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AT&T Corp. v. Washington Inventory Service

September 16, 2009


The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge


Washington Inventory Service ("WIS") moves for summary judgment or, alternatively, for partial summary judgment on both claims asserted in AT&T's complaint. AT&T opposes the motion. Pursuant to Local Rule 7.1(d)(1), this matter is appropriate for decision without oral argument. For the reasons set forth below, the court denies the motion for summary judgment or, alternatively, for partial summary judgment.


On April 28, 2008 AT&T commenced this diversity action alleging two claims for breach of contract and quantum meruit/unjust enrichment. AT&T is in the business of providing telecommunications services. WIS is a San Diego-based company that provides inventory counting and related services to retailers across the country. WIS maintains over 140 offices in the United States, including about 104 offices outside the state of California.

At the heart of the parties dispute is a $360,000 minimum annual revenue commitment ("MARC") provision contained in the parties' September 3, 2003 contract documents. (WIS Exh. 6). The Voice Data Services Attachment to the contract containing the MARC provided that WIS could fulfill its obligation by purchasing any combination of AT&T's Business Network Services including, long distance, toll free, advanced features, international, calling cards, local, corporate office, voice access, frame relay, ATM, teleconferencing and managed internet services. Id. Over the three year term of the contract, WIS did not satisfy the MARC.

In the 12 month period from June 2002 through May 2003 WIS spent $614,795 on telecommunications services provided by AT&T, (SoF ¶3). In an effort to reduce its telecommunications costs, in 2003 WIS decided to issue a Request for Proposal ("RFP") from various suppliers of telecommunications services. In its response to the RFP, AT&T indicated that it could provide services to "128 of 142 or 90%" of WIS's offices. (WIS Exh. 2, p. 7). Subsequently, AT&T account manager Julie Rossi informed WIS Network Operations Manager Steve Stevenson that AT&T could provide coverage to 70% of the WID offices. (Stevenson Decl. ¶12). Mr. Stevenson concluded that the provision of 70% of WIS offices outside of California with local services would satisfy the MARC. (Stevenson Decl. ¶13). On June 4, 2003 AT&T provided WIS with a spreadsheet applying its rate to about 59% of WIS offices located outside of California showing a net local spend amount of $8,335.80. Mr. Stevenson represents that he did not consider the 59% coverage rate because there was no text indicating that AT&T was withdrawing its 90% coverage representation in the RFP. In analyzing the RFPs, WIS retained a telecommunications consultant, Gary Eckert of Profitline, to assist with the analysis and comparisons of the proposals.

Ultimately, WIS entered into agreements with SBC for the provision of all local, long distance, and DSL services in its California offices and with AT&T for the provision of all local, long distance, and DSL services in its offices located outside California. The contract documents consist of (1) the DSL Internet Service Order Agreement; (2) the Local Services Order Agreement, and (3) the Voice/Data Services Service Order Agreement. These agreements were addenda to a Master Agreement executed by WIS and AT&T in June 2001. (WIS Exh. 7).

Soon after the effective date of the new agreements, "AT&T encountered problems provisioning some of WIS's field offices with local telecommunications services because of the prior technical configurations of WIS's service. AT&T was unable to provision local telecommunications services to WIS field offices where DSL service was connected to main telephone lines." (Rossi Decl. ¶19). Another limitation to achieving the switch over to AT&T's services resulted from the need to cancel the Centrex switching services and that certain services required WIS to place orders with incumbent providers and then to terminate the service in order to allow AT&T to take over the service from the incumbent provider rather than third parties. (WIS SoF. ¶10). As the first year anniversary date of the contract approached, on August 24, 2004 Mr. Stevenson informed AT&T that its lack of progress in converting the local offices to AT&T local services "was preventing WIS from making the $360,000 MARC." (Stevenson Decl. ¶19). On August 25, 2004 Mr. Sullivan, an AT&T account representative, responded by identifying the progress obtained in converting WIS offices to AT&T services. The spreadsheet indicated that only 33 of 87 offices had been converted. (Stevenson Decl. ¶¶23, 24). The reasons identified for the limited office coverage were identified as DSL on the main line, Centrex of split line service, and third party provisioning. (WIS SoF ¶20; AT&T SoF. 19).

On September 3, 2004 WIS provided AT&T with a default notice indicating that AT&T had failed to provide local telephone service to only about 30 of its field offices. (WIS Exh. 13). On September 15, 2004 Mr. Stevenson sent an email to Mr. Sullivan at AT&T indicating that local service had been provided to only 35 of 104 non-California WIS offices. (WIS Decl. Exh. 14). In response, AT&T waived the shortfall penalty for the first year of the MARC. (Stevenson Decl. ¶26). On September 16, 2004 WIS informed AT&T that it would allow it to provide local service to its offices located in California. AT&T responded that it could not provide local services to these offices. Id. ¶28.

In early 2005, the parties began discussions concerning renegotiating the MARC pursuant to Section 7.0 of the Master Agreement. The parties reached a tentative resolution to the dispute but, ultimately, new management at WIS did not agree to the terms of the renegotiated contract. (Stevenson Decl. ¶32; AT&T SoF. ¶¶47-48). On February 27, 2006 AT&T billed WIS for the second year (from September 3, 2004 -September 2, 2005) MARC shortfall in the amount of $135,535.55. (Stevenson Decl. ¶33; AT&T SoF. ¶48).

On May 16, 2006 WIS provided notice of default to AT&T, noting that it considered the MARC shortfall charges improper because the charges were "directly related to AT&T's inability to provide the promised services. Had AT&T been able to deliver on promised services, there would be no short fall in our ability to meet our contractual obligations. It is our position that AT&T knowingly and intentionally misled WIS to cause WIS to enter into a contractual arrangement with promises that it could not meet." (AT&T Exh. 17). On October 31, 2006 AT&T billed WIS $251,801.78 for the third year MARC shortfall. (WIS SoF. ¶39). AT&T commenced this action to recover the alleged revenue shortfalls for the second and third years of the contract.


Legal Standards

A motion for summary judgment shall be granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); Prison Legal News v. Lehman, 397 F.3d 692, 698 (9th Cir. 2005). The moving party bears the initial burden of informing the court of the basis for its motion and identifying those portions of the file which it believes demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). There is "no express or implied requirement in Rule 56 that the moving party support its motion with affidavits or other similar materials negating the opponent's claim." Id. (emphasis in original). The opposing party cannot rest on the mere allegations or denials of a pleading, but must "go beyond the pleadings and by [the party's] own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file' designate 'specific facts ...

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