Networktwo Communications Group, Inc. v. SPRING VALLEY MARKETING GROUP and COMMUNITYISP, INC.

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0184P (6th Cir.)
File Name: 04a0184p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
NETWORKTWO
COMMUNICATIONS GROUP,
INC.,
Plaintiff/Counter-
Defendant/Appellee,
v.
SPRING VALLEY MARKETING
GROUP and COMMUNITYISP,
INC.,
Defendants/Counter-
Plaintiffs/Appellants.
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No. 03-1283
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 99-72913—Lawrence P. Zatkoff, Chief District Judge.
Argued: April 29, 2004
Decided and Filed: June 18, 2004
Before: KENNEDY, MARTIN, and ROGERS, Circuit
Judges.
2 NetworkTwo Comm. Group v.
Spring Valley Marketing, et al.
No. 03-1283
_________________
COUNSEL
ARGUED: Cameron J. Evans, HONIGMAN, MILLER,
SCHWARTZ & COHN, Detroit, Michigan, for Appellants.
Daniel E. Morrisroe, POTTER, DeAGOSTINO, CAMPBELL
& O’DEA, Auburn Hills, Michigan, for Appellee.
ON BRIEF: Cameron J. Evans, HONIGMAN, MILLER,
SCHWARTZ & COHN, Detroit, Michigan, for Appellants.
Steven M. Potter, POTTER, DeAGOSTINO, CAMPBELL &
O’DEA, Auburn Hills, Michigan, for Appellee.
_________________
OPINION
_________________
BOYCE F. MARTIN, JR., Circuit Judge. CommunityISP,
Inc. appeals the district court’s award of summary judgment
in favor of NetworkTwo Communications Group, Inc. with
respect to CommunityISP’s breach of contract counterclaim.
For the following reasons, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
This dispute arises out of a failed business relationship
between CommunityISP, an internet business that specialized
in hosting online websites for other companies, associations
and organizations, and NetworkTwo, a company that
CommunityISP hired to provide internet service to support its
operations. The parties entered into a “Master
Communications Services Agreement” on August 27, 1998,
wherein NetworkTwo agreed to provide internet service to
CommunityISP, which CommunityISP would in turn sell to
subscribers, or “end users.” As part of this agreement,
NetworkTwo expressly undertook, among other obligations,
to have internet access “available no less than 95.5% of the

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time per month” and to upgrade its “dial speeds” from “33.6
kbps” to “56 kbps” “within 60 business days of
NetworkTwo’s reasonable determination” that 56 kbps is the
dial speed that “has been properly established” as the industry
standard. For its part, CommunityISP agreed to pay for
internet services from NetworkTwo, and also to pay
NetworkTwo a $100,000 “commitment fee” pursuant to the
following provision in the agreement:
B. Commitment Fee
In addition to any other fees and/or obligations to be paid
by [CommunityISP] to NetworkTwo in connection with
this Agreement, [CommunityISP] will pay a commitment
fee to NetworkTwo in the amount of $100,000.00 in
order to partially compensate NetworkTwo for its
expenses in developing increased technical and service
infrastructure support in anticipation of increased
subscription volume caused by [CommunityISP]’s
activities involving End Users.
The agreement also provided, however, that in the event that
CommunityISP achieved a certain amount of subscribers by
a given date, CommunityISP would be entitled to a credit of
$100,000:
C. Volume Discounts and/or Penalties
. . .
If [CommunityISP] has reached a level of 200,000 paid
subscribers as described above prior to the expiration of
the 24th month, then NetworkTwo shall provide
[CommunityISP] a bonus credit in the amount of
$100,000 on its first invoice for service following the
month in which [CommunityISP] has obtained 100,000
[sic] paid subscribers as described above.
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No. 03-1283
Soon after executing this agreement, the parties’ business
relationship began to disintegrate. Although NetworkTwo
provided internet service to CommunityISP for a few months,
it became clear that NetworkTwo would be unwilling or
unable to perform all of its obligations under the agreement;
for example, it would not upgrade its access speed, nor would
it make internet access available 95.5% of the month.
Accordingly, CommunityISP hired another internet service
provider, SplitRock Communications Group, Inc., to serve as
its primary internet service provider, and NetworkTwo was
expected to serve as a secondary provider. CommunityISP
entered into an internet service agreement with SplitRock that
was similar to its earlier agreement with NetworkTwo, and
paid Split Rock a $100,000 commitment fee. Additionally,
CommunityISP paid $100,000 to a company called NetSurfer,
Inc. to create a CD-ROM with the software that
CommunityISP customers would need to access the internet.
This software was to be provided by NetworkTwo at no
additional cost as part of its agreement with CommunityISP.
Notably, after CommunityISP and NetworkTwo officially
terminated their business relationship in December 1998,
NetworkTwo refused to return the $100,000 commitment fee
that CommunityISP had paid.
On June 8, 1999, NetworkTwo filed a lawsuit against
CommunityISP and its sister company, Spring Valley
Marketing Group, seeking damages for unpaid commissions
during the time the agreement was in effect. CommunityISP
filed counterclaims alleging, among other claims, that
NetworkTwo had breached their agreement and caused
CommunityISP to suffer in excess of $2.5 million in
damages; these damages included the $100,000 commitment
fee that CommunityISP paid to Network Two, the $100,000
commitment fee that CommunityISP paid to SplitRock and
the $100,000 payment that it made to NetSurfer for the
software. NetworkTwo filed two separate motions for
summary judgment with respect to CommunityISP’s breach
of contract counterclaim – the first on June 27, 2000, and the

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second on August 21, 2000 – both of which argued that two
damage limitation provisions in the parties’ agreement
precluded recovery of the damages that CommunityISP
sought.
The first provision, contained in ¶ 7.C, provides as follows:
NETWORKTWO’S LIABILITY ARISING FROM
ANY CLAIM MADE BY CUSTOMER OR ANYONE
ELSE RELATIVE TO ANY NETWORKTWO
OBLIGATION UNDER THIS AGREEMENT OR
RELATING TO NETWORKTWO’S NEGLIGENCE
OR RELATING TO ANY OTHER CAUSE OR
REASON SHALL BE LIMITED TO AN AMOUNT
EQUAL TO THE PRORATED CHARGE TO THE
CUSTOMER FOR THE AFFECTED TRANSMISSION.
IN NO EVENT SHALL NETWORKTWO BE LIABLE
F O R A N Y S P E C I A L , I N D I R E C T O R
CONSEQUENTIAL DAMAGES, WHETHER OR NOT
SUCH DAMAGES WERE FORESEEABLE OR
ACTUALLY FORESEEN.
As the district court explained, the phrase “PRORATED
CHARGE TO THE CUSTOMER FOR THE AFFECTED
TRANSMISSION” means as follows:
The parties anticipated that NetworkTwo would provide
internet service to CommunityISP, which would sell that
service to the “End Users” or the “Subscribers.” The
parties contemplated that, at times, the transmission of
internet service from NetworkTwo to an End User may
become affected, and unsatisfactory to that End User, (or
to CommunityISP). In such instances, the End User
would most likely look to CommunityISP for a refund
equivalent to the time the service was “affected” or
unsatisfactory. Since the End User would pay for the
service as a monthly charge, the amount to be returned
would be prorated over the course of the month as a
6 NetworkTwo Comm. Group v.
Spring Valley Marketing, et al.
No. 03-1283
percentage of the monthly fee. For example, if
CommunityISP charged $30.00 a month to an End User
for its service, and the service was down for three days
out of thirty, then CommunityISP would return only ten
percent of the monthly fee to that End User, or $3.00, as
a prorated charge for the affected transmission.
CommunityISP would then look to NetworkTwo to
reimburse CommunityISP for that charge pursuant to the
Agreement.
Neither party has disputed the accuracy of this explanation.
The second provision, contained in Schedule C, ¶ B.2,
provides as follows:
In addition to the foregoing, if NetworkTwo fails to
substantially meet the network performance standards set
forth in section I above for fifteen (15) consecutive days
after issuance of a trouble ticket, Customer can notify
NetworkTwo in writing that the performance standards
are not being met. And describing in detail the
deficiency and its likely causes. NetworkTwo will have
five (5) days to provide Customer with a reasonable plan
to cure network performance issues. NetworkTwo will
thereafter have fifteen (15) business days to implement
this plan. After NetworkTwo has implemented this plan,
if the network statistics fall below the network
performance standards in section I above based upon the
same deficiency described in the first notice under this
section 2, for an additional period of fifteen (15)
consecutive days, Customer will as its sole remedy have
the option to terminate this agreement by providing
NetworkTwo thirty (30) days written notice. In such
event, neither party shall have any further obligation to
the other.
The district court granted in part NetworkTwo’s first
motion for summary judgment, holding that the damage

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limitation provisions in the agreement were not
unconscionable or illusory and were enforceable; the district
court clarified, however, that pursuant to ¶ 7.C
CommunityISP was entitled to recover only the amount of
money that CommunityISP was forced to pay its customers
as “PRORATED CHARGE[S]” for “AFFECTED
TRANSMISSION[S],” and that pursuant to Schedule C, ¶ B.2
CommunityISP’s sole remedy in the event that NetworkTwo
had failed to meet network performance standards was
termination of the agreement. Shortly after the issuance of
the district court’s decision, NetworkTwo filed for bankruptcy
and the entire action was stayed.
After the stay was lifted on May 17, 2002, the district court
granted in full NetworkTwo’s second motion for summary
judgment and dismissed CommunityISP’s breach of contract
counterclaim, holding that CommunityISP had failed to prove
that it was forced to pay its customers any “PRORATED
CHARGE[S]” for “AFFECTED TRANSMISSION[S]” – the
only damages that are recoverable under the agreement.
According to the district court, the $100,000 commitment fee
that CommunityISP had paid to NetworkTwo could not be
considered such a “PRORATED CHARGE.” Additionally,
the district court explained that while the $100,000
commitment fee paid to SplitRock and the $100,000 payment
to NetSurfer may have been recoverable under common law
damages principles, those damages were barred by ¶ 7.C,
which expressly provides that “IN NO EVENT SHALL
NETWORK TWO BE LIABLE FOR ANY SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES,
WHETHER OR NOT SUCH DAMAGES WERE
FORESEEABLE OR ACTUALLY FORESEEN.” This
timely appeal followed.
II. ANALYSIS
The sole issue in this appeal is whether CommunityISP has
proven that it suffered damages that are recoverable under the
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Spring Valley Marketing, et al.
No. 03-1283
parties’ agreement. We review de novo the district court’s
award of summary judgment in favor of NetworkTwo.
Graham ex rel. Estate of Graham v. Cty. of Washtenaw, 358
F.3d 377, 382 (6th Cir. 2004). Michigan law, which the
parties agree controls in this diversity case, provides that
“[t]he primary goal in interpreting contracts is to determine
and enforce the parties’ intent.” Old Kent Bank v. Sobczak,
620 N.W.2d 663, 666-67 (Mich. 2000). To do so, this Court
“reads the agreement as a whole and attempts to apply the
plain language of the contract itself.” Id. (citation omitted).
“A contract is ambiguous if its words may reasonably be
understood in different ways.” UAW-GM Human Res. Ctr. v.
KSL Rec. Corp., 579 N.W.2d 411, 414 (Mich. 1998) (citation
and internal quotation marks omitted). “If the meaning of an
agreement is ambiguous or unclear, the trier of fact is to
determine the intent of the parties.” Id. (citation omitted).
CommunityISP propounds two main arguments: first, the
damage limitation provisions do not apply; and second, even
if they do apply, CommunityISP has suffered damages that
are recoverable under those provisions. Each argument will
be addressed in turn.
A. Do the Damage Limitation Provisions Apply?
CommunityISP argues that ¶ 7.C and Schedule C, ¶ B.2 are
ambiguous and, therefore, that a jury, not the court, should
determine their applicability to this dispute. CommunityISP
identifies two alleged ambiguities with respect to these
provisions.
The first alleged ambiguity is that ¶ 7.C “assumes that
NetworkTwo would be providing services under the
Agreement,” when in reality, it is alleged, no services were
provided. In other words, CommunityISP argues that the
provision is ambiguous because it “can reasonably be
understood to mean that it provides [CommunityISP] its
remedy for NetworkTwo providing substandard services and

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not for NetworkTwo providing no services under the
Agreement.” This attempt to create ambiguity is
unpersuasive.
The plain language of ¶ 7.C indicates that the only damages
that CommunityISP could recover for any claim against
NetworkTwo under the agreement are “LIMITED TO” the
“PRORATED CHARGE[S]” that CommunityISP was forced
to pay its customers as a result of “AFFECTED
TRANSMISSIONS . . . .” The provision further clarifies that
“IN NO EVENT SHALL NETWORKTWO BE LIABLE
FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, WHETHER OR NOT SUCH DAMAGES
WERE FORESEEABLE OR ACTUALLY FORESEEN.”
CommunityISP may only be able to recover damages where
NetworkTwo is “providing services” (assuming that
CommunityISP is able to meet the other requirements set
forth in ¶ 7.C), but there is no basis for CommunityISP’s
assertion that ¶ 7.C only applies in such a situation. We find
¶ 7.C unambiguous in both meaning and application.
Second, CommunityISP argues that ¶ 7.C and Schedule C,
¶ B.2 are ambiguous because they are inconsistent with each
other. According to CommunityISP, the provisions are
inconsistent because ¶ 7.C provides that NetworkTwo’s
“liability” under the agreement is “LIMITED TO AN
AMOUNT EQUAL TO THE PRORATED CHARGE TO
T H E C U S T O M ER F O R T H E A F F E C T E D
TRANSMISSION,” but Schedule C, ¶ B.2 provides that the
“sole remedy” available to CommunityISP in the event of
NetworkTwo’s failure “to substantially meet . . . network
performance standards” is “the option to terminate this
agreement . . . .” This argument also lacks merit.
Although the two provisions do, indeed, provide different
remedies, they also address and apply to completely different
situations. Paragraph 7.C sets forth the conditions under
which NetworkTwo could be held liable for damages under
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Spring Valley Marketing, et al.
No. 03-1283
the agreement, as well as the amount of damages for which it
could be forced to pay in the event of liability. Schedule C,
¶ B.2, by contrast, speaks only to the particular situation in
which “NetworkTwo fails to substantially meet . . . network
performance standards . . . .” The provision sets forth the
procedures that are to be followed in the event of such a
failure by NetworkTwo, and provides that CommunityISP’s
“sole remedy” if those procedures are ineffective is “the
option to terminate this agreement.”
Even assuming that there is some ambiguity as to which
remedy is exclusive, there is no ambiguity that benefits
CommunityISP. No matter how ¶ 7.C is reconciled with
Schedule C, ¶ B.2, there is clearly no room for any remedy
other than prorated charges or contract termination. In other
words, even if ¶ 7.C permits a remedy that Schedule C, ¶ B.2
appears to preclude, or vice versa, there is no reading of these
provisions that permits a remedy other than prorated charges
or contract termination. If an ambiguity permits several
possible readings of the overall contract, but none of those
readings helps CommunityISP, then as to CommunityISP
there is simply no ambiguity. The contract unambiguously
precludes contract remedies other than prorated charges and
contract termination, even if there is some ambiguity as to
whether the contract permits the remedies of prorated charges,
contract termination, or both or neither of these.
CommunityISP also makes a passing argument that the
remedy provided by the damage limitation provision in
Schedule C, ¶ B.2 – i.e., termination of the agreement – is
“illusory.” CommunityISP argues that this provision
ultimately provides no remedy at all to CommunityISP
because the only remedy it offers is termination of the
agreement, which has already been done in this case. The fact
that CommunityISP does not like the remedy provided in this
particular provision, however, does not render the remedy or
the provision illusory. CommunityISP’s argument is solely
a reflection of its unhappiness with the agreement that it

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negotiated at arms length with NetworkTwo, and lacks any
basis in fact or law.
B. Are CommunityISP’s Claimed Damages
Recoverable Under the Damage Limitation Provisions?
CommunityISP next argues that even if the damage
limitation provisions do apply, CommunityISP has suffered
damages that are recoverable under those provisions. As
discussed, the only damages that are allowable under the
agreement are provided for in ¶ 7.C, as Schedule C, ¶ B.2
only provides for termination of the agreement. Paragraph
7.C states that the only damages that are recoverable under
the agreement are “LIMITED TO AN AMOUNT EQUAL
TO THE PRORATED CHARGE TO THE CUSTOMER
FOR THE AFFECTED TRANSMISSION,” and that “IN NO
EVENT SHALL NETWORKTWO BE LIABLE FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
WHETHER OR NOT SUCH DAMAGES WERE
FORESEEABLE OR ACTUALLY FORESEEN.”
CommunityISP argues that the damages that it seeks fall
within the category of damages that are recoverable under
¶ 7.C because “when NetworkTwo pulled the proverbial plug
on [CommunityISP], all transmissions between
[CommunityISP] and NetworkTwo were affected; they
ceased. Thus, all of these transmissions were ‘affected
transmissions.’” CommunityISP conspicuously fails,
however, to challenge the district court’s determination that
CommunityISP had not charged its customers any
“PRORATED CHARGE[S],” even though reimbursement for
these prorated charges constitutes the only damages to which
CommunityISP would be entitled under the agreement. There
is simply no indication in the record that CommunityISP
charged its customers any “PRORATED CHARGE[S]” for
“AFFECTED TRANSMISSION[S].” Therefore, ¶ 7.C
precludes CommunityISP from recovering any damages.
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Spring Valley Marketing, et al.
No. 03-1283
III. CONCLUSION
For the foregoing reasons, the district court’s judgment is
AFFIRMED.

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