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Vanguard Telecommunications, Inc. v. Southern New England Telephone Co.

filed: March 30, 1990.

VANGUARD TELECOMMUNICATIONS, INC., APPELLANT
v.
SOUTHERN NEW ENGLAND TELEPHONE COMPANY; CSX CORPORATION, AND LIGHTNET



Appeal from the United States District Court for the District of New Jersey (Newark), D.C. Civil No. 87-2321.

Hutchinson, Cowen, and Rosenn, Circuit Judges

Author: Rosenn

Opinion OF THE COURT

ROSENN, Circuit Judge.

The appeal in this diversity case from the trial court's grant of summary judgment presents primarily a question of contract construction. Plaintiff, Vanguard Telecommunications (Vanguard), sued defendants, Southern New England Telephone (SNET), CSX Corporation (CSX), and their joint venture Lightnet (referred to collectively as Lightnet) for an alleged breach of their brokerage contract. Vanguard claimed that it was due commissions on all sales made to companies on its prepared account list, regardless of who was responsible for the sale. Vanguard also made a claim for breach of fiduciary duty and attempted to amend its complaint to add a claim for fraud. The trial court granted summary judgment on the breach of contract and fiduciary duty claims. The court denied Vanguard leave to amend to add a cause of action for fraud, ruling that the contract, as a matter of law, did not grant Vanguard a right to commission on sales made by Lightnet itself. Vanguard appeals. We affirm.

I.

In April 1983 CSX and SNET publicly announced their intention to form a joint venture to study the market potential for a fiber optic telecommunications network in the eastern part of the United States along CSX owned railroad rights of way and to market fiber optic systems to large volume users of long distance telecommunications capacity. Four months later the parties announced the formation of Lighnet as a going entity to market their fiber optic systems. Lightnet immediately engaged Robert E. LaBlanc & Associates (LaBlanc), a prestigious telecommunications consulting firm, as its primary marketing consultants. Soon after the public announcement of the formation of Lightnet, Vanguard called on it to offer to broker Lightnet's fiber optic systems.

Vanguard, which billed itself as a communications consulting firm as well, was also a relatively young but diminutive enterprise when it approached Lightnet. It had been founded by Donald Van Doren and Jim Rice and had no previous experience in selling telecommunications capacity. Rice, however, had most recently been employed with Allnet Communications Services (Allnet). Vanguard also worked closely with Carroll Bowen, a telecommunications consultant, and his company.

Vanguard approached Lightnet, directly and through LaBlanc, representing that it was uniquely positioned to market Lightnet to "reseller" firms of the telecommunications industry which Lightnet otherwise had overlooked or would be unable to reach. "Resellers" purchase capacity in bulk and resell it in smaller quantities. Significantly, Vanguard identified Lightnet as a "target of opportunity."

Vanguard's principals met several times with Lightnet and LaBlanc personnel to discuss a potential marketing agreement. Rice and Bowen reached a preliminary understanding with Richard Wolf of LaBlanc at a meeting on October 20, 1983, by which Vanguard would market Lightnet optic capacity to companies on an account list and would receive commission of two percent on any sales that Vanguard brought to Lightnet. At the conclusion of the meeting Wolf of LaBlanc gave Rice a letter which stated, "This letter will introduce Vanguard Telecommunications Inc. who has been retained as a representative by Lightnet to act in their behalf in marketing Lightnet." The letter made no statement of the terms of the retainer.

Vanguard interpreted this preliminary arrangement as granting it a right to a commission on any sale of Lightnet to any company on the account list, regardless of who was actually responsible for the sale. It contends that this method of distributing commissions was adopted to avoid "beauty contests," in which Vanguard and Lightnet might quibble over who had caused specific sales, preventing the two from efficiently working together. Wolf concedes that this potential problem was discussed, but denies that Vanguard was given a right to commission on all sales, regardless of its level of responsibility in producing the sale.

Following this meeting, Vanguard commenced activities to market Lightnet optical capacity. It made initial contacts with most of the companies on its account list, and even sent a preliminary proposal to Allnet. The parties also continued to negotiate a final agreement, exchanging several draft "Agreements in Principle," which calculated commissions applying a complex formula including variables related to the volume and timing of sales to account list companies.

On December 29, Van Doren met with Lightnet Marketing Managers Dennis Evans and Gerald Clement, and President Frank Wollensack to try and hammer out a final written agreement. At this meeting, the parties spoke extensively about Lightnet's relationship with Vanguard, including the issue of avoiding "beauty contests." Van Doren contends that the parties agreed to the "Account List" concept, compensating Vanguard for all sales to potential customers on the list, regardless of its level of sales responsibility. The Lightnet representatives disagree that the "Account List" concept was adopted, though they admit that it was discussed. Ultimately, however, no final agreement was reached at this meeting.

On January 13, Evans and Van Doren had a phone conversation in which they decided that the agreement should provide for a straight two percent commission, without any complicated formula. Evans also agreed to reimburse Vanguard for all expenses it had already incurred on Lightnet's behalf. Finally, they agreed to meet later that week to iron out the terms of the agreement, which Evans would subsequently memorialize in writing. Van Doren contends, and Evans denies, that they also agreed to apply the Account List concept of determining when Vanguard was due a commission.

At the meeting later in the week, the parties reached a final agreement, which was memorialized in a letter dated January 27, 1984, from Evans to Van Doren (the Evans letter). The letter reads in its relevant parts:

This will serve to confirm our acceptance of the proposed remuneration [sic] figures we discussed Thursday, January 19th, for the past efforts of Vanguard.

In addition, Vanguard Telecommunications, Inc. will be compensated with a 2% commission on the amount of the sale price for LIGHTNET fibers or bandwidth sold to any customer on their "Account List" (attached), provided the sale is contracted for within twenty-four months beginning February 1, 1984.

We also agreed that LIGHTNET takes over sales responsibility for all accounts on the Account List. This means Vanguard will not represent LIGHTNET from now on, except as mutually agreed upon in advance for customers on the Account List. For example, we'll mutually agree on your role/our role with ALLNET following our planned joint meeting with the customer. The other accounts will be reviewed with you and we'll decide where a dual customer visit is appropriate, where Vanguard should telephone the customer to explain the change in account handling, or where we should work with you on the sale for some time.

My assumption, although we didn't discuss it specifically, would be that Vanguard would, in the future, be compensated as in the first paragraph for time or out of pocket expenses when we called upon you for account support for customers on the Account List.

Rice sent a confirmatory letter (the Rice letter) agreeing to these terms:

As we discussed, we think the terms of our agreement outlined in your letter to Don Van Doren dated January 27, 1984, are acceptable.

This letter summarizes the clarifications to that letter which Don and I discussed on the phone with you as I understand them.

We agreed that the attached "Account List" should be ...


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