the defendant Mary Hudson became much more involved in the process of communicating with the plaintiff.   Notwithstanding those efforts and multiple communications between the plaintiff and the defendants, the defendants were never satisfied with the quality of service.   The differing views of the system and its business impact on the plaintiffs and the defendants is illustrated by an email from the plaintiff to the defendant Mary Hudson dated October 8, 2010 in which the plaintiff writes:

Our goals are to serve the short term customers first, especially those that are able to technically require little or none of our time and then we tend to the customers that need help and of course seek long term plans.   If I were at the property I would need my own DSL line and wouldn't get on a shared WiFi network so I anticipate anyone with a lot of demand on the internet will feel the same way.

(Exhibit 17)

The plaintiff's interest was to get many short-term users who would pay their fees and require little of their time.   The defendants wanted the service as an amenity for their customers thereby making their park a more attractive place for both the short-term and the long-term customers.

In late October there was a more extended outage and the defendants were working with AT & T to upgrade the internet service by installing fiber optic.   Terry Mitchell went out to the property again at the plaintiff's request, though he was paid for by the defendants.   Terry Mitchell communicated to the defendant Mary Hudson that there wasn't anything he could do to get the system to work.   Between April and November the software analysis produced by the plaintiff demonstrates that the system was operational and many consumers used the service.   That evidence does not indicate the quality of the service.   It is also clear from both the plaintiff and the defendant that each had received complaints and on occasion each had reimbursed consumers for charges that the consumers had paid.

On or about November 26th the defendants sent a letter to the plaintiff which stated:  “Be advised that there is no contract nor was one executed.   You have 10 days to remove your equipment.”   At trial the defendant Mary Hudson conceded that there was a contract and the first sentence was her mistake but nonetheless the quality of service was such that she wanted the equipment removed.   In response on December 7, 2010 the plaintiff sent a letter to the defendants notifying them that the plaintiff considered the defendants to be in material breach of their license agreement for a variety of reasons set forth in that letter.

Following the November 26th and December 7th correspondence between the parties, the plaintiff filed suit by complaint dated January 18, 2011.   The complaint sounds in one count for breach of contract (license agreement).

Accordingly, we start with a discussion of the agreement.   At the conclusion of the evidence the court sua sponte asked counsel about the significance of Article 27 of the agreement which begins:  “As a precondition for commencing any legal action to enforce this agreement or seek damages for a breach thereof the parties agree they will endeavor in good faith to informally resolve such suit.”   Notwithstanding claims of the plaintiff it is difficult for the court to find, based upon the evidence, that there ever was a “good faith” effort to informally resolve this suit.   It appears to the court that the parties intended by this language to make good faith efforts to resolve such suit a condition precedent to bringing an action.   This is particularly true since the agreement goes to the extent to carve out an exception to this precondition in the event that one of the parties needs to prevent “irreparable harm.”   While the court knows of no case that has discussed similar language, White v. Kampner, 229 Conn. 465, is instructive.   While White dealt with a clause that was significantly more specific with regard to what was required, the White conclusion that “mandatory negotiation sessions constituted a condition precedent to arbitration” would justify a finding that the lack of good faith efforts to informally resolve a dispute could well be determined to be an unfulfilled condition precedent in the case above.   However, the court must come to the conclusion that any such clause “may be waived by the parties or by the one entitled to its benefits.”  Batter Building Materials, Co. v. Kirschner, 142 Conn. 1 at 11 (1954).   Certainly going to trial without insisting upon or at least asserting the negotiation condition, as the defendant did, would constitute such a waiver.   See Batter Building Materials, Co., supra.

Plaintiffs rely heavily on the provision of the agreement which reads as follows:

12.  Default:  (a) In the event of licensee's default in the compliance of any material provision of this licensee agreement, licensor may, at its option, upon 45 days written notice terminate this license agreement ․ (c) In the event of licensee's failure to comply with any material provision of this license agreement, which failure is not cured within 45 days after receipt of written notice thereof from licensor ․ licensor may at its option terminate this license agreement.

Connecticut courts have found such clauses which require a notice and an opportunity to cure to be binding provisions of the contracts in which they are contained.   See Multiservice Contractors, Inc. v. Town of Vernon, 193 Conn. 446, 455 (1984);  Joseph Schott, LLC. v. Medrea, 2011 WL 5842774 (Conn.Super.).   The defendants suggest that such a notice would have been futile and the law does not require a party to proceed with a useless and futile act.   See Luttinger v. Rosen, 164 Conn. 45, 47 (1972).   While the court does not disagree with that statement of law, the court is not prepared to find based upon the evidence before it that such an act would have been futile.   The evidence indicates that the system was operational at least to some extent and that the reasons for the lack of satisfaction of many of the consumers had never been determined.   A 45–day cure period might well have resulted in more effort on the part of the plaintiff to finally address and resolve the issue.   While the evidence certainly reveals growing dissatisfaction with the system on the part of the defendants and a growing dissatisfaction, and perhaps even condescension, on the part of the plaintiff with the defendants, the evidence also reveals that prior to the November 26th notice sent by the defendants the parties did respond to each others' communications.   The court therefore finds that the defendants breached the contract by insisting the plaintiff remove its equipment without providing the plaintiff with the 45–day period in which to cure any failure on the part of the plaintiff to comply with material provisions of the agreement.

The contractual agreement between the parties also deals with the issue of damages, by providing a liquidated damage clause.

“[T]he law is well established in this jurisdiction, as well as elsewhere, that a term in a contract calling for the imposition of a penalty for the breach of the contract is contrary to public policy and invalid, but a contractual provision fixing the amount of damages to be paid in the event of a breach is enforceable if it satisfies certain conditions ․ A contractual provision for a penalty is one the prime purpose of which is to prevent a breach of contract by the holding over the head of the contracting party the threat of punishment for a breach ․ A provision for liquidated damages on the other hand is one the real purpose of which is to fix fair compensation to the injured party for a breach of contract.”  American Car Rental, Inc. v. Consumer Protection, 273 Conn. 296, 306 (2005), quoting Berger v. Shanahan, 142 Conn. 726, 731–732 (1955).

Section 11(c) of the agreement contains a liquidated damages clause which states as follows:  “Upon termination by licensee for cause pursuant to this section licensee shall be entitled to elect, in lieu of money damages, an award of liquidated damages in the lessor amount of Fifty Thousand Dollars ($50,000.00) or the amount of the average monthly [sic] during the six month period preceding the termination realized by the licensee for the provision of communication services multiplied by the number of months remaining in the then current term for each such breach or violation.”  (Emphasis added.)   It is obvious that there is a word or words missing after the word “monthly” and before the word “during.”

The plaintiff urges the court to supplement the clause in the agreement by inserting something akin to the phrase “gross revenues” between the words monthly and “during.”   The missing words could easily be either gross revenues, net profits, or something else.   In urging the court to resolve the ambiguity by determining that the plaintiff's liquidated damages clause allows the plaintiff's damages to be calculated based upon the average monthly gross revenues as opposed to, for example, the average monthly net profits, the plaintiff is asking the court to resolve the ambiguity in the manner that is most favorable to the plaintiff.   However, it is clear from the evidence that the plaintiff drafted the agreement.   It is axiomatic in our law that an ambiguity in a contract is to be resolved against the party who drafted the contract.  “It is generally accepted, as the defendant contends, that when two or more meanings may fairly be given to language in a contract, the language is to be construed against the one who drew it;  citations omitted and, likewise, the language of a contract is typically construed most strongly against the party whose language it is and for whose benefit it was inserted.  Sturman v. Socha, 191 Conn. 1, 9 (1983).   See also Griswold v. Union Labor Life Ins., Co., 507, 513 (1982);  Ravens Wood Construction, LLC v. F.L. Merritt, Inc., 105 Conn.App. 7 (2007).   The court will not resolve the ambiguity resulting from the plaintiff's failure to include critical words in a critical clause in favor of the plaintiff.   Moreover, a clause that measures liquidated damages based upon gross revenues as opposed to net profit would tend to award the plaintiff damages in excess of the profit it would have realized in the absence of a breach.   When two possible interpretations are possible, the court will prefer the more equitable and rational interpretation.  American Fabrics Co. v. United Textile Workers of America, 12 Conn.App. 642 at 648;  Game–A–Tron Corporation v. Gordon, 23 Conn.App. 692, at 694–95.   The court does not consider the plaintiff's interpretation to be the more equitable or rational one.   While the court does not conclude that in any given situation such a clause would necessarily be a penalty and unenforceable, the court is not inclined to resolve this ambiguity in a manner that would bring about such result, on the facts of this case.

While the plaintiff did introduce evidence from which it asks the court to extrapolate as to what the monthly gross revenues would be, the plaintiff introduced no evidence from which the court could conclude as to what the monthly net profits would be.   Clearly the plaintiff's witness John Borg testified that there were numerous expenses that the plaintiffs experienced during the six months preceding the termination that would have impacted its profit, but never was there any evidence that would itemize those expenses or give the court a basis for concluding what the average monthly profit was.   This is particularly troublesome since all of the financial documentation was in control of the plaintiff and not the defendants.   Under all the circumstances, the court will decline to interpret the liquidated damages clause in the manner that the plaintiff suggests.

It is clear however, that even if the court was inclined to interpret the liquidated clause as the plaintiff suggests, and even if the court were inclined to accept the evidence that the plaintiff has provided (the amount the plaintiff paid the defendants on a monthly basis) as determinative then the most the liquidated damages clause could generate for the plaintiff is $23,281.08.   Since the plaintiff has provided no evidence of net profits, and the liquidated damages clause refers to the lesser amount of $50,000 or the average monthly [sic] during the six-month period preceding, the court concludes that the plaintiff simply did not prove either actual damages or damages to which it would be entitled under the liquidated clause.

Accordingly, the court enters judgment in favor of the plaintiff and awards nominal damages of $1.00.

GENUARIO, J.[PAGE

Genuario, Robert L., J.