In re: Fiber-Span Inc, No. 21-1712 (3d Cir. 2022)
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In 2007, Transit was awarded an exclusive license to bring telecommunications services to 277 New York City subway stations. Transit subcontracted with Fiber-Span, to develop remote fiber nodes to amplify telecommunication signals in the first six subway stations to receive service. Fiber-Span agreed to subsidize certain developmental costs, hoping to be selected as the contractor for the remaining 271 subway stations. Transit agreed that, if Fiber-Span was not selected to supply nodes for the remaining stations, Transit would reimburse those front-loaded costs. The relationship deteriorated. Transit asserted that Fiber-Span remained in breach of contract even after attempts to remediate problems but nevertheless took the network live. Transit insisted that Fiber-Span replace the nodes. Fiber-Span said it would do so only after it was awarded a contract for the remaining stations. Transit continued to use the nodes for two more years, then sued in New York state court. Fiber-Span filed for bankruptcy.
The Third Circuit concluded Transit’s decision to keep using the nodes was consistent with the acceptance of non-conforming goods. Fiber-Span breached the contract; the damages must reflect the difference in value between what Transit received and what it was promised, which is less than what the bankruptcy and district courts awarded. Transit was not required to compensate Fiber-Span for not selecting it to provide nodes for the remaining subway stations. Transit’s claim to the payment on Fiber-Span's performance bond is time-barred.
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