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Decided:  March 6, 2014 

The Fourth Circuit Court of Appeals affirmed the district court’s award of summary judgment to defendant Verizon Maryland, LLC (“Verizon”) on claims pursued by plaintiff Core Communications, Inc. (“Core”) for concealment and unfair competition. The Fourth Circuit also affirmed the district court’s award of nominal damages of only one dollar to Core on its breach of contract claim.

The Telecommunications Act of 1996 was designed to increase competition in local telephone markets. To that end, the Act required established telephone companies to enter into contracts known as interconnection agreements (in the singular, an “ICA”) with new market entrants seeking to connect with existing markets. Pursuant to the Act, Core, a market entrant, sought an ICA with Verizon, the established phone company in the Baltimore area.  On July 14, 1999, the companies jointly submitted their proposed ICA to the Maryland Public Service Commission (the “PSC”) for approval. On July 27, 1999, while the ICA was pending approval, Core wrote Verizon to request that the proposed interconnection— as to which Core would be a wholesale customer of Verizon— be accomplished by September 10, 1999. At a meeting on August 11, 1999, the companies agreed that Core’s interconnection would occur at Verizon’s “Wire Center” in Baltimore, which is physically connected to Verizon’s central network and houses the needed equipment. However, Verizon estimated that it would take another four to six months before the essential new equipment for Core’s interconnection would be available for use. Hoping to avoid those months of delay, Core suggested that instead of installing new equipment, Verizon should utilize the existing equipment already in the Wire Center. Verizon acknowledged that this was technically feasible, but declined to do so. On August 15, 1999, Verizon advised Core that, in any event, the existing equipment were already assigned to a Verizon “customer of record.” Only later did Verizon disclose that the “customer of record” was Core itself, already a Verizon retail consumer in a separate context. The existing equipment was never used for the Core interconnection, and Verizon installed the new equipment in late November 1999. The Core interconnection was consummated on December 23, 1999.

On appeal, Core argued that the district court erred in: (1) allowing Verizon to invoke the ICA’s Exculpatory Clause, and then by enforcing the Clause as a bar to Core’s recovery of consequential damages; (2) awarding summary judgment to Verizon on Core’s concealment and unfair competition tort claims; and (3) ruling that Core was entitled to only nominal damages on its breach of contract claim.

First, the Fourth Circuit assessed the timeliness and application of the Exculpatory Clause. Core advanced two arguments: first, that Verizon failed to timely invoke the Clause; and second, that the Clause was void under principles of Maryland contract law. The Fourth Circuit noted that, in analyzing a party’s failure to timely invoke an exculpatory provision, it has recognized an exception to Rule 8(c) where, as here, the pertinent provision was “evident” in the contract before the trial court. Furthermore, the district court properly observed that Core was neither unfairly surprised nor unduly prejudiced by Verizon’s delay in invoking the Exculpatory Clause. Thus, the Clause was timely and appropriately invoked. Then, Core contended that the Exculpatory Clause nonetheless could not be enforced because Maryland law bars the use of “exculpatory agreements in transactions affecting the public interest.” However, because the Clause is enforceable under federal law, state law principles cannot, at this stage, void a provision of an ICA already approved by the appropriate State commission. The proper time for Core to object on the asserted basis of Maryland’s public policy was prior to PSC’s approval of the Core ICA.

Second, the Fourth Circuit assessed Core’s challenge to the district court’s summary judgment awards with respect to Core’s state law tort claims for concealment and unfair competition. Both claims require proof of intentional fraud or deceit. The Fourth Circuit concluded that no reasonable jury could find that Verizon unlawfully concealed any material fact from Core. Core offered no evidence suggesting that Verizon’s failure to identify Core as the “customer of record” was driven by any intent to defraud or deceive Core.  Mingo, Core’s president, could merely assert that the failure to disclose occurred, and then theorize that Verizon must have done so intentionally in order to improperly delay the Core connection. Moreover, Mingo’s concession that he knew, and did not share, that Core was a retail customer in the Baltimore Wire Center establishes that Core could not have reasonably relied on the intentional concealment it alleges. Core’s unfair competition tort claim failed for the same reason. The Fourth Circuit also stressed its concern that both tort claims amounted to little more than “the assertion of a contract claim in the guise of a tort.” Where the essence of the relationship between the parties is contractual, the plaintiff only has an action for breach of contract, and tort claims are not available.

Third, the Fourth Circuit reviewed the district court’s judgment awarding nominal damages of one dollar to Core for Verizon’s breach of the Core ICA. Core contended that it was entitled to more for three reasons. First, Core argued that it could recover consequential damages because the breach involved “willful or intentional misconduct,” which the Fourth Circuit rejected. The “willful or intentional misconduct” exclusion to the Exculpatory Clause applies exclusively to actions sounding in tort, because an intent to defraud or deceive is ordinarily not an issue in a breach of contract claim. Second, Core argued that the Exculpatory Clause only limits Verizon’s liability for consequential damages in connection with services offered under the ICA, and that the interconnection was not a “service” within the meaning of the Clause. Although “interconnection” is not a “telecommunications service” for purposes of the Act, the parties did not use the term “Telecommunications Service” in the Clause, but instead used the single word “services.” Thus, the parties intended to draw a distinction between a “Telecommunications Service” and mere “services” and the word “service” in the Clause must include the provision of an interconnection at Core’s request. Finally, Core maintained that it was entitled to “performance penalties” under section 27.3 of the Core ICA, which provides for a limited remedy not barred by the Exculpatory clause. However, Core provided no evidence to satisfy the predicate conditions for the performance penalties provided for in section 27.3.

Full Opinion

– Sarah Bishop