Mentis Scis., Inc. v. Pittsburgh Networks, LLC

Mentis Sciences, Inc. v. Pittsburgh Networks, LLC

No. 2017-CV-00132

State of New Hampshire MERRIMACK, SS SUPERIOR COURT

June 8, 2017

ORDER

Plaintiff, Mentis Sciences, Inc. ("Mentis"), has brought an action against Defendant, Pittsburgh Networks, LLC ("Pittsburgh"), seeking damages arising out of a contract (the "Agreement") between the parties in which Pittsburgh agreed to provide services including network maintenance, workstation aid and/or service support, and network infrastructure management. Mentis alleges that Pittsburgh failed to comply with the Agreement and, as a result, Mentis suffered damages including loss of data critical to its business. This loss has resulted in Mentis being forced to incur the cost of re-creating the data and caused it to lose profits because it was unable to bid on other work. Mentis makes two claims. In Count I, it seeks damages for breach of contract. In Count II, it seeks damages as a result of Pittsburgh's negligence in performing the agreement.

Pittsburgh moves to dismiss, alleging that the damages sought in Count I, the contract claim, is barred by a Limitation of Liability Clause which prohibits recovery for consequential and incidental damages such as lost profits, and that the negligence claim, Count II, is barred by controlling New Hampshire law. For the reasons stated in this Order, the Motion is DENIED with respect to Count I, the Contract Claim. However, Mentis' claim for incidental and consequential damages resulting from loss of data, including lost profits, is DISMISSED. The Motion to Dismiss is GRANTED with respect to Count II, the negligence claim.

I

In ruling on a Motion to Dismiss, the Court must determine whether a plaintiff's allegations are "reasonably susceptible of a construction that would permit recovery." Bohan v. Ritzo, 141 N.H. 210, 212 (1996) (quotation omitted). This determination requires the Court to test the facts contained in the complaint against applicable law. Tessier v. Rockefeller, 162 N.H. 324, 330 (2011). In rendering such a determination, the Court "assume[s] the truth of all well-pleaded facts alleged by the plaintiff and construe[s] all inferences in the light most favorable to the plaintiff." Bohan, 141 N.H. at 213 (quotation omitted). "The plaintiff must, however, plead sufficient facts to form a basis for the cause of action asserted." Mt. Springs Water Co. v. Mt. Lakes Vill. Dist., 126 N.H. 199, 201 (1985). A Court "need not accept statements in the complaint which are merely conclusions of law." Id. Plaintiff has appended a copy of the contract between the parties and the Court may therefore consider the terms of the contract in ruling on the Motion to Dismiss. Beane v. Beane & Co., 160 N.H. 708, 711 (2010).

According to the Complaint, on or about May 22, 2014, Mentis and Pittsburgh entered into an Agreement pursuant to which Pittsburgh agreed to provide Mentis with IT services. (Compl. ¶ 5.) Pittsburgh agreed to provide "Network Maintenance, Workstation and/or Server support and Network Infrastructure management, as well as other services agreed to by the Customer [Mentis] and the Service Provider [Pittsburgh] as detailed in additional quotes or change orders." (Compl., Ex. A "Agreement," p. 2.) The contract price was $15,864.00 annually. (Compl., Ex. A "Agreement," attach.) On orabout August 18, 2014 Pittsburgh notified Mentis that one of Mentis' servers had failed and needed to be replaced. (Compl. ¶ 6.) Between August 18 and August 25, 2014, Pittsburgh worked to repair Mentis' IT system. (See Compl. ¶¶ 7-8.) On August 25, 2014, Pittsburgh advised Mentis that piece of equipment called a RAID controller had malfunctioned which caused corruption of data. (Compl. ¶ 8.) The data that was corrupted and rendered useless due to the malfunctioning controller was supposed to have been backed up by Pittsburgh. (Compl. ¶ 8.) However, when Pittsburgh attempted to recover the data it discovered it had failed to properly back up the data, and the data was permanently lost. (Compl. ¶ 8.)

"The data that was lost represents valuable intellectual property compiled over many years and is of daily critical use in Mentis' business." (Compl. ¶ 9.) "This is especially true for unique data obtained from United States Department of Defense testing." (Compl. ¶ 9.) Mentis alleges that as a result of this loss of data it "has incurred substantial damages, including but not limited to the cost of re-creating the data and the additional time and expense now required on existing and future work." (Compl. ¶ 10.) Mentis claims that some of the data which was lost "can only be obtained through . . . testing which is massively expensive to conduct." (Compl. ¶ 10.) Mentis alleges that as a result of the loss of data it is "unable to bid or participate in various projects worth potentially millions of dollars." (Compl. ¶ 10.) According to the Complaint "the actual damages incurred by Mentis as a result of Pittsburgh's actions are estimated to be in the millions of dollars." (Compl. ¶ 14.)

Pittsburgh moves to dismiss both counts of the Complaint. Pittsburgh alleges that the damages sought in Count I, the breach of contract count, are consequential damageswhich are barred by the terms of the Agreement. It also alleges that Count II, the negligence count, does not state a cause of action. The Court deals with the issues seriatim.

II

The purpose of a damages award in a breach of contract action is to put the non-breaching party in the same position it would have been in if the contract had been fully performed. Robert E. Tardiff, Inc. v. Twin Oaks Realty Trust, 130 N.H. 673, 677 (1988). Recoverable damages may be direct or indirect damages. Direct damages constitute "the loss in the value of the other party's performance caused by its failure or deficiency." Restatement (2d) Contracts § 347(a). In addition to the loss in value to of the other person's performance, an injured party may recover "any other loss, including incidental or consequential loss, caused by the breach." Restatement (2d) Contracts § 347(b). Such indirect or consequential damages are those "that could have been reasonably anticipated by the parties as likely to be caused by the defendant's breach." George v. Al Hoyt & Sons, Inc, 162 N.H. 123, 134 (2011).

The Agreement between the parties contains a "Limitation of Liability Clause" which Pittsburgh alleges bars Mentis' claim for consequential lost profit damages. The Clause provides:

The Service Provider [Pittsburgh] shall not be liable for any indirect, special, incidental, punitive or consequential damages, including but not limited to loss of data, business interruption, or loss of profits, arising out of the work performed or equipment supplied by the Service Provider [Pittsburgh] under the terms of this Agreement.

(Compl., Ex. A "Agreement," p. 7.)

Limitation of Liability clauses are generally enforceable between business entitiesdealing at arm's length in New Hampshire. See, e.g., Hydraform Prods. Corp. v. American Steel & Aluminum Corp., 127 N.H. 187, 194 (1985). Mentis does not allege overreaching by Pittsburgh. Pittsburgh asserts that Count I, alleging breach of contract, must be dismissed because the language of the Agreement plainly excludes incidental or consequential damages resulting from loss of data including lost profits.

Mentis objects and makes two arguments. First, Mentis relies upon the decision of the 10^th Circuit in Penncro Assocs. v. Sprint Spectrum, L.P., 499 F.3d 1151 (10th Cir. 2007)¹ which held that a Limitation of Liability Clause, virtually identical to the Limitation of Liability clause in the Agreement here, did not bar the plaintiff's claim for lost profit damages. Second, it argues that if the Limitation of Liability Clause were considered to bar its claim for lost profits, then it would be unenforceable because Mentis would be left with no "minimum adequate remedy for breach of the contract where the breach was total and fundamental." (Pl.'s Mem. in Support of Obj. to Mot. to Dismiss, p. 15, citing Colonial Life Ins. Co. of Am., v. Electronic Data Systems Corporation, 817 F. Supp. 235, 242-43 (D.N.H. 1993).)

Pittsburgh argues that Penncro is either distinguishable or inconsistent with New Hampshire law, and that under New Hampshire law it is well settled that all lost profits are consequential damages and are therefore barred by the Limitation of Liability clause. (Def.'s Reply to Pl.'s Obj. to Mot. to Dismiss, p. 2.) It does not dispute that the Limitation of Liability clause allows Mentis to recover its direct damages but argues Mentis has not pled any such direct damages. (Def.'s Reply to Pl.'s Obj. to Mot. to Dismiss, p. 5.)

A

Both parties treat Penncro as setting forth a novel approach to contract damages. The Court disagrees. Penncro is essentially based upon the Restatement (2d) Contracts and is consistent with New Hampshire law.²

An understanding of Penncro's facts is critical to understanding the decision. Penncro was a bill collector, which was hired by the defendant, Sprint, to collect overdue bills from Sprint's cell customers. Under the contract between the parties, customers with overdue Sprint accounts trying to make outgoing calls were automatically routed to call centers staffed by Penncro. Penncro employees introduced themselves as Sprint agents, informed callers that their accounts were past due and attempted to collect money. Penncro agreed maintain its staffing levels to provide Sprint with 80,625 productive hours per month. Sprint agreed to pay for those hours at the rate of $22 an hour. Penncro, 499 F.3d at 1153. Penncro sued Sprint for termination of the contract and recovered damages for lost profits. The contract between the parties contained a Limitation of Liability clause which was similar to the limitation of liability clause in this case, and which barred the award of consequential damages defined as "including, but . . . not limited to lost profits, lost revenues and lost...