• How Immediate is “Prompt” in a Contract? New Delaware Supreme Court Justice Vaughn Finds that It Depends
  • January 6, 2015 | Author: Christopher M. Winter
  • Law Firm: Duane Morris LLP - Wilmington Office
  • What does the term “prompt” mean in a contract? Well, it depends, according to Judge James T. Vaughn Jr., who was recently confirmed to the Delaware Supreme Court. In an opinion issued last week from his prior post in the Superior Court (Complex Commercial Division), Justice Vaughn found that notice after ten months may in some circumstances constitute “prompt notice.”

    In Avaya, Inc. v. Charter Communications Holding Company, LLC, C.A. No. N14C-03-052, Plaintiff Avaya, Inc. (“Avaya”) moved for summary judgment, arguing that defendants Charter Communications Holding Company, LLC and Charter Communications, Inc. (together “Charter”) failed to satisfy a contractual indemnity requirement to “promptly notify” Avaya of a claim or suit for which indemnity was requested. Charter was served with the complaint at issue on September 5, 2006. However, Charter did not provide a copy of that complaint and tender its defense to Avaya until approximately ten months later on July 2, 2007.

    Justice Vaughn denied Avaya’s summary judgment motion, declining to find that notice given ten months after the filing of a lawsuit was, as a matter of law, not prompt. Instead, the Court found that Charter should have the opportunity to conduct discovery to develop the “attendant facts and circumstance.”

    Avaya and Charter were party to a Master Purchase Service Agreement (“Agreement”) pursuant to which Charter purchased certain equipment and software from Avaya, including a “private branch exchange system,” an “automatic call distribution system,” and customer management software.

    Under the Agreement, Avaya was required to “defend, or settle, at its own expense”, and “pay all damages and costs” relating to, any claims for infringement of patent, copyright or trade secret brought against Charter related to Charter’s use of Avaya products purchased under the Agreement. However, the Agreement also provided, among other things, that “Avaya’s obligation is expressly conditioned upon the following: (1) [Charter] shall promptly notify Avaya in writing of such claim or suit...” The Agreement further provided that if any Avaya product is, or is likely to become, the subject of an infringement lawsuit, that Avaya would procure sufficient rights for Charter to continue using the product without infringement, or would provide a sufficient replacement product or a refund.

    On September 1, 2006, Ronald A. Katz Technology Licensing, L.P., sued Charter in the United States District Court for the District of Delaware (the “Infringement Suit”), alleging that Charter’s “call process systems” and “telephone bill pay services” (among other things) infringed Katz’s patents. Charter was served with the complaint on September 5, 2006 and Charter gave notice ten months later.

    Avaya initially rejected the indemnification request on grounds that the Infringement Suit did not specifically allege infringement by an Avaya product. Avaya did not initially raise lack of “prompt notice.” On March 16, 2014, Avaya filed the declaratory judgment action in the Delaware Superior Court seeking a determination that “prompt notice” was not given and that Avaya had no duty to defend and indemnify Charter in the Infringement Suit.

    Avaya argued that providing notice in 10 months is not “prompt notice” as a matter of law, and that there are no mitigating factors here that would excuse Charter’s delay. Judge Vaughn rejected the argument. “I am not persuaded that the fact alone of a ten month period between the commencement of the Katz Lawsuit and the giving of the July 2, 2007 notice constitutes lack of prompt notice as a matter of law. I agree with Charter that the phrase is subject to some interpretation, and that the interpretation may be influenced by attendant facts and circumstances.”

    The Agreement was governed by New York law, and while there was no caselaw discussion, Justice Vaughn did cite to one case in a footnote: Am. Transtech Inc. V. U.S. Trust Corp., 933 F. Supp. 1193, 1200 (S.D.N.Y. 1996). The court in Transtech found that “prompt notice” in an indemnification provision meant notice that gives the indemnitor sufficient time to participate in the defense and that a determination of “sufficient time” required consideration of all of the circumstances.