Opinion
B325996
04-15-2024
MULTIPLIER CAPITAL, LP, Plaintiff and Appellant, v. DIGITAS, INC., Defendant and Respondent.
Levy, Small & Lallas and Leo D. Plotkin for Plaintiff and Appellant. Steptoe & Johnson, Steptoe, Robyn C. Crowther, Michael Dockterman and Cara A. Lawson for Defendant and Respondent.
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County, No. 19SMCV00009 Helen Zukin, Judge. Reversed and remanded with directions.
Levy, Small & Lallas and Leo D. Plotkin for Plaintiff and Appellant.
Steptoe & Johnson, Steptoe, Robyn C. Crowther, Michael Dockterman and Cara A. Lawson for Defendant and Respondent.
EGERTON, J.
Plaintiff Multiplier Capital, LP (Multiplier) appeals a judgment for defendant Digitas, Inc. (Digitas) following a bench trial. Multiplier is a secured creditor with a perfected security interest in the accounts receivable of non-party Kinetic Social LLC (Kinetic). It sued Digitas to collect an indebtedness that Digitas allegedly owed Kinetic on three written contracts. Under the contracts, Kinetic agreed to place advertisements for Digitas's clients on the Facebook website in exchange for payments from Digitas that covered the cost of the ad placements plus Kinetic's profit margin. The trial court concluded Kinetic (and thus its secured creditor Multiplier) had no right to collect on these accounts receivable because Kinetic had failed (on other contracts with Digitas) to "pass through" to Facebook the portion of Digitas's payments attributable to the cost of the ad placements. Multiplier argues Kinetic had no obligation under its contracts with Digitas to pass through Digitas's payments or otherwise to pay Facebook for the ad placements. And, because Kinetic undisputedly performed by placing the relevant ads on Facebook, Multiplier maintains Digitas is obligated to pay the indebtedness. We agree on both counts and reverse the judgment with directions to enter judgment for Multiplier on its breach of contract claims.
Kinetic also placed advertisements on Facebook's affiliate website Instagram. For simplicity we collectively refer to these affiliated entities as "Facebook."
BACKGROUND
1. The Parties
Digitas is a full-service global advertising agency focused primarily on digital advertising. It has a portfolio of between 30 and 50 clients in North America that includes brands such as Victoria's Secret and Education Management Corporation (EDMC). The agency offers its clients a range of services, including planning and buying digital advertising space on social media platforms like Facebook.
Kinetic was a "preferred marketing partner" for Facebook. Under an agreement with the social media platform, Kinetic was authorized to buy advertising inventory on Facebook and resell it to advertisers or their advertising agencies. The company's proprietary software allowed it to optimize the effectiveness of ad campaigns on Facebook and to select the ad placements or "insertions" that would best meet an advertiser's goals. Kinetic's services included managing a client's live advertising campaign, obtaining reports on the campaign from Facebook, and submitting reports to the client to confirm the ad placements conformed to the campaign's parameters. While Facebook later granted advertising agencies access to its ad inventory, when the relevant contracts were formed, the social media platform required agencies to work with its preferred marketing partners to deliver ads to the Facebook website.
Kinetic financed the development of its software platform and its continuing operations in part through a credit facility with non-party Bridge Bank and a $7.5 million loan from Multiplier. Under its loan agreement with Multiplier, Kinetic granted the lender a security interest in substantially all of its assets, including Kinetic's accounts receivable. At the time, Bridge Bank held a senior lien on the accounts receivable, having earlier extended a revolving line of credit to Kinetic.
2. The Contracts
Digitas began working with Kinetic in 2015 and ran 10 to 15 advertising campaigns through Kinetic each year. The parties did not have a master services agreement to govern their ongoing business relationship. Instead, Digitas and Kinetic entered into a series of written contracts called "insertion orders," each of which constituted a separate and distinct contract with respect to the relevant ad placements.
Multiplier's claims concern three of these insertion orders- two that Digitas made as agent for Victoria's Secret in June and August 2017; and one that it made as agent for EDMC in July 2017 (the Insertion Orders). The Insertion Orders identify Facebook as the platform for the ad insertions and specify the dates the ads will run, the pricing method for the ad insertions (either cost per click (CPC) or cost per thousand impressions (CPM)), and the number of clicks or impressions authorized for the insertion.
When the Insertion Orders specified CPC as the pricing method, Kinetic billed Digitas at the specified rate each time a user clicked on an ad. For the CPM method, Kinetic billed Digitas for every thousand impressions generated when the ad was visible to a user regardless of whether the user took any action. The Insertion Orders sometimes specify a dCPC pricing method, which appears to refer to a cost per click model that dynamically adjusts to maximize user engagement.
Each of the Insertion Orders incorporates a set of standard terms developed by the Interactive Advertising Bureau and American Association of Advertising Agencies, as amended by Digitas (the IAB Terms). The IAB Terms identify the parties to an insertion order as "Media Company" and "Agency." Digitas drafted the Insertion Orders and executed them as "Agency." Kinetic executed the contracts as "Supplier." No party or other entity is identified as "Media Company" in the Insertion Orders or incorporated IAB Terms.
The IAB Terms also make extensive references to an "Advertiser," which is identified as the Agency's principal. The IAB Terms state they are to "accompany Agency or Media Company insertion orders" and are "intended to offer Media Companies, Advertisers, and their Agencies a voluntary standard for conducting business in a manner acceptable to all parties."
The IAB Terms supplement the parties' rights and obligations under the Insertion Orders. Among other duties, the IAB Terms require the "Media Company" to deliver "within the scope of the [insertion order], an [advertisement provided by the Agency] to the [Media Company website] specified on the [insertion order] when such [website] is called up by an Internet user." Regarding payments, the Media Company must send an invoice to the Agency "upon completion of the first month's delivery or within [180] days of completion of the [insertion order]," and the Agency must "make payment [45] days from receipt of [the] invoice." The IAB Terms address other matters relevant to the parties' relationship under the Insertion Orders, including reporting, indemnification, and confidentiality.
Consistent with the Media Company's obligations under the IAB Terms, Kinetic sent invoices to Digitas after making the ad insertions specified in the Insertion Orders. The invoices confirm that Kinetic billed Digitas at a CPC or CPM rate, based on the user engagement generated by each ad insertion. (See fn. 2, ante.) These rates included Kinetic's profit margin for making the insertions-Kinetic did not separately bill Digitas for its costs or managed services fee. Digitas paid Kinetic only after ensuring the accuracy of an invoice. This process included reviewing documentation from Kinetic to validate the generated engagement actually involved humans (not bots) and that the engagement met all the parameters specified in the relevant insertion order.
In coordination with Facebook, Kinetic tracked the engagement generated by each ad insertion and provided reports to Digitas as specified in the IAB Terms.
The invoices directed Digitas to make payments directly into a lockbox account at Bridge Bank, as required under Kinetic's loan agreement with its senior lender. Bridge Bank then applied the payments to reduce the amount Kinetic owed on its revolving line of credit, freeing additional credit for further borrowing. Kinetic, in turn, submitted draw requests to Bridge Bank to finance its ongoing operations and to pay Kinetic's vendors, including Facebook.
This financing arrangement was possible, in part, because the IAB Terms required Digitas to remit payments on Kinetic's invoices within 45 days, while Kinetic generally had 120 days after the ads had run to pay Facebook's invoices.
3. The Lawsuit
In the fall of 2017, Kinetic defaulted under its loan agreements with Bridge Bank and Multiplier, and lost access to the credit facility it used to fund its continuing operations.
In October 2017, Facebook sent an email to Digitas's client Victoria's Secret, advising that Kinetic was "significantly past due with regard to the payment of invoices" for advertising placed on the client's behalf over the past year. Due to the arrearages, Facebook said it intended to suspend Kinetic's advertising account, which would result in the suspension of any current ads that Kinetic had placed. Facebook also advised that its collections team would "in due course" contact Victoria's Secret "to arrange for direct payment to Facebook of all outstanding amounts for ads placed on your behalf by your agent, Kinetic Social, which remain unpaid."
After receiving the email, Victoria's Secret contacted Digitas, which in turn contacted Kinetic for an explanation. Kinetic acknowledged there was a financial dispute with Facebook and advised Digitas that its payments to Facebook would resume once the dispute had resolved. For its part, Digitas identified outstanding payments it owed Kinetic under the Insertion Orders and informed Kinetic that it intended to withhold the payments until Facebook had been paid.
By December 2017, Kinetic had stopped responding to Digitas's inquiries. With no contacts apparently left at Kinetic, Digitas opened negotiations with Facebook to resolve the claims concerning Digitas's clients. According to Facebook, Kinetic owed Facebook over $1.4 million on unpaid invoices billed to Kinetic for ads placed on behalf of Victoria's Secret and EDMC. In November 2018, Digitas and Facebook entered into a payment and release agreement, under which Digitas agreed to pay Facebook the amounts that Digitas had withheld from Kinetic under the Insertion Orders ($340,348.20) in exchange for Facebook releasing Digitas and its clients from any and all claims that Facebook might have arising out of its dispute with Kinetic.
In January 2019, Multiplier filed this lawsuit against Digitas. As relevant to this appeal, the operative complaint asserted claims for breach of the three Insertion Orders based on Digitas's alleged failure to pay for the ad insertions performed by Kinetic and Multiplier's security interest in the corresponding accounts receivable.
4. The Trial
The court held a bench trial on Multiplier's breach of contract claims. Multiplier presented evidence of its loan agreement with Kinetic; its recorded security interest in Kinetic's accounts receivable; Kinetic's performance of the ad insertions specified in the Insertion Orders; and Digitas's refusal to pay the corresponding invoices until Kinetic paid Facebook. The amounts due under the unpaid invoices totaled $340,348.20.
Digitas did not dispute the validity of either Kinetic's invoices or Multiplier's security interest in Kinetic's accounts receivable. Instead, Digitas sought to establish that Kinetic breached the Insertion Orders by failing to pay Facebook for ad insertions Kinetic made on behalf of Digitas's clients. Digitas's former Director of Media Business Operations, Ara Najarian, testified that the "Media Company" under the IAB Terms was necessarily Facebook because the Insertion Orders specified Facebook as the platform where the ads were to run. And, because Facebook occupied the role of Media Company, Digitas maintained the principle of "sequential liability" embodied in the IAB Terms required Kinetic to pass through to Facebook all payments that Digitas made to Kinetic, after Kinetic deducted its "fee." Najarian testified the parties' course of dealing had been consistent with this understanding, as there had never been a disruption in service before 2017. He acknowledged, however, that Digitas did not check with Facebook to ensure Kinetic was making payments or require Kinetic to segregate funds for payments to Facebook, as "that was never a part of [the parties'] model."
As we will discuss, "sequential liability" is a concept in the advertising industry under which an agency is solely liable for payment of advertising invoices if the agency has been paid by its principal-the advertiser-for the ad placements. (News Am. Mktg. v. Lepage Bakeries, Inc. (N.Y.App.Div. 2005) 791 N.Y.S.2d 80, 82 [16 A.D.3d 146, 147] (News America).).
Multiplier argued Kinetic was the only party that could occupy the role of "Media Company," as the parties had expressly agreed the IAB Terms would "accompany Agency or Media Company insertion orders" and Facebook undisputedly was not a party to the Insertion Orders at issue. (See fn. 3, ante.) Moreover, Multiplier emphasized it was Kinetic-not Facebook- that performed the Media Company's core obligations under the IAB Terms, including placing the ads, reporting on completed ad insertions, and issuing invoices to Digitas after the ads had run. Multiplier acknowledged Kinetic had an obligation to pay Facebook for the ad placements, but it maintained the undisputed evidence showed this obligation arose under a separate agreement between Kinetic and Facebook to which Digitas was not a party.
Even if Facebook were construed to be the Media Company, Multiplier argued the Insertion Orders still would not be susceptible of an interpretation requiring Kinetic to pass through Digitas's payments to Facebook. Multiplier emphasized there was no express pass-through obligation in the written contracts, and Kinetic never would have agreed to one, as its loan agreement with Bridge Bank required all payments to be made directly into a lockbox account that Bridge Bank controlled to manage Kinetic's revolving line of credit. Moreover, Multiplier argued Kinetic's decision to withhold payments could not be reconciled with the purported pass-through obligation, because even if the obligation existed, Kinetic could have breached it only after receiving a payment from Digitas that it failed to pass through to Facebook. Finally, Multiplier maintained Digitas could not justify its decision by claiming Kinetic failed to pass through earlier payments rendered under other insertion orders. Because the relevant Insertion Orders did not address past transactions, Multiplier maintained Digitas's necessary reliance on Facebook's claims about past invoices did not excuse Digitas's failure to pay Kinetic's current invoices for ads placed under the relevant Insertion Orders.
5. The Statement of Decision
The trial court issued a statement of decision in favor of Digitas, concluding (1) the Insertion Orders and incorporated IAB Terms constituted written contracts reflecting "the common industry understanding of digital advertising"; (2) "Kinetic failed to perform under the terms of the contract as intended and expected by the parties when it stopped remitting funds it received from Digitas to Facebook"; and (3) "Digitas did not breach the agreement, including when it settled with Facebook for the unpaid ads."
In reaching these conclusions, the court determined the Insertion Orders were ambiguous, identifying the parties' dispute over the entity that occupied the role of "Media Company" as justification for invoking extrinsic evidence of the parties' "course of conduct" to ascertain their reasonable expectations. Based on Najarian's testimony, the court found the parties' dealings had embraced the principle of "sequential liability"; the parties intended Facebook to be the Media Company under the Insertion Orders; and, consistent with the principle of sequential liability, "the parties intended Facebook would place ads in reliance on the credit of Victoria's Secret and EDMC." Based on these findings, the court reasoned "[l]iability for payment to [Facebook] . . . sat with Digitas['s] clients and shifted to Digitas once the client paid Digitas," and, once Digitas paid Kinetic, "Kinetic was obligated to remit the payments to Facebook minus Kinetic's fee."
After overruling Multiplier's objections to the statement of decision, the court entered judgment for Digitas. This timely appeal followed.
DISCUSSION
1. Standard of Review and Governing Law
"In reviewing a judgment based upon a statement of decision following a bench trial, we review questions of law de novo. [Citation.] We apply a substantial evidence standard of review to the trial court's findings of fact." (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981.) To the extent the trial court drew conclusions of law based upon its findings of fact, we also review those legal determinations de novo. (Westfour Corp. v. California First Bank (1992) 3 Cal.App.4th 1554, 1558; ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.)
As a threshold matter, Multiplier maintains we must apply New York's substantive law to legal questions concerning the construction of the operative contracts. We agree. The incorporated IAB Terms, as amended by Digitas, expressly provide that all Insertion Orders shall be governed by New York law. Likewise, Multiplier's loan agreement with Kinetic contains a New York choice-of-law clause. The evidence at trial showed both Digitas and Kinetic operated out of the New York offices listed on the Insertion Orders and corresponding invoices, and no evidence suggested California would have a materially greater interest in this dispute than New York. Accordingly, we must enforce the parties' contractual choice and apply New York's substantive law to the legal questions presented in this appeal.(See Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 916 [if the chosen state has a substantial relationship to the parties or their transaction, California courts must enforce a choice-of-law clause, unless the chosen state's law is contrary to a fundamental policy of California and California has a materially greater interest than the chosen state].)
The trial court determined California and New York law were "consistent as to all issues to be decided except for limited aspects of contractual interpretation." In analyzing those contractual interpretation issues-in particular the rules governing the admissibility of extrinsic evidence to interpret a contact-the court correctly enforced the parties' contractual choice and applied New York law.
2. The Insertion Orders Are Not Reasonably Susceptible of an Interpretation Conditioning Digitas's Obligation to Pay Kinetic on Kinetic Making Timely Payments to Facebook
Multiplier, as secured creditor for Kinetic, sued Digitas for breach of written contract based on Digitas's decision to withhold the amounts billed under the three Insertion Orders. To establish a claim for breach of contract under New York law, the plaintiff must prove the existence of a contract, the plaintiff's performance of its contractual obligations, the defendant's breach, and resulting damages. (Dee v. Rakower (N.Y.App.Div. 2013) 976 N.Y.S.2d 470, 474 [112 A.D.3d 204, 208-209].)
As the trial court correctly recognized, the elements of a breach of contract claim are the same under California law. (See Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.).
The trial court concluded Multiplier failed to prove the second element of its breach of contract claims, holding, "Kinetic failed to perform under the terms of the contract as intended and expected by the parties when it stopped remitting funds it received from Digitas to Facebook." Critically, the court did not identify an express provision of the Insertion Orders that required Kinetic to perform this obligation. Instead, it determined the written contracts lacked "a 'definite and precise' meaning" and, on that basis, considered extrinsic evidence of the parties' "course of conduct" to find Kinetic was obligated under the Insertion Orders "to pass funds it received from Digitas on to Facebook." Because no provision within the four corners of the Insertion Orders is reasonably susceptible of an interpretation conditioning Digitas's obligation to pay Kinetic on Kinetic passing through Digitas's payments to Facebook, we conclude the trial court erred when it relied on extrinsic evidence to import this obligation into the contracts.
Under New York law, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." (Greenfield v. Philles Records, Inc. (2002) 98 N.Y.2d 562, 569 [780 N.E.2d 166, 170] (Greenfield).) "[A] court may not, under the guise of interpretation, make a new contract for the parties or change the words of a written contract so as to make it express the real intention of the parties if to do so would contradict the clearly expressed language of the contract." (Rodolitz v. Neptune Paper Products, Inc. (1968) 22 N.Y.2d 383, 386 [239 N.E.2d 628, 630].) In resolving issues of contract interpretation, New York courts are enjoined to "concern [themselves] with what the parties intended, but only to the extent that they evidenced what they intended by what they wrote." (Raleigh Associates v. Henry (1951) 302 N.Y. 467, 473 [99 N.E.2d 289, 291].)
Consistent with these principles, "[e]xtrinsic evidence of the parties' intent may be considered only if the agreement is ambiguous." (Greenfield, supra, 780 N.E.2d at p. 170 .) Under New York law, the question of "[w]hether a contractual term is ambiguous must be determined by the court as a matter of law, looking solely to the plain language used by the parties within the four corners of the contract to discern its meaning and not to extrinsic sources." (Ashwood Capital, Inc. v. OTG Mgt., Inc. (N.Y.App.Div. 2012) 948 N.Y.S.2d 292, 297 [99 A.D.3d 1, 7-8] (Ashwood Capital), italics added.) "Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing." (W.W.W. Associates, Inc. v. Giancontieri (1990) 77 N.Y.2d 157, 162 [566 N.E.2d 639, 642].)" '[I]t is a court's task to enforce a clear and complete written agreement according to the plain meaning of its terms, without looking to extrinsic evidence to create ambiguities not present on the face of the document.'" (New York City Off-Track Betting Corp. v. Safe Factory Outlet, Inc. (N.Y.App.Div. 2006) 809 N.Y.S.2d 70, 73 [28 A.D.3d 175, 177] (Safe Factory).) As with other extrinsic evidence, this rule applies to evidence of the parties' course of conduct. (See Matter of Bank of N.Y. Mellon v. BlackRock Fin. Mgt., Inc. (N.Y.App.Div. 2022) 163 N.Y.S.3d 17, 19 [202 A.D.3d 465, 466] ["where a contract is clear and unambiguous, a party's course of conduct could not change its meaning"].)
As the trial court correctly recognized, our state law differs in this respect from the law of New York. Under California law, "[t]he test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." (Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & R. Co. (1968) 69 Cal.2d 33, 37 (Pacific Gas).) Thus, the decision whether to admit parol evidence under our state's law "involves a two-step process." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 (Winet).) "First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity,' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step-interpreting the contract." (Ibid.; accord, Pacific Gas, at p. 40.)
Contrary to Digitas's assertion, the federal authorities cited in its brief do not stand for the proposition that course of dealing evidence is admissible to alter (or interpret) the terms of an unambiguous agreement under New York law. (See New Moon Shipping Co., Ltd. v. MAN B & W Diesel AG (2d Cir. 1997) 121 F.3d 24, 30-31 ["[w]e think the plain language of the offer and confirmation forms in the case at hand is too ambiguous to incorporate by reference MAN's unabridged conditions form"; thus, "[b]ecause the unabridged conditions were not incorporated by reference into the parts contract at issue, the district court properly looked to the prior course of dealings between the parties to determine the parties' contractual intent"]; GMAC Commercial Credit LLC v. Springs Industries (S.D.N.Y. 2001) 171 F.Supp.2d 209, 219 [contracts treated as ambiguous insofar as party conceded "for the purposes of this motion, that the backs of the orders [containing arbitration clause] were never transmitted"; thus, district court looked to prior course of dealing, including first two orders between the parties, to find arbitration clause was part of the agreement].).
" 'A contract is ambiguous if "the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." '" (Safe Factory, supra, 28 A.D.3d at p. 177.) "[M]ere assertion by a party that contract language means something other than what is clear when read in conjunction with the whole contract is not enough to create an ambiguity sufficient" to permit the admission of extrinsic evidence under New York law. (Ibid.)
Because the existence of ambiguity presents a purely legal question, we must independently determine from the four corners of the Insertion Orders whether there is any provision reasonably susceptible of an interpretation conditioning Digitas's obligation to pay Kinetic on Kinetic passing through Digitas's payments to Facebook. (See Ashwood Capital, supra, 99 A.D.3d at pp. 7-8.) The trial court determined the Insertion Orders were ambiguous with respect to the identity of the "Media Company" in the incorporated IAB Terms, and that ambiguity, coupled with the provision embodying the concept of "sequential liability," supported resort to extrinsic evidence of the parties' "course of conduct." Digitas likewise argues the sequential liability provision of the IAB Terms demonstrates that the "obligation to pass through media payments to [Facebook] was inherent" in the Insertion Orders. Having reviewed the relevant provision by itself and in conjunction with the entire writing, we are compelled to conclude this provision is not reasonably susceptible of the interpretation urged by Digitas and determined by the trial court.
As stated in their preamble, the IAB Terms are intended to address a three-party relationship among an advertiser (Advertiser), its advertising agency (Agency), and a digital media publisher (Media Company) arising from an insertion order between the Agency and Media Company for digital ad placements:
"These Standard Terms and Conditions for Internet Advertising for Media Buys One Year or Less are intended to offer Media Companies, Advertisers, and their Agencies a voluntary standard for conducting business in a manner acceptable to all parties. This document is to accompany Agency or Media Company insertion orders and represents a common understanding for doing business."
Consistent with this stated purpose, the IAB Terms supplement an Agency or Media Company insertion order by establishing certain rights and responsibilities to govern the parties' relationship under the contract. These include terms regarding ad placement and positioning, invoicing and payments, reporting, suitability of ad materials, makegood allowances, cancellation, indemnification, confidentiality, and data privacy, among others.
Digitas and the trial court located Kinetic's purported obligation to pass through funds it received from Digitas to Facebook in section III of the IAB Terms. This section, entitled "Payment and Payment Liability," specifies the contractual obligations of the Media Company and Agency with respect to invoicing and payments for ad placements under an insertion order. (Boldface, underlining, and capitalization omitted.) Section III also sets forth the concept of sequential liability that Digitas maintains establishes the purported pass-through obligation.
Section III, subpart (a) mandates the content and timing of invoices the Media Company must deliver to the Agency after completing the relevant ad insertions. Subpart (b), in turn, specifies the terms of the Agency's payment obligation under the insertion order and imposes a duty on the Media Company to give notice when it intends to seek recourse from the Agency's principal-the Advertiser-for the Agency's failure to make a timely payment. Finally, subpart (c) introduces the concept of sequential liability to address the situation where the Agency's payment to the Media Company is due, but the Advertiser has not paid the Agency. The provision states, in relevant part:
"Unless otherwise set forth by Agency on the [insertion order], Media Company agrees to hold Agency liable for payments solely to the extent proceeds have cleared from Advertiser to Agency for Ads placed in accordance with the [insertion order]. For sums not cleared to Agency, Media Company agrees to hold Advertiser solely liable. Media Company understands that Advertiser is Agency's disclosed principal and Agency, as agent, has no obligations relating to such payments, either joint or several, except as specifically set forth in this Section III(c) and Section X(c)."
Section X, subpart (c) provides: "Agency represents and warrants that it has the authority as agent to Advertiser to bind Advertiser to these Terms and Conditions and each [insertion order]. Agency agrees to defend, indemnify and hold harmless Media Company[,] its Affiliates and their respective directors, officers, employees and agents from any and all Losses incurred as a result of Agency's alleged breach of the foregoing sentence."
As noted, the trial court determined the Insertion Orders were ambiguous with respect to whether the parties intended Kinetic or Facebook to be the "Media Company" under the IAB Terms. Resting its analysis on this purported ambiguity, the court reasoned extrinsic evidence was admissible under New York law to prove the interpretation urged by Digitas- namely, that the sequential liability provision in section III, subpart (c) could be reasonably construed to require Kinetic to pass through or otherwise pay Facebook with funds received from Digitas. There are several problems with this proffered construction.
To begin, contrary to the trial court's premise, Facebook cannot be the Media Company under the Insertion Orders because Facebook was not a party to these contracts. Section I, subpart (a) of the IAB Terms expressly limits their scope to an insertion order "submitted by Agency to Media Company" or one "submitted by Media Company, signed by Agency and returned to Media Company." The undisputed evidence showed Digitas did not submit the Insertion Orders to Facebook, nor did Facebook submit the Insertion Orders to Digitas. Rather, Digitas submitted the relevant Insertion Orders to Kinetic, and Kinetic accepted the contracts by countersigning them with Digitas. Because Digitas is plainly the Agency, Kinetic is necessarily the Media Company under the Insertion Orders and incorporated IAB Terms.
We also cannot ignore that adopting the trial court's premise introduces a host of absurdities into the operative writing-chief among them, if Digitas is the Agency, its client or principal is the Advertiser, and Facebook is the Media Company, then there is no role, and hence no obligation, for Kinetic under the sequential liability provision or any other provision of the IAB Terms. Apart from this, as Multiplier emphasizes, the IAB Terms become nonsensical if Facebook is construed to be the Media Company. For example, section II, subpart (a) mandates that "Media Company must comply with the [insertion order], including all Ad placement restrictions . . . and provide within the scope of the [insertion order], an Ad to the Site specified on the [insertion order] when such Site is called up by an Internet user. Any exceptions must be approved by Agency in writing." Plainly, Facebook had no obligation to "comply with" the Insertion Orders because it was not a party to those contracts and had not agreed to be bound by their terms. (See National Survival Game, Inc. v. NSG of LI Corp. (N.Y.App.Div. 1991) 565 N.Y.S.2d 127, 128 [169 A.D.2d 760, 761] (National Survival) ["Since [defendants] were not parties to this agreement, they cannot be bound by it."]; accord, Pacific Carlton Dev. Corp. v. 752 Pac., LLC (N.Y.App.Div. 2009) 878 N.Y.S.2d 421, 422 [62 A.D.3d 677, 678]; HDR, Inc. v. International Aircraft Parts, Inc. (N.Y.App.Div. 1999) 683 N.Y.S.2d 867 [257 A.D.2d 603, 604].) Similarly, section I, subpart (b) requires the "Media Company" to "make commercially reasonable efforts to notify Agency within two business days of receipt of an [insertion order] signed by Agency if the specified [ad] inventory is not available." Again, Facebook could have no such obligation because it was not a party to the Insertion Orders. Other provisions, imposing reporting, indemnification, and confidentiality obligations on the "Media Company" simply cannot be construed to bind Facebook because Facebook did not agree to be bound by these contractual terms. (See National Survival, supra, 169 A.D.2d at p. 761.)
In any event, the sequential liability provision cannot be the source of Kinetic's purported obligation to pay Facebook with funds received from Digitas, because the provision governs only liability for payments due under the Insertion Orders-it does not impose an independent obligation to make such payments (pass-through or otherwise). Sequential liability is a concept in the advertising industry under which an agency is solely liable for amounts owed to a media publisher for ad placements if the agency has been paid for those services by its principal- the advertiser. (News America, supra, 16 A.D.3d at p. 147.) Section III, subpart (c) of the IAB Terms incorporates this concept to address the straightforward issue of whether the Media Company will hold the Agency or its "disclosed principal" -the Advertiser-liable when the Agency has failed to pay an invoice for "Ads placed in accordance with the [insertion order]." Critically, the sequential liability provision does not create the Agency's obligation to pay the invoice. Rather, as the plain language of section III makes clear, this obligation arises under an insertion order between the Agency and Media Company that specifies the terms of the ad placements and payments. The effect of the sequential liability provision is simply to require the Media Company either to pursue the Agency for payments due under an insertion order when the Agency has received payment from its principal for the relevant ad placements, or to pursue the Advertiser, as the Agency's principal, when the Advertiser has failed to pay the Agency for ad placements purchased on the Advertiser's behalf. The provision does not create a contractual obligation to pay any party, much less an obligation to pay a noncontracting party like Facebook that has neither rights nor obligations under the Insertion Orders. (See Premium Mortg. Corp. v. Equifax, Inc. (2d Cir. 2009) 583 F.3d 103, 108 (Mortgage Corp.), quoting Fourth Ocean Putnam Corp. v. Interstate Wrecking Co. (1985) 66 N.Y.2d 38, 45 [485 N.E.2d 208, 212] ["A non-party to a contract governed by New York law lacks standing to enforce the agreement in the absence of terms that 'clearly evidence[ ] an intent to permit enforcement by the third party' in question."]; see also National Survival, supra, 169 A.D.2d at p. 761 ["Since [defendants] were not parties to this agreement, they cannot be bound by it."].)
As discussed, apart from the sequential liability provision in subpart (c), section III of the IAB Terms addresses the Media Company's and Agency's respective obligations to issue and pay invoices "upon completion of the . . . [insertion order]." Contrary to the trial court's construction of the term "Media Company," the undisputed evidence showed Kinetic-not Facebook-issued all invoices to Digitas, and Digitas paid Kinetic-not Facebook- in accordance with the terms set forth in section III. This is not surprising, as the only parties to the Insertion Orders were Digitas and Kinetic-not Facebook.
For this reason, we also reject Digitas's contention that its obligation to pay Kinetic was excused or discharged under the sequential liability provision when Digitas paid Facebook the amounts withheld from Kinetic on Kinetic's unpaid invoices. Contrary to Digitas's argument, the sequential liability provision did not "put the obligation on Digitas to pay Facebook directly for the ads in the event that Kinetic failed to pay Facebook." Rather, as the plain language of section III, subpart (c) makes clear, the sequential liability provision imposes an obligation on the Media Company-not the Agency or Advertiser-to pursue payments due under the insertion order from the Agency or the Advertiser, depending on whether the Advertiser has paid the Agency for ads placed on its behalf. As discussed, the Agency's obligation to pay the Media Company arises under the insertion order. The Advertiser, however, is not a party to the insertion order, and therefore its liability necessarily arises under its separate contractual relationship with the Agency, under which the Advertiser retained the Agency to purchase ads on its behalf. Thus, in the IAB Terms, the Agency warrants to the Media Company that it is agent for the Advertiser with authority to bind the Advertiser to the terms of the insertion order, and the Agency pledges to indemnify the Media Company for any losses incurred due to a breach of that warranty. (See fn. 11, ante.) Of course, because Facebook was not a party to the Insertion Orders, none of this has any bearing on Facebook's right to receive payment from Kinetic. Rather, as the undisputed evidence established, Kinetic's obligation to pay Facebook for the cost of the ad placements arose under a separate agreement between those parties that authorized Kinetic to access and resell Facebook's ad inventory. In any event, to the extent, Digitas or its principals had any apprehension about Facebook's right to the funds withheld from Kinetic, they had a simple solution, as Multiplier points out-Digitas could have interpleaded the funds and let Multiplier/Kinetic and Facebook litigate their competing claims. What Digitas could not do is settle its obligation to pay Kinetic by unilaterally giving priority to an unsecured creditor like Facebook over the claim of a secured creditor like Multiplier.
The sequential liability provision aside, there is a more fundamental reason to reject Digitas's proffered construction that does not hinge on whether Facebook could reasonably be the Media Company under the Insertion Orders. As Digitas's witness Najarian testified, Digitas withheld payments due under the operative Insertion Orders based solely on Kinetic's apparent failure to pay Facebook for ad insertions made under past insertion orders. The Insertion Orders, however, do not address past transactions between the parties, and they plainly do not condition either party's performance on the other party's past performance of a different contract. Regardless of whether Facebook is the Media Company, the operative contracts simply are not susceptible of an interpretation permitting Digitas to withhold payments due and owing to Kinetic based on Kinetic's supposed failure to pay Facebook for ads placed under some other contract.
An alternative construction that required Kinetic to pay Facebook with funds that Digitas paid under the operative Insertion Orders would be an equally untenable basis for Digitas withholding funds from Kinetic. As a matter of logic, Kinetic could only remit funds paid by Digitas after Digitas had paid the funds to Kinetic. Thus, even if the purported pass-through obligation existed, Kinetic could not have breached it while Digitas withheld funds that Kinetic would use to perform the obligation. (See, e.g., Tipton v. Feitner (1859) 20 N.Y. 423, 425 ["where the act to be done by the plaintiff must naturally precede, in the order, of time what the defendant is called upon to do, and . . . where the defendant's performance is the payment or equivalent for something which he is to receive from the plaintiff, . . . it is provided that such equivalent is to be rendered in advance of what is to be received on account of it"]; accord, Front Street, Mission and Ocean R. Co. v. Butler (1875) 50 Cal. 574, 577 ["The payment of money cannot be made dependent on the performance by the other party of a condition, which, by the very terms of the contract, is not to be performed, or may not be performed until after the date at which the money is to be paid."].).
For this reason, we would reach the same conclusion under California law. While our state law requires a court provisionally to receive extrinsic evidence to determine whether a writing is ambiguous, the ultimate test for admissibility is "whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." (Pacific Gas, supra, 69 Cal.2d at p. 37.) Even if extrinsic evidence was relevant to prove the parties intended the term "Media Company" to refer to Facebook, it was ultimately insufficient to prove the construction urged by Digitas because, regardless of the identity of the Media Company, neither the sequential liability provision, nor any other provision of the Insertion Orders, was susceptible of an interpretation conditioning Digitas's obligation to pay Kinetic on Kinetic passing through payments to Facebook for ads placed under other insertion orders. (See Hervey v. Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 961 ["Although parol evidence may be admissible to determine whether the terms of a contract are ambiguous [citation], it is not admissible if it contradicts a clear and explicit policy provision."]; cf. Winet, supra, 4 Cal.App.4th at p. 1165 ["If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted" to aid in interpreting the contract.].).
In sum, no provision of the Insertion Orders or incorporated IAB Terms is reasonably susceptible of an interpretation conditioning Digitas's obligation to pay Kinetic on Kinetic making timely payments to Facebook. The trial court erred by admitting extrinsic evidence to vary the terms of the written contracts. (See Ashwood Capital, supra, 99 A.D.3d at pp. 7-8.)
3. Multiplier Is Entitled to Judgment for the Full Amount of the Unpaid Invoices
"[W]here our independent review of the record reveals only one proper judgment on undisputed facts, we may direct the trial court to enter that judgment." (Rose v. County of San Benito (2022) 77 Cal.App.5th 688, 726 (Rose), citing Code Civ. Proc., § 43; see Singh v. Southland Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 357 ["[a]n appellate court may reverse a judgment with directions to enter a different judgment if it appears from the record that no new evidence of significance would be presented in a new trial and there is only one proper judgment"]; Mid-Century Ins. Co. v. Gardner (1992) 9 Cal.App.4th 1205, 1220 [where plaintiffs were "not suffering under any improper court-imposed limitations on [their] ability to introduce evidence" and apparently "marshalled the best case [they] could at trial," it was proper "to direct that judgment be entered in favor of the defendant to avoid any additional expense"].)
The undisputed evidence established Multiplier had a perfected security interest in Kinetic's accounts receivable, which gave Multiplier the right to collect any indebtedness owing from Digitas to Kinetic (N.Y. U.C.C. § 9-607, subd. (a)(3); accord, Cal. U. Com. Code, § 9607, subd. (a)(3)); Kinetic and Digitas were parties to the Insertion Orders, which required Digitas to pay Kinetic for the specified ad placements within 45 days of receiving Kinetic's invoices; Kinetic invoiced Digitas at the agreed-upon rates for ads placed in accordance with the Insertion Orders; and Digitas did not dispute the accuracy of the invoices, but instead withheld payment in response to Facebook's claim that Kinetic had failed to pay its past invoices for ads placed on behalf of Digitas's clients. The only genuine dispute at trial was whether the Insertion Orders required Kinetic to pay Facebook's past invoices as a condition to receiving payment from Digitas. Because we have determined Kinetic did not have this obligation, we are compelled to conclude Multiplier (as Kinetic's secured creditor) was entitled to judgment in its favor on the breach of contract claims. (See Rose, supra, 77 Cal.App.5th at p. 726.)
As Najarian testified, after receiving notice from Facebook that Kinetic had failed to pay past invoices, Digitas "identified what payments were still due for the activity that ran" and "held payment against those invoices." (Italics added.) Najarian also confirmed that he had no reason to believe the invoices were inaccurate or that the relevant ad placements did not meet the criteria for payment set forth in the Insertion Orders.
Digitas argues Kinetic's (and thus Multiplier's) damages for breach of contract are necessarily limited to Kinetic's "managed service fee" because the Insertion Orders required Kinetic "to remit the pass-through media payments to Facebook." The contention is plainly premised on the nonexistent passthrough obligation that we have rejected. Moreover, although there is no dispute that Kinetic had an obligation to pay Facebook for the ads placed on behalf of Digitas's clients, the undisputed evidence established this obligation arose out of Kinetic's separate agreement with Facebook. Digitas was not a party to that agreement and has no right to avail itself of money owed to Facebook to reduce its independent obligation to pay Kinetic the entire amount properly billed under the Insertion Orders. (See Mortgage Corp., supra, 583 F.3d at p. 108.)
On remand, the trial court shall calculate and award prejudgment interest to Multiplier on the full amount of the unpaid invoices. (See Civ. Code, § 3287.).
DISPOSITION
The judgment is reversed, and the matter is remanded to the trial court with directions to enter judgment for plaintiff Multiplier Capital, LP in accordance with this opinion.
Multiplier is entitled to costs.
We concur: LAVIN, Acting P. J., ADAMS, J.