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Fiberlight, LLC v. Washington Metropolitan Area Transit Authority

United States District Court, District of Columbia

June 12, 2017

FIBERLIGHT, LLC, Plaintiff/Counter-Defendant,
v.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Defendant/Counter-Plaintiff.

          MEMORANDUM OPINION

          ELLEN SEGAL HUVELLE UNITED STATES DISTRICT JUDGE.

         In 2006, FiberLight, LLC, and the Washington Metropolitan Area Transit Authority (“WMATA”) entered into a contract pursuant to which, inter alia, FiberLight agreed to pay WMATA on an annual basis for the right to install and operate its fiber optic cable and associated equipment inside WMATA's Metrorail System (the “License Agreement”). FiberLight now believes that WMATA leased rights that it did not possess and has sued for breach of contract, declaratory judgment and breach of the implied covenant of good faith and fair dealing (see First Am. Compl., ECF No. 13 (“Am. Compl.”); WMATA has filed counterclaims for breach of contract and unjust enrichment (see WMATA's Amended Answer to the First Am. Compl. & Amended Counterclaims, ECF No. 15 (“Am. Ans. & Counterclaims”). Before the Court is WMATA's motion to dismiss FiberLight's first amended complaint. (See WMATA's Mot. to Dismiss, ECF No. 16. (“Mot.”).) For the reasons stated herein, the motion will be denied.

         BACKGROUND

         I. FACTUAL BACKGROUND [1]

         FiberLight is a company that “constructs, owns, and operates fiber optic facilities for sale or lease to government and commercial carrier customers in the Washington, D.C. metropolitan area.” (Am. Compl. ¶ 1.) On September 16, 2005, the Public Service Commission of the District of Columbia granted FiberLight's application “to provide resold and facilities-based local exchange telecommunication services in the District of Columbia.”[2] See Order No. 13761, Application of FiberLight, LLC to Provide Local Telecommunications Services in the District of Columbia, Formal Case No. TA 05-9 (Sept. 16, 2005); (see also Am. Compl. ¶ 2). Under District of Columbia law, “‘[a]ny telecommunications provider in the District shall have the right to utilize the public right-of-ways of the District for installation, maintenance, repair, replacement, and operation of its telecommunications system . . . .'” (Am. Compl. ¶ 5 (quoting D.C. Code § 34-2004(a)).

         WMATA is a regional transportation authority and the operator of a “public mass transit rail system in the Washington, D.C. metropolitan area” (the “WMATA System”). (See Am. Compl. ¶ 9 & Ex. 1 (“License Agreement”), at 1.) It is “the product of an interstate compact entered into by Maryland, Virginia and the District of Columbia” (the “WMATA Compact”). KiSKA Const. Corp. v. Washington Metro. Area Transit Auth., 321 F.3d 1151, 1158 (D.C. Cir. 2003).

         On or about October 23, 2006, FiberLight and WMATA entered into the “License Agreement” that underlies this lawsuit. (Am. Compl. ¶ 10.) In relevant part, the License Agreement provides that WMATA, in exchange for an annual license fee, will allow FiberLight to install and operate telecommunications facilities within the WMATA System's “surface transportation corridors and undergrounds tunnels” (the “WMATA ROW” or “WMATA Right-of-Way”). (License Agreement, at 1, art. 10, & Schedule 1 thereto; see also Am. Compl. ¶¶ 10, 21, 24, 26.) The License Agreement includes an affirmative representation by WMATA that “it has the power and authority . . . to lease conduit rights in the WMATA ROW to FIBERLIGHT for the operation and maintenance of the FiberLight System . . . .” (License Agreement, art. 14.1.)

         Until 2014, FiberLight accepted the Article 14.1 representation as true, assuming that WMATA “would not attempt to license real or personal property rights that it did not possess.” (Am. Compl. ¶ 28.) At some point during 2014, though, FiberLight “observed that much of the WMATA network lay directly beneath the public rights-of-way, an area that FiberLight already had the right to occupy as a certificated public utility.” (Am. Compl. ¶ 27.) “The realization that the WMATA network lay directly beneath the public rights-of-way led FiberLight to inquire whether WMATA had some form of independent ownership of such real property beneath the public rights-of-way.” (Am. Compl. ¶ 28.) This realization led FiberLight to raise the issue with WMATA, in a letter dated August 22, 2014. (Am. Compl. ¶ 22.) In that letter, after stating that it was “currently expanding [its] fiber network in the DC area and seek[ing] to clearly understand the nature of the license contemplated under the [License] Agreement, ” FiberLight asked WMATA to respond to “several questions regarding the [License] Agreement”:

1. Regarding Section 14.1 of the Agreement in which WMATA represents it has the power and authority to ‘own and operate the WMATA System, and to lease conduit right in the WMATA ROW [right-of-way] to FIBERLIGHT for the operation and maintenance of the FIBERLIGHT System . . .', will you please inform us of the source and nature of that authority?”
2. What is the nature of the WMATA ROW? From whom is it granted and is it exclusive in nature?
3. Where the WMATA ROW intersects or runs parallel to the public ROW, which ROW holder has precedence?
4. Will WMATA provide us a copy of the DC Mayor's permit for sections of the WMATA ROW that lie[] within the public ROW which we believe is required under D.C. Code Ann. § 10-1141.03.? If WMATA believes that it is not subject to this Code section, please provide an explanation?
5. Does the license contemplated in the Agreement cover use of real property (i.e. use of WMATA's ROW) or personal property?

(Am. Compl., Ex. 2, at 1-2 (quoting License Agreement, art. 14.1) (emphasis in original).)

         WMATA response came in a letter dated January 22, 2015. (Am. Compl., Ex. 3.) It identified the WMATA Compact as the source of its authority to own and operate the WMATA System, and the November 20, 1969 “Master Agreement with the District of Columbia” as the source of “the terms and conditions associated with the construction of the Metrorail System on D.C. government property.” (Am. Compl., Ex. 3, at 1-3.) WMATA's letter attached a copy of the 1967 WMATA Compact, but not the 1969 Master Agreement. (See Am. Compl., Ex. 3, at 3.) The letter described “WMATA's Right of Way” as “private property used for a public purpose, ” adding that “[a]ny particular parcel of WMATA property may be held as fee simple property, permanent or temporary easement, or as some less-than-fee estate.” (Am. Compl., Ex.3, at 1-2.) However, WMATA “never produced or identified any such land record, deed or title.” (Am. Compl. ¶ 35.)

         FiberLight found WMATA's response to be unsatisfactory (see Am. Compl. ¶ 30 (“WMATA could not provide a straightforward answer”) and ultimately “concluded that that representation by WMATA in Article 14.1 . . . ‘was untrue in a material respect.'” (Am. Compl. ¶¶ 30, 38-39 (quoting License Agreement, art. 21.1).) Presumably based on this conclusion, FiberLight did not pay WMATA's 2014 or 2015 annual invoices.

         On August 24, 2016, WMATA sent FiberLight a letter as a “notice of failure of Licensee to make payment” and stating that it “expect[ed] payment of the outstanding amount of $789, 213.90 plus interest in full, and within 15 business days.” (Am. Compl., Ex. 4, at 1.) WMATA further advised FiberLight that “if payment is not received within this time period, [FiberLight] will be in default of [its] obligations in accordance with Article 20 [of the License Agreement]” and, if that happened, WMATA “may exercise one or more of the [r]emedies provided pursuant to Article 21 [of the License Agreement], which include, but are not limited to, termination of the License.”[3] (Am. Compl., Ex. 4, at 1-2.).

         Article 21.1 of the License Agreement provides that:

Upon the occurrence and during the continuance of any event of default, the non-defaulting party may, at its option, declare this License Agreement to be in default and may, in addition to any other remedies provided herein, terminate this License Agreement. No remedy is intended to be exclusive, but each shall be cumulative and in addition to and may be exercised concurrently with any other remedy available to WMATA or FIBERLIGHT at law or in equity.

         (License Agreement, art. 21.1 (emphasis added).) However, it also provides that:

In addition to all other remedies contained herein, WMATA and FIBERLIGHT agree that if any representation made in this License Agreement is untrue in any material respect when made and the non-defaulting party elects not to terminate this License Agreement, the parties shall negotiate in good faith an equitable adjustment to the payment terms with the intention of reasonably compensating the other party for any damages it may have sustained as a result of such representation being untrue when made.

(License Agreement, art. 21.1 (emphasis added).) In addition, Article 27.4 of the License Agreement provides that “the parties shall negotiate in good faith to resolve [any] claim or dispute or, upon the failure to resolve such claim or dispute through good faith negotiations, the parties may attempt to resolve such claim or dispute through alternative dispute resolution (ADR) techniques.” (License Agreement, art. 27.4 (emphasis added).)

         FiberLight did not make the payments WMATA demanded, but on August 30, 2016, it “requested good faith negotiations with WMATA.” (Am. Compl. ¶ 63.) On September 14, 2016, FiberLight and WMATA met. (Am. Compl. ¶ 64.) At that meeting, FiberLight “again requested good faith negotiations, ” while WMATA “advised it would provide FiberLight written evidence to substantiate its Article 14.1 representations.” (Am. Compl. ¶ 64.)

         WMATA “never provide[d] the written response it committed to provide and never provided any evidence that substantiate[d] its Article 14.1 representations.” (Am. Compl. § 65.) “Instead, on October 14, 2016, WMATA warned FiberLight that within fifteen (15) days, it would advise FiberLight of WMATA's election to accept ownership of the FiberLight System, or have it removed.” (Am. Compl. ¶ 66.)

         On October 25, 2016, “pursuant to Article 27.4 of the License Agreement, . . . FiberLight recommended to WMATA that the parties engage in mediation as a form of voluntary dispute resolution to resolve this dispute, ” but it also “advised WMATA that, pursuant to Article 27.5 of the License Agreement, it was providing notice that it could invoke its right to litigation to resolve this dispute.”[4] (Am. Compl. ¶¶ 66-67.)

         By letter dated November 2, 2016, WMATA declined the offer to engage in mediation. (See Am. Compl., Ex. 5.) WMATA's letter stated that it “ha[d] engaged in good faith negotiations with FiberLight for nearly two years, ” but that the “parties' positions remain unchanged” and “[p]rolonged negotiations, or even mediation, serve only to allow FiberLight to continue to engage in contractually prohibited self-help.” (Am. Compl., Ex. 5.) WMATA's letter also stated that “(i) the [License] Agreement was terminated; and (ii) unless FiberLight immediately pays the amounts past due, including applicable interest, in full, WMATA intends to initiate litigation within ten (10) days from the date of this letter to enforce its right to payment under the [License] Agreement.” Finally, WMATA's letter asked FiberLight to provide WMATA with FiberLight's “proposed plan for orderly termination pursuant to Article 23 of the [License] Agreement.”[5] (Am. Compl., Ex. 5, at 1-2.)

         On December 6, 2016, FiberLight sent WMATA a letter asking it to “confirm that FiberLight will continue to have unimpeded access to the . . . WMATA System” for the purpose of installing new fiber. (See Am. Compl., Ex. 6, at 1.) WMATA responded, in a letter dated December 16, 2016, that FiberLight's request was “surprising” given that WMATA had “terminated” the License Agreement and that, as a result and by operation of Article 2.4 of the License Agreement, the FiberLight System had become WMATA's property. (Am. Compl., Ex. 6, at 1 (quoting License Agreement, art. 2.4 (“[U]pon termination of this License Agreement . . . the FiberLight System shall, at the sole and unfettered discretion of WMATA, . . . become the property of WMATA.”).)

         II. PROCEDURAL HISTORY

         On November 11, 2016, before the last exchange of letters, FiberLight initiated litigation. (See Compl., ECF No. 1.) It filed an amended complaint on December 28, 2016, which includes three counts. Count I is a claim for breach of contract, which claims that: (1) “WMATA is in material breach of the License Agreement because it has made a materially untrue representation under Article 14.1 that it has the right ‘to lease conduit rights in the WMATA ROW to FIBERLIGHT for the operation and maintenance of the FiberLight System . . .' and refused to provide any evidence supporting its power and authority to lease FiberLight rights in the WMATA ROW” (Am. Compl. ¶ 82 (quoting License Agreement, art. 14.1)); and (2) “WMATA breached Articles 21.1 and 27.4 of the License Agreement when it failed to negotiate in good faith an equitable adjustment to the payment terms of the License Agreement after it was advised of its materially untrue statement.” (Am. Compl. ¶ 83.) Count II seeks a declaratory judgment that:

(1) WMATA is in breach of the License Agreement and FiberLight is not; (2) WMATA cannot charge FiberLight an annual license fee under the License Agreement for placing the FiberLight System in the public rights-of-way; (3) WMATA must continue to provide FiberLight access to the FiberLight System as required pursuant to, inter alia, Article 11 of the License Agreement; (4) FiberLight has independent authority to place, operate and expand its network in the public rights-of-way; (5) WMATA's purported termination of the License Agreement was invalid; and, (6) WMATA has not taken and ...

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