Penncro Associates, Inc. v. Sprint Spectrum, L.P.

Facts

In April 2002, Sprint (D) decided to 'outsource,' its bill collection needs. D contracted with P and two others. Customers with overdue Sprint accounts trying to make outgoing calls were automatically routed to centers run by one of the three vendors, based on which one had the shortest estimated wait time. They then attempted to collect monies owed. The agreement between P and D four interrelated documents: (1) a Master Services Agreement (MSA); (2) a Contract Order; (3) an attachment to the Contract Order ('Attachment A'); and (4) an Addendum to Attachment A. The scope and specific terms of the services provided were governed by contract orders. The Contract Order detailed out the particular services, staffing levels, and compensation rates. P agreed to 'maintain staffing levels' sufficient to provide D with '80,625 productive hours' per month. A productive hour was defined as time spent by a fully trained P employee handling calls, waiting for calls, training, or waiting due to system downtime. This translated to an agreement to maintain approximately 500 full-time call center employees at D's disposal. D agreed 'to pay for 80,625 productive hours per month' at a rate of $ 22 per hour (less for training hours, more for overtime hours). The agreement anticipated a three-year commitment at these levels of service. 'Productive hours' could vary based on various performance metrics. Poor performance for three consecutive months could result in a reduction of 'the number of productive hours requested by . . . 20%.' Six months of consecutive poor performance entitled D to terminate the contract for cause. P was unable to retain sufficient employees to provide the number of productive hours required. P ranked last among d's three vendors in several performance-categories for a number of months. D never experienced the call volume it had anticipated and so never called on P to provide the contracted-for number of productive hours. P and D compromised and P would bill only for the hours that P actually supplied. D emailed P to announce a unilateral reduction due to 'lower than expected call volume.' P voiced no objection. D gave notice of its intent to terminate P's first-party inbound collections contract by letter dated January 17, 2003. P and D then entered a four-month ramp-down period during which P was incrementally reduced. P and D then entered into a new contract order for a different but related service -- third-party outbound collections work. P also entered into two other contracts for third-party outbound collections work during the same time-period, one with AT&T and another with a utility company, American Water. P sued D for breach of the first-party inbound collections contract. P claimed it was not in last place for the full six consecutive months necessary to justify termination under the parties' contract. The district court agreed and entered summary judgment for P on the question of liability. P pointed to Section 13 of the MSA, which rules out the award of consequential damages and proceeds to define the term as 'including, but . . . not limited to, lost profits, lost revenues and lost business opportunities.' The district court disagreed, holding that the MSA forbids only 'consequential' or 'indirect' damages that are 'beyond direct economic loss or ordinary loss of bargain damages,' thereby doing nothing to rule out of bounds lost profits suffered as a direct consequence of P's breach. The district court awarded P $17,136,612 in expectation damages: $53,109,386 in lost contractual revenues (lost profits), minus $28,307,302 in costs avoided by not having to perform and $7,665,472 in losses avoided due to the breach. The district court found that, solely because of d's termination which freed up call-center capacity, P was able to mitigate its losses by taking on new work for D (the third-party outbound collections contract), AT&T, and American Water. Both parties appealed. D claims that P impermissibly seeks lost profits.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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