CCT COMMUNICATIONS, INC. v. ZONE TELECOM, INC.
(SC 19574)
Supreme Court of Connecticut
Arguеd November 7, 2016—officially released November 21, 2017
327 Conn. 114
Rogers, C. J., and Palmer, Eveleigh, McDonald, Espinosa, Robinson, and D‘Auria, Js.
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Syllabus
The plaintiff, a telecommunications company, sought to recover damages for, inter alia, breach of contract in connection with the provision of certain equipment, software and services to the defendant for the operation of a telecommunications switch room. The parties had executed an agreement in 2006 pursuant to which the defendant purchased a digital signal circuit from the plaintiff and agreed to pay certain enumerated rates for long-distance telephone service, subject to a minimum monthly usage charge. In order to fulfill its duties under the agreement, the plaintiff purchased certain long-distance telephone service from G Co., which the plaintiff then resold to the defendant. Subsequently, a dispute developed between the plaintiff and G Co. over the plaintiff‘s failure to stay current with its payments and certаin service problems. In January, 2007, G Co. notified the plaintiff that, if these problems were not resolved, it would terminate the plaintiff‘s service. Thereafter, the defendant requested the plaintiff‘s assistance in resolving certain service issues and, on January 26, 2007, G Co. terminated the plaintiff‘s service. The plaintiff then filed a voluntary bankruptcy petition and, following the issuance of certain automatic stays in connection with the bankruptcy proceeding, G Co. restored service to the plaintiff. On February 5, 2007, the defendant notified the plaintiff that it was terminating their agreement pursuant to an ipso facto clause in the agreement, which purported to allow termination in the event that either party filed a voluntary bankruptcy petition. The plaintiff claimed that, because the bankruptcy proceeding had stayed the termination of service by G Co., the defendant continued to be obligated under the agreement to either use the plaintiff‘s services or to pay the minimum monthly usage charge. Ultimately, the circuit used to route the defendant‘s long-distance calls under the agreement was rendered inoperable. The bankruptcy court subsequently dismissed the plaintiff‘s bankruptcy petition and, in doing so, declined to retain jurisdiction over the adversarial claims between the plaintiff and the defendant, noting, inter alia, that those claims primarily involved questions of state law. The plaintiff subsequently brought the present action, alleging breach of contract for the defendant‘s failure to pay certain amounts owed under the parties’ agreement. The defendant filed a counterclaim alleging breach of contract based on the plaintiff‘s failure to provide certain services and seeking, inter alia, a judgment declaring that the defendant‘s termination of the agreement on February 5, 2007, was valid and effective. The trial court rendered judgment for the defendant on the plaintiff‘s complaint and on the defendant‘s breach of contract and declaratory judgment counterclaims. The trial court concluded that federal law did not preclude the defendant from exercising its right to terminate the agreement under the ipso facto clause and that the plaintiff had breached the agreement when it filed for bankruptcy. On appeal, the plaintiff claimed, inter alia, that the trial court incorrectly detеrmined that the plaintiff had breached the agreement when it filed for bankruptcy and that the defendant had effectively exercised its right to terminate the agreement. Held:
- This court declined to affirm the trial court‘s judgment on the alternative ground that that the plaintiff had breached the parties’ agreement by failing to provide adequate service prior to the receipt of the defendant‘s notice of termination; the trial court‘s memorandum of decision, without additional findings, was insufficient to support a finding of breach on the basis of the plaintiff‘s failure to provide adequate service, in light of the court‘s repeated finding of breach based on the bankruptcy filing, the court‘s avoidance of any express finding of breach on the basis of the failure to provide adequate service, certain provisions in the agreement requiring the defendant to provide notice and an opportunity to cure service issues, and certain testimony by the defendant‘s chief financial officer.
- The trial court incorrectly concluded that the plaintiff‘s act of filing for bankruptcy constituted a material breach that permitted the defendant to terminate the agreement: the plain language of the ipso facto clause in the parties’ agreement provided only an option for the nondebtor party to terminate the agreement following a bankruptcy petition if it so desired; furthermore, the trial court incorrectly determined that the defendant‘s termination of the agreement under the ipso facto clause was valid on the ground that the common-law ride-through doctrine provided an exception to the federal statute (
11 U.S.C. § 365 [e] ) barring enforcement of ipso facto clauses, this court having concluded that the ride-through doctrine did not apply because the plaintiff‘s bankruptcy petition was dismissed before confirmation of a reorganization plan, a debtor that seeks reorganization under the federal bankruptcy statutes need not assume an executory contract in order to avail itself of the protections afforded by11 U.S.C. § 365 (e) , and the ride-through doctrine does not operate to retroactively validate a previous, ineffective termination that had been initiated during bankruptcy proceedings; moreover, the defendant could not prevail on its claim thаt the trial court‘s judgment should be affirmed on the alternative ground that the parties’ agreement fell within a statutory (11 U.S.C. § 556 ) exception to11 U.S.C. § 365 (e) for commodity forward contracts, the trial court having correctly determined that the agreement was not subject to that exception because the defendant had failed to demonstrate that telecommunication services are actively traded or resold like other commodities, there was no indication that the defendant had entered into the agreement primarily as a hedge against fluctuations in the price of long-distance telephone services, the agreement did not specify a particular quantity of goods to be delivered on a particular date, it was not clear that the services at issue were truly fungible, and the agreement involved, inter alia, the sale of noncommodities to the defendant, namely, equipment.
Procedural History
Action to recover damages for, inter alia, breach of contract, and for other relief, brought to the Superior Court in the judicial district of Danbury, where the defendant filed a counterclaim; thereafter, the case was transferred to the judicial district of Waterbury, Complex Litigation Docket, and tried to the court, Agati, J.; judgment for the defendant on the complaint and in part for the defendant on the counterclaim, from which the plaintiff appealed; subsequently, the court granted the defendant‘s application for attorney‘s fees and costs, and the plaintiff filed an amended appeal. Reversed; further proceedings.
Joseph K. Scully, with whom was Jeffrey P. Mueller, for the appellant (plaintiff).
William M. Murphy, for the appellee (defendant).
Opinion
The following facts and procedural history, as found by the trial court and supplemented by the undisputed facts contained within the record, are relevant to our resolution of this appeal. The defendant provides long-distance telephone and other telecommunications services to independent local exchange carriers, which in turn sell the services to commercial and residential end users. In 2005, the plaintiff began providing various equipment, software, and services for use in the defendant‘s switch room.
By September, 2006, the relationship between the parties had begun to deteriorate. Following a heated meeting and further communications, the plaintiff, represented by its president, Dean Vlahos, and the defendant, represented by its senior vice president, Daniel Boynton, and its then vice president and chief legal counsel, Eamon Egan, ultimately agreed to continue to do business together on a restructured basis. The parties’ new relationship was memorialized in the purchase agreement, which became effective on November 1, 2006. This is the operative legal document governing the present dispute.
A third, nonparty entity, Global Crossing Telecommu-nication, Inc. (Global), also was involved in the activities that underlie this case. Global supplies long-distance telephone service, including national and international long-distance calling as well as toll-free service, to commercial resellers. When a customer contracts for Global‘s services, calls made under that contract are run through a level three digital signal circuit (circuit), which is capable of carrying a large volume of telephone calls. The consumer normally purchases a circuit as part of an agreement to use Global‘s long-distance services and rates.
Under the purchase agreement, the plaintiff essentially acted as a middle man, buying Global‘s long-distance services and reselling them to the defendant. Prior to the purchase agreement, the plaintiff owned a circuit that was located in the defendant‘s switch room. Under the purchase agreement, the plaintiff sold that circuit to the defendant.3 This circuit enabled
The purchase agreement included a minimum usage guarantee, pursuant to which the defendant obtained long-distance services from the plaintiff on a “‘take or pay‘” basis. This meant that the defendant was required to pay a minimum amount each month for the plaintiff‘s services, even if it did not run any calls through the circuit. Any usage exceeding the minimum would be billed to the defendant at an agreed upon rate per minute. This clause of the purchase agreement was to have run through December, 2009.
As we have indicated, the purchase agreement became effective on November 1, 2006. Long-distance service under the purchase agreement commenced on December 1, 2006, and the defendant ran enough long-distance service through the circuit in the month of December, 2006, to meet its minimum usage requirement. During that month, the plaintiff and Global also amended their retail customer agreement. After execution of this amendment, the plaintiff began to run a higher volume of long-distance service through Global.
By mid-January, 2007, a dispute had arisen between Global and the plaintiff about the terms of their amended retail customer agreement and, specifically, about the amount and scope of the long-distance service that the plaintiff was sending through Global‘s network. See generally In re CCT Communications, Inc., United States Bankruptcy Court, Docket No. 07-10210 (SMB) (S.D.N.Y. July 2, 2008). Global was of the opinion that the plaintiff was violating the amended retail customer agreement and taking unfair advantage of Global by reselling certain services.4 Id.
In any event, the result of the plaintiff‘s routing so many long-distance calls through Global was that the defendant‘s clients and their customers encountered an increasing number of service problems. Calls would not complete, would continue to ring, or would result in a fast busy signal or dead air. These issues were brought to Global‘s attention by way of trouble tickets filed by the defendant. The purchase agreement authorized the defendant to open such trouble tickets directly with Global if the defendant had service problems. During January, 2007, the defendant filed a number of trouble tickets with Global because of service problems with calls being routed through the circuit.
Between January 11, 2007, and January 25, 2007, the plaintiff continued to increase international and domestic long-distance traffic through Global, which resulted in additional service problems. In response, Global began to throttle down the plaintiff‘s access to its service. By January 17, 2007, Global had blocked international long-distance calling service to the plaintiff. After that date, the plaintiff continued to push through domestic, long-distance calls at what the trial court characterized as “an excessive rate.” But see footnote 4 of this opinion. This influx of domestic, long-distance calls caused major service issues for Global. For example, 192,000 calls would not complete on January 19, 2007, and 142,000 calls would not complete on January 20 and 21, 2007.
On January 25, 2007, Egan, who had since become the defendant‘s chief financial officer, sent a letter to thе plaintiff advising it of multiple service issues for long-distance calls being transmitted through the circuit. The defendant requested assistance from the plaintiff to resolve these issues. The defendant stated that if assistance was not forthcoming, the defendant would not be committed by the purchase agreement to pay the minimum usage charge for January, 2007, due to unacceptable service quality.
The following day, on January 26, 2007, Global blocked all calls generated through the plaintiff. Global also sent a letter to the plaintiff on that date terminating their relationship and claiming that the plaintiff was in breach of contract because it was reselling the services in alleged contravention of the amended retail customer agreement. A copy of this termination notice was inadvertently faxed to the defendant‘s switch room by Global, making the defendant aware of the seriousness of the dispute between Global and the plaintiff.
As a result of the termination of service by Global, which shut down all of the Global circuits operated by the plaintiff, on January 29, 2007, the plaintiff filed its bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York. Because of the automatic stay provisions that come into effect upon filing of a bankruptcy petition; see
Although service was restored to the Global circuit by January 31, 2007, on February 5, 2007, the defendant notified the plaintiff by letter that it was exercising its right to terminate their contractual relationship. The defendant purported to terminate pursuant to § 7 (b) of the purchase agreement, which provides, among other things, that either party may terminate upon thirty days written notice if the other party files a voluntary bankruptcy petition.5
Meanwhile, on March 15, 2007, the circuit went into alarm, which precipitated an inquiry from Global. Upon confirmation by the defendant that it was not running any traffic through the circuit, Global removed the circuit from service. This meant that the circuit was not operational and could no longer provide long-distance service. The circuit was never restored to working order. The trial court found that to do so would have required a request to Global by the plaintiff,6 which Global never received. Consequently, as of March 15, 2007, the circuit that would have run the defendant‘s long-distance calls under the purchase agreement was inoperable.
Although the parties continued to correspond sporadically between March 24, 2007, and November 25, 2009, the dispute between the plaintiff and the defendant primarily played out in the proceedings before the United States Bankruptcy Court for the Southern District of New York. Specifically, on January 27, 2009, the plaintiff commenced an adversary proceeding against the defendant, alleging breach of the purchase agreement. See In re CCT Communications, Inc., 420 B.R. 160, 177–78 (Bankr. S.D.N.Y. 2009).
The bankruptcy petition was dismissed on November 25, 2009. Id., 178. The Bankruptcy Court dismissed the petition because the plaintiff, having filed a plan of reorganization on November 26, 2007, failed to timely confirm the plan as required by
The plaintiff then filed the present action in December, 2009, upon the dismissal of the bankruptcy petition. In its two count complaint, the plaintiff claimed (1) breach of contract for the defendant‘s failure to pay the monthly amounts owed under the purchase agreement, and (2) account stated. In resрonse, the defendant filed an answer and counterclaim. In its three count counterclaim, the defendant (1) alleged breach of contract for the plaintiff‘s failure to provide services under the purchase
The case was tried to the trial court, Agati, J., which rendered judgment for the defendant on the plaintiff‘s complaint and on count one of the defendant‘s counterclaim in the amount of $694,000. In addition, the trial court awarded statutory costs in the amount of $655 and attorney‘s fees in the amount of $936,441.18. The trial court also rendered declaratory judgment as requested in count two of the defendant‘s counterclaim.
On appeal,8 the parties disagreed as to the basis for the trial court‘s conclusion that the plaintiff, rather than the defendant, had breached the purchase agreement. The plaintiff took the position that the trial court had determined, as a matter of law, that (1) the plaintiff breached the purchase agreement by filing for bankruptcy, (2) under the circumstances of the present case, federal bankruptcy law does not invalidate § 7 (b) of the purchase agreement, which allows a party to terminate the contract when the other party files a bankruptcy petition and, therefore, (3) the defendant‘s letter of February 5, 2007, was a valid and effective termination of the purchase agreement and did not constitute a breach of contract by the defendant. The plaintiff took issue with all three of these conclusions. In the alternative, the plaintiff argued that, even if the trial court had correctly construed and applied federal bankruptcy law, the trial court had incorrectly (1) failed to hold the defendant liable for financial obligations it incurred both before and after the defendant‘s purported termination, and (2) awarded damages in excess of the limitation of liability clause of the purchase agreement.
For its part, the defendant argued that, although the trial court correctly construed federal bankruptcy law, this court need not resolve the bankruptcy questions because the trial court also found, largеly as a matter of fact, that the plaintiff had breached the purchase agreement by providing inadequate service. The defendant urged us to decide the appeal on the basis of that alternative ground for affirmance.
Following oral argument, this court, sua sponte, ordered the trial court to issue an articulation pursuant to Practice Book § 60-5. After receiving the trial court‘s articulation, we affirmed the judgment of the trial court on the basis of the defendant‘s alternative ground for affirmance. See CCT Communications, Inc. v. Zone Telecom, Inc., 324 Conn. 654, 658 and n.2, 153 A.3d 1249 (2017). Subsequently, we granted the plaintiff‘s timely motion for reconsideration en banc.9 Additional facts
I
Because we initially decided this case on the basis of the defendant‘s alternative ground for affirmance; see id., 658 n.2; we first address the plaintiff‘s argument in its motion for reconsideration en banc that the record is not sufficient to permit us to affirm the judgment of the trial court on that ground. On further review of the trial record, we now are persuaded that the plaintiff is correct in this regard and that the trial court did not find that the plaintiff breached the purchase agreement by providing inadequate service.
A
The following additional procedural history is relevant to our consideration of this issue. Count one of the defendant‘s counterclaim, which stated a breach of contract claim, alleged that the plaintiff, “by failing to provide the service it contracted to provide to [the defendant through the] circuit, breached its obligations . . . under the terms of the [purchase] [a]greement.” Nowhere in the counterclaim did the defendant allege that the plaintiff had breached the purchase agreement by filing for bankruptcy protection. Rather, the defendant raised the issue of the bankruptcy petition as a defense to the plaintiff‘s breach of contract claim and with respect to count two of the counterclaim, which sought a declaratory judgment that the defendant‘s own obligations under the purchase agreement had terminated no later than thirty days after the defendant exercised its right to terminate under § 7 (b).
In its memorandum of decision, however, the trial court appeared to misunderstand the nature of the defendant‘s breach of contract counterclaim, construing it as alleging that the plaintiff had breached the purchase agreement by filing for bankruptcy protection. In summarizing the action, the trial court characterized the counterclaim as follows: “[The defendant] counterclaimed . . . alleging that [the plaintiff] breached the [purchase] agreement by, inter alia, filing a voluntary bankruptcy petition on January 29, 2007. [The defendant] also seeks a declaratory judgment concerning the rights of the parties under the [purchase] agreement.” Later in the decision, in its legal analysis of the competing breach of contract claims, the trial court never directly addressed the defendant‘s allegations that the plaintiff breached the purchase agreement by failing to provide the services that it had contracted to provide. Rather, the court began its analysis by stating that, “[a]lthough this is a breach of contract action, the key legal issue before the court is the impact of [the plaintiff‘s] voluntary bankruptcy petition.” The court then spent seventeen
Immediately following its analysis of the bankruptcy issues, the court concluded as follows: “The court finds that [the defendant] has presented ample evidence to establish each of the elements in support of its claim that [the plaintiff] breached its obligations under the purchase agreement of November 1, 2006. The breach took place when [the plaintiff] filed its voluntary bankruptcy petition of January 29, 2007. Pursuant to [§] 7 (b), [the defendant] exercised its right to terminate the purchase agreement on February 5, 2007. The court finds for [the defendant] on count [one] of its counterclaim for breach of contract.” In other words, the trial court appeared to treat the bankruptcy questions as dispositive not only of the defendant‘s defense to the plaintiff‘s breach of contract claim—the defendant had argued that the plaintiff‘s bankruptcy excused it from further performance—but also of the defendant‘s own breach of contract counterclaim.
On appeal, the plaintiff interpreted the memorandum of decision to mean that the trial court resolved the competing breach of contract claims solely on the basis of the bankruptcy arguments and, accordingly, the plaintiff focused its appellate argument on those questions. The defendant, by contrast, was of the view that the trial court also made an independent finding that the plaintiff breached the purchase agreement by failing to provide adequate service. In support of this alternative ground for affirmance, the defendant directed our attention to three aspects of the record.
First, the defendant noted that the trial court made a number of factual findings indicating that the defendant encountered serious service problems in January, 2007, culminating in the total cessation of service for several days, and implied that the plaintiff was responsible for those service problems. The trial court also expressly found that the defendant‘s principal witness testified credibly whereas the plaintiff‘s did not. The defendant emphasized that the trial court prefaced its factual findings and credibility determinations by stating that it was setting forth “the salient facts [that the court] finds relevant and pertinent to the final decision in this case.” The defendant argued that there would have been no reason for the court to make such extensive factual findings, and that such findings would not have been legally relevant, had the court in fact found that the plaintiff‘s bankruptcy was the sole ground on which it breached the purchase agreement.10
Second, the defendant noted that the trial court found that the defendant “presented ample evidence to establish each of the elements in support of its claim that [the plaintiff] breached its obligations under the purchase agreement of November 1, 2006.” Because the counterclaim actually alleged a failure to provide service, the defendant argued, the trial court‘s finding that all of the elements of that claim were satisfied necessarily implied that the court found a breach of contract on that basis.11
The defendant found further support for this theory in the judgment file, wherein the trial court characterized count one of the counterclaim as alleging “claims of breach of contract based on [the plaintiff‘s] alleged failure to provide the contracted service . . . .” The defendant posited that the fact that the court rendered judgment for the defendant on count one, after having accurately characterized the nature of that count, means that the court must have found that the plaintiff breached the purchase agreement by failing to provide adequate service.13
To resolve these ambiguities, following oral argument, this court, sua sponte, ordered the trial court to issue an articulation addressing the following two questions: (1) “In addition to finding in favor of [the defendant] on its declaratory judgment claim in count [two] of its counterclaim, did the trial court find that [the plaintiff] had breached [the purchase agreement by failing] to provide telecommunication services as alleged in count [one] of [the defendant‘s] counterclaim when it stated [that] ‘the court finds that [the defendant] has presented ample evidence to establish each of the elements in support of its claim that [the plaintiff] breached its obligations under the purchase agreement . . . ?‘” (2) “If the answer to question one is in the affirmative, then were the damages awarded by the trial court based upon the breach of contract as found by the court in count [one] of [the defendant‘s] counterclaim?”
In its subsequent articulation, the trial court responded to this court‘s first question as follows: “The response is in the affirmative that this court did find that [the defendant] had proven that [the plaintiff] had breached the purchase agreement . . . . [T]his court noted [in] its original decision [that] the breach took place when [the plaintiff] filed its voluntary bankruptcy petition of January 29, 2007. Pursuant to [§] 7 (b) [of the purchase
In its articulation, the trial court responded to this court‘s second quеstion as follows: “[T]his court‘s award of damages to the defendant was based upon the finding of the breach of contract by the plaintiff as alleged in count [one] of [the defendant‘s] counterclaim.
“This court heard evidence on damages both from [the] plaintiff as to its claims for breach of contract and the defendant as to its claims for breach of contract. This court found the supporting evidence favored the defendant‘s claim for breach of contract.
“Although the defendant presented evidence of damages far in excess of what this court ordered . . . [this] court found the liquidated damages clause [set forth in § 4 (c) of the purchase agreement] limited the extent of the damages that could be awarded to the defendant for the plaintiff‘s breach of contract. [This] court‘s award of damages to the defendant was based on the finding of the breach of the purchase agreement as alleged in count [one] of [the defendant‘s] counterclaim.”
B
Unfortunately, the trial court‘s articulation did little to clarify the basis for its decision or to dispel the ambiguities identified by the parties. On the one hand, the court answered our first question “in the affirmative,” implying that it did find that the plaintiff had breached the purchase agreement by failing to provide telecommunication services as required under the purchase agreement. On the other hand, the court took the opportunity to reiterate that the breach occurred when the plaintiff filed its bankruptcy petition. Notably, in rephrasing the articulation order, the trial court omitted our reference to a “failure to provide telecommunication services,” instead framing the question as: “The first issue requiring articulation is whether this court found that [the plaintiff] had breached its contract with [the defendant] as alleged in count [one] of [the] counterclaim.” In fact, the word “service” does not appear anywhere in the court‘s articulation.
Although one can read the tea leaves in different ways, the fact that the trial court repeatedly has stated that it found breach of contract on the basis of bankruptcy, but studiously has avoided making any clear, express statement that it also found a breach for failure to provide service, strongly favors the plaintiff‘s interpretation of the decision. See Practice Book § 64-1 (а) (requiring that “court‘s decision shall encompass its conclusion as to each claim of law raised by the parties and the factual basis therefor“). In any event, having canvassed the full trial record and reviewed the parties’ arguments on reconsideration, we now are persuaded that the court‘s memorandum of decision, without additional findings, is simply insufficient to support a conclusion that the plaintiff breached the purchase agreement by failing to provide adequate service.
We begin with the applicable legal principles and standard of review. “The elements of a breach of contract claim are the formation of an agreement, performance by one party, breach of the agreement by the other party, and damages.” Meyers v. Livingston, Adler, Pulda, Meiklejohn & Kelly, P.C., 311 Conn. 282, 291, 87 A.3d 534 (2014). The interpretation of definitive contract language is a question of law over which our review is plenary. See Joseph General Contracting, Inc. v. Couto, 317 Conn. 565, 575, 119 A.3d 570 (2015). By contrast, the trial court‘s factual findings as to whether and by whom a contract has been breached are subject to the clearly erroneous standard of review and, if supported by evidence in the record, are not to be disturbed on appeal. See Practice Book § 60-5; see also Connecti-cut National Bank v. Giacomi, 242 Conn. 17, 70, 699 A.2d 101 (1997).
In the present case, the trial court‘s findings of fact arguably would support the conclusions that (1) the plaintiff was at fault for serious service problems that occurred beginning January, 2007, and for Global‘s ultimate decision to shut down the circuit for several days at the end of that month; but see footnote 4 of this opinion; and (2) the plaintiff was obliged to ask Global to reactivate the circuit after Global shut it off following the March 15, 2007 alarm, but failed to do so. Neither the trial court nor the defendant, however, has explained exactly how those findings and conclusions, even if true, support the ultimate legal conclusion that the plaintiff materially breached the purchase agreement. As the plaintiff emphasizes in its motion for reconsideration en banc, various provisions of the purchase agreement envisioned that there would be periodic service problems that the parties would have to resolve. For example, the purchase agreement directs the defendant to submit trouble tickets when service problems arise. Likewise, § 6 of the purchase agreement provides that, if one party believes that the other has defaulted on any of its obligations, the aggrieved party must provide written notice thereof, upon which the party in default shall have thirty days to cure the default. In order to find a material breach of contract, then, the trial court needed to find, among other things, that the service problems were more significant or persistent than those that the parties envisioned would arise in the ordinary course of business, and also that the defendant satisfied its obligations under § 6 to afford the plaintiff an opportunity to cure those problems. There is no indication in the record that the court so found.
The earliest date that the trial court specifically found service problems caused by the plaintiff that were adversely impacting the defendant was January 11, 2007. After that, international long-distance calling was curtailed on January 17, 2007, “major service issues” arose between January 19 and 21, 2007, which the defendant brought to the plaintiff‘s attention on January 25, 2007, and the circuit was completely shut down for several days beginning January 26, 2007, after which the initiation of bankruptcy proceedings compelled Global to restore full service.
The following week, on February 5, 2007, the defendant notified the plaintiff by letter that it was exercising its right to terminate the purchase agreement pursuant to § 7 (b). This was approximately one week after long-distance service was shut off and then restored, eleven days after the defendant wrote the plaintiff to complain about serious service problems, nineteen days after international calling was curtailed, and twenty-five days after the first specific date on which the trial court found that service problems had occurred. There is no indication in the memorandum of decision that, prior to terminating the purchase agreement, the defendant ever provided the plaintiff with thirty days’ notice and an opportunity to cure the service problems. In the absence of a determination by the trial court that § 6 of the purchase agreement was satisfied or that its requirements did not apply, it is difficult to understand how the facts as found by the trial court could support a conclusion that the plaintiff materially breached the contract prior to receiving the February 5, 2017 letter. See Weiss v. Smulders, 313 Conn. 227, 264, 96 A.3d 1175 (2014) (holding, with respect to similar contractual provision, that failure to provide noticе and thirty days to cure precluded nonbreaching party from terminating agreement).
Nor do we understand how Global‘s failure to restore service to the circuit after it went into alarm on March 15, 2007, could have constituted a material breach of the purchase agreement by the plaintiff. Even if we assume, for the sake of argument, that the plaintiff was obliged but refused to contact Global to restore service at that point; see footnote 6 of this opinion; the defendant already had announced its intention to terminate the purchase agreement on February 5, 2017. The defendant offers no explanation as to why that termination would not have released the plaintiff from any further contractual obligations.14
Moreover, we note that the trial court found the testimony of Egan, the defendant‘s chief financial officer, to be credible. But Egan himself appeared to undercut the defendant‘s failure of service counterclaim at trial, testifying as follows: “We terminated the [purchase] agreement. The service interruptions in and of themselves were not the basis upon which we said we couldn‘t go forward. Absent . . . the complications between Global [and the plaintiff] and their contract and absent the bankruptcy, our expectation would have been that the technical issues in the normal course would have been resolved. How long it would have been taken, I don‘t know, but probably not that long. These were not insurmountable, and we would have . . . resumed routing the traffic that was the expectation.” It is difficult to reconcile a conclusion that the trial court found a breach of contract for failure to provide service with the fact that the only witness whose testimony the court expressly credited appeared to rule out the possibility that the service interruptions that took place in January, 2007, were serious enough to constitute, or were viewed by the defendant as, a material breach of the purchase agreement.15
For all of these reasons, we now conclude that we must decline the defendant‘s invitation to affirm the judgment of the trial court on the alternative ground that the court found that the plaintiff breached the purchase agreement by failing to provide adequate ser-vice prior to receipt of the defendant‘s termination letter. Accordingly, wе must proceed to consider whether the trial court properly determined that, by filing a voluntary bankruptcy petition, the plaintiff either (1) materially breached the purchase agreement or (2)
II
We next turn our attention to the theory on which the trial court undisputedly did decide the present case, namely, that the plaintiff‘s bankruptcy petition constituted a breach of the purchase agreement that justified the defendant‘s termination. The plaintiff challenges both conclusions, arguing that (1) nothing in the contractual language indicates that a party‘s bankruptcy constitutes a breach of the purchase agreement, and (2) the bankruptcy code bars the enforcement of contractual provisions, such as § 7 (b) of the purchase agreement, that allow one party to terminate a contract in response to another party‘s bankruptcy. The proper interpretation of both contractual and statutory language presents questions of law over which our review is plenary. Southeastern Connecticut Regional Resources Recovery Authority v. Dept. of Public Utility Control, 244 Conn. 280, 290, 709 A.2d 549 (1998).
A
We first consider the plaintiff‘s argument that the trial court improperly concluded that it breached the purchase agreement by filing for bankruptcy protection. Regardless of whether § 7 (b) of the purchase agreement was enforceable under federal law; see part II B of this opinion; the plaintiff contends that nothing in that section, or elsewhere in the purchase agreement, specified that a party‘s bankruptcy petition would be deemed a material breach of the contract.16 We agree.
Section 7 (b) of the purchase agreement, on which the trial court relied, provides: “During this term, this [a]greement may be terminated by either party upon thirty . . . days written notice of such termination to the other party in the event that the [nonterminating] party hereto has made a general assignment for the benefit of creditors, has filed a voluntary or has had filed against it an involuntary petition in bankruptcy, or has had a receiver or trustee appointed for substantially all of its assets; provided, however, that at the time of such termination notice the terminating party is not then in default of any of the terms of this [a]greement.” Nothing in the plain language of this provision suggests that a bankruptcy filing will constitute a material breach of the purchase agreement, only that a bankruptcy affords the other party the option to terminate if it desires. It is well established that a contract may allow for termination under conditions that do not constitute a material breach. See, e.g.,
We further observe that, although some early cases held that bankruptcy constituted a breach of the executory contracts of the bankrupt; see Central Trust Co. v. Chicago Auditorium Assn., 240 U.S. 581, 592, 36 S. Ct. 412, 60 L. Ed. 811 (1916); the common law no longer permits a party to a contract to treat another
B
We next turn our attention to the question of whether the trial court properly determined that § 7 (b) of the purchase agreement was enforceable and, therefore, that the defendant was within its rights to terminate the purchase agreement upon the plaintiff‘s initiation of bankruptcy proceedings. As discussed in part II A of this opinion, § 7 (b) provides that еither party has the right to terminate the purchase agreement if the other party files a voluntary bankruptcy petition. Contractual provisions of this sort are frequently referred to as ipso facto clauses. See In re Dumont, 581 F.3d 1104, 1107 (9th Cir. 2009). As a general rule, the bankruptcy code bars the enforcement of ipso facto clauses, providing that an executory contract of a debtor may not be terminated solely as a result thereof. See
First, the trial court found that § 7 (b) of the purchase agreement was enforceable and, therefore, that the defendant had validly exercised its right to terminate the purchase agreement, because the so-called “ride-through” doctrine provided an exception to
Second, the trial court rejected the defendant‘s alternative theory that § 7 (b) of the purchase agreement was enforceable because it constituted a commodity forward contract and, therefore, was exempt from
Because these questions require that we interpret a federal statute, we begin by setting forth the rules and principles that govern our interpretation of federal law. “With respect to the construction and application of federal statutes, principles of comity and consistency require us to follow the plain meaning rule . . . . Moreover, it is well settled that the decisions of [t]he [United States Court of
1
We first consider the plaintiff‘s claim that the trial court improperly concluded that § 7 (b) of the purchase agreement was enforceable, despite the fact that the bankruptcy code generally bars the enforcement of ipso facto provisions, because the ridе-through doctrine provides an exception to
Prior to the adoption of the bankruptcy code, federal law permitted the enforcement of contractual clauses that modify the relationships of contracting parties due to the filing of a bankruptcy petition. See, e.g., Summit Investment & Development Corp. v. Leroux, 69 F.3d 608, 610 (1st Cir. 1995); Days Inn of America, Inc. v. 161 Hotel Group, Inc., 55 Conn. App. 118, 124–25, 739 A.2d 280 (1999). When Congress enacted the bankruptcy code in 1978, however, it changed this longstanding rule. Specifically,
As the trial court recognized, however,
Courts and commentators have recognized two important implications of these provisions. First, assumption or rejection of an executory contract is discretionary; the trustee may accept or reject an executory contract of the debtor, but need not do either. See
Notably, the bankruptcy code does not specify the legal status of an executory contract that is never expressly assumed or rejected during a chapter 11 proceeding. To address this statutory lacuna, courts generally have applied a rule predating adoption of the bankruptcy code, namely, the ride-through doctrine. See generally
agreement. During that time, the defendant also never requested that the bankruptcy court order the plaintiff to make such a selection, as was its right under
In its memorandum of decision, the trial court recognized that the ride-through doctrine is a judicially created rule that predated adoption of the bankruptcy code. See Consolidated Gas Electric Light & Power Co. v. United Railways & Electric Co., 85 F.2d 799, 805 (4th Cir. 1936), cert. denied, 300 U.S. 663, 57 S. Ct. 493, 81 L. Ed. 871 (1937). The trial court further noted that, although the ride-through doctrine has not been codified, it continues to be widely applied by the federal courts, including the Second Circuit.19 See In re Boston Post Road Ltd. Partnership, 21 F.3d 477, 484 (2d Cir. 1994), cert. denied, 513 U.S. 1109, 115 S. Ct. 897, 130 L. Ed. 2d 782 (1995). The trial court concluded that (1) the doctrine applies to the present case, insofar as the plaintiff never expressly assumed or rejected the purchase agreement prior to the dismissal of its bankruptcy petition, and (2) the fact that the purchase agreement was “unaffected” by the bankruptcy meant that the defendant‘s purported termination pursuant to § 7 (b) of the purchase agreement became valid upon dismissal of the petition. On appeal, the plaintiff challenges both conclusions.20
a
We first consider the plaintiff‘s argument that the ride-through doctrine, as typically articulated, does not apply to the present case. The ride-through doctrine generally has been applied when a plan of reorganization is confirmed without specifying whether a particular executory contract is assumed or rejected. See In re Dehon, Inc., 352 B.R. 546, 560 (Bankr. D. Mass. 2006) (doctrine has “arisen largely in cases where, through presumed oversight, the debtor neglected to appropriately assume or reject a contract prior to confirmation of the [c]hapter 11 plan“). Under those circumstances, in which the legal status of the contract with respect to the reorganized entity is uncertain, the
b
Even if the ride-through doctrine did apply, however, we do not agree with the trial court‘s conclusion that the doctrine created an exception to the prohibition against ipso facto clauses contained in
First, the trial court relied on In re Hernandez, 287 B.R. 795 (Bankr. D. Ariz. 2002), for the proposition that a chapter 11 debtor may not avail itself of any of the protections of
Further, the court in Hernandez was seeking to craft an equitable solution to what it twice characterized as “unusual” factual circumstances; In re Hernandez, supra, 287 B.R. 798–99; and its interpretation of
We are persuaded that the rule articulated in Hernandez is both impracticable and at odds with the principles that animate the bankruptcy code. Unlike with a chapter 7 bankruptcy, in which the bankruptcy code deems any executory contract not assumed within sixty days to have been rejected, the bankruptcy code
Consistent with these principles, it is well established that, “[o]nce the bankruptcy case is filed, the [nondebtor] is required to perform its obligations. This is true even though the debtor‘s performance obligation is suspended and the [nondebtor] is stayed from exercising its remedies and rights, as the debtor decides whether to assume or reject the contract.” J. Daniel, “Lawyering on Behalf of the Non-Debtor Party in Anticipation, and During the Course, of an Executory Contract Counterparty‘s Chapter 11 Bankruptcy Case,” 14 Hous. Bus. & Tax L.J. 230, 238 (2014); see also P. Marchetti, “Amending the Flaws in the Safe Harbors of the Bankruptcy Code: Guarding Against Systemic Risk in the Financial Markets and Adding Stability to the System,” 31 Emory Bankr. Dev. J. 305, 337–38 (2015).
The rule articulated in Hernandez would render the debtor‘s freedoms illusory. If the bankruptcy code‘s protections from ipso facto clauses do not kick in until a contract has been formally assumed, then, as was the case here, a nondebtor party can circumvent those protections by simply terminating the contract immediately upon the filing of the petition, before the debtor has had an opportunity to decide whether assumption or rejection will best serve the interests of reorganiza-tion and of the debtor‘s creditors. As one author has explained, “[t]he statutory framework . . . evidences a congressional intention to accord the chapter 11 [debtor in possession] a ‘reasonable time’ within which to decide whether to assume or reject an executory contract. It would be inconsistent with this intention to permit the [nondebtor] party to terminate the contract in the interim because of the debtor‘s inaction . . . .”
Furthermore, the Hernandez rule is in tension, if not outright incompatible, with rule 6003 of the Federal Rules of Bankruptcy Procedure. That rule provides in relevant part that, “[e]xcept to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within [twenty-one] days after the filing of the pеtition, issue an order granting . . . a motion to assume or assign an executory contract or unexpired lease in accordance with [11 U.S.C.] § 365.” Fed. R. Bankr. P. 6003. If a nondebtor party were free to invoke an ipso facto clause at any time until the debtor assumed its executory contracts, then there would essentially be a three-week window at the commencement of every chapter 11 proceeding during which
The trial court‘s second rationale for its conclusion that the ride-through doctrine rendered the defendant‘s termination of the purchase agreement effective, notwithstanding the bankruptcy code‘s prohibition against ipso facto clauses, was that a contract that rides through a chapter 11 proceeding has been characterized as being “unaffected by the bankruptcy filing.” In re Polysat, Inc., supra, 152 B.R. 890. The fact that a ride-through contract is unaffected by bankruptcy has been taken to mean that “[nondebtor] contracting parties may then seek redress for defaults under the contract outside the bankruptcy proceedings.” (Emphasis added.) In re Dehon, Inc., supra, 352 B.R. 561.
We agree with that statement of the law, insofar as (1) a contract that rides through bankruptcy remains binding on all parties, and (2) following the completion of the bankruptcy proceedings, redress for any alleged defaults may be pursued in state court if such remedy is not otherwise precluded by law. Some courts also have held that, after a bankruptcy proceeding has concluded, a nondebtor party may exercise its right to terminate under an ipso facto clause with respect to a ride-through contract, on the theory that the rationales that led Congress to bar the enforcement of such clauses cease to apply after the reorganization process has been completed.24 The same is presumably true of a contract that does not ride through but that, instead, revests in the debtor upon dismissal of a bankruptcy petitiоn pursuant to
The trial court went a step further, however, concluding that, when a contract rides through a chapter 11 proceeding or revests in the debtor, a previous purported termination that was initiated during the bankruptcy becomes effective, nunc pro
There are a number of problems with this theory. First, we are not aware of any case in which a court has retroactively revived a termination in this manner, ruling that a termination that was barred by
Second, the approach the trial court adopted would undermine the predictability and respect for parties’ expectations that animate the law of contract. See General Accident Ins. Co. v. Mortara, 314 Conn. 339, 350–51, 101 A.3d 942 (2014); 1 E. Farnsworth, supra, § 1.3, p. 10. Under the trial court‘s theory, parties to an executory contract that is purportedly terminated at the commencement of a bankruptcy proceeding have no way of knowing whether the bankruptcy court ultimately will dismiss the case, retroactively validating the termination and excusing them from performance, or whether they must continue to perform pursuant to
Third, the trial court‘s reasoning strikes us as somewhat incongruous. The court reasoned that, because the ride-through doctrine treats the purchase agreement as being unaffected by the bankruptcy, § 7 (b) continued in effect, as if the petition had never been filed. But, of course, the defendant could not have invoked § 7 (b) and terminated the purchase agreement unless and until the plaintiff initiated bankruptcy proceedings. We fail to understand, then, in what sense the contractual rights and status of the parties are unaffected by the bankruptcy under the trial court‘s resolution of the case. How can the defendant terminate the purchase agreement on the basis of the plaintiff‘s bankruptcy petition and simultaneously contend that the agreement should be applied as if the petition had never been filed? See First Security Bank of Utah v. Creech, 858 P.2d 958, 965 (Utah 1993).
Fourth, we hesitate to apply the ride-through doctrine—a judicially made rule that predates adoption of the bankruptcy code—in such a manner as to alter the balancing of interests and circumvent the remedies and procedural rules intended by Congress. On the one hand, the bankruptcy code‘s automatic stay provisions and protection from ipso facto clauses afford significant advantages to debtors and can place nondebtor parties such as the defendant in the unenviable position of having to continue to perform under a contract that the debtor need not honor and ultimately may repudiate. On the other hand, Congress was not unsympathetic to the plight of parties in such a limbo. Nondebtor parties may petition to have the automatic stay lifted with respect to a particular executory contract.
In the present case, the defendant opted not to pursue any of these statutory remedies in the bankruptcy court. Instead, it chose to unilaterally terminate the purchase agreement. That decision, as the commentators have observed, was “fraught with peril,” because “[a]n injured party that chooses to exercise a right of self-help . . . by electing to terminate takes the risk that a court may later regard the exercise as precipitous.” (Internal quotation marks omitted.) 2 E. Farnsworth, suрra, § 8.15, p. 511; see also id., § 8.19a, p. 548 (party may inadvertently repudiate contract by demanding assurance when not justified in doing so). As the United States Court of Appeals for the Ninth Circuit explained in a related context, “[a]ll parties benefit from the fair and orderly process contemplated by the automatic stay and judicial relief procedure. Judicial toleration of an alternative procedure of self-help and post hoc justifica-tion would defeat the purpose of the automatic stay.” In re Computer Communications, Inc., 824 F.2d 725, 731 (9th Cir. 1987). For all of these reasons, we conclude that
2
Lastly, we consider the defendant‘s argument that, regardless of whether the ride-through doctrine applies, § 7 (b) of the purchase agreement is an enforceable ipso facto clause because it falls under the auspices of
As we discussed in part II B 1 of this opinion,
The exception to the ban on enforcing ipso facto clauses is contained in
The bankruptcy code defines a “forward contract,” in relevant part, as “a contract . . . for the purchase, sale, or transfer of a commodity, as defined in section 761 (8) of this title,27 or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with a maturity date more than two days after the date the contract is entered into, including, but not limited to, a repurchase or reverse repurchase transaction . . . consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or any other similar agreement . . . .” (Footnotes altered.)
The defendant contends that, under the plain language of the statute, the purchase agreement qualifies as a forward contract. It further contends that, bеcause part of its business involved entering into such contracts, the defendant is a forward contract merchant. The argument proceeds in three steps. First, the defendant argues that the long-distance telephone services that are the subject of the purchase agreement are commodities or, at the very least, services that are similar to commodities for purposes of
Second, the defendant notes that the purchase agreement, which was executed on October 31, 2006, did not require the defendant to begin purchasing the plaintiff‘s long-distance services until December, 2006, and the minimum monthly purchase requirement ran through December, 2009. Therefore, the defendant argues, the purchase agreement had a future maturity date more than two days after the date of execution, regardless of whether the maturity date is understood to be the date on which the sale of services commenced or terminated. Compare In re Mirant Corp., 310 B.R. 548, 565 n.26 (Bankr. N.D. Tex. 2004) (with respect to contract for ongoing sale of goods, maturity date for purposes of
Third, the defendant argues that the concept of a “forward contract merchant,” as defined by
Notably, the defendant fails to address the statutory requirement that a contract be the subject of dealing in the “forward contract trade,”28 a term that is not defined
Because the term “forward contract trade” is not defined by statute and the plain language of the bankruptcy code is susceptible to more than one reasonable interpretation, we seek guidance from the legislative history and purposes underlying the provisions at issue. See, e.g., Board of Education v. Mergens, 496 U.S. 226, 237–38, 110 S. Ct. 2356, 110 L. Ed. 2d 191 (1990). The United States Court of Appeals for the Fourth Circuit set forth much of the relevant legislative background in In re National Gas Distributors, LLC, 556 F.3d 247 (4th Cir. 2009). “Since enactment of the [bankruptcy code in] 1978 . . . Congress has provided safe harbors from the destabilizing effects of bankruptcy proceedings for parties to specified commodities and financial contracts in order to protect financial markets. To do this, Congress limited the application to these parties of [bankruptcy code] provisions such as the automatic stay and trustee avoidances of preferences and fraudulent conveyances. It was thought that financial market stabilization wоuld be achieved under the following rationale: These exceptions or safe harbors are necessary, it is thought, for the protection of financial markets, including over-the-counter . . . markets on which most derivatives contracts are executed. Without these safe harbors, markets might suffer serious shocks—perhaps even a systemic liquidity crisis, causing markets to collapse—when debtors enter bankruptcy. Counterparties to financial contracts would find themselves subject to the automatic stay for extended periods. They would be unable to liquidate volatile contracts and thereby limit their exposure to market movements. Additionally, a debtor in bankruptcy would be free to [cherry-pick] multiple contracts with the same party. Instead of
“This explanation appears to be an accurate description of the basis on which Congress relied to justify providing safe harbors to participants in financial derivatives markets. As the House Report in connection with the 1982 [a]mendments to the [bankruptcy code] stated: Due to the structure of the clearing system in the commodities industry and the sometimes volatile nature of the commodities market, the [bankruptcy code], as enacted in 1978, expressly provides certain protections to the commodities market to insure the stability of the market. These protections are intended to prevent the insolvency of one commodity firm from spreading to other brokers or clearing agencies and possibly threatening the collapse of the market. . . . And similarly, in connection with the 1990 [a]mendments to the [b]ankruptcy [c]ode, the House Report stated: [United States] bankruptcy law has long accorded special treatment to transactions involving financial markets, to minimize volatility. Because financial markets can change significantly in a matter of days, or even hours, a [nonbankrupt] party to ongoing securities and other financial transactions could face heavy losses unless the transactions are resolved promptly and with finality.” (Citations omitted; emphasis in original; internal quotation marks omitted.) Id., 252–53.
This legislative background makes clear that the congressional purpose in carving out the exception to
The defendant fails to convince us that it is that sort of company, or that the purchase
The defendant cites to two sources for the proposition that telecommunication services are actively resold and traded like other commodities. One source, however, is a decision of the United States Bankruptcy Court for the Northern District of Texas that (1) addresses an unrelated legal question, (2) references the resale of local rather than long-distance telephone service, and (3) does not indicate that telecommunications services are traded in the same manner as, say, crude oil or pork bellies. See In re Comm South Companies Inc., Docket No. 03-39496 HDH-11, 2003 U.S. Bankr. LEXIS 2314, *6–7 (Bankr. N.D. Tex. November 10, 2003). The other source is the Federal Communications Commission, which, in certain published reports dating to the early years of this century, made passing reference to “wireline bandwidth” as being “actively traded like traditional commodities such as oil, gas and grains.” In re Principles for Promoting Efficient Use of Spectrum by Encouraging the Development of Secondary Markets, 15 F.C.C.R. 24,178, 24,185 (2000) (policy statement). The parties disagree, however, as to whether long-distance telephone services were traded in that manner from 2006 to 2009. The trial court made no findings in that regard, and, in any event, there is no suggestion that the purchase agreement itself was ever part of such a trading market. See 5 A. Resnick & H. Sommer, supra, § 556.01, p. 556-3 n.4 (noting that that, unlike typical executory contracts, forward contracts typically have readily ascertainable market values that vary in relation to external market forces).
Second, the defendant posits that the purchase agreement is akin to a commodity forward contract insofar as such contracts are used to shift or hedge against financial risk; see In re Borden Chemicals & Plastics Operating Ltd. Partnership, supra, 336 B.R. 220–21; and one of the reasons why the defendant contracted for a fixed, three-year price commitment was to protect itself against the risk associated with changes in the price for long-distance services. Of course, on some level, the purpose of all contracts is to hedge against risk. See C. Fried, Contract as Promise: A Theory of Contractual Obligation (1981) pp. 59, 117. The legislative history makes clear, however, that
Third, courts generally have held that, to qualify as a forward contract, an agreement must specify a particular quantity of goods to be delivered, or at least deliverable, on a particular date. See, e.g., In re National Gas Distributors, LLC, supra, 556 F.3d 260 (“[When] [t]he Wall Street Journal has used the term ‘forward agreement’ and provided details of the transaction, it has always described fixed quantities and prices . . . . [Nonbankruptcy] case law also accords the same meaning . . . .” [Footnote omitted.]); In re Borden Chemicals & Plastics Operating Ltd. Partnership, supra, 336 B.R. 222 (energy industry defines forward contract to include specified quantity of goods); see also United States Commodity Futures Trading Commission, “CFTC Glossary: A Guide to the Language of the Futures Industry,” available at http://www.cftc.gov/ConsumerProtection/EducationCenter/CFTCGlossary/glossary_f (last visited November 9, 2017) (defining “[f]orward contract” as “[a] cash transaction common in many industries, including commodity merchandising, in which a commercial buyer and seller agree upon delivery of a specified quality and quantity of goods at a sрecified future date“). Although the purchase agreement committed the defendant to a minimum monthly purchase, it did not specify how many minutes the defendant would purchase at the agreed price and, therefore, arguably failed to satisfy this element of a forward contract.
Fourth, it is not clear to us that the services at issue in the present case were truly fungible. Even those courts that have construed the concept of a forward contract broadly have required the commodity products or services involved—and the vast majority of cases have involved products rather than services—to be essentially interchangeable. See, e.g., In re National Gas Distributors, LLC, supra, 556 F.3d 259 (indicating that, to qualify as commodity agreement for purposes of code, benefits and detriments of agreement must be attributable to price, rather than to factors such as service quality). In the present case, by contrast, the defendant ultimately opted to route its calls through other, higher-cost providers, at least in part because of problems with the quality and reliability of the plaintiff‘s services.
Fifth, this was not a simple contract for the purchase and sale of a commodity product or service. The purchase agreement, the precise nature of which remains a matter of dispute between the parties, is a multifaceted instrument that involved, among other things, (1) the plaintiff‘s sale of a noncommodity, namely, level three digital signal circuits, to the defendant; see footnote 3 of this opinion; and (2) a commitment by the defendant to pay the plaintiff a minimum monthly fee regardless of whether it used the plaintiff‘s services. It is unclear how, if at all, per minute pricing for long-distance
The judgment of the trial court is reversed and the case is remanded for further proceedings according to law.
In this opinion the other justices concurred.
* This opinion supersedes the opinion of this court in CCT Communications, Inc. v. Zone Telecom, Inc., 324 Conn. 654, 153 A.3d 1249 (2017), which was published on February 21, 2017.
** This case was originally argued before a panel of this court consisting of Chief Justice Rogеrs and Justices Palmer, Eveleigh, McDonald, Espinosa and Robinson. Following publication of our initial decision; see CCT Communications, Inc. v. Zone Telecom, Inc., supra, 324 Conn. 654; this court granted the plaintiff‘s motion for reconsideration en banc. Justice D‘Auria has been added to the panel and has read the briefs and appendices, and listened to a recording of the oral argument prior to participating in this decision. The listing of justices reflects their seniority status on this court as of date of the plaintiff‘s motion.
1 We note that, after commencement of the present action, Zone Telecom, Inc., became ANPI Business, LLC. For the sake of clarity, references in this opinion to the defendant are to Zone Telecom, Inc.
2 Because we agree with the plaintiff with respect to the bankruptcy questions, we need not address its other appellate claims. On remand, we expect that the trial court may consider, among other things, the following questions: (1) whether the service interruptions that the defendant experienced prior to the filing of the plaintiff‘s bankruptcy petition constituted a material breach of contract, in light of the contractual provisions affording the plaintiff an opportunity to cure any defaults and the various regulatory requirements to which the defendant was subject; (2) whether the defendant was justified in demanding adequate assurance before continuing to perform under the purchase agreement; and (3) whether the defendant‘s termination letter constituted a breach of the purchase agreement.
3 Although the record suggests that two or more circuits were exchanged, our understanding is that only one was to be available for the defendant‘s use under the purchase agreement. Moreover, we note that, pursuant to the purchase agreement, the defendant paid the plaintiff $459,000, and the plaintiff also acknowledged that it owed the defendant a credit of $235,000 as a result of a prior equipment purchase loan and other debts. How exactly the credits were to be applied to the defendant‘s monthly purchase obliga-tions is a subject of dispute between the parties.
4 It bears noting that, although the trial court implied in its memorandum of decision that the plaintiff was at fault in its dispute with Global, that dispute was not at issue before the trial court. In fact, the bankruptcy court, which did adjudicate the dispute betwеen Global and the plaintiff, ruled in favor of the plaintiff. The bankruptcy court concluded that Global had offered the plaintiff an attractive fixed price, “’ [a]ll [y]ou [c]an [e]at’ ” plan, but almost immediately “regretted the deal” and refused to honor the agreement when the plaintiff predictably took advantage of the plan by routing a high volume of international calls through Global‘s circuit. See In re CCT Communications, Inc., supra, United States Bankruptcy Court, Docket No. 07-10210 (SMB).
5 The full text of § 7 (b) of the purchase agreement is set forth in part II A of this opinion.
6 It is unclear whether this determination, which the plaintiff disputes, involved a factual finding or a legal conclusion by the trial court. Our disposition of the appeal makes it unnecessary for us to resolve that question.
7 It is unclear why the parties did not seek to resolve the questions of federal law that now come before us during the underlying bankruptcy proceeding.
8 The plaintiff appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to
9 In addition to requesting reconsideration en banc, the plaintiff also contends in its motion that, before this court issued its sua sponte articulation order and then decided the case on the basis of the trial court‘s articulation, the parties should have been given an opportunity to be heard on the issues raised therein. The plaintiff argues that, pursuant to Blumberg Associates Worldwide, Inc. v. Brown & Brown of Connecticut, Inc., 311 Conn. 123, 84 A.3d 840 (2014), and its progeny, this court was required to afford the parties an opportunity to brief and present argument on what it characterizes as the novel issue of the proper interpretation of the trial court‘s articulation. We disagree.
Blumberg Associates Worldwide, Inc., supra, calls for supplemental briefing when a reviewing court raises an unpreserved issue sua sponte. See id., 161–62. That was not the case here. In its primary brief, the plaintiff argued that, although the defendant‘s counterclaim alleged breach for failure to provide service, the trial court found breach solely on the basis of the bankruptcy petition. The defendant disagreed, setting forth, at some length, its alternative ground for affirmance. The plaintiff then had an opportunity to respond in its reply brief. Indeed, Chief Justice Rogers questioned both parties on this very point at oral argument, expressly asking them whether further articulation was warranted. Neither Blumberg Associates Worldwide, Inc., nor the other cases on which the рlaintiff relies, stand for the proposition that an appellate court must offer the parties an opportunity for supplemental briefing and argument whenever the court orders an articulation sua sponte pursuant to Practice Book § 60-5, particularly when the articulation relates to an issue that already has been briefed and argued by the parties.
10 The plaintiff explained these findings by noting that the trial court also had to award damages, costs, and attorney‘s fees, and that the court‘s factual findings and credibility determinations were potentially relevant to those issues, as well as providing the necessary background to understand the parties’ dispute.
11 The obvious flaw in this reasoning is that if the trial court misunderstood the nature of the defendant‘s counterclaim and thought that it alleged that filing of the plaintiff‘s bankruptcy petition constituted a breach of contract, then the court could have found that all the elements of the counterclaim were satisfied without finding a service-based material breach.
12 One problem with this theory is that, although it is true that the court purported to discuss the bankruptcy with reference to count two, the court‘s actual statement with respect to count two was that “the breach of contract by the [plaintiff] occurred when it filed a voluntary bankruptcy petition . . . .” (Emphasis added.) The court‘s reference to a breach of contract, which was the gravamen of count one rather than count two, thus undercuts the defendant‘s argument.
13 The plaintiff countered that the judgment file cannot supply analysis or conclusions that are absent from or run counter to the memorandum of decision itself. See Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 529 n.1, 893 A.2d 389 (2006) (” [w]hen there is an inconsistency between the judgment file and the oral or written decision of the trial court, it is the order of the court that controls“). In any event, neither the judgment nor the judgment file expressly states that the court found that the plaintiff breached the purchase agreement by failure to provide service.
14 We recognize that § 7 (d) of the purchase agreement provides: “In the event of any termination of this [a]greement by either party pursuant to [§] 7, the [nonterminating] party shall not be relieved of any of its obligations hereunder.” We assume, without deciding, that this provision refers only to obligations already accrued at the time of termination, as a contrary reading would run counter to the general rule that termination of a contract discharges the remaining obligations of all parties thereto; see Weiss v. Smulders, supra, 313 Conn. 242; 2 E. Farnsworth, Contracts (3d Ed. 2004) § 8.15, pp. 511–14; and also might constitute a disproportionate forfeiture under the circumstances of this case. See Twenty-Four Merrill Street Condominium Assn. v. Murray, 96 Conn. App. 616, 624, 902 A.2d 24 (2006).
15 This is not to say that, on remand, the finder of fact might not place greater weight on the testimony of other defense witnesses, who viewed the service interruptions as more serious impediments to the defendant‘s business, particularly in light of its regulatory obligations. Our point is simply that there is no indication that the trial court reached such a conclusion.
16 Notably, the defendant appears to concede that it has never alleged that the plaintiff‘s bankruptcy filing constituted a breach of contract. On appeal, the defendant neither contends that the plaintiff breached the purchase agreement by filing for bankruptcy protection nor attempts to defend the decision of the trial court in this respect.
17 The text of
18 No trustee was appointed in the plaintiff‘s bankruptcy case. In re CCT Communications, Inc., supra, 420 B.R. 174. Instead, the plaintiff continued to manage the bankruptcy estate as a debtor in possession. For the purposes of