Transit Wireless, LLC v. Fiber-Span, Inc. (In re Fiber-Span, Inc.)

Transit Wireless, LLC v. Fiber-Span, Inc. (In re Fiber-Span, Inc.)

Opinion

 [*84]  OPINION OF THE COURT

JORDAN, Circuit Judge.

Everyone, it seems, wants access to the internet and phone service all the time and everywhere, even when underground. This case is about an unsuccessful effort to meet that demand in New York City.

Transit Wireless, LLC, secured a contract to bring telecommunications services to New York City's subway system. As part of that project, Transit subcontracted with Fiber-Span, Inc., to develop remote fiber nodes (the "Nodes") to amplify telecommunication signals in the [**2]  first six subway stations to receive such services. The subcontract imposed on Fiber-Span responsibility for an extensive set of technical requirements and rigorous testing of the Nodes. Fiber-Span also agreed to subsidize certain developmental costs in the hopes of being selected as the contractor for the project's remaining 271 subway stations. In exchange, Transit agreed that, if Fiber-Span was not selected to supply Nodes for the remaining stations, Transit would reimburse those front-loaded costs. To close the deal, Fiber-Span obtained from Allegheny Casualty Company a performance bond in favor of Transit.

Strains in the relationship between Transit and Fiber-Span soon began to show, particularly when Transit raised technical concerns about the Nodes. In response, Fiber-Span retrofitted the Nodes, which addressed Transit's initial concerns but created other problems. Transit asserted that Fiber-Span remained  [*85]  in breach of contract after the retrofitting, but it nevertheless took the network live, even as the parties' relationship devolved from strained to broken. Transit insisted that Fiber-Span replace the retrofitted Nodes, while Fiber-Span said it would do so only after it was [**3]  awarded a contract to supply them to the remaining subway stations. Those competing positions hardened over the course of a year. Although it became clear that Fiber-Span would not replace the Nodes, Transit continued to use them for two more years. Eventually, Transit sued both Fiber-Span and Allegheny in New York state court for the full value of the contract and more. Fiber-Span later filed for bankruptcy in the District of New Jersey, and the state claims ended up in the Bankruptcy Court there.

The Bankruptcy Court and, on appeal, the District Court came to different conclusions on a series of issues: namely, acceptance of the Nodes, breach of contract, resulting damages, and liability on the bond. We reach yet a third and somewhat different set of conclusions. In our view, Transit's decision to keep using the Nodes was consistent with the acceptance of non-conforming goods. And while Fiber-Span indeed breached the contract, the damages it owes must reflect the difference in value between what Transit received and what it was promised, which is less than what the Bankruptcy Court and District Court awarded. Consistent with the reasoning of both those courts, however, we hold that [**4]  Transit was not required to compensate Fiber-Span for not selecting it to provide Nodes for the remaining subway stations. Finally, we conclude that Transit's claim to the payment on the performance bond is time-barred, so Allegheny is not liable. We will thus affirm in part, vacate in part, and remand to the District Court with instructions to remand to the Bankruptcy Court to recalculate damages.

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