Case Type:
Case Status:
Affirmed in part and Reversed in part
21-1712, 21-1713 & 21-1806 (3rd Circuit, Jul 05,2022) Published
The U.S. Court of Appeals for the Third Circuit (Circuit) reached a third set of conclusions, deeming the decision of Transit Wireless LLC (Transit) to use the remote fiber nodes (Nodes) that it had subcontracted with Fiber-Span Inc. (DR) to develop to cohere with its right to accept nonconforming goods but justify its refusal not to compensate the DR for declining to otherwise deploy its Nodes; the DR to owe damages equal to the difference between what Transit received and was promised, a lesser sum than assessed below; and Transit’s claim for payment on a performance bond to be time-barred.
Procedural context:
Months after being sued by Transit in New York Supreme Court for the full value of the parties’ contract and four other state-law claims, the DR filed a chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the District of New Jersey (BC) in September 2016. Shortly thereafter, Allegheny Casualty Company (Allegheny), which had issued a performance bond in favor of Transit on the DR’s project, removed Transit’s lawsuit to the U.S. District Court for the Southern District of New York and requested that the case be transferred to the U.S. District Court for the District of New Jersey (DC). Despite Transit’s efforts to remand the case back to state court, the New York federal court granted Allegheny’s motion to transfer venue to the DC, which, in turn, referred the case to the BC. The BC held a three-day bench trial in November 2018. It ultimately concluded that Transit had accepted the Nodes through its continued retention and use of them, the DR had breached the relevant agreement’s “Warranty, [and] Repair and Support” Provisions and was thus responsible for $1,283,606 in damages and was also not entitled to a $450,000 initial build compensation (IBC) payment by virtue of its breach, and Allegheny was not liable to Transit on the bond given the expiration of its two-year limitations period. Both Transit and the DR timely appealed to the DC. The DC reversed and affirmed in part. Like the BC, it found the DR to have breached the parties’ agreement by supplying non-conforming Nodes. However, unlike the BC, it determined that Transit had rejected those Nodes, entitling Transit to rejection damages of $643,606, the amounts paid, but excluding the $640,000 in installation costs, which it treated as non-recoverable incidental damages. It also agreed with the BC that the DR was not entitled to the IBC payment. It then diverged from the BC one more time by holding that recovery on the bond was not time-barred; it therefore ordered remand with instructions to enter judgment against Allegheny. The DR and Allegheny both appealed from the DC’s order, and Transit cross-appealed. Below and on appeal,. the parties agreed that New York commercial law, specifically the U.C.C., controlled.
Transit, secured a contract to bring telecommunications services to New York City’s subway system. As part of that project, Transit subcontracted with the DR to develop the Nodes, intended to amplify telecommunication signals in the first six subway stations to receive such services. The subcontract imposed on the DR responsibility for an extensive set of technical requirements and rigorous testing of the Nodes; the DR further agreed to to subsidize certain developmental costs in the hopes of being selected as the contractor for the project’s remaining 271 subway stations. In exchange, Transit agreed that, if the DR was not selected to supply Nodes for the remaining stations, it would reimburse those front-loaded costs. To close the deal, Fiber-Span obtained from Allegheny Casualty Company (Allegheny) a performance bond in favor of Transit. The relationship thereafter soured and then broke. At one point, Transit raised technical concerns about the Nodes; in response, the DR retrofitted the Nodes. Though it attacked the DR for remaining in breach of contract after the retrofitting, Transit still took the network live. Thereafter, Transit insisted that the DR replace the retrofitted Nodes, but the DR said it would do so only after it was awarded a contract to supply them to the remaining subway stations. Eventually, it became clear that the DR would not replace the Nodes, even as Transit continued to use them for two more years. In March 2015, Transit sued both the DR and Allegheny in New York Supreme Court for the full value of the contract, among other forms of relief.
Kent A. Jordan; L. Felipe Restrepo; and David J. Porter

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