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OS33 v. Centurylink Communications, L.L.C.

United States District Court, E.D. Missouri, Eastern Division

May 17, 2018

OS33, Plaintiff,
v.
CENTURYLINK COMMUNICATIONS, L.L.C., and CENTURYLINK, INC., Defendants.

          MEMORANDUM AND ORDER

          CHARLES A. SHAW UNITED STATES DISTRICT JUDGE

         This removed diversity matter is before the Court on remaining defendant CenturyLink Communications, L.L.C.'s (“CenturyLink”) motion to dismiss plaintiff OS33's Petition (“complaint”) under Rules 12(b)(6) and 9(b), Federal Rules of Civil Procedure.[1] Plaintiff opposes the motion and it is fully briefed. For the following reasons, the motion to dismiss will be granted in part and denied in part.

         I. Background

         Plaintiff OS33 (“plaintiff”) is a New York corporation that provides cloud network and storage services to its clients. Its principle place of business is in New York. Defendant CenturyLink is a Delaware corporation with its principle place of business in Louisiana. Compl. ¶¶ 1-2.

         In June 2011, plaintiff entered into a Master Services Agreement (“MSA”) with nonparty Savvis Communications Corporation (“Savvis”), under which Savvis would provide certain services to plaintiff related to computer hardware, maintenance, and storage services. Id. ¶ 5. Savvis underwent corporate restructuring and a name change, and transferred to CenturyLink its accounts receivable for plaintiff and the obligation to provide plaintiff the computer-related services. Following the transfer, CenturyLink provided services to plaintiff under the MSA starting in 2011. Id. ¶¶ 6-8, 12.

         The services CenturyLink provided were also governed by a Savvis Service Schedule and any subsequent Service Orders or Statements of Work outlining services to be performed for plaintiff under the MSA, as set forth in any such Service Order or Statement of Work. Id. ¶¶ 11-12; Ex. A., MSA at ¶ 1, ¶ 1. Under the terms of the Savvis Service Schedule, the Term of Service of any Service provided under the Service Orders is defined as:

2. Term. Services have a minimum term which begins on the Billing Commencement Date (“BCD”) and continues for the period set forth in the relevant Service Order or SOW (the “Initial Term”), at the conclusion of which, the Service will automatically renew for successive periods equal to the Initial Term, unless terminated by either party in writing at least 60 days prior to the expiration of the then-current Service Term. The Initial Term and any renewal terms are collectively referred to as the “Service Term”.

Id. ¶ 13; Ex. B, Savvis Service Schedule at ¶ 1, ¶ 2.[2] The Savvis Service Schedule further provides that every service provided has its own Billing Commencement Date that is independently applicable, and the Billing Commencement Date of any service shall not affect that of any other Service. Id. ¶ 14; Ex. B, Savvis Service Schedule at ¶ 1, ¶ 3.

         Under the parties' MSA, if a customer terminates any Service after the Billing Commencement Date but prior to the conclusion of the Service term, for any reason other than cause, or if CenturyLink terminates during that time frame for cause,

then Customer shall be liable for: (a) an early termination charge equal to 50% of the then current [Monthly Recurring Charge] for the affected Services multiplied by the number of months remaining in the Service term; (b) Service charges accrued but unpaid as of the termination date; and (c) any out-of-pocket costs incurred by or imposed upon Savvis (e.g., ordered equipment, licenses, carrier termination charges). The parties agree that any cancellation fees and early termination charges set forth in the Agreement constitute liquidated damages and are not a penalty. If a particular Service is terminated upon which another service is dependent, all such dependent services shall be deemed to be terminated as well.

Id. ¶¶ 15-16; Ex. A, MSA at ¶ 2, ¶ 6.

         In August 2016, plaintiff requested the termination of certain Services which it no longer required, as being unneeded or obsolete. Id. ¶ 17. CenturyLink advised plaintiff that cancellation of the Services would result in Early Termination Charges of $626, 133.82, and stated it determined this amount was due by taking 50% of the Monthly Recurring Charges on each Service and multiplying each by the number of months remaining in the Service Term. Id. ¶¶ 18-19. After being advised of the Early Termination Charges, plaintiff requested that CenturyLink not terminate the Services. Despite plaintiff's request, CenturyLink terminated the Services and has claimed that plaintiff is responsible for the alleged Early Termination Charges. Id. ¶¶ 20-21.

         Plaintiff alleges that the “Service Terms for the Services are incorrect because [CenturyLink] would improperly restate the Billing Commencement Date's [sic] for services any time a change was made to a Service Order by the Parties.” Id. ¶ 23. “For example, if an upgrade was made to a leased server on July 1, 2015, with a Service Term of 36 months, and a Billing Commencement Date of January 1, 2013, [CenturyLink] would change the Billing Commencement Date for the 36 month Service Term for the server lease to being July 1, 2015 - effectively changing the Service Term from 36 months to 54 months.” Id. ¶ 24.

         Plaintiff alleges that CenturyLink “would further change the date of the Billing Commencement Date for calculating the Service Term without advising Plaintiff of this change, and without issuing a new written Service Order.” Id. ¶ 25. Plaintiff claims that by “failing to issue new Service Orders showing the Change in the Billing Commencement Date for the Service, [CenturyLink] made it impossible for Plaintiff to track the Service terms for the various Services which it requested [CenturyLink] to supply pursuant to MSA.” Id. ¶ 26. Finally, plaintiff alleges that “by failing to issue new Service Orders showing the Change in the Billing Commencement Date for the Service, Plaintiff never agreed in writing to any change in the Billing Commencement Date or Service Term regarding any Services provided by [CenturyLink].” Id. ¶ 27.

         Count I of the complaint seeks a declaratory judgment that (1) CenturyLink violated the MSA and the Service Schedule by changing the Service Term and Billing Commencement Dates for Services, without notice to plaintiff, whenever there was a change to the original Service Order; (2) CenturyLink lacked cause to terminate Services it was providing to plaintiff after plaintiff withdrew its request for early termination; (3) CenturyLink's claim for early termination charges is improper based on its breach of the parties' agreement by terminating Services without cause, and due to its improper change in the Service Terms without notice to plaintiff; and (4) plaintiff does not owe any early termination charges for Services that were cancelled by CenturyLink. Id. at 7.

         Count II is a claim for common law fraud. Plaintiff alleges that CenturyLink changed the Billing Commencement Date for Services being provided, without notice to plaintiff, any time the parties made a change to the Service. Plaintiff asserts that changing the Billing Commencement Date altered the Service Term under the original Service Order, and CenturyLink knew that by making this change it was changing the date upon which any Service would end or auto renew, and therefore was changing the terms of the Service Orders between the parties. Id. ¶¶ 38-41. Plaintiff alleges CenturyLink knew the parties' Agreement[3] “did not allow for the Service Term to be changed, as the Agreement only provided for the Service Term to be renewed, ” but CenturyLink “represented to Plaintiff the remaining terms for various services which were cancelled based upon these improperly altered changed dates.” Id. ¶¶ 42-43. Plaintiff alleges that CenturyLink “represented these false and incorrect dates to Plaintiff with the intention that Plaintiff rely upon them in paying” early termination charges, although CenturyLink knew its representation of the charges was “based upon false and incorrect Service Term dates.” Id. ¶¶ 44-45. Plaintiff alleges that CenturyLink intended for it to rely on the representations, which plaintiff did not know were false when made, and plaintiff relied on the representations. Id. ¶¶ 46-48.

         CenturyLink moves to dismiss both counts of the complaint for failure to state a claim upon which relief can be granted.

         II. Legal Standard

         The purpose of a motion to dismiss for failure to state a claim is to test the legal sufficiency of the complaint. To survive a motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim for relief “must include sufficient factual information to provide the ‘grounds' on which the claim rests, and to raise a right to relief above a speculative level.” Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir. 2008) (citing Twombly, 550 U.S. at 555 & n.3). This obligation requires a plaintiff to plead “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

         On a motion to dismiss, the Court accepts as true all of the factual allegations contained in the complaint, even if it appears that “actual proof of those facts is improbable, ” id. at 556, and reviews the complaint to determine whether its allegations show that the pleader is entitled to relief. Id. at 555-56; Fed.R.Civ.P. 8(a)(2). The principle that a court must accept as true all of the allegations contained in a complaint does not apply to legal conclusions, however. Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice”).

         While courts are generally to consider only the complaint's allegations in reviewing a Rule 12(b)(6) motion, they may consider documents “necessarily embraced by the complaint” without converting a motion to dismiss into a motion for summary judgment. Ryan v. Ryan, 2018 WL 2089793, at *3 (8th Cir. May 7, 2018). This category includes “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading.” Id. (quoted case omitted). Here, the complaint refers to two exhibits it states are attached, a Master Services Agreement and a Savvis Service Schedule, Complaint ¶¶ 5, 11, but no exhibits were filed with the complaint. CenturyLink filed copies of these exhibits with its memorandum in support of the motion to dismiss, and plaintiff attached the same two exhibits to its memorandum in opposition. The Court finds the two exhibits are necessarily embraced by the complaint and are properly considered on the motion to dismiss.

         III. Discussion

         A. Count I - Declaratory Judgment/Breach of Contract

         As a threshold matter, plaintiff argues in its opposition that the motion to dismiss must be denied because Count I states a cause of action under the Missouri Declaratory Judgment Act. (Doc. 19 at 6-7.) This argument is not well taken. Although plaintiff brought this action in state court under the Missouri Declaratory Judgment Act, the state act is a procedural remedy that does not control in federal court, and upon removal the case becomes governed by the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201-02. G.S. Robins & Co. v. Alexander Chem. Corp., 2011 WL 1431324, at *4 n.1 (E.D. Mo. Apr. 14, 2011). “The Federal Rules of Civil Procedure apply to declaratory judgment actions, see Fed.R.Civ.P. 57, and thus the plaintiff[] must comply with the pleading requirements of Rule 8(a)[.]” Karnatcheva v. JPMorgan Chase Bank, N.A., 704 F.3d 545, 547 (8th Cir. 2013). “[I]t is well settled that the [federal] declaratory judgment statute is strictly remedial in nature and does not provide a separate basis for subject matter jurisdiction.” First Fed. Sav. & Loan Ass'n of Harrison, Ark. v. Anderson, 681 F.2d 528, 533 (8th Cir. 1982). “A successful action for declaratory judgment requires a viable underlying cause of action.” Essling's Homes Plus, Inc. v. City of St. Paul, Minn., 356 F.Supp.2d 971, 984 (D. Minn. 2004). Consequently, where a plaintiff's underlying substantive claim fails, its request for declaratory judgment fails as well. Salau v. Denton, 139 F.Supp.3d 989, 1012 (W.D. Mo. 2015).

         In Count I, plaintiff seeks a declaratory judgment regarding construction of the Agreement between the parties regarding the calculation of Early Termination Charges and CenturyLink's change of the Billing Commencement Date for Services. Compl. ¶ 33. Plaintiff asserts that by changing the BCD for Services, failing to give notice of changes to the BCDs, and refusing to accept plaintiff's withdrawal of its early termination request, CenturyLink has breached the parties' Agreement. Id. ¶ 35. The Court therefore examines Count I to determine whether plaintiff adequately pleads an action for breach of contract.

         In a diversity action, state law governs the rules for construing contractual agreements. Orion Fin. Corp. of S. Dak. v. American Foods Group, Inc., 281 F.3d 733, 738 (8th Cir. 2002). The parties agree that Missouri law governs this action.[4] In determining the scope of Missouri law, the Court is bound by the decisions of the Missouri Supreme Court. Taylor v. St. Louis County Bd. of Election Comm'rs, 625 F.3d 1025, 1027 (8th Cir. 2010). Decisions from the Missouri Court of Appeals are also relevant and “must be followed when they are the best evidence of Missouri law.” Id. at 1028, n.2 (quoting Bockelman v. MCI Worldcom, Inc., 403 F.3d 528, 531 (8th Cir. 2005)).

         Under Missouri law, the essential elements of a breach of contract action are: “(1) the existence and terms of a contract; (2) that plaintiff performed or tendered performance pursuant to the contract; (3) breach of the contract by the defendant; and (4) damages suffered by the plaintiff.” Keveney v. Missouri Military Acad., 304 S.W.3d 98, 104 (Mo. 2010) (en banc). A plaintiff must “identify which rights or obligations [the defendant] breached under the contract in order to establish a claim for breach of contract.” Lucero v. Curators of Univ. of Mo., 400 S.W.3d 1, 5 (Mo.Ct.App. 2013) (quotation and citation omitted)

         In Missouri, the interpretation of a contract is a question of law. Leggett v. Missouri State Life Ins., 342 S.W.2d 833, 850 (Mo. 1960) (en banc). The “cardinal principle for contract interpretation is to ascertain the intention of the parties and to give effect to that intent.” Butler v. Mitchell-Hugeback, Inc., 895 S.W.2d 15, 21 (Mo. 1995) (en banc) (citing Royal Banks of Missouri v. Fridkin, 819 S.W.2d 359, 362 (Mo. 1991) (en banc)). It is presumed that the natural and ordinary meaning of the language used expresses the intent of parties to a contract. J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo. 1973) (en banc). Accordingly, “In interpreting a contract, [courts] must use the plain, ordinary, and usual meaning of the contract's words and consider the whole document.” Butler, 895 S.W.2d ...


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