Mill-Run Tours, Inc. v. Windstream Services LLC et al

Filing 33

MEMORANDUM AND OPINION re: 23 MOTION to Dismiss Plaintiff's Amended Complaint Pursuant to Fed. R. Civ. Pro. 12(b)(6). filed by Paetec Communications, LLC, Windstream Services LLC: Mill-Run Tours, Inc. ("Mill-Run" or "Plaintiff") brought this action against Windstream Corporation ("Windstream") and Paetec Communications LLC ("Paetec"), alleging breach of contract and breach of warranty and seeking damages. Before the Court is Defenda nts' motion to dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Doc. 23). For the reasons stated above, Defendants' motion to dismiss Plaintiff's Amended Complaint is GRANTED without pre judice. Plaintiff may file an amended breach of contract claim, if at all, by July 21, 2017. The Clerk of the Court is respectfully directed to terminate the motion, Doc. 23. ( Amended Pleadings due by 7/21/2017.) (Signed by Judge Edgardo Ramos on 7/6/2017) (jwh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

MILL-RUN TOURS, INC.,
Plaintiff,
– against –

OPINION AND ORDER

WINDSTREAM SERVICES LLC, F/K/A
WINDSTREAM CORPORATION, PAETEC
COMMUNICATIONS LLC, F/K/A PAETEC
CORPORATION, A WINDSTREAM
CORPORATION,

16 Civ. 7052 (ER)

Defendants.

Ramos, D.J.:
Mill-Run Tours, Inc. (“Mill-Run” or “Plaintiff”) brought this action against Windstream
Corporation (“Windstream”) and Paetec Communications LLC (“Paetec”), alleging breach of
contract and breach of warranty and seeking damages. Before the Court is Defendants’ motion
to dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure (Doc. 23). For the reasons stated below, Defendants’ motion is GRANTED.
I.

Factual Background 1
Plaintiff is a consolidator of airline tickets for different airlines and supplies tickets to

travel agents in the industry. Am. Compl. ¶ 3. Windstream is a provider of voice and data
network communications, including cloud computing and managed services to businesses in the
United States. Id. at ¶ 5. Paetec is a subsidiary of Windstream. Id. at ¶ 7.

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The following factual background is based on allegations in the Amended Complaint (“Am. Compl.”), Doc. 18,
which the Court accepts as true for purposes of the instant motion. See Koch v. Christie’s Int’l PLC, 699 F.3d 141,
145 (2d Cir. 2012).

In 2011, Plaintiff was in the market for a new voice and data communications provider.
Am. Compl. ¶ 11. After being introduced to Windstream and Paetec by a communications
broker, Plaintiff explained that it was having quality problems with its current provider and could
not afford to have this continue. Id. at ¶¶ 12‒13. According to Plaintiff, Windstream made it
clear that its product was superior and more technologically advanced than what Plaintiff was
using at the time. Id. at ¶ 14. Windstream assured Plaintiff that it understood the reputational
and financial damages Plaintiff would suffer if there was an interruption of service, and that it
would never happen with Windstream as the provider. Id. at ¶¶ 15‒16, 38.
Based on these assurances, Plaintiff decided to engage Windstream as its service
provider. Id. at ¶ 17. On September 15, 2011, Plaintiff and Paetec entered into a Service
Agreement under which Paetec agreed to provide Plaintiff with voice and communications
services at Plaintiff’s main office in New York City and ten other offices in the United States.
Id. at ¶ 18. Plaintiff agreed to pay a monthly fee for the service. Id.
The Service Agreement, on its first page, expressly incorporated by reference the
Standard Terms and Conditions of Service (“Standard Terms”) on Paetec’s website, and provides
the website address with a direct link. 2 Fellner Decl. Ex. A, at 1. The Standard Terms state that
they apply to “the provisions of all telecommunications and related services . . . by PAETEC . . .
to Customers under the service agreement . . . to which this schedule is a part.” Fellner Decl. Ex.
B, at 1. The Standard Terms contain a “Limitation of Liability” provision that expressly bars any
party from claiming “indirect, special, incidental, consequential or exemplary damages,

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In the Complaint, Plaintiff refers to but does not provide the Service Agreement or the Standard Terms as
appendix. Courts may look to the documents that are referenced or are integral to the complaint for motion to
dismiss purposes. Faulkner v. Beer, 463 F.3d 130, 134 (2nd Cir. 2006). Therefore, the Court will consider the
Service Agreement and the Standard Terms attached in Fellner’s Declaration for the instant motion. (Fellner Decl.
Ex. A & B).

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including . . . damages for loss of revenue, loss of profits, or loss of customers, clients or
goodwill . . .” for nonperformance. Id. at 3. The Standard Terms further provides that remedy
for a service interruption is limited to an outage credit. 3 Id. at 4.
Defendants were Plaintiff’s voice and data communications service provider from 2012
to 2015. Am. Compl. at ¶ 19. Although there were a few glitches over those four years such as
power interruptions, Plaintiff did not complain about these interruptions during this period. Id. at
¶ 20. However, On May 7, 2015, the telephone and data services at Plaintiff’s office completely
failed. Id. at ¶ 21. According to Plaintiff, Defendants failed to respond to its numerous calls and
emails and did not provide any updates for a period of days. Defendants also gave Plaintiff the
“runaround” with auto replies stating that repair tickets had been issued and that the system was
running when in reality it was not functioning. Id. at ¶¶ 22‒23. The service interruption lasted
for a total of six days (144 hours). Id. at ¶ 28. Plaintiff alleges that Defendants never provided
an explanation regarding the cause of the service disruption. Id. at ¶ 29.
On May 13, 2015, Plaintiff sent a letter to Windstream terminating the Service
Agreement with Windstream and Paetec. Id. According to Plaintiff, as a result of the extended
disruption of service, customers were unable to reach Plaintiff, and Plaintiff suffered reputational
damages, loss of sales, and loss of existing and new clients calculated to be in the millions of
dollars. Id. at ¶¶ 33‒36.
II.

Procedural Background
On July 12, 2016, Plaintiff filed an action against Defendants in New York County

Supreme Court, alleging breach of contract, negligence, and punitive damages. Doc. 1, Ex. A.
On September 9, 2016, Defendants removed the action to this Court. Doc. 1. Plaintiff filed an
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Defendants note that Plaintiff has never sought an outage credit in connection with the service interruption and
therefore cannot assert that it was ever denied one.

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Amended Complaint on December 8, 2016, alleging breach of contract and breach of warranty
and seeking consequential damages. Am. Compl., Doc. 18. Defendants filed the instant motion
to dismiss Plaintiff’s Amended Complaint on February 3, 2017. Doc. 23.
III.

Legal Standard
Under Rule 12(b)(6), a complaint may be dismissed for “failure to state a claim upon

which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When ruling on a motion to dismiss
pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true
and draw all reasonable inferences in the plaintiff’s favor. Koch v. Christie’s Int’l PLC, 699 F.3d
141, 145 (2d Cir. 2012). However, the Court is not required to credit “mere conclusory
statements” or “threadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)); see also id.
at 681 (citing Twombly, 550 U.S. at 551). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. (citing Twombly, 550 U.S. at 556). If the plaintiff has not “nudged [his] claims across the line
from conceivable to plausible, [the] complaint must be dismissed.” Twombly, 550 U.S. at 570.
IV.

Discussion
Plaintiff asserts two claims against Defendants: breach of contract and breach of

warranty. The Court will address each in turn.
A.

Breach of Contract

“Under New York law, a breach of contract claim requires proof of (1) an agreement, (2)
adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages.” Fischer &
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Mandell, LLP v. Citibank N.A., 632 F.3d 793, 799 (2d Cir. 2011) (citations omitted). Plaintiff
alleges that (1) it entered into a Service Agreement with Defendants; (2) Plaintiff performed by
paying monthly fees; (3) Defendants breached the Service Agreement by failing to provide
service for six days; and (4) Plaintiff suffered damages to its reputation, as well as a loss of
substantial revenue, existing clients, and potential clients. Am. Compl. ¶¶ 42‒44; Pl.’s Opp.
Mem. at 8.
Defendants argue that Plaintiff’s breach of contract claim should be dismissed because
Plaintiff’s alleged damages—including loss of sales, customers, and good will—are “special,
incidental, and/or consequential damages” that are expressly barred by the Limitation of Liability
clause in the Standard Terms incorporated into the Service Agreement. Defs.’ Mem. at 8‒9.
Generally, New York law recognizes limitation of liability provisions as an “allocation of risk of
economic loss in the event that the contemplated transaction is not fully executed.” My Play
City, Inc. v. Conduit Ltd., 589 Fed.Appx. 559, 562 (2d Cir. 2014); see also Metro. Life Ins. Co. v.
Noble Lowndes Int'l, Inc., 84 N.Y.2d 430, 436 (1994) (“[Parties] may later regret their
assumption of the risks of non-performance in this manner, but the courts let them lie on the bed
they made.”). However, the enforceability of limitation of liability provisions is not limitless and
is subject to a few exceptions. As Defendants note, a contract provision limiting liability or
damages is not enforceable if there is a special relationship between the parties, a statutory
prohibition, or an overriding public policy against it. Defs.’ Mem. at 9; Smith-Hoy v. AMC Prop.
Evaluations, Inc., 52 A.D.3d 809, 810 (2d Dep’t 2008). Additionally, a party may not limit its
liability for damages caused by its own willful misconduct or gross negligence. Smith-Hoy, 52
A.D.3d at 810.

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In arguing that the Limitation of Liability clause should not be enforced, Plaintiff does
not rely on any of the identified exceptions to the general enforceability of limitation of liability
provisions. Instead, Plaintiff contends that the Court should not enforce the clause because it
gives Defendants “an unfair and unreasonable advantage over Mill-Run.” Pl.’s Opp. Mem. at 9.
According to Plaintiff, “[c]ourts may take into consideration the fact that one construction of a
contract would make the contract unreasonable and endeavor to give the construction most
equitable to both parties instead of one construction that will provide one of the parties with an
unfair or unreasonable advantage over the other.” Pl.’s Opp. Mem. at 9 (citing Friedman v.
Egan, 64 A.D.2d 70, 82).
Plaintiff’s argument misses the point—the issue at hand does not involve contract
construction. The Limitation of Liability clause clearly and explicitly bars Plaintiff from seeking
consequential damages, and neither party argues—and the Court does not find—that the
provision is ambiguous. Furthermore, the case Plaintiff cites to support its argument is
inapposite. In that case, the court constructed the contract to avoid inequitable treatment of the
plaintiff—a 75-year-old widow with no business knowledge—because the defendant was a
sophisticated art dealer, the defendant had drafted the contract, and the contract provision at issue
was ambiguous. See Friedman, 64 A.D.2d 70. In this case, however, Plaintiff is a highly
sophisticated party, as evidenced by its own factual allegations that it is one of the largest travel
consolidators of airline tickets in the country, that it has been in business since 1974, and that the
parties signed the Service Agreement after negotiations. Am. Compl. ¶¶ 3, 14‒17, 31. Unlike
the parties in Friedman, there is no disparity in bargaining power between Plaintiff and
Defendants that would trigger the equity concern that informed the Friedman decision.

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Plaintiff also argues against enforcement of the Limitation of Liability clause on the
ground that the Standard Terms “were written in fine print and located inside Windstream’s
website,” and thus a reasonable person would have a hard time finding the clause. Pl.’s Opp.
Mem. at 9. Plaintiff’s contention is unfounded. The Service Agreement clearly identifies and
incorporates the Standard Terms on its very first page, and it provides the website address with a
direct link. Additionally, the Limitation of Liability clause is boldfaced and in capital letters,
making it stand out among other terms in lowercase text. Fellner Decl. Ex. B, at 3. Courts in
this district have held that similar limitation of liability clauses—headings in boldface and
written in all capital letters in contrast to other provisions—are sufficient to place a party on
reasonable notice. Tulger Contracting v. Star Building Systems, Inc., 2002 WL 986994 at *2
(S.D.N.Y. 2002). Plaintiff cannot claim that it failed to read the clause when the contract terms
were neither buried nor inconspicuous. Accordingly, Defendants’ motion to dismiss Plaintiff’s
breach of contract claim is GRANTED. However, should Plaintiff so choose, it is granted leave
to amend its breach of contract claim.
B.

Breach of Warranty

Plaintiff alleges that it relied on Defendants’ assurances that their voice and data services
were on par, if not superior, to the services of other companies, and that Defendants breached a
warranty by failing to repair and provide the services it agreed to provide within a reasonable
time. Am. Compl. ¶¶ 46‒47.
In New York, express and implied warranties apply only to the sale of goods; there is no
cause of action for breach of warranty in the performance of a service. “[A]ll transactions where
service predominates are indeed immune from express and implied warranty analysis.” B.C.F.
Oil Ref. v. Consolidated Edison Co., 982 F.Supp. 302, 308 (S.D.N.Y. 1997) (internal quotation

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marks omitted); see also Stafford v. Int’l Harvester Co., 668 F.2d 142, 147 (2d Cir.1981)
(affirming dismissal of breach of express and implied warranties claims because the underlying
nature of the transaction was that of a contract for repairs). Although “a hybrid service-sale
transaction can give rise to a cause of action for breach of warranty,” it may only do so “if the
sales aspect of the transaction predominates and the service aspect is merely incidental.”
Stafford, 668 F.2d at 146 (internal quotation marks omitted). Therefore, the threshold question
here is whether the Service Agreement is one predominately for goods or for services.
Plaintiff does not dispute that a service contract is not subject to a breach of warranty
claim. Pl.’s Opp. Mem. at 9. Instead, it argues—for the first time in its opposition to the instant
motion— that modems were supplied as part of the Service Agreement, and that the six-day
service disruption was due to the outage of the modems. Id. Plaintiff did not mention the
modems or any issues with them in its Amended Complaint. Courts have uniformly held that a
complaint cannot be amended by the opposition brief. Lazaro v. Good Samaritan Hosp., 54
F.Supp.2d 180, 184 (S.D.N.Y. 1999); see also Baez v. N.Y., 56 F. Supp. 3d 456, 470 (S.D.N.Y.
2014) (refusing to consider plaintiff’s claim that was first brought up in its opposition to the
motion to dismiss). Here, Plaintiff is, in effect, attempting to amend its complaint by making
new factual allegations in its opposition to the instant motion, which is not allowed. Therefore,
the Court will not consider the new facts alleged in Plaintiff’s opposition brief.
Moreover, if Plaintiff had previously made factual allegations regarding the modems,
Plaintiff’s Amended Complaint nevertheless indicates that the Service Agreement was primarily
a contract for services: Plaintiff purchased voice and data communications services from
Defendants; Defendants were Plaintiff’s service provider for over four years; the event that led to
this action was a service interruption. Am. Compl. ¶¶ 17‒19, 21, 28, 40. The Service

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