Pine Tel. Co. v. Alcatel-Lucent USA, Inc.

PINE TELEPHONE COMPANY, INC., an Oklahoma corporation,and PINE CELLULAR PHONES, INC., an Oklahoma corporation, Plaintiffs, v. ALCATEL-LUCENT USA, INC., a Delaware corporation, f/k/a ALCATEL USA MARKETING, INC., Defendant.

Case No. CIV-11-353-JHP

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF OKLAHOMA

Dated: January 29, 2014

ORDER AND OPINION

Before the Court are Defendant Alcatel-Lucent USA, Inc.'s Motion for Summary Judgment [Docket No. 166], Plaintiffs Pine Telephone Company, Inc. and Pine Cellular Phones Inc.'s Response in Opposition [Docket No. 182], Defendant's Reply [Docket No. 230] and Plaintiffs' Surreply [Docket No. 259]. Defendant moves for summary judgment on all claims alleged in Plaintiffs First Amended Petition; claims for fraudulent inducement, breach of contract and breach of warranty. Defendant also asserts that even if Plaintiffs have pled constructive or common law fraud, those claims are also subject to summary judgment. Defendant argues alternatively for a limitation of damages under the controlling Agreement. Plaintiffs oppose summary judgment on all theories.

For the reasons set forth below, Defendant's Motion is GRANTED as to all claims.

BACKGROUND

A. Undisputed Factual Background¹

Plaintiffs, Pine Telephone Company, Inc. and Pine Cellular Phones, Inc. (collectively "Pine") are Oklahoma corporations engaged in the business of providing landline, cellular, cable television, and other telecommunications services to thousands of customers in Southeast Oklahoma for more than 100 years. (First Am. Pet. ¶ 1, Dkt. No. 2). Defendant, Alcatel-Lucent USA, Inc. ("Alcatel-Lucent"), is a Delaware corporation which sells telecommunications equipment and services. (First Am. Pet. ¶ 2.) This Court has diversity jurisdiction over the case pursuant to 28 U.S.C. § 1332, as the matter in controversy exceeds the sum of $75,000 and is between citizens of different states. 28 U.S.C. § 1332(a)(1) (2012).

In 2005, the parties entered into a Supply Agreement ("Agreement") to govern the sale by Alcatel-Lucent to Pine of telecommunications equipment, services, and licenses for firmware and software. (First Am. Pet. ¶ 3; Supply Agreement ¶ 1.1, Ex. 1 to Alcatel-Lucent's Motion for Summary Judgment ("Alcatel-Lucent's Motion")). The Agreement was to serve as a Master Agreement for future purchases. To purchase under the Agreement, Pine delivered to Alcatel-Lucent written purchase orders identifying the equipment, services, or software licenses it desired to purchase. (Agreement ¶ 2.1). After entering into the Agreement, in 2005, Pine purchased equipment from Alcatel-Lucent. (Alcatel-Lucent's Motion, ¶ 3).

In 2008, Pine expressed an interest in purchasing equipment and services to deploy a UMTS (3G) cellular network, with the focus on data services, to overlay its existing 2G system used for voice communications. (Alcatel-Lucent's Motion, ¶ 6). Beginning in August 2008 andcontinuing to December 15, 2008, Alcatel-Lucent provided proposals and quotes to Pine for the 3G system. (Id. at ¶ 7).

Alcatel-Lucent submitted a proposal and pricing for a "turn-key" solution under which Alcatel-Lucent would provide all equipment and services needed to deploy a full network. (Id. at ¶ 7). In furtherance of the process set forth in the Agreement, Pine issued purchase orders on December 15, 2008 for some of the equipment and services offered, but it did not purchase all of the offered equipment or services. In particular, Pine originally chose to use a router it already owned and elected to do its own installation of cell site equipment, its own cell site survey, and its own radio frequency engineering. (Alcatel-Lucent's Motion, ¶¶ 10-11; Pine's Objection and Response to Motion for Summary Judgment "Pine's Response," p. 7, ¶ 11). Pine does not dispute these facts except to state that what it purchased was a turn-key network solution subject only to Pine's obligation to perform certain limited installation tasks. (Pine's Response, p. 6, ¶ 10).

The Project did not go as planned and resulted in the current litigation. Pine wrote Alcatel-Lucent on January 12, 2011 stating that it was rejecting equipment because it "is not and does not function to promised capacity and operational specifications" and that numerous sites are "non-operational." Pine identified the individual pieces of purchased equipment that it was rejecting. (Alcatel-Lucent's Motion, ¶ 14). The letter did not identify the claimed defects. (Ex. 10 to Alcatel-Lucent's Motion).

Pine sues upon the Supply Agreement and does not dispute the provisions contained therein. (Pine's Response, p. 5, ¶ 1). The Supply Agreement contains the following provisions applicable to the current Motion:

• "Alcatel warrants that, for the applicable warranty period, (a) Equipment and Software media shall, under normal use and service, be free from defects in material andworkmanship, and (b) Equipment and Software shall materially conform to Alcatel's specifications therefor in effect on the date of shipment. However, Alcatel makes no warranty that any software will operate uninterrupted or error free . . .." ¶¶ 7.1.

• "If any Equipment is not as warranted in this Article, then (a) Purchaser shall obtain from Alcatel a Material Return Authorization ("MRA") and return the Equipment and MRA to Alcatel's designated repair facility, and (b) Alcatel shall repair or replace the Equipment and return it to Purchaser's point of shipment. . . . If, after the exercise of commercially reasonable efforts by Alcatel to repair or replace any Equipment or correct any Software, Alcatel determines that the Product cannot be repaired, replaced or corrected, then Alcatel may, in its sole discretion, refund to Purchaser the Purchase Price of the Product, less a reasonable adjustment for beneficial use." ¶ 7.3.

• "NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, THE PROVISIONS OF THIS ARTICLE CONSTITUTE PURCHASER'S SOLE REMEDY UNDER THIS AGREEMENT WITH RESPECT TO ANY DEFECTIVE PRODUCT, DOCUMENTATION OR SERVICES. EXCEPT AS OTHERWISE PROVIDED IN THIS ARTICLE, ALCATEL MAKES NO WARRANTY OF ANY KIND WITH RESPECT TO ANY PRODUCT, DOCUMENTATION OR SERVICES, AND ALCATEL DISCLAIMS ANY AND ALL IMPLIED WARRANTIES RELATING THERETO, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY INTENDED OR PARTICULAR PURPOSE." ¶ 7.5.

• As to services, the Agreement provides that "[i]f Alcatel performs installation Services for any Product, then Alcatel shall perform those Services in a workmanlike manner and substantially in accordance with Alcatel's specifications therefor in effect on the date of completion." ¶ 6.1.

• "NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, (A) NEITHER ALCATEL NOR ANY OF ALCATEL'S SUPPLIERS OR LICENSORS SHALL HAVE ANY LIABILITY TO PURCHASER FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL OR SPECIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, ANY LOST REVENUES OR PROFITS) ARISING OUT OF THIS AGREEMENT, AND (B) ALCATEL'S LIABILITY FOR ANY CLAIM ARISING OUT OF THIS AGREEMENT (OTHER THAN LIABILITY FOR PERSONAL INJURY CLAIMS) SHALL NOT EXCEED THE PURCHASE PRICE OF THE PRODUCT OR SERVICES THAT ARE THE SUBJECT OF SUCH CLAIM." ¶ 15.

• "Except as otherwise provided in this Agreement, no provision of this Agreement shall be modified, supplemented or waived except by a writing executed by the party to be . . . ." ¶ 18.8.

• The Agreement also states that it "shall be governed by and construed in accordance with the laws of the State of Texas." ¶ 18.11.

Pine's Lawsuits and Damage Claims

Pine brought this action in McCurtain County on September 15, 2011.² Pine filed a First Amended Complaint in this action on September 19, 2011, and that has been the operative pleading in this case since that time. (Dkt. No. 2).³ In its First Amended Petition, Pine does not identify its causes of action by Count, but it can be fairly read to allege breach of the Supply Agreement for supplying defective goods (and services) which Pine claims to have rejected, an alternative claim for breach of warranty, and a claim for fraudulent inducement as to the 2008 purchases. (First Amended Petition, ¶¶ 3-31).

As to equipment defect, Pine alleges that the equipment did not work, asserts outages due to storms and the absence of surge protection, that the equipment for the damaged sites was replaced, after a delay, but did not work thereafter, and generally that the "equipment had failed of its essential purpose of allowing Pine to provide data communications to Pine's customers." (First Amended Petition, ¶ 12).

Pine also alleges that the 2008 purchases were fraudulently induced. (First Amended Petition, ¶¶ 24-31). Pine does not allege that the Supply Agreement entered into in 2005 was fraudulently induced. As to its fraudulent inducement claim, the First Amended Petition allegesthat Alcatel-Lucent claimed this proposal included all equipment and services needed to implement a network and represented to Pine that (1) Alcatel-Lucent's technology would outperform offerings by Alcatel-Lucent's competitors; (2) Alcatel-Lucent would provide Pine the advantage of offering better services to Pine's customers; (3) that Alcatel-Lucent's equipment would allow Pine to gain significant operational expense savings; (4) that Alcatel-Lucent understood Pine's goal to rapidly deploy a data communications network and could enable Pine to capture a large share of the wireless data and services market; and (5) that Alcatel-Lucent's equipment would provide reduced total cost of ownership, increased profitability, operational efficiency, enhanced quality of experience for Pine's customers, accelerated ability to introduce new services and improve Pine customer satisfaction due to Pine's ability to identify and resolve problems fasters. (First Amended Petition ¶ 24; Pine's Response, p. 17, ¶ 47).

As to damages, Pine claims actual damages of "$19,861,327.64 [composed of price paid ($3,770,832.64), losses...