Decipher Inc. v. iTRiBE Inc.

Present: 	All the Justices
DECIPHER, INC.
v. 	Record No. 002873 	OPINION BY JUSTICE ELIZABETH B. LACY
November 2, 2001
iTRiBE, INC.
FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK
Leonard B. Sachs, Judge Designate
This is an appeal of the trial court's holding that
Decipher, Inc. (Decipher) failed to carry its burden of proof
in its breach of contract counterclaim against iTRiBE, Inc.
(iTRiBE). 	Because we conclude that there was no reversible
error in the judgment complained of, we will affirm the
judgment of the trial court.
iTRiBE is in the business of providing access to the
Internet as a "tier 2" provider. 	A tier 2 provider does not
have direct access to the Internet and must contract with an
upstream entity having such access, a "tier 1" provider, to
complete the link to the Internet. 	The amount of Internet
access available is measured in terms of megabytes of
bandwidth. 	Prior to February 1997, iTRiBE had only a three
megabyte (Mb) Internet connection with its tier 1 provider to
service all its customers, including Decipher, which
contracted for 1.5 Mb of connectivity through iTRiBE.
In February 1997, Decipher and iTRiBE executed a new
five-year contract under which iTRiBE agreed to provide

Decipher 5 Mb of bandwidth for Decipher's connection to the
Internet. 	The contract also provided that iTRiBE would
"install a DS3 for this." 	A DS3 is a specific type of
connection that can provide from 3 Mb to a maximum of 49 Mb of
bandwidth connectivity depending on its configuration.
iTRiBE, however, achieved its connection with a tier 1
provider through a different type of connector and did not
install a DS3. 	iTRiBE contracted with Digex, a tier 1
provider, for a 10 Mb bandwidth connection to the Internet.
In June 1998, Decipher decided to change its Internet
connection and contract directly with a tier 1 provider. 	In
August 1998, Decipher signed a three-year contract with MCI
Telecommunications Corporation for a 6 Mb bandwidth Internet
connection. 	In December 1998, Decipher informed iTRiBE by
letter that it was canceling its February 1997 contract with
iTRiBE. 	After describing Decipher's growth since entering the
contract, the letter stated that "connectivity once suitable .
. . no longer provides . . . the solution [needed] . . . to
continue to . . . expand." 	As to iTRiBE's performance, the
letter stated "[i]n the past we have experienced repeated
outages, poor performance due to shared media as well as slow
throughput once connected to Digex."
iTRiBE sued Decipher for breach of contract when Decipher
refused to pay the liquidated damages specified in the
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contract. 	In response, Decipher filed a grounds of defense
and counterclaim asserting that iTRiBE had breached the
contract because it had not provided Decipher with the 5 Mb of
Internet connectivity required by the contract. 	Following an
ore tenus hearing, the trial court issued an opinion letter
holding that "Decipher has failed to prove that they did not
receive the 5 Mb that they bargained for." 	The trial court
subsequently entered judgment in favor of iTRiBE on its breach
of contract claim and against Decipher on its breach of
contract counterclaim.
I.
On appeal, Decipher raises three assignments of error.
First, Decipher asserts that the trial court's judgment
allowing iTRiBE to recover for breach of contract was based on
the erroneous finding that a Decipher witness "conceded" that
iTRiBE's failure to install a DS3 was not a breach of a
material condition of the contract. 	There is nothing in the
opinion letter to support Decipher's contention that the trial
court concluded that Decipher conceded the issue of
materiality.
The failure of iTRiBE to install a DS3 was a breach of
the contract terms; however, if this breach did not go to the
"root of the contract," the contract condition was not
material and the breach of that condition would not preclude
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iTRiBE from enforcing the contract. 	Horton v. Horton, 254 Va.
111, 115, 487 S.E.2d 200, 203 (1997). 	Neither the trial
court's order nor opinion letter specifically addressed
whether installation of a DS3 was a material provision of the
contract. 	However, because the trial court entered judgment
in favor of iTRiBE, the trial court necessarily concluded that
the provision was not a material provision and, therefore,
that the failure to install the DS3 did not preclude recovery
by iTRiBE.
In its opinion letter, the trial court stated that, as a
matter of fact, the contract was "understood" by the parties'
representatives who negotiated it "in the context of the
requirements" of each party. 	The parties agreed that iTRiBE
would have to increase its upstream connectivity in order to
meet Decipher's 5 Mb requirements. 	The parties to the
contract also knew that iTRiBE had other customers. 	But, as
the trial court noted in its opinion letter, Decipher's
representative never "in [his] wildest dreams" thought
Decipher "would require 45 Mb," the customary bandwidth
implied by the term DS3, according to industry standards.
These findings support the conclusion that the parties
considered the root of the contract to be the provision of 5
Mb of Internet connectivity and thus the specific installation
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of a DS3 with a 45 Mb capacity was not a material element of
the contract.
In light of the evidence presented regarding the nature
of the contract between iTRiBE and Decipher, the statement of
Decipher's representative, recited by the trial court in its
opinion letter, does not support Decipher's contention that
the trial court found that its representative "conceded" that
iTRiBE's failure to install a DS3 was not a material element
of the contract. 	Instead, it is clear the trial court's
conclusion was based on a finding that the evidence as a whole
showed that the requirement to install a DS3 was not a
material condition of the contract.
Accordingly, we reject Decipher's assertion that the
trial court based its holding on a finding that Decipher's
representative conceded that iTRiBE's failure to install a DS3
was a breach of a material condition of the contract.
II.
In its second assignment of error, Decipher asserts that
the trial court erred as a matter of law "by holding that
Decipher breached its contract with iTRiBE . . . by not
performing specific tests on its and iTRiBE's computer
hardware prior to terminating its contract with iTRiBE." 	Once
again, neither the trial court's opinion letter nor its order
recites such a holding.
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To sustain its counterclaim, Decipher had to produce
evidence sufficient to establish that it did not receive 5 Mb
of bandwidth from iTRiBE. 	There is no direct evidence in the
record by way of reports, testimony, or other similar
documentation to support Decipher's claim. 	Rather, Decipher's
proof, as emphasized by its counsel at oral argument, was
completely circumstantial.
To support its theory that it did not receive the
requisite bandwidth connectivity from iTRiBE, Decipher
introduced evidence that iTRiBE's router did not have the
capacity to provide Decipher's 5 Mb and that iTRiBE had
"oversold" its 10 Mb connectivity capacity with Digex. 	iTRiBE
introduced controverting expert testimony regarding the
capacity and operation of its router. 	iTRiBE also presented
evidence that the total amount of Internet connectivity it
sold has no impact on iTRiBE's operations unless the evidence
showed that the amount of connectivity sold was greater than
the amount of connectivity in use at any one time.
Furthermore, iTRiBE argued that neither of Decipher's claims
established that Decipher did not receive its 5 Mb of
bandwidth connectivity from iTRiBE.
In considering Decipher's evidence in support of its
claims, the trial court stated in its opinion letter:
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I further find as a fact Decipher has failed to
prove that they did not receive the 5 Mb that they
bargained for. 	One of Decipher's witnesses
conceded that there was software available at a
cost of approximately $500.00 which Decipher could
have installed to constantly monitor the drawdowns
that they were receiving at any given time or in
the alternative they could have contracted with
Bell Atlantic to hire engineers and metering
equipment for not more than $2,000.00 to accomplish
the same purpose.
Neither this statement nor anything else in the opinion letter
supports the proposition advanced by Decipher that the trial
court considered the failure to test equipment prior to
termination a breach of contract. 	Rather, the failure to test
was one of the reasons Decipher was unable to produce evidence
to show that iTRiBE failed to provide 5 Mb bandwidth. 	The
trial court concluded that Decipher did not meet its burden of
proof because "all of the defendant's evidence was
hypothetical evidence."
Accordingly, we reject Decipher's claim that the trial
court held that Decipher breached the contract because it did
not perform equipment tests prior to terminating the contract.
III.
Finally, Decipher complains that the trial judge erred in
allowing one of its witnesses to testify on cross-examination
regarding reports received by iTRiBE from Digex. 	While we
conclude that the trial court erred in ruling that certain
testimony would be admitted under the business records
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exception to the hearsay rule, we hold that the error was
harmless.
Digex provided iTRiBE with periodic reports reflecting
the amount of bandwidth iTRiBE used on Digex's system.
However, only one report, covering the period of June 29, 1997
through July 5, 1997, was produced at trial. 	One of
Decipher's witnesses, a former iTRiBE employee, testified on
cross-examination that the produced report showed that all
iTRiBE's customers including Decipher consumed less than 25
percent of iTRiBE's 10 Mb connection during that period.* When
the former employee was asked whether any of the unproduced
reports through October 1997 indicated that iTRiBE had used 5
Mb of bandwidth, Decipher objected on the basis of hearsay.
The trial court overruled the objection, stating that the
unproduced reports were "regular course of business under the
exception rule." 	This was error.
The hearsay exception does not generally cover items
received by a business. 	See, e.g., Frank Shop, Inc. v. Crown
Central Petroleum, 261 Va. 169, 176, 540 S.E.2d 897, 901
(2001); Ford Motor Company v. Phelps, 239 Va. 272, 276, 389
S.E.2d 454, 457 (1990)("[T]he rule deals with records made,
and not merely kept, in the regular course of business.").
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Hence the unproduced reports would not, on the foundation
presented here, have been admissible even if tendered as
exhibits. 	In this case, however, the unproduced reports were
not offered as exhibits at trial. 	Instead, the witness was
invited to recount the substance of their contents.
Generally, the hearsay rule precludes a witness from quoting
from, or summarizing the contents of, even admissible records
until they have been received in evidence. 	Hence, the hearsay
objection made by Decipher to this question should have been
sustained.
The trial court's error, however, was harmless: 	after
the ruling, the witness never characterized the contents of
the unproduced reports. 	The remaining cross-examination
related to the effect of bandwidth usage information on the
decision to seek greater Internet access. 	"The hearsay rule
does not operate to exclude evidence of a statement, request,
or message offered for the mere purpose of explaining or
throwing light on the conduct of the person to whom it was
made." 	Fuller v. Commonwealth, 201 Va. 724, 729, 113 S.E.2d
667, 670 (1960). 	Therefore, even though the trial court
improperly overruled Decipher's objection to the initial
* This report was not admitted in evidence and the
propriety of testimony regarding the report is not at issue in
this appeal.
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question, that ruling did not result in inadmissible hearsay
evidence and, therefore, was harmless.
Furthermore, "[a] plaintiff in error must always show,
not only error in the rulings of the trial court, but also
error of a substantial nature." 	Breeding v. Johnson, 208 Va.
652, 659, 159 S.E.2d 836, 842 (1968). 	Nothing in the record
indicates that the trial judge relied upon the testimony
regarding these unproduced reports in reaching its decision,
even according to Decipher's view of the case. 	Indeed,
Decipher states without qualification that the trial judge's
decision was based "on two grounds." 	First, that a Decipher
representative "conceded" that the failure to purchase a DS3
was not a material breach of the contract and, second, that
Decipher should have conducted equipment tests prior to
terminating its contract with iTRiBE. 	As discussed above,
neither of these alleged holdings was, in fact, the basis for
the finding of the trial court. Therefore, Decipher cannot
claim it was prejudiced by admission of evidence which
Decipher itself does not contend was the basis for any holding
of the trial court.
Accordingly, for the reasons stated, the judgment of the
trial court will be affirmed.
Affirmed.
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