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Verizon Advanced Data, Inc. v. Frognet

August 14, 2006

VERIZON ADVANCED DATA, INC., ET AL., PLAINTIFFS,
v.
FROGNET, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Holschuh

Magistrate Judge King

MEMORANDUM OPINION & ORDER

Plaintiffs Verizon Advanced Data, Inc., Verizon Advanced Data-Virginia, Inc., and Verizon Select Services, Inc. (collectively, "Verizon") sued Defendants Frognet, Inc. and Frognet DSL, LLC (together, "Frognet"), seeking to recover money owed for services rendered under two separate contracts. Verizon sought recovery under theories of breach of contract, account, and unjust enrichment. Verizon also brought a claim of defamation. Frognet later asserted counterclaims of breach of contract, intentional interference with business relationships, negligence, and defamation. The Court's jurisdiction is based on diversity of citizenship. See 28 U.S.C. § 1332. This matter is currently before the Court on Frognet's motion to stay the proceedings and to compel arbitration. (Record at 5).

I. Background and Procedural History

This is a case involving two separate contracts, one with an arbitration clause and one without. On June 19, 2001, Verizon Advanced Data, Inc. and Verizon Data-Virginia, Inc. entered into a contract (hereafter "Contract 1") with Frognet, whereby Verizon provided wholesale broadband DSL services to Frognet so that Frognet, in turn, could provide Internet services to individual and commercial consumers. (Compl. at ¶¶ 6, 8, 10; Ex. A to Compl.). Contract 1 contained no arbitration provision.

On March 17, 2003, Verizon Select Services, Inc. and Frognet entered into a second contract ("Contract 2"), which allowed Frognet to obtain the use of a high-speed private line from Verizon. (Compl. at ¶ 9; Ex. B to Compl.). Contract 2 contained a mandatory alternative dispute resolution provision, which reads as follows:

The parties desire to resolve disputes arising out of this Agreement without litigation. Accordingly, . . . the parties agree to follow the ADR procedure set forth herein as their sole remedy with respect to any controversy or claim arising out of or relating to this Agreement or its breach.

Ex. B to Compl. at ¶ 14.

On October 19, 2005, Verizon filed suit against Frognet. According to the Complaint, in 2003, Frognet stopped paying its bills, forcing Verizon to terminate its services to Frognet. Verizon alleges that, as of April 1, 2005, Frognet owes a total of $180,564.06, plus interest, for services rendered under Contract 1 and Contract 2. (Compl. at ¶¶11-14). Verizon seeks recovery under theories of breach of contract, account, and unjust enrichment. Verizon also asserts a claim of defamation, based on allegedly false statements about Verizon contained in an e-mail Frognet sent to Frognet customers. (Ex. D to Compl.).*fn1

Frognet filed a motion to stay litigation and to compel arbitration as required by the mandatory arbitration provision in Contract 2. Verizon filed a response conceding that the claims that arose under Contract 2 are subject to arbitration. Verizon, however, refused to arbitrate the claims that arose under Contract 1. In its reply, Frognet urges the Court to compel arbitration of all claims to avoid piecemeal litigation.

While the motion to compel was still pending, Frognet filed its Answer to Verizon's Complaint, and asserted five counterclaims. The first two counterclaims allege breaches of Contract 1. The third counterclaim alleges that Verizon intentionally interfered with Frognet's business relationships with certain customers when, on May 23, 2003, Verizon cut off services to Frognet's customers in the Dayton area and re-classified those customers as Verizon customers. The fourth counterclaim alleges that Verizon was negligent in investigating billing disputes arising under Contract 1. The fifth counterclaim asserts a claim of defamation based on statements Verizon representatives allegedly made to Frognet customers in June and July of 2003. With leave of Court, Verizon filed a sur-reply, arguing that because the counterclaims arose out of Contract 1, they are not subject to arbitration.

II. Discussion

Since Verizon now concedes that it is required to arbitrate the contract claims arising out of Contract 2, the only remaining question is whether the Court, in the interest of judicial economy, can also compel Verizon to arbitrate the contract claims arising out of Contract 1, ...


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