Fiber-Span Inc v.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
Nos.: 21-1712, 21-1713, and 21-1806
_______________
In re: FIBER-SPAN, INC.,
Debtor
TRANSIT WIRELESS, LLC
v.
FIBER-SPAN, INC.; ALLEGHENY CASUALTY
COMPANY
Allegheny Casualty Company,
Appellant in No. 21-1712
Daniel E. Straffi, Chapter 7 Trustee for Fiber-Span, Inc.,
Appellant in No. 21-1713
Transit Wireless, LLC,
Appellant in No. 21-1806
__________
On Appeal from the United States District Court
For the District of New Jersey
(D.C. Nos. 3-20-cv-02244 and 3-20-cv-02245)
District Judge: Honorable Anne E. Thompson
_______________
Argued
January 19, 2022
Before: JORDAN, RESTREPO, and PORTER, Circuit
Judges
(Filed: July 5, 2022)
_______________
Scott J. Freedman
Benjamin W. Spang [ARGUED]
Dilworth Paxson
457 Haddonfield Road – Suite 700
Cherry Hill, NJ 08002
Counsel for Daniel E. Straffi, Chapter 7
Trustee for Fiber-Span, Inc.
Michael D. Malloy
Finestein & Malloy
6 Commerce Drive – Suite 304
Cranford, NJ 07016
Michael E. Norton [ARGUED]
Hand Baldachin & Associates
1740 Broadway – 15th Floor
New York, NY 10019
Counsel for Transit Wireless, LLC
2
Adam P. Friedman
Chiesa Shahinian & Giantomasi
One Boland Drive
West Orange, NJ 07024
Michael Grohs [ARGUED]
Saiber
18 Columbia Turnpike – Suite 200
Florham Park, NJ 07932
Counsel for Allegheny Casualty Company
_______________
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 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
3
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 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 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
4
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 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.
I. BACKGROUND
To untangle the several arguments and issues before us,
a detailed factual recitation is required.
A. The Purchase Agreement
In 2007, Transit was awarded an exclusive license by
the Metropolitan Transportation Authority and the New York
City Transit Authority (collectively, the “MTA/NYCTA”)1 to
bring telecommunications services to 277 New York City
subway stations (the “License”). Under the License, Transit
would, in turn, sell network access to telecommunications
carriers to allow voice and data services to be delivered to their
customers. Although Transit helped design and develop the
network’s engineering protocols and technical specifications,
it was not capable of designing or manufacturing the network’s
1
Unfortunately, there are a few acronyms to keep track
of in this story.
5
equipment. It therefore decided to subcontract that work to
others.
The project was broken into two stages: the first six
stations (the “Initial Build”) and the remaining 271 subway
stations (the “Full Build”). Transit selected Fiber-Span to
develop, manufacture, and supply seventeen Nodes for the
Initial Build. Their contract contemplated an extensive set of
technical requirements, which included a testing and payment
plan (the “Purchase Agreement”) that incorporated by
reference requirements laid out in the License. The parties
ultimately settled on a purchase price of $704,382, which was
later amended to $680,997. Fiber-Span agreed to obtain a
performance bond to guarantee its work. And, in the hopes of
being selected for the Full Build, it also agreed to cover certain
research, development, and engineering costs of the project. In
exchange, Transit promised that, if Fiber-Span was not
selected for the Full Build, Transit would pay Fiber-Span
$450,000, a sum they called the “initial build compensation”
(“IBC”). Payment of the IBC, however, was contingent upon
specified conditions being met, one of which was that the
Nodes had to meet all quality requirements in the Purchase
Agreement.
The Purchase Agreement required, among other things,
that the Nodes operate properly in an ambient temperature of -
25°C to 55°C; that power consumption be limited to a
maximum of 395 watts; and that the Nodes have an ingress
protection rating of “IP66.”2 Fiber-Span elsewhere warranted
2
An “ingress protection” or “IP” rating measures the
“grade [of] the resistance of an enclosure against the intrusion
6
that the Nodes would be “free from defects” and conform with
the Purchase Agreement’s specifications until the later of
twenty-seven months after being delivered to Transit or
twenty-four months after being put into operation (the
“Warranty Provision”). (J.A. at 406.) It also guaranteed that
any non-conforming Nodes would be repaired or replaced at
Fiber-Span’s cost for approximately twenty years, including
any “de-installation and re-installation charges” (the “Repair
and Support Provisions”). (J.A. at 406.)
Transit and Fiber-Span executed the Purchase
Agreement on October 12, 2010. The parties agreed that New
York state law would govern “any transactions or disputes
arising [there]under[].” (J.A. at 417.) Simultaneous with its
execution of the Purchase Agreement, Transit issued an order
to purchase sixteen Nodes at a price of $704,382. For reasons
not apparent on the record, it issued an amended purchase order
in January 2011 that increased the number of Nodes to
seventeen and decreased the total purchase price to $680,997.
B. The Performance Bond
Soon after the initial purchase order, Allegheny
Casualty Company issued a bond for $704,382, guaranteeing
Fiber-Span’s performance (the “Bond”). It was never changed
to reflect the amended and lower price. The Bond included a
two-year limitations period, requiring that “[a]ny suit … be
of dust or liquids.” IP Ratings, Int’l Electrotechnical Comm’n,
https://www.iec.ch/ip-ratings (last visited Jan. 5, 2022).
“IP66” is rated as “Dust tight” and “Protected against powerful
water jets[.]” Id.
7
instituted [by Transit] before the expiration of two (2) years
from the date on which final payment under the [Purchase
Agreement] falls due.” (J.A. at 162.)
C. The Initial Build
Payment for the Initial Build under the Purchase
Agreement was based on the passing of seven milestones: (1)
“10% of Purchase Order value with order”; (2) “10% of
Purchase Order value on delivery of critical components to
[Fiber-Span for use in making the Nodes]”; (3) “10% of
Purchase Order value on [Fiber-Span] carrying out successful
pre-testing”; (4) “5% of Purchase Order value on passing FCC
tests”; (5) “5% of Purchase Order value on passing
interoperability testing”; (6) “40% of Purchase Order value on
delivery … after successfully passing all required tests”; and
(7) “20% of Purchase Order value on successful
commissioning and [Nodes] ready for commercial service or 3
months after delivery of [Nodes] to [Transit,] whichever is the
earlier.” (J.A. at 16, 58, 398.) With the exception of Milestone
7, all payments were to be made “on or about the 45th day from
the day of receipt of a Correct Invoice[.]” (J.A. at 399.)
Milestones 1 and 2 were satisfied without difficulty, but
when testing of the Nodes for Milestone 3 was underway,
Transit raised an issue regarding the Nodes’ excessive heat
output and resulting high surface temperatures.3 It sent a letter
3
An external surface temperature requirement was not
explicitly included in the Purchase Agreement but was
incorporated by reference under the License. Specifically, the
touch temperature of the Nodes was capped to “prevent burn
8
to Fiber-Span on February 28, 2011, stating that “protection
would need to be incorporated” if the Nodes’ external surface
temperature exceeded 60°C. (J.A. at 72, 744.) Fiber-Span
responded that it was “in [the] process of incorporating [an]
engineering improvement” to address the surface temperature
issue, and that it would “retrospectively deploy this solution to
the 17 [Nodes] being delivered.” (J.A. at 64, 749.) In the
interim, however, Fiber-Span planned to retrofit the Nodes
with fans for cooling and shields to protect the fans from
environmental contaminants such as dust or liquids.
Despite Transit’s concerns, Fiber-Span passed the pre-
tests required at Milestone 3. Fiber-Span subsequently issued
an invoice, which Transit timely paid in full. At Milestone 4,
the Nodes passed the required FCC tests, and Fiber-Span
issued another invoice. About a week later, however, Transit
“cautioned that the [Nodes], with proposed retrofit [i.e., the
fans and shields], would not be accepted unless all testing and
specifications were met.” (J.A. at 72, 748-49.) Fiber-Span
responded that same day that it would only “ship the goods …
if acceptance occurred upon completion of the testing on the
original goods, with testing on the retrofit to occur in the
injuries to the public.” (J.A. at 64.) Other quality and technical
requirements were also imposed by the License. Additionally,
the License required the network to be passively cooled at
50°C, such that “fans and other moving parts [are] minimized”
in the subway environment. (Dist. Ct. D.I. 15-9 at 22.) Fans
could be used “in the event this temperature range was
inadequate in any or all locations.” (Dist. Ct. D.I. 15-9 at 22.)
In the event of conflict between the standards set in the
Purchase Agreement and those in the License, the more
stringent standard applied.
9
future.” (J.A. at 65 (citing J.A. at 748).) Without resolving
that dispute, Transit tendered payment in full for Milestone 4.
Upon completion of Milestone 5, on April 14, 2011,
Transit’s CEO wrote in an email to representatives of Transit’s
parent company that Fiber-Span had passed the “critical
interoperability testing at [Fiber-Span’s] plant[,]” which was a
“key step in the delivery process for the Fiber-Span
equipment[.]” (J.A. at 751.) He noted that Fiber-Span had also
completed “successful FCC, safety[,] and environmental
testing … allow[ing] [Transit] to progress with installation of
… the Initial Build stations starting next week.” (J.A. at 18,
751.) The critical interoperability test was witnessed by “key
NYCT[A]/MTA staff” who “appeared very satisfied and
impressed with the signal quality through the Fiber-Span
equipment.” (J.A. at 751.)
Three days after that upbeat assessment, however,
Transit’s Chief Technology Officer sent an internal email to
other Transit employees mentioning a problem with the Nodes’
power consumption and “resultant heat” limits. (J.A. at 63,
333.) That is, the Nodes were drawing close to 500 watts of
power, which exceeded the Purchase Agreement’s maximum
power limit of 395 watts. As noted earlier, Transit had already
raised concerns regarding the external surface, or “touch,”
temperature of the Nodes, an issue that was linked to the
excessive power draw. Nevertheless, the CTO “conditionally”
signed off on the completion of the testing.4 (J.A. at 63, 333.)
Transit tendered payment in full for Milestone 5.
4
As the Bankruptcy Court observed, “[t]here is no
provision in the [Purchase] Agreement for ‘conditional’
10
The next day, in satisfaction of Milestone 6, Fiber-Span
delivered the Nodes and related equipment to Transit’s third-
party contractor for installation. Nine days later, Transit’s
CEO sent an email stating that “[Transit] successfully
completed Factory Acceptance Testing and Interoperability
testing of the Fiber-Span equipment earlier this month[,] [t]hird
party certification was provided … [, and] [t]he equipment …
also pass[ed] FCC, environmental[,] and [Underwriters
Laboratories] testing at independent labs.” (J.A. at 62, 753.)
Once again, though, the sense of satisfaction quickly
passed. On May 13, 2011, Transit sent Fiber-Span a letter,
complaining that “[t]here are a number of items that will need
to be resolved or clarified regarding the recent … delivery[.]”
(J.A. at 467.) Transit raised an issue with the “high
temperature” of the Nodes and explained that “it is unlikely
that [the retrofitting with fans] will be accepted, as the
MTA/NYCT[A] specification calls for passive cooling.” (J.A.
at 467.) It also claimed that Fiber-Span had either not carried
out or failed to provide results for “a significant amount of the
testing specified in [the] Purchase Agreement” and the
License. (J.A. at 467.) Transit followed up three days later,
emphasizing that “[t]he excessive heat output is of serious
concern[.]” (J.A. at 479.)
In response, Fiber-Span drew a distinction between
“pilot” Nodes and “production” Nodes: the pilot Nodes
apparently being those included in the Initial Build, and the
production Nodes those to be included in the Full Build. It
approval of testing.” (J.A. at 63.)
11
proposed to eventually “integrate higher efficiency [radio
frequency] amplifiers … and additional thermal engineering
advances into the production [Nodes].” (J.A. at 482.)
According to Fiber-Span, the increased efficiency would have
the effect of “reducing the total [Node] power below 395
Watts.” (J.A. at 482.) It said that the final production Nodes
would be “passively cooled[,]” but, in the meantime, that it
would retrofit the pilot Nodes. (J.A. at 482.) It also promised
to later upgrade the pilot Nodes with the “production passively
cooled solution … at no cost.” (J.A. at 482.) And it
subsequently noted that “it was only covering costs for the
retrofit as an accommodation to Transit, [because] its position
[was] that there was no specification for surface temperature.”
(J.A. at 73, 759.)
Seemingly ignoring Fiber-Span’s message that passive
cooling would have to wait, Transit responded a few days later
that it “appreciated and accepted” Fiber-Span’s “offer to
retrofit the Initial Build [Nodes] with the passively cooled
solution without cost to Transit[.]” (J.A. at 485.) It also noted
that it “ha[d] not approved any solution [because] [a]pproval
can only be given when a solution is demonstrated to be safe
and fully meet specification.” (J.A. at 487.) Transit
nevertheless paid Fiber-Span’s Milestone 6 invoice in full.
Fiber-Span issued the Milestone 7 invoice on June 1,
2011, and soon after, the parties met and discussed, among
other things, issues surrounding the Nodes’ external
temperature, the delivery of production Nodes, and additional
testing. According to minutes kept by Transit, Fiber-Span
stated that the retrofitted Nodes were an “interim” solution and
that a “permanent solution without fans continues to be
developed.” (J.A. at 488.) Those minutes also reported that
12
Fiber-Span would begin retrofitting the Initial Build Nodes
with fans and shields on June 21, 2011; it would target
November 1, 2011 to complete the permanent solution; and it
would upgrade those Nodes “without charge.” (J.A. at 488.)
That did not stop Transit from noting its dissatisfaction. On
July 7, 2011, it informed Fiber-Span that it considered the
Nodes to be “outside the contractual specification[,]” citing its
excessive power and external heat concerns.5 (J.A. at 490.)
Transit stated that until the permanent solution was executed,
tested, and certified, it would be “unable to consider the
[Nodes] as accepted.” (J.A. at 490.)
Payment on Fiber-Span’s invoice for Milestone 7 was
due July 18, 2011. Instead of paying the invoice in full, Transit
issued a check for half of the invoice and included two
handwritten notes. The first stated that Transit was only paying
half of the final invoice, and the second note explained that the
5
That position was somewhat at odds with Transit’s
internal view about a month earlier. On June 6, 2011, Transit
asked Underwriters Laboratories whether “there [is] a standard
for the temperature of operating equipment for safety in a
public environment; e.g., what is the maximum allowable
temperature a device can operate at without harming someone
that may come in contact with the device?” (J.A. at 763.)
Underwriters Laboratories provided a table of values and
informed Transit that temperature limitations may vary due to
engineering considerations. On June 8, 2011, in an internal
email, Transit’s CTO stated that “if this is correct it makes
Fiber-Span compliant per [Underwriters Laboratories] for
touch. But still not compliant for specified power draw[.]”
(J.A. at 761.)
13
remainder would be “paid if agreed by [Transit’s CEO] at later
date or on delivery of fully compliant [Nodes.]” (J.A. at 66.)
Transit submitted a final installment payment of $15,943.96
two years later, on July 18, 2013, after deducting $66,687.74
for what it identified as “Warranty Repair Costs.” 6 (J.A. at
529.) In total, Transit paid $643,606 to Fiber-Span.7
D. The Network Launch
Leading up to the network launch of the Initial Build,
Fiber-Span and Transit continued their inconclusive back and
forth about a permanent solution for the already installed
Nodes. Fiber-Span took the position that the “permanent
solution [would] be developed in conjunction with the larger
Full Build,” while Transit believed “the permanent fix must be
provided to the already-installed [Nodes] before the business
relationship between the parties can continue.” (J.A. at 77.)
Although the parties’ communications demonstrate a growing
disconnect, Transit submitted a request to the MTA/NYCTA
for approval of the network, stating that it had “satisfactor[il]y
completed its construction of the Initial Build[.]” (J.A. at 813.)
6
Transit appears to have calculated that deduction from
two invoices it sent Fiber-Span: one on October 28, 2011, for
$38,997.74 in repair costs, and one on January 7, 2013, for
$27,690 in “additional service repairs.” (Fiber-Span Op. Br. at
14; J.A. at 528-29, 589-92.) The final installment payment also
included amounts due to Fiber-Span for supplemental invoices
Fiber-Span submitted for $4,800 and $9,747.
7
It is unclear from the record before us precisely how
this sum was calculated, but the parties do not dispute its
accuracy.
14
The MTA/NYCTA accepted the Initial Build, and the network
launched a few days later, on September 27, 2011. On
November 18, 2011, Transit asked Fiber-Span for a status
update and schedule for the “production version” Nodes.
Fiber-Span stated that a schedule would be developed “at the
time of new order placement” with replacement of the pilot
Nodes to begin “along with Full Build Deliveries.” (J.A. at
78.)
In January 2012, the parties reached an impasse. Transit
sent a letter insisting that Fiber-Span replace the Initial Build
Nodes and provide a committed delivery date. For its part,
Fiber-Span reiterated its offer to upgrade those Nodes “upon
receipt of a Production order … for the next round of 30
stations[.]” (J.A. at 79.) Transit threatened Fiber-Span with a
lawsuit for breach of contract, but neither party took direct
action against the other until the middle of that year.
E. Breakdown of Commercial Relations
In mid-2012, Transit entered into a non-exclusive
agreement with another supplier for the next thirty subway
stations. It informed Fiber-Span of its decision during a
July 17, 2012 call. In the call, Fiber-Span claimed that updates
to the retrofitted Nodes were always contingent on it being
awarded the Full Build, but Transit repeated that it would not
commit to a Full Build until the Nodes conformed to the
Purchase Agreement and passed the necessary testing. If it
were not already abundantly clear to Transit, it was now
beyond doubt that Fiber-Span would not replace the Initial
Build Nodes without a contract for the Full Build.
15
Following that call, Fiber-Span continued to repair the
Nodes, provide service, and sell spare parts to Transit, as was
required under the Purchase Agreement. Fiber-Span also
continued to meet with Transit to discuss its role as a potential
supplier for the Full Build. On or about September 28, 2012,
however, it issued an invoice to Transit for the $450,000 IBC,
perhaps as an acknowledgement that it was not selected for the
Full Build. Transit, in response, refused to pay the IBC
because the Nodes did not meet the Purchase Agreement’s
specifications.
The parties failed to achieve a resolution so, by July 23,
2013, Fiber-Span stopped servicing, repairing, or selling spare
parts to Transit. Fiber-Span also ceased all communications
with Transit. On September 4, 2013, Transit sent Fiber-Span
a formal notice declaring Fiber-Span in breach of the Purchase
Agreement. Two days later, Transit sent Fiber-Span’s surety
provider, Allegheny, notice that it was demanding payment on
the Bond. That was its first attempt to contact Allegheny “in
the 29-month period between delivery and declaration of
default[.]” (J.A. at 45.) Allegheny refused to pay. And,
despite sending those notices, Transit continued utilizing the
Nodes through May 2014 – more than three years after delivery.
F. The Lawsuit
Transit sued Fiber-Span and Allegheny in New York
Supreme Court in March 2015. Its complaint asserted breach
of contract and four other state-law claims against Fiber-Span,
and a claim for breach of the Bond obligations against
Allegheny. In September 2016, however, Fiber-Span filed a
Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for
the District of New Jersey. The next day, the Bankruptcy Court
16
appointed a Chapter 7 trustee for the Fiber-Span estate. 8
Shortly thereafter, Allegheny removed Transit’s lawsuit to the
Southern District of New York and requested that the case be
transferred to the District of New Jersey. Despite Transit’s
efforts to remand the case back to state court, the New York
federal court granted Allegheny’s motion to transfer venue to
the New Jersey District Court, which, in turn, referred the case
to the Bankruptcy Court.
The Bankruptcy Court held a three-day bench trial in
November 2018. At the trial’s conclusion, the Bankruptcy
Court held that Transit had accepted the Nodes through its
continued retention and use of them. Still, it found that Fiber-
Span had breached the Purchase Agreement’s “Warranty,
[and] Repair and Support” Provisions and was thus responsible
for $1,283,606 in damages, being the total amount paid,
$643,606, plus $640,000 in costs that Transit incurred when
installing the Initial Build.9 And, because Fiber-Span was in
breach, the Bankruptcy Court held that it was also not entitled
to the $450,000 IBC payment. Finally, it ruled that Allegheny
was not liable to Transit on the Bond, given the expiration of
the Bond’s two-year limitations period.
8
Although Fiber-Span’s estate is administered by the
Chapter 7 trustee, we refer to the Appellant as Fiber-Span for
simplicity.
9
Because Transit only submitted evidence of damages
arising under the Warranty Provision, the Bankruptcy Court
limited damages to that provision.
17
Transit and Fiber-Span both timely appealed to the
District Court. Transit contended that Allegheny was liable on
the Bond, while Fiber-Span argued that it was not liable for
$1,283,606 in damages and was entitled to the $450,000 IBC.
The District Court affirmed the Bankruptcy Court’s
decision in part and reversed in part. It agreed that Fiber-Span
breached the Purchase Agreement by supplying non-
conforming Nodes but, contrary to the Bankruptcy Court,
determined that Transit had rejected those Nodes, entitling
Transit to $643,606 in rejection damages (i.e., the amount paid).
The District Court’s award excluded the $640,000 in
installation costs, which it treated as non-recoverable
incidental damages. Because it agreed with the Bankruptcy
Court’s finding of breach, it also agreed that Fiber-Span was
not entitled to the IBC payment. Finally, it held that recovery
on the Bond was not time-barred, and it ordered remand with
instructions to enter judgment against Allegheny.
Fiber-Span and Allegheny both appealed from the
District Court’s order, and Transit cross-appealed.
II. DISCUSSION10
Because the parties agreed to resolve their disputes
under New York law, we apply Article 2 of the New York
10
The Bankruptcy Court had jurisdiction under 28
U.S.C. § 157(b). The District Court had jurisdiction to review
the appeal under 28 U.S.C. § 158(a), and we have jurisdiction
to review the District Court’s final decision pursuant to 28
U.S.C. § 158(d)(1). In doing so, we “stand in the shoes of the
18
Uniform Commercial Code (“N.Y. U.C.C.”). See Sears,
Roebuck & Co. v. Galloway, 600 N.Y.S.2d 773, 775 (App. Div.
1993) (holding that agreements for the “sale and delivery of
goods” are governed by U.C.C. Article 2). Turning first to the
question of acceptance, we conclude that Transit indeed
accepted the non-conforming Nodes and did not revoke that
acceptance. Any other outcome would be inconsistent with
Transit’s years of use and profit. Next, because the Nodes did
not conform to the Purchase Agreement, Transit does not owe
Fiber-Span the IBC sum, even though Transit selected a
different supplier for the Full Build. Moreover, Transit is
entitled to damages for breach of the Warranty Provision, but
for something less than either the Bankruptcy Court or the
District Court awarded. Finally, Allegheny has no
responsibility under the Bond because Transit’s suit is time-
barred.
A. The Non-Conforming Nodes Were Accepted
by Transit
Fiber-Span argues that Transit accepted the non-
conforming Nodes and therefore was not entitled to rejection
damages. We agree. Transit accepted the Nodes three months
after delivery, at Milestone 7, and did not revoke its acceptance
at any point after that.
District Court and … review the Bankruptcy Court’s legal
conclusions de novo and its factual findings for clear error.” In
re Glob. Indus. Techs., Inc., 645 F.3d 201, 209 (3d Cir. 2011)
(en banc) (citation and internal quotation marks omitted).
19
The Bankruptcy Court seemed to suggest that the Nodes
were rejected and then accepted, but it also wrote that the
Nodes existed in a “limbo-like state between rejection and
acceptance[.]” (J.A. at 44.) The District Court understood the
Bankruptcy Court to be finding the Nodes were rejected, and
the District Court then supported that interpretation with
independent factfinding. But, as detailed later, the District
Court was exercising appellate review over the Bankruptcy
Court’s finding of fact and so was obligated to accept those
findings unless they were clearly erroneous. In re Old Summit
Mfg., LLC, 523 F.3d 134, 137 (3d Cir. 2008). That is our role
as well. In re Glob. Indus. Techs., Inc., 645 F.3d 201, 209 (3d
Cir. 2011) (en banc). And because the best reading of the
Bankruptcy Court’s decision is that it found the Nodes were
ultimately accepted, we will reinstate that finding, with the
caveat that such acceptance occurred on July 18, 2011, three
months after delivery of the Nodes.
Under New York law, whether there has been
acceptance or rejection of goods that do not conform to the
contract’s requirements are questions of fact. See, e.g.,
Sherkate Sahami Khass Rapol v. Henry R. Jahn & Son, Inc.,
701 F.2d 1049, 1051-52 (2d Cir. 1983) (applying New York
law); ICS/Executone Telecom, Inc. v. Performance Parts
Warehouse, Inc., 569 N.Y.S.2d 42, 43 (App. Div. 1991)
(treating acceptance and rejection as questions of fact). A
buyer accepts goods if, after a reasonable opportunity to
inspect them, he “signifies to the seller that the goods are
conforming or that he will take or retain them in spite of their
non-conformity[.]” N.Y. U.C.C. § 2-606(1)(a). Goods are also
accepted if the buyer fails to make an effective rejection or
“does any act inconsistent with the seller’s ownership[,]” id.§ 2-606(1)(b)-(c), including making “continued use of the
20
goods[,]” Hooper Handling, Inc. v. Jonmark Corp., 701
N.Y.S.2d 577, 578 (App. Div. 1999); accord V. Zappala & Co.
v. Pyramid Co. of Glens Falls, 439 N.Y.S.2d 765, 767 (App.
Div. 1981) (“[B]y using the nonconforming blocks in the walls
of its shopping mall, Pyramid accepted them[.]”).
To make an effective rejection, the buyer must reject the
goods “within a reasonable time after their delivery” and
“seasonably notif[y] the seller.” N.Y. U.C.C. § 2-602(1). To
do so, the buyer must “unequivocally communicate his intent
to the seller.” Ask Techs., Inc. v. Cablescope, Inc., 2003 WL
22400201, at *3 (S.D.N.Y. Oct. 20, 2003) (citing Sears,
Roebuck & Co., 600 N.Y.S.2d at 775). A buyer’s “repeated
complaints and requests for service” are insufficient to reject
(or revoke acceptance), though they may be “sufficient to
preserve [the buyer’s] right to sue for damages[.]” Cliffstar
Corp. v. Elmar Indus., Inc., 678 N.Y.S.2d 222, 223 (App. Div.
1998); see also Sears, Roebuck & Co., 600 N.Y.S.2d at 775(“[M]ere complaint about the goods does not constitute a clear
and unequivocal act of rejection[.]” (citation and internal
quotation marks omitted)).
After a buyer accepts non-conforming goods, it may
still revoke acceptance if the goods’ non-conformity
“substantially impairs [their] value[.]” N.Y. U.C.C. § 2-608(1).
Such revocation is possible if the goods were accepted “on the
reasonable assumption that [the goods’] non-conformity would
be cured” but such cure does not “seasonably” occur. Id. § 2-
608(1)(a). Even so, revocation must occur “within a
reasonable time after the buyer discovers or should have
discovered” the non-conformity and “before any substantial
change in condition of the goods which is not caused by their
own defects.” Id. § 2-608(2). “Revocation of acceptance is
21
untimely and unreasonable when a buyer continues to use
goods purchased from a seller and treats them in a manner
inconsistent with revocation after it becomes clear that the
deficiencies in the goods cannot be cured to the buyer’s
satisfaction.” Maciel v. BMW of N. Am., LLC, 2021 WL
983013, at *11 (E.D.N.Y. Feb. 22, 2021) (citation and internal
quotation marks omitted). If acceptance is properly revoked,
the buyer has the same rights and responsibilities as if he had
rejected the goods. N.Y. U.C.C. § 2-608(3).
The Bankruptcy Court found that Transit knew of the
Nodes’ non-conformity at the time of delivery, and that any
post-installment discovery of additional non-conformities
“occurred within three months of delivery[,]” when final
payment became due under Milestone 7. (J.A. at 90.) Transit
nevertheless accepted the Nodes “at latest [on] July 23, 2012,”
because by that point, the Bankruptcy Court said, Transit knew
that Fiber-Span was no longer seeking an opportunity to cure.
(J.A. at 92.) In coming to that conclusion, the Court relied on
N.Y. U.C.C. § 2-508 which affords a seller the opportunity to
cure non-conforming goods if the buyer rejects them. Because
the Nodes were not rejected, however, that statute is
inapplicable.
On appeal, the District Court interpreted the Bankruptcy
Court as holding that the Nodes were rejected within a
reasonable time after their delivery. It then made its own
finding that the Nodes were not later accepted, because
“Transit’s use of the rejected [Nodes] after July 23, 2012 was
reasonable.” (J.A. at 32.) It thus awarded Transit $643,606 in
rejection damages – the full amount Transit paid. The District
Court did, however, exclude installation costs incurred by
Transit during the Initial Build. It held that the installation
22
costs were incidental pursuant to N.Y. U.C.C. § 2-715(1) and,
under the Purchase Agreement, were not recoverable.
Fiber-Span argues that the District Court misinterpreted
the Bankruptcy Court as finding that Transit rejected – and did
not later accept – the Nodes. And, says Fiber-Span, to the
extent the Bankruptcy Court did find the Nodes were rejected,
that was clearly erroneous because Transit was aware of the
Nodes’ non-conformity and still possessed, controlled, and
profited from them for nearly three years. Transit, on the other
hand, contends that its post-rejection use was entirely
reasonable because removing the Nodes would have
jeopardized its business and “shut[] down the [n]etwork in the
Initial Build stations for an extended period of time[.]”
(Transit Answer. Br. at 37.) It further asserts that, even if it did
accept the Nodes, it revoked that acceptance when Fiber-Span
did not cure the non-conformity.
We begin with a reminder: When sitting in an appellate
capacity, district courts are obligated to accept a bankruptcy
court’s factual findings unless those findings are clearly
erroneous. See In re Phila. Newspapers, LLC, 599 F.3d 298,
303 (3d Cir. 2010). Findings of fact are not clearly erroneous
unless they are “completely devoid of minimum evidentiary
support displaying some hue of credibility or bear[] no rational
relationship to the supportive evidentiary data.” Kool, Mann,
Coffee & Co. v. Coffey, 300 F.3d 340, 353 (3d Cir. 2002)
(quoting Hoots v. Pennsylvania, 703 F.2d 722, 725 (3d Cir.
1983)). In this complex case, the Bankruptcy Court and
District Court both did admirable work in seeking to
understand the facts. Great care must be exercised, however,
to defer to the fact-finding tribunal, absent clear error, and here
the role of fact-finder belonged to the Bankruptcy Court.
23
The best interpretation of the Bankruptcy Court’s
factfinding is that the Nodes were accepted. Upon delivery and
inspection of the non-conforming Nodes, Transit had three
options: (i) reject them (N.Y. U.C.C. §§ 2-601 to -602) and
allow Fiber-Span to cure (id. § 2-508); (ii) accept them and
later revoke acceptance if Fiber-Span failed to cure (id. §§ 2-
608, -711); or (iii) accept them and seek damages for breach
(id. §§ 2-607, -714). Cliffstar Corp., 678 N.Y.S.2d at 222-23.
The District Court interpreted the Bankruptcy Court as finding
that Transit pursued the first option, based on its citation to N.Y.
U.C.C. § 2-508, but the record is inconsistent with that view.
The Bankruptcy Court said, “[b]ecause Transit had knowledge
that Fiber-Span was no longer seeking to cure … [i]ts failure
to effectively reject after that point, along with its continued
possession and use of the goods in a manner inconsistent with
Fiber-Span’s ownership, constitute acceptance of the goods.”
(J.A. at 92.) In short, Transit accepted the Nodes three months
after delivery, giving it revocation rights if Fiber-Span did not
cure the non-conformity. But because Transit failed to revoke
acceptance even after it became clear that Fiber-Span would
not cure, it lost the ability to do so and was left to seek damages
for breaches of warranty and contract.
The record amply supports the Bankruptcy Court’s
finding of acceptance. Transit received delivery of the Nodes
knowing that they did not conform with the Purchase
Agreement’s specifications. And although it repeatedly asked
Fiber-Span to replace the non-conforming Nodes, it acted
inconsistently with Fiber-Span’s ownership by installing the
Nodes, paying for a portion of the final invoice under
Milestone 7 three months later, and continuing to use the
Nodes for close to three years thereafter. See Seabury Constr.
24
Corp. v. Jeffrey Chain Corp., 2000 WL 1170109, at *2
(S.D.N.Y. Aug. 17, 2000) (“Goods that a buyer has in its
possession necessarily are accepted or rejected by the time a
‘reasonable opportunity’ for inspecting them passes.” (quoting
N.Y. U.C.C. § 2-606(1))). That acceptance is further
evidenced by Transit’s taking the network live after telling its
licensor, the MTA/NYCTA, that it had “satisfactor[il]y
completed its construction of the Initial Build[.]” (J.A. at 813.)
Regarding the timing of that acceptance, Transit must
first have been afforded a “reasonable opportunity to inspect
the” Nodes for any non-conformities. N.Y. U.C.C. § 2-606.
The Bankruptcy Court did not err in finding that the date when
that period expired is July 18, 2011, because, “[t]o the extent
that Transit learned of additional non-conformities after
installation of the goods, that knowledge occurred within three
months of delivery[,]” when payment on the final milestone
fell due. (J.A. at 90.) The “degree of inspection” is a factual
question that we will not reconsider absent clear error, Telit
Wireless Sols., Inc. v. Axesstel, Inc., 2016 WL 1587246, at *7
(S.D.N.Y. Apr. 18, 2016), and here we have no reason to
question the Bankruptcy Court’s conclusion.
We recognize, of course, that under N.Y. U.C.C. § 2-
608, Transit could still have revoked its acceptance if Fiber-
Span failed to seasonably cure. But Transit never did so. It
continued using and benefiting from the Nodes long after it
became clear that Fiber-Span would not replace or adequately
repair them. Transit’s conduct is thus inconsistent with
revocation. In Computerized Radiological Services v. Syntex
Corp., 786 F.2d 72, 75 (2d Cir. 1986), for instance, the Second
Circuit, applying the California U.C.C., determined that the
buyer’s “continued … use [of] the [good] for some 22 months
25
after the letter of revocation” was “inconsistent with the
seller’s ownership [of that good] and may be found to
constitute an acceptance.” It held the buyer’s use to be far
longer than reasonably necessary to find a replacement. Id.Similarly, the Second Circuit has applied the N.Y. U.C.C. to
hold that a buyer could not revoke acceptance when it
“exercised control over [certain machines] for more than three
years, obtained benefits from their use, and never even asked
[the defendant-seller] to take them back.” Sobiech v. Int’l
Staple & Mach. Co., 867 F.2d 778, 781 (2d Cir. 1989). Those
cases describe Transit’s conduct precisely.
In sum, Transit accepted the non-conforming goods and
did not revoke that acceptance. It must therefore rely on its
evidence of damages for breach of the Warranty Provision to
obtain relief. That is the subject to which we turn next.
B. Fiber-Span Breached the Purchase
Agreement, Entitling Transit to Damages.
Fiber-Span argues that the Nodes “fully conformed”
with the specifications in the Purchase Agreement (Fiber-Span
Op. Br. at 47), but, it says, if breach is found, Transit should be
limited to damages under the Agreement’s Warranty Provision.
The argument is half right. The Bankruptcy Court did not
clearly err in finding that Fiber-Span breached the Purchase
Agreement by failing to deliver conforming goods. With
respect to damages, however, we agree with Fiber-Span that
Transit’s damages are controlled by the Warranty Provision
and must be recalculated to reflect the difference in value
between the Nodes as promised and the Nodes as delivered.
Contrary to the Bankruptcy Court’s award, that sum excludes
initial installation costs.
26
1. Breach of Contract
Breach of contract, like acceptance and rejection, is a
question of fact. United States ex rel. N. Maltese & Sons, Inc.
v. Juno Constr. Corp., 759 F.2d 253, 255 (2d Cir. 1985)
(applying New York law). When a buyer accepts non-
conforming goods, that acceptance does not prevent it from
recovering damages for a breach. See N.Y. U.C.C. §§ 2-
607(2), 2-714(1). The calculation of those damages is also a
question of fact. Vt. Microsystems, Inc. v. Autodesk, Inc., 138
F.3d 449, 452 (2d Cir. 1998). Whether the right formula was
used for that calculation, however, is a question of law. Id. For
a buyer to preserve its right to damages, it must notify the seller
of any breach within a reasonable time after discovery. N.Y.
U.C.C. § 2-607(3).
The Bankruptcy Court determined the Nodes to be non-
conforming because of their excessive power consumption and,
consequently, their heightened external surface temperature. It
also found that Fiber-Span’s retrofitting efforts brought the
Nodes further out of compliance by violating the Purchase
Agreement’s IP66 ingress rating, which required the Nodes be
impervious to “dust” and “powerful water jets.” (J.A. at 75-
76.) And although Transit continued making payments under
the Milestones, the Bankruptcy Court concluded that its doing
so “did not waive any rights to a compliant product,” since
those payments were “a business decision to move the process
along, with the belief that the issue would be resolved.” (J.A.
at 71.) Thus, the Bankruptcy Court found Fiber-Span in breach
of the Warranty Provision. It also found that Fiber-Span
breached the Repair and Support Provisions because it stopped
27
servicing, repairing, or selling spare parts to Transit after July
2013.
Based on its findings of breach, the Bankruptcy Court
awarded Transit $1,283,606 in restitution damages, which
included the amount paid on the contract as well as the
$640,000 in installation costs paid by Transit to a third party to
install the Initial Build. Although the District Court agreed
with the Bankruptcy Court’s findings of noncompliance and
breach, it excluded the installation costs as “incidental” under
N.Y. U.C.C. § 2-715(1), in accordance with the Purchase
Agreement.11
Fiber-Span now argues that Transit waived its ability to
object to the Nodes as non-conforming because it did not
challenge the maximum power specification at testing and,
therefore, may not assert breach. The Nodes consumed close
to 500 watts, well above the specifications’ maximum power
11
N.Y. U.C.C. § 2-715 defines incidental damages as
those “resulting from the seller’s breach includ[ing] expenses
reasonably incurred in inspection, receipt, transportation and
care and custody of goods rightfully rejected, any
commercially reasonable charges, expenses or commissions in
connection with effecting cover and any other reasonable
expense incident to the delay or other breach.” Fiber-Span and
Transit agreed that neither party would be responsible for the
other’s incidental damages. They also agreed that, for roughly
two years, Fiber-Span would be responsible for any “de-
installation and re-installation charges” associated with the
removal and replacement of non-conforming equipment. (J.A.
at 57, 406.)
28
limit of 395 watts. That fact is undisputed. The issue of waiver
turns on whether Transit “evince[d] an intent not to claim” the
benefit of the lower power consumption requirement. Gen.
Motors Acceptance Corp. v Clifton-Fine Cent. Sch. Dist., 647
N.E.2d 1329, 1331 (N.Y. 1995). The record on this point is
not entirely clear, as Transit took inconsistent positions about
whether the Nodes were satisfactory or whether it was
concerned about the excessive power consumption and
overheating. 12 Nevertheless, the Bankruptcy Court did not
12
Compare J.A. at 490 (Transit informing Fiber-Span
that it considered that it considered the Nodes to be “outside
the contractual specification[,]” citing power consumption and
external heat concerns), J.A. at 498 (Transit warning Fiber-
Span that the Nodes presented “a clear case for breach of
contract”), J.A. at 500 (Transit stating that it had “no
confidence” that the Nodes were a “stable product”), J.A. at
502 (Transit requesting that Fiber-Span commit to when the
delivered Nodes would be replaced and retested), and J.A. at
744 (Transit raising again the Nodes’ surface temperature as an
issue), with J.A. at 751 (Transit CEO emailing its parent
company that the Nodes passed all “critical interoperability
testing” which was a “key step in the delivery process”), J.A.
at 751 (Transit CEO stating that the Nodes completed
“successful FCC, safety[,] and environmental testing”
allowing for installation), J.A. at 751 (Transit’s CTO stating
the testing of the Nodes was witnessed by the MTA/NYCTA,
who “appeared very satisfied and impressed with the signal
quality”), J.A. at 753 (Transit’s CEO, again, confirming that
Fiber-Span passed the necessary testing, including FCC and
Underwriters Laboratories testing, and received thirty party
certification), and J.A. at 813 (Transit submitting a request to
29
clearly err in finding that Transit did not intend to waive its
right to the agreed-upon power consumption limit. See
Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset
Mgmt., L.P., 850 N.E.2d 653, 658 (N.Y. 2006) (“Generally, the
existence of an intent to forgo … a [contractual] right is a
question of fact.”). The Bankruptcy Court thoroughly
considered all communications on the subject, and its finding
is consistent with the record.
So too is the finding that the Nodes, once retrofitted, did
not comply with the Purchase Agreement’s ingress protection
rating specification. Fiber-Span argues, however, that because
Transit expressly permitted it to retrofit the Nodes with fans to
address surface temperature issues, it also waived the issue.
But the Bankruptcy Court did not clearly err in finding that
“there was no approval of the retrofit as a permanent solution[.]”
(J.A. at 72.) Transit repeatedly made requests for a permanent
solution, indicating that it viewed the retrofit as a temporary
solution. Again, “waiver ‘should not be lightly presumed’ and
must be based on ‘a clear manifestation of intent’ to relinquish
a contractual protection.” Fundamental Portfolio Advisors,
Inc., 850 N.E.2d at 658 (quoting Gilbert Frank Corp. v Fed.
Ins. Co., 520 N.E.2d 512, 514 (N.Y. 1988)). There was here
no such clearly manifested intent.
In short, the Bankruptcy Court did not err in in any
meaningful way in finding that Fiber-Span violated the
Warranty Provision and the Repair and Support Provision of
the MTA/NYCTA for approval of the network, stating that it
has “satisfactor[il]y completed its construction of the Initial
Build”).)
30
the Purchase Agreement by supplying non-conforming Nodes
and eventually “refus[ing] to provide service, repair, or …
spare parts” for them. (J.A. at 83.) Transit chose, however, to
submit evidence of damages only with respect to the Warranty
Provision. So, we agree with the Bankruptcy Court that a
proper damages analysis is reserved to that provision.
2. Damages for Breach
Fiber-Span argues Transit’s damages are measured by
calculating the “difference … between the value of the goods
accepted and the value they would have had if they had been
[as] warranted.” (Fiber-Span Op. Br. at 36 (quoting N.Y.
U.C.C. § 2-714).) And, it says, because Transit’s only
evidence of damages are invoices totaling $66,687, an amount
Transit had already deducted from its final invoice, no
additional damages should be awarded. In response, Transit
argues that the Bankruptcy Court rightly concluded that Fiber-
Span breached the Purchase Agreement, and so damages of
$1,283,606 were properly awarded for the full purchase price
plus initial installation. We conclude that the Bankruptcy
Court erred by calculating damages as the full purchase price
of the Initial Build and its installation. Transit is only entitled
to the difference in value as defined by N.Y. U.C.C. § 2-714.
Under the Warranty Provision, through which damages
to Transit must flow, the first choice of relief is framed as
follows: “Materials not meeting the warranties will be
replaced, repaired and/or re-performed as applicable,” by
Fiber-Span. (J.A. at 406.) If that non-monetary path had been
followed by Fiber-Span, the company may have been on the
hook for de-installing and re-installing the repaired or replaced
Nodes. But Fiber-Span did not choose that path, so we turn to
31
the backup relief contemplated by the Warranty Provision,
which provides that, “[i]f [Fiber-Span] is unable to repair,
replace, or re-perform, [Fiber-Span] shall refund all costs
incurred by [Transit] associated with warranty.” (J.A. at
406.) The operative language is “all costs incurred by [Transit]
associated with warranty[,]” and the question is how to define
those costs.
Certain cases recognize the availability of a full refund
of the purchase price of goods under N.Y. U.C.C. § 2-719. In
those instances, however, the contract at-issue explicitly
provided for a refund of the purchase price. See, e.g., President
Container Grp. II, LLC v. Systec Corp., 467 F. Supp. 3d 158,
168 (S.D.N.Y. 2020) (“The warranty provision provides that
[the seller’s] ‘liability in connection with this transaction is
expressly limited to the repair or replacement … or refund of
purchase price.’”); APS Tech., Inc. v. Brant Oilfield Mgmt. &
Sales, Inc., 2015 WL 5707161, at *1 (S.D.N.Y. Sept. 29, 2015)
(“The [purchase agreement] contained a one-year limited
warranty …, disclaimed all other warranties, and limited [the
seller’s] remedies to repair, replacement or refund of the
purchase price of the equipment.”). That is not what the parties
agreed to here. The Bankruptcy Court in effect read the phrase
“refund of purchase price” into the Purchase Agreement.
In our view, the operative language is at least
ambiguous. See Eternity Glob. Master Fund Ltd. v. Morgan
Guar. Tr. Co. of N.Y., 375 F.3d 168, 173 (2d Cir. 2004)
(contract terms are ambiguous if they “could suggest more than
one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire
integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood in
32
the particular trade or business” (citation and internal quotation
marks omitted)). Consequently, it is permissible to look to the
default damages provision set out in N.Y. U.C.C. § 2-714,
which states that “[t]he measure of damages for breach of
warranty is the difference at the time and place of acceptance
between the value of the goods accepted and the value they
would have had if they had been as warranted.” That
conclusion is supported by the circumstances as they
developed. Transit accepted the goods (albeit under protest),
proclaimed their satisfactory quality to the MTA/NYCTA,
insisted on and received modifications to them, and then used
them for several years before replacing them. Interpreting the
words “refund all costs incurred by [Transit] associated with
warranty” to mean that Transit was free to use the goods, which
proved serviceable for longer than the period of the warranty,
and then pay nothing – because of a full refund – is at odds
with the “overriding goal of UCC remedies[.]” United States
for Use & Benefit Saunders Concrete Co., Inc. v. Tri-States
Design Const. Co., Inc., 899 F. Supp. 916, 923 (N.D.N.Y.
1995) (citation omitted). That goal is “to put the wronged party
in as good a position as it would have been if the other party
had fully performed.” Id. The result Transit wants, by
contrast, is to be put in a far better position than it would have
been absent the breach.
Accordingly, the Bankruptcy Court should have
calculated the difference in value between the non-conforming
Nodes and the contracted-for Nodes, rather than awarding a
full refund.13 The only evidence of such damages apparent to
13
Although it is likely now apparent, we also hold that
Transit is not entitled to the initial installation costs. The
33
us from the appellate record is the $66,687 that Transit
withheld after submitting a final installment on the Milestone
7 invoice. Still, on remand, Transit should have the
opportunity to highlight for the Bankruptcy Court any other
evidence of the difference in value, should such evidence exist
in the trial record.
C. Fiber-Span Is Not Entitled to the IBC.
Fiber-Span argues that payment of the IBC was not
subject to conditions precedent and, even if it was, those
conditions were “excused by the doctrines of waiver, estoppel
Warranty Provision does not contemplate the Bankruptcy
Court’s award of the $640,000 that Transit paid to install the
Initial Build. Indeed, the record gives us every reason to
believe that the parties bargained for Transit to bear the initial
installation costs even if Fiber-Span breached the Warranty
Provision. According to the Purchase Agreement, “[n]either
party [would] be liable for any incidental, indirect, or
consequential damages arising out of the breach of any
provisions[.]” (J.A. at 419.) Instead, the parties merely
contemplated that Fiber-Span would be responsible for
deinstalling and reinstalling the Nodes, should it opt for a non-
monetary remedy under the Warranty Provision. The District
Court appropriately interpreted that limitation as preventing
recovery of initial installation damages. See AT&T Co. v.
N.Y.C. Hum. Res. Admin., 833 F. Supp. 962, 983 (S.D.N.Y.
1993) (“The installation services that [the party] undertook as
part of the contract were merely incidental to the sale of the
[goods.]”).
34
or disproportionate forfeiture.”14 (Fiber-Span Op. Br. at 41.)
To the contrary, though, there were conditions precedent, and
Fiber-Span failed to satisfy them, a failure not excused under
any of the aforementioned doctrines.
The Purchase Agreement contemplated the payment of
the $450,000 IBC to Fiber-Span, should it not be selected for
the Full Build. The intent was for Fiber-Span to “recoup a
portion of the [research, development, and engineering] costs
it incurred based on its expectation of supplying the entire
[n]etwork.” (J.A. at 54.) The IBC, however, was made
“contingent upon the occurrence of all the following
conditions”: (1) that the Nodes “meet all obligations in this
[Purchase] Agreement, including, but not limited to, the
Specifications,” (2) that the Nodes be accepted, and (3) that
Fiber-Span not be in default. (J.A. at 397.)
Under New York law, a condition precedent is defined
as “an act or event, other than a passage of time, which, unless
the condition is excused, must occur before a duty to perform
a promise in the agreement arises.” Oppenheimer & Co. v.
Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415 (N.Y. 1995).
When drafting, “[p]arties often use language such as ‘if,’ ‘on
condition that,’ ‘provided that,’ ‘in the event that,’ and ‘subject
to’ to make an event a condition[.]” Ginett v. Computer Task
14
Fiber-Span also argues that, assuming the IBC was
subject to conditions precedent, those conditions were fully
satisfied because the equipment “fully conformed” with the
Purchase Agreement’s specifications. (Fiber-Span Op. Br. at
47.) We have already rejected that contention and need not
address it further.
35
Grp., Inc., 962 F.2d 1085, 1100 (2d Cir. 1992). Recognition
of a condition precedent is disfavored if the contract language
is ambiguous. Ashkenazi v. Kent S. Assocs., LLC, 857
N.Y.S.2d 693 (App. Div. 2008).
The Bankruptcy Court concluded that the three
requirements were indeed conditions precedent to the IBC
because they “were not disjunctive” and “were required to
trigger [Transit’s IBC] liability under the [Purchase]
Agreement.” (J.A. at 84.) It therefore held that the Nodes’
non-conformity “alone preclude[d] any liability from Transit
to Fiber-Span” under the IBC. (J.A. at 84.) It also rejected
Fiber-Span’s contention that Transit waived its objections to
paying the IBC or was the beneficiary of a disproportionate
forfeiture. The District Court agreed, and so do we.
Fiber-Span argues that the condition requiring it to
“meet all obligations in this Agreement” (J.A. at 397) is
ambiguous. Not so: Fiber-Span had to comply with every
specification of the Purchase Agreement or it would not be
entitled to the IBC. (See J.A. at 397 (“Any such liability from
Company to Supplier is contingent upon occurrence of all the
following conditions[.]”).) But, says Fiber-Span, certain
specifications in the Purchase Agreement differ from those in
the License. The Bankruptcy Court acknowledged that and
rightly concluded that the Purchase Agreement still makes
clear that, in the event of such divergence, the stricter
requirement controls.
In a last-ditch effort to avoid the consequences of its
own default, Fiber-Span calls upon a handful of doctrines –
waiver, estoppel, breach, and forfeiture – to excuse the
conditions precedent. Despite the various labels, the argument
36
boils down to two points: Transit waived the conditions
precedent by accepting the goods, and enforcement thereof
would disproportionately affect Fiber-Span. Neither point is
persuasive. First, acceptance of non-conforming goods does
not amount to a waiver of a condition requiring the seller to
comply with contract specifications. See Fundamental
Portfolio Advisors, Inc., 850 N.E.2d at 658 (contractual rights
are waived when “they are knowingly, voluntarily and
intentionally abandoned”). Second, enforcing the conditions
precedent does not result in a forfeiture at all, let alone a
disproportionate one. Forfeiture is “the denial of compensation
that results when the obligee loses [its] right to the agreed
exchange after [it] has relied substantially, as by preparation or
performance[,] on the expectation of that exchange[.]”
Oppenheimer, 660 N.E.2d at 419 n.2. Here, the parties
explicitly contemplated Fiber-Span’s financial risk and
provided that the IBC would only mitigate such risk if Fiber-
Span satisfied certain conditions. It did not do so, and that is an
end to the matter.
D. Transit’s Suit Against Allegheny Casualty Is
Time-Barred
Allegheny argues that it is not liable on the Bond
because Transit’s lawsuit against it was time-barred. That’s
how we see it as well. Final payment fell due on July 18, 2011,
commencing the two-year limitations period under the Bond,
and Transit did not bring suit until March 31, 2015.
Allegheny, as surety provider, executed the Bond on
behalf of Fiber-Span and in favor of Transit for $704,382 – the
amount of the original Purchase Order. Typically, under New
York’s statute of limitations, actions on a contract accrue on
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and are to be commenced within six years of the date of breach.
N.Y. C.P.L.R. § 213. Here, however, the parties negotiated a
shorter time period, providing that “[a]ny suit under this bond
must be instituted before the expiration of two (2) years from
the date on which final payment under the Contract falls due.”
(J.A. at 462.) They were free to do that. See Sidik v. Royal
Sovereign Int’l Inc., 348 F. Supp. 3d 206, 213 (E.D.N.Y. 2018)
(“Under New York State law, parties to a contract may agree
to shorten the applicable statutory limitations period.”). Under
Milestone 7, final payment was due upon “successful
commissioning and [having the Nodes] ready for commercial
service or 3 months after delivery of [the Nodes] to [Transit,]
whichever is the earlier.” (J.A. at 398.) Delivery occurred on
April 18, 2011, and three months from then was July 18, 2011.
Commissioning, i.e., when the network went live, occurred
later, on September 27, 2011, so the limitations period started
accruing on July 18, 2011.
The Bankruptcy Court said that a “strict reading” of the
Purchase Agreement would support a finding that final
payment fell due on either July 18, 2011, or September 27,
2011. Nevertheless, it employed a “liberal interpretation of the
[Purchase] Agreement, in an attempt to reach a reasonable and
fair conclusion[,]” and it found that final payment became due
on the date of Transit’s acceptance of the Nodes, which it said
was no later than July 23, 2012. (J.A. at 69.) Because Transit
did not institute a suit until March 31, 2015, more than two
years later, the Bankruptcy Court held that Transit’s suit was
time-barred.
The District Court, like the Bankruptcy Court, looked to
the date of acceptance instead of delivery. It, however, decided
that the suit was not time-barred because Transit rejected the
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non-conforming Nodes, so final payment never fell due.
Allegheny, of course, challenges that conclusion. It asserts that
the “limitations period by its express, unambiguous terms[]
was not conditioned upon anything other than Fiber-Span’s
delivery of the [Nodes] or the successful commissioning
thereof” and that “unambiguous contracts [must] be read
according to their ordinary meaning.” (Allegheny Op. Br. at
28 (citing White v. Cont’l Cas. Co., 878 N.E.2d 1019, 1021
(N.Y. 2007)).) That is correct.
As an initial matter, “acceptance” and “delivery” are
independent concepts, and, pursuant to the Purchase
Agreement, Transit’s payment obligation arose upon delivery,
not acceptance. Even if Transit had rejected the Nodes,
“[t]ender of delivery is not defeated … by the buyer’s refusal
to accept the goods offered by the seller.” Rouse v. Elliot
Stevens, Ltd., 2016 WL 8674688, at *3 (S.D.N.Y. June 24,
2016) (citing Uchitel v. F.R. Tripler & Co., 434 N.Y.S.2d 77,
79 (App. Div. 1980)). And while the Purchase Agreement fails
to define what is required for the Nodes to be deemed
“delivered[,]” courts applying N.Y. U.C.C. § 2-503 have found
that the tender of goods, regardless of their conformity,
constitutes delivery and triggers the limitations period. See,
e.g., Long Island Lighting Co. v. Transamerica Delaval, Inc.,
646 F. Supp. 1442, 1455 (S.D.N.Y. 1986) (finding that “even
tender of nonconforming goods is considered delivery” and
holding that contractual four-year statute of limitations period
began to run on the date of delivery); Uchitel, 434 N.Y.S.2d at
79 (“To argue that … accrual does not occur until a proper
tender is made, would be to substitute in place of [the] four
year limitation period a statute of non-limitation and allow the
buyer a perpetuity in which to bring suit.”).
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Because delivery occurred on April 18, 2011, final
payment fell due three months after that, on July 18, 2011, at
which point the Bond’s two-year limitations period began to
run. Such an interpretation is consistent with a commonsense
understanding of what Allegheny would have agreed to: a bond
that lasts two years from a date certain, not two years from the
uncertain moment when Transit might actually choose to
accept the goods. The limitations period thus expired on July
18, 2013. Because Transit did not bring suit until March 31,
2015, its claim is time-barred.
III. CONCLUSION
For the forgoing reasons, we will vacate in part and
affirm in part and remand to the District Court with instructions
to, in turn, remand to the Bankruptcy Court for further
proceedings consistent with this opinion.
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