Articles Posted in Breach of Contract

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Any time a professional athlete’s name or likeness is used, there is usually money to be made. This is particularly true when a group of athletes have succeeded in making something very specific famous. The problem with using the athlete’s name or likeness in order to make money is the fact that the athlete is the sole owner. Therefore, any time that the likeness or name are used, the athlete must be informed and given a share of the profits.

Even those of us who are not football fans have probably at least heard of the “Super Bowl Shuffle”. It was a music video created by the six members of the 1985 Chicago Bears, also known as the “Shufflin’ Crew”. Now those members have filed a lawsuit claiming that the music video, which they say was intended to help families in need, has been used for non-charitable purposes without their permission.

The lawsuit alleges that the Super Bowl Shuffle rights owner, Julia Meyer, and Renaissance Marketing Corp., Meyer’s agent,” have marketed, distributed and sold licenses relating to the Super Bowl Shuffle Crew members’ identities, images, names, photographs, likenesses, voices and performances in the Super Bowl Shuffle without the Shufflin’ Crew’s permission.” The lawsuit further alleges that, since Red Label Records assigned its interest in the shuffle to Meyer’s husband in 1986, the defendants have benefited financially from the Super Bowl Shuffle without the consent of the plaintiffs.

The lawsuit was filed in Chicago on behalf of the six members of the “Shufflin’ Crew”, Richard Dent, Steve Fuller, Willie Gault, Jim McMahon, Mike Richardson, and Otis Wilson. However, Gault was the one who discovered that the music video was allegedly being misused and alerted the other members of the “Shufflin’ Crew” and now it looks like he might be the main plaintiff in the case. “I certainly put my name into [the lawsuit] because they made a whole lot of money off of us,” Wilson said in a statement. “Now that things are coming to light, I left it up to Willie to handle it. So I am 100 percent behind him. For my opinion, they used us and they made a lot of money and now is the time to pay up.”

Walid Tamari, a Chicago-based attorney who is representing the athletes in the current lawsuit, said that “The lawsuit provides that an important, and stated, objective of the Super Bowl Shuffle when it was produced in 1985, was to give back to Chicago’s neediest families”.

According to the lawsuit, the defendants allegedly either failed or refused to inform the members of the “Shufflin’ Crew” of the revenue that they had been receiving from manufacturing, advertising, sales, licensing and merchandising of the Super Bowl Shuffle. The lawsuit also alleges that the former football stars were also not made aware of the financial benefits received from the use of their likenesses, names, voices and performances, both in and out of the shuffle.
In order to ensure that something like this does not happen again, the lawsuit is seeking, among other things, the establishment of a constructive trust for charitable purposes that they select in order to continue the Super Bowl Shuffle’s charitable objective.

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file4651278643375.jpgA federal judge denied most of a motion to dismiss brought by multiple banks in a consolidated case alleging overdraft fee fraud. In re Checking Account Overdraft Litigation, 694 F.Supp.2d 1302 (S.D. Fla. 2010). The Judicial Panel on Multidistrict Litigation (JPML) consolidated multiple claims into a single matter in the Southern District of Florida in order to deal efficiently with common pretrial matters. The plaintiffs asserted causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing (“GFFD covenant”), and many individual causes asserted common law breach of contract claims and state law consumer protection claims. The defendants filed an omnibus motion to dismiss, which the trial court granted in part and denied in larger part. The court dismissed claims under certain state consumer statutes, as well as claims based on the laws of states in which no plaintiffs lived.

The central issue of the litigation was the ordering of ATM transactions from highest to lowest, regardless of the order in which the account holder performed the transaction. This allegedly reduced the account holder’s total account balance more quickly, garnering more overdraft fees for the defendants. At the time the court rendered its order on the omnibus motion to dismiss, the litigation consisted of fifteen separate complaints, each brought against an individual bank. All of the fifteen complaints pending at the time of the court’s order involved breach of GFFD covenant claims. Five complaints were filed in California as putative class actions on behalf of California customers. Eight complaints were filed outside California, putatively on behalf of nationwide classes excluding California. One complaint was filed by a California resident and sought to represent a nationwide class. The final complaint was filed by a Washington resident on behalf of a class of Washington customers. According to the JPML, the consolidated litigation has involved one hundred separate complaints since 2009, with forty-four still involved as of March 5, 2013.

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While an offer of reward might not be viewed as a contract (much less a reward offered via social media sites such as Twitter and YouTube), such an offer can still be considered binding. That is the claim made by Armin Augstein who found and returned the laptop belonging to the “Diamond Girl” singer, Ryan Leslie.

The laptop went missing in October 2010 from the back of a Mercedes S350 that was briefly left unattended when Leslie was escorted by security into a nightclub in Cologne, Germany. The bag containing the laptop also held $10,000 in cash and Leslie’s passport. But it was the computer and the hard drive, which contained the rapper’s music, that Leslie was anxious to have returned to him. He initially offered a $20,000 reward for the return of the MacBook. Then he took to Twitter and YouTube to announce that the reward had been increased to $1 million.

52-year-old German Armin Augstein said he found the laptop on a park bench while walking is dog in Stommelerbusch, Germany, about a month after the laptop went missing. The rapper allegedly reneged on his promise of the $1 million reward, claiming he couldn’t retrieve his recording sessions from the hard drive. Augstein then sued the Harlem-based musician for backing out of his promise of a reward to whomever should return the laptop. Michael Fischman, Augstein’s U.S.-based attorney, was quoted at the time as saying that it was “unfortunate that my client has to go to such lengths to recover the reward.” The lawsuit, which was filed in U.S. District Court in Manhattan and sought the $1 million reward, plus interest and listed Ryan Leslie and his company, NextSelection, as defendants.

A New York federal jury ruled in favor of Augstein’s claim for the reward in 2012 and ordered Leslie and NextSelection to pay Augstein $1.18 million. Leslie has still refused to pay up though, and Augstein is now accusing the R&B artist of hiding funds in order to avoid paying him the court-ordered reward. Augstein has recently asked state judges to order Leslie to pay the promised reward from funds held by Les is More, the corporation that pays all of Leslie’s personal bills. The lawsuit, which was filed in Manhattan Supreme Court, alleges that “Les is More was formed to replace NextSelection and thereby shield (Leslie’s) assets.”

While many people insist on having certain promises made in writing for fear that, otherwise, there will be no way to make sure the person making the promise comes through on their end of the deal, such lengths are not always necessary. Many courts recognize verbal contracts and, in a scenario such as this one, where there is a digital record of the promise, a case can easily be made that a contract was entered into. Leslie’s tweet and YouTube video led Augstein to reasonably believe that he would receive a substantial reward in return for returning the musician’s MacBook and hard drive, regardless of whether anything could be retrieved from them.

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527px-Northwestern_Life_Insurance.jpgOur Chicago class action attorneys note that a class action claim against an insurance company, which the defendant had removed to federal court, fell within an exception to the federal jurisdiction statute, according to a federal district judge in LaPlant v. The Northwestern Mutual Life Insurance Company, No. 11-CV-00910, slip op. (E.D. Wis., Aug. 20, 2012). The court remanded the case to Wisconsin state court under the corporate governance exception to the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d). It held that the plaintiffs’ claims related exclusively to the defendant’s “internal affairs,” based on Wisconsin law.

The defendant issued an annuity insurance policy to the lead plaintiff. As a mutual insurance company, the defendant was “owned cooperatively by its policyholders,” LaPlant, slip op. at 1, and paid dividends to policyholders out of its profits. In 1985, it moved policyholders’ money into a separate fund and began paying dividends based on interest generated by the fund. Id. The amount of the payments received by the policyholders allegedly decreased as a result of this change. Wisconsin law gives policyholders the right to participate in annual profit distributions. Wis. Stat. § 632.62(2).

The lead plaintiff brought a class action lawsuit for breach of contract and breach of fiduciary duty on behalf of a class of policyholders in Wisconsin. The class prevailed at trial, and the lead plaintiff moved to expand the scope of the class to include policyholders in other states. The defendant removed the case to federal court under CAFA, which confers jurisdiction to federal courts over class actions with more than one hundred class members, more than $5 million in controversy, and diversity of citizenship between the defendant and at least one class member. The plaintiff moved to remand the case to Wisconsin state court based on the “corporate governance exception,” which applies when a class action’s claims solely relate (1) “to the internal affairs or governance of a corporation” (2) based on the laws of the state of incorporation. LaPlant, slip op. at 2, citing 28 U.S.C. §§ 1332(d)(9)(B), 1453(d)(2).

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Overdraft_-_Punch_cartoon_-_Project_Gutenberg_eText_16113.pngA federal court allowed most causes to proceed in a putative class action against a bank for allegedly fraudulent overdraft fees. White, et al v. Wachovia Bank, N.A., No. 1:08-cv-1007, order (N.D. Ga., Jul. 2, 2008). The plaintiffs, who alleged that the bank had recorded transactions out of chronological order to maximize overdraft fee liability, claimed violations of state deceptive trade practice laws and several claims related to breach of contract. The court denied the defendant bank’s motion to dismiss as to all but two of the plaintiffs’ claims.

The two lead plaintiffs opened a joint checking account with Wachovia Bank in 2007. They signed a Deposit Agreement that stated that the bank could pay checks and other items in any order it chose, even if it resulted in an overdraft. It also stated that the bank could impose overdraft charges if payment of any single item exceeded the balance in the account. The plaintiffs alleged in their lawsuit that Wachovia ordered its posting of transactions in a way that would cause their account to incur overdraft fees, even when they had sufficient funds to pay the items. They also alleged that the bank imposed overdraft fees when no overdraft had occurred.

The lawsuit, originally filed in a Georgia state court in February 2008, asserted violations of the Georgia Fair Business Practices Act (FBPA), O.C.G.A. §§ 10-1-390 et seq., and breach of the duty of good faith. The plaintiffs also claimed that the clause of the Agreement related to the ordering of transaction was unconscionable, that the bank had engaged in trover and conversion, and that it had been unjustly enriched. The defendant removed the case to federal court under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2), which allows defendants to remove certain class actions to federal court. It then moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which allows a court to dismiss a lawsuit that “fail[s] to state a claim upon which relief can be granted.” To defeat such a motion, a plaintiff must show a plausible factual basis for their claims.

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file000388465185.jpgA Florida appellate court reversed an order certifying a class of doctors claiming breach of fiduciary duty and other causes of action against their employer. InPhyNet Contracting Services v Soria, 33 So.3d 766 (Fl. Ct. App. 2010). The case began as a suit alleging breach of a covenant not to compete against one physician, leading the physician to counterclaim on behalf of a putative class with regards to a bonus compensation plan. After separating the physician’s individual claims from the class claims, the trial court certified a class. The appellate court reversed, finding that the class claims did not meet the requirements of commonality or predominance over class members’ individual claims.

InPhyNet Contracting Services (ICS) places physicians in hospitals around the state of Florida on a contractual basis. It offers incentives to physicians to work in hospital emergency rooms through a Physician Incentive Plan (PIP), which pays doctors out of a “bonus pool” associated with a hospital based on performance and similar factors. Id. at 768. ICS placed Dr. David Soria in the emergency room of Wellington Regional Medical Center, where he worked as Medical Director. The dispute between Soria and ICS began when Wellington terminated its contract with ICS and contracted with a competitor, and Soria began working for the competitor.

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file0001915885273.jpgOur Chicago class action lawyers have noted a recent decision where an Illinois federal court dismissed several claims in a putative class action lawsuit against a nationwide chain of health spas, but allowed two causes of action for breach of contract to proceed. Grabianski, et al v. Bally Total Fitness Holding Corp., et al, No. 12 C 284, memorandum opinion and order (N.D. Ill., Feb. 21, 2013) (the “2013 Order”). The dismissed claims alleged additional breaches of contract and violations of state consumer protection statutes. The court had dismissed the plaintiffs’ original complaint in the same cause, granting them leave to amend, in an order dated September 11, 2012 (the “2012 Order”).

The plaintiffs purchased memberships at Bally Total Fitness (“Bally”), a nationwide chain of gyms, during a period from 1986 until 2002. They all purchased “Premier” or “Premier Plus” memberships, which gave them the right to use any Bally location in the country. Bally allowed transfer of these membership plans, so while some of the plaintiffs purchased their plans directly from Bally, others obtained them in a secondary market. After declaring bankruptcy, Bally sold 171 of its clubs, more than half of its total, to LA Fitness, subject to an Asset Purchase Agreement (“APA”) dated November 30, 2011. According to the plaintiffs’ amended complaint, LA Fitness assumed their membership agreements as part of the sale.

Plaintiffs allege that after the sale was completed, they were denied access to Bally clubs now owned by LA Fitness. They claim that LA Fitness denied them access because their “home clubs,” where their memberships originated, were not part of the APA. In the cases of plaintiffs who acquired their memberships via a secondary market, the “home club” might be in a different state. While the plaintiffs could still access clubs that Bally owned, they did not live near any of those clubs.

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640px-Broccoli_in_a_dish_2.jpgA business sued two individuals in a New Jersey federal district court in Inventory Recovery Corp. v. Gabriel, alleging that the defendants materially misrepresented the details of a sale of several hundred internet domain names. The plaintiff asserted multiple causes of action, including fraud, breach of fiduciary duty, and breach of contract. The court dismissed all but two of the causes of action on the defendants’ motion.

The plaintiff, Illinois-based Inventory Recovery Corporation (IRC), sought to purchase 324 internet domain names from the defendants, Richard Gabriel and Ashley Gabriel. The defendants used the domain names in the business of selling nutraceutical food, which the court describes as food with health benefits. IRC’s president met with the defendants in January 2010 to discuss the purchase of the domain names and the associated business, and negotiations continued into February. Richard Gabriel provided IRC with financial documents related to business income and expenses. This included expenses for Google advertising, the business’ main marketing activity. He allegedly described robust sales and a positive relationships with the merchant banks that serviced customer payments for the business.

The parties entered into a series of contracts on February 26, 2010 for the sale of the domain names. They closed the same day, and the plaintiff paid the $5.6 million purchase price with a real estate parcel in the Bahamas, an airplane, and a sum of cash. According to testimony presented in the case, the plaintiff allegedly later discovered that the business did not have good relationships with its merchant banks, its Google advertising account was suspended, and the defendants had allegedly artificially inflated the business’ revenues.

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The age of emails has made it more difficult to get away with certain things. One might find it more difficult for example, to insist on one belief or attitude if he has been found to have said the opposite in an email. Such is the case for Ron Johnson, the former head of retail at Apple and now the chief executive of J.C. Penney. He has said that, because he believes in “perfect integrity” he would never ask a person to breach a contract.

However, he engaged in discussion with Martha Stewart to sell some of her items in J.C. Penny stores, despite Ms. Stewart having an exclusive contract with Macy’s. Mr. Johnson has reportedly tried to get around the contract by claiming that there would be independent Martha Stewart stores within J.C. Penney stores.

While independent stores are allowed under the Macy’s contract, J.C. Penney has not moved to lease space to Martha Stewart Living Omnimedia (MSLO). Instead, Mr. Johnson testified in court that J.C. Penney, and not MSLO, would set prices for the merchandise, decide when it would be promoted, employ the people who sold the goods, own the goods, source the goods, book the sales, bear the risk and own the shop, J.C. Penney nonetheless insists that any space displaying the Martha Stewart mark and containing Martha Stewart merchandise qualifies as an MSLO store.

Despite his insistence that he is not inducing Ms. Stewart to breach her contract with Macy’s, Mr. Johnson admitted in an email to Ms. Stewart that her contract with Macy’s was “a major impediment” to their deal to sell her goods in J.C. Penney stores. In another email, he said, in reference to Ms. Stewart, “the ball is in her court now to talk to Macy’s about a break in a tight, exclusive agreement they have with her.” He also reportedly said that the “Macy’s deal is key. We need to find a way to break the renewal right in spring 2013.”

One person was apparently key to bringing about the J.C. Penny deal. That person was William Ackman, the activist investor whose hedge fund is J.C. Penney’s largest shareholder. After the deal was announced, Mr. Johnson wrote to Mr. Ackman, “We put Terry in a corner. Normally when that happens and you get someone on the defensive, they make bad decisions. This is good.”

The emails emerged in a New York courtroom where Macy’s has accused J.C. Penney of inducing Martha Stewart to breach her contract with Macy’s. Macy’s is also attempting to block its competitor from opening Martha Stewart stores in J.C. Penney locations.
Legal experts have been surprised that this case has made it to trial at all, since the contract itself seems fairly straightforward. Martha Stewart herself told the judge, Justice Jeffrey K. Oing of New York State Supreme Court, “I keep looking at this entire episode of this lawsuit wondering why it isn’t – it’s a contract dispute. an understanding of what is written on the page, and it just boggles my mind that we’re sitting in front of you.”

The judge agreed and ordered the parties to pursue mediation to resolve the matter.
Macy’s continues to promote Martha Stewart products with the tag line “Only at Macy’s.”

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1397460_83945743.jpgA Texas federal court, after initially dismissing a motion for preliminary injunction as moot, granted the plaintiff’s motion for reconsideration in Travelhost, Inc. v. Modglin. The court ruled that, although the two-year time period of the non-compete agreement had already expired, the plaintiff was entitled to a preliminary injunction and an equitable extension of the non-compete agreement for an additional two years. The court based its reversal of its prior ruling on evidence subsequently obtained from the defendant through discovery, which suggested that the defendant had engaged in an ongoing pattern of behavior in violation of the non-compete agreement.

The plaintiff, Travelhost, publishes print and online materials related to travel. It entered into a contract with the defendants, The Real Chicago Publishing LLC (RCP) and Trent Modglin, in 2007, in which RCP would distribute Travelhost’s Chicago magazine and sell advertising in the downtown Chicago area. The contract included a two-year covenant not to compete with Travelhost within the Chicago area. Modglin is RCP’s sole member, and he reportedly agreed to be individually bound by the non-compete agreement.

RCP distributed eight issues of the magazine between 2007 and late 2009. According to Travelhost, RCP began distributing and selling advertising for a competing magazine, “The REAL Chicago,” sometime after November 2009. Travelhost sued RCP and Modglin in March 2011, requesting preliminary and permanent injunctions. RCP never filed an answer to the suit, so the court entered a default preliminary injunction and default judgment against it. The suit proceeded against Modglin alone.

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