Opinion
01 cv 1665(GBD).
March 7, 2003
MEMORANDUM OPINION AND ORDER
Plaintiff brought suit against defendant alleging breach of contract, libel, and product disparagement. Defendant, in turn, counterclaimed for breach of contract and fraud based upon the same underlying facts. Plaintiff filed a motion to dismiss defendant's fraud counterclaim. That motion was granted by this Court on April 26, 2002. Defendant now moves this Court for leave to amend its Answer to add a new fraud counterclaim and plaintiff has moved for partial summary judgment. For the reasons that follow, defendant's motion for leave to amend its Answer is denied, and plaintiff's motion for partial summary judgment is denied in part, and granted in part.
I. Background
Plaintiff About.com, Inc. ("About") and defendant TargetFirst, Inc. ("TargetFirst") are both internet services companies that engage in the business of selling advertising on the internet. On or around September 20, 2000, the parties entered into a written agreement whereby About agreed to promote and sell advertising to be displayed on TargetFirst's website. Under the terms of the contract, TargetFirst was to pay About a sum of $300,000 upon execution of the agreement, and another $200,000 on or before December 22, 2000. TargetFirst paid the $300,000, but did not make the $200,000 payment by December 22. Shortly thereafter, this lawsuit commenced.
TargetFirst initially brought suit as the plaintiff in the Superior Court of Santa Clara County, California. However, that case was dismissed for improper venue, and About subsequently initiated suit against TargetFirst in New York Supreme Court. TargetFirst successfully removed the suit to federal district court and counterclaimed with the same allegations and claims it brought as plaintiff in the California suit.
II. Discussion A. TargetFirst's Motion for Leave to Amend its Answer
As indicated earlier, About previously filed a motion to dismiss TargetFirst's original fraud counterclaim. Oral argument was held on September 7, 2001, and this Court rendered a decision on April 26, 2002.In that decision, this Court held that by the explicit terms of the contract, New York law, as opposed to California law, governs the case. Next, this Court found that the facts failed to meet the test for an actionable fraud claim under either Bridgestone/Firestone, Inc. v. Recovery Credit Serv., Inc., 98 F.3d 13 (2d Cir. 1996), or Channel Master Corp. v. Aluminum Ltd. Sales, Inc., 4 N.Y.2d 403 (1958). With respect to the Bridgestone test, this Court found that About's alleged misrepresentations regarding it's expected performance under the contract were not collateral to the agreement, in that those misrepresentations merely concerned the same subject matter as that discussed in the agreement. Therefore, TargetFirst could not sustain a fraud counterclaim under the Bridgestone test.
This Court further found that under Channel Master, TargetFirst's fraud claim also must fail. This Court found that About's alleged misrepresentations merely constituted prophecy and prediction of its potential future performance, rather than a specific affirmation as to what will actually occur. Further, this Court found that the misrepresentations were not made with knowledge of their falsity. As TargetFirst failed to meet either the Bridgestone or Channel Master tests to sustain a cause of action for fraudulent misrepresentation, this Court dismissed the counterclaim. In any event, this Court found that TargetFirst could not assert a fraud counterclaim based upon representations made outside the four corners of the contract, as the contract contained a merger clause which specifically stated that any statement, promise, or inducement not contained in the written agreement shall not be binding on either party.
This Court denied TargetFirst's motion for Reconsideration on June 18, 2002.
Subsequently, TargetFirst filed a motion for leave to amend its Answer to add, what it claims, is a new counterclaim for fraud that meets the pleading standards discussed in this Court's April 26 Order. About opposes this motion, arguing inter alia that TargetFirst's proposed counterclaim is merely a reconstituted version of the counterclaim this Court dismissed. This Court agrees.
Federal Rule of Civil Procedure 15(a) provides that a party may amend a pleading after it has been served "only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." FED. R. Civ. P. 15(a). The district court has discretion whether or not to grant a party leave to amend a pleading.See Ruffolo v. Oppenheimer Co., 987 F.2d 129, 131 (2d Cir. 1993). "[U]ndue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of the amendment" are factors a court may consider in denying leave to amend. Foman v. Davis, 371 U.S. 178, 181 (1962) (emphasis added). "[W]here . . . there is no merit in the proposed amendment, leave to amend should be denied." Health-Chem Corp. v. Baker, 915 F.2d 805, 810 (2d Cir. 1990). It is not an abuse of discretion to deny leave to amend where amending the pleading would be unproductive to the litigation. See Ruffolo, 987 F.2d at 131, citing Foman, 371 U.S. at 181.
When revisiting an issue previously decided in an ongoing case, this Court is guided by the "law of the case" doctrine. That doctrine "posits that if a court decides a rule of law, that decision should continue to govern in subsequent stages of the same case." Aramony v. United Way of Am., 254 F.3d 403, 409 (2d Cir. 2001), quoting In re Crysen/Montenay Energy Co., 226 F.3d 160, 165 n. 5 (2d Cir. 2000).
The facts TargetFirst alleges as the basis for its proposed counterclaim are as follows: 1) that Kimberly Krouse, an About representative, misrepresented to TargetFirst during negotiations of the contract that About had sold 100% of the impressions displayed on its existing network of web-sites; and 2) that Krouse misrepresented to a TargetFirst representative during negotiations that About's current advertising inventory was sold out. TargetFirst claims that these alleged misrepresentations are not only false statements of past successes intended to induce TargetFirst into the agreement, but also false statements of present material facts, giving rise to a separate cause of action for fraud.
However, this Court finds that the proposed counterclaim is nothing more than a reconstituted version of the one this Court previously dismissed in the April 26 Order. TargetFirst attempts to avoid this Court's April 26 Order by now framing About's statements as material misrepresentations regarding About's present state of affairs, as opposed to its past successes. However, the underlying factual basis that TargetFirst relies upon, i.e. the substance of Krouse's alleged misrepresentations regarding About's business successes with other customers, has not changed. Nor has anything changed regarding the timing the misrepresentations were made to TargetFirst, in that they were made during the negotiation process, as opposed to after the agreement was signed. Additionally TargetFirst has not presented any new evidence showing that About had no intention of performing under the agreement.
This is the same counterclaim this Court previously dismissed, and TargetFirst can not escape this Court's April 26 ruling merely by rephrasing the counterclaim. As in the April 26 Order, this Court again finds, as a matter of law, that the facts of this case do not support TargetFirst's counterclaim for fraud. Consequently, this Court will deny TargetFirst's motion for leave to amend its Answer.
B. About's Motion for Partial Summary Judgment
About moves for summary judgment on its First Cause of Action against TargetFirst for of the $200,000. About also seeks summary judgment on the portions of TargetFirst's counterclaims to the extent they seek to recover damages incurred after December 22, 2000. Finally, About has also moved for summary judgment dismissing TargetFirst's breach of contract counterclaim relating to the delivery of the 50 million impressions.
Advertisements on the internet are referred to as "impressions." Certain websites, such as the ones run by About, contain areas where advertisements can be placed. These ads can run continuously one after the other, so that the viewer sees a steady stream of ads in the window. This is known as "delivering" or "serving" the impressions.
Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See FED. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A court will resolve all ambiguities in favor of the non-moving party. See Holt v. KMI-Continental Inc., 95 F.3d 123, 128 (2d Cir. 1996). A dispute regarding a material fact is genuine if a reasonable jury could return a verdict for the non-moving party. See Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000). "Although the moving party bears the initial burden of establishing that there are no genuine issues of material fact, once such a showing is made, the nonmovant must set forth specific facts showing that there is a genuine issue for trial." Id.,quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). "The non-moving party may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). Rather, the non-movant must present specific facts showing that a genuine factual dispute exists. See id. at 114, citing Wright v. Coughlin, 132 F.3d 133, 137 (2d Cir. 1998).
About moves for summary judgment against TargetFirst on its breach of contract claim for non-payment of the $200,000. Section 5(A) of the agreement provides:
Upon execution of this Agreement, [TargetFirst] agrees to pay About.com nonrefundable, nonrecoupable fees of Three Hundred Thousand Dollars ($300,000) in connection with the delivery of the Impressions prior to September 30, 2000, pursuant to Section 2(A) and on or before December 22, 2000 Two Hundred Thousand Dollars ($200,000). If [TargetFirst] does not pay About.com all such fees equaling Five Hundred Thousand Dollars ($500,000) on or before December 22, 2000, this Agreement shall automatically terminate as of December 22, 2000.
Agreement § 5(A), Hirose Aff., Exhibit C (emphasis added). About argues that it is entitled to summary judgment because it is undisputed that TargetFirst failed to make the $200,000 payment by December 22, and by the plain language of the agreement, the agreement automatically terminated. TargetFirst, on the other hand, argues that About committed an anticipatory breach, in that About insisted upon a definition of the term "sold" that is not in the contract and/or an untenable interpretation of that term. TargetFirst, therefore, contends that About committed an anticipatory breach and that TargetFirst was entitled to withhold payment of the $200,000.
"[T]he doctrine [of anticipatory breach] relieves the nonrepudiating party of its obligation of future performance and entitles that party to recover the present value of its damages from the repudiating party's breach of the total contract." Am. List Corp. v. U.S. News and World Report, Inc., 75 N.Y.2d 38, 44 (1989); see also Norcon Power Partners, L.P. v. Niagara Mohawk Power Corp., 705 N.E.2d 656, 659 (N.Y. 1998). A party may recover for an anticipatory breach if it can show that the other party insisted upon terms not contained in the contract, and that it was prepared to perform its own obligations under the contract. See Towers Charter Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 524 (2d Cir. 1990) (applying New York law). Further, an anticipatory breach may occur where "the other party has attempted to avoid its obligations by advancing an `untenable' interpretation of the contract, or has communicated its intent to perform only upon the satisfaction of extracontractual conditions." SPI Communications v. WTZA-TV Assoc. Ltd. Partnership, 229 A.D.2d 644, 645 (N.Y.App.Div. 1996). The announcement of intention not to perform by the repudiating party must be "positive and unequivocal." Tenavision, Inc. v. Neuman, 379 N.E.2d 1166, 1168 (N.Y. 1978).
Here, the agreement provides that:
About.com shall guarantee to [TargetFirst] a minimum average gross CPM of $4.00 CPM for all inventory generated by the Private Label Site and sold by About.com.
CPM, or Cost Per Thousand, is a means in the internet industry to price online advertising. The publisher gets paid based upon the number of advertisements viewed by the web surfer. A $4.00 CPM signifies that a buyer of advertising paid, or the seller of advertising received, $4.00 for each 1000 impressions of advertising displayed.
Agreement § 2(C)(i), Hirose Aff., Exhibit C (emphasis added). TargetFirst alleges that the plain meaning of the word "sold" requires About to obtain a $4.00 CPM for all advertising it placed on the TargetFirst website. TargetFirst contends that on December 4, 2000, About provided TargetFirst with an initial revenue report regarding the sale of the advertising impressions displayed during November 2000. That report revealed that About was not receiving revenue on a CPM basis for the majority of the 50 million impressions. Rather than a CPM of $4.00, the average CPM in the month of November was $0.87. On December 12, TargetFirst received a revised revenue report. In this report, About claimed that a majority of the impressions had not been "sold," and reported the approximate CPM as $0.60.
Following receipt of these two reports, Chris Yeh of TargetFirst called Kimberly Krouse of About. TargetFirst claims that Yeh told Krause that About was not meeting its performance obligations and that if About continued with its intention to pay TargetFirst a CPM less than $4.00, About would be in breach of the agreement. In response, Krouse communicated to Yeh that the agreement did not require About to obtain a $4.00 CPM because "sold," as used in the contract, only means those impressions for which a monetary payment was received by buyers, and not the combination of both "paid" and "unpaid" impressions displayed on the website. On December 13, TargetFirst's CEO wrote an email to About's CEO seeking an explanation of About's interpretation of the contract. TargetFirst's CEO did not receive a response to this email. Subsequently, TargetFirst refused to make payment of the $200,000 on December 22.
TargetFirst contends that these circumstances give rise to a genuine issue of material fact that About committed an anticipatory breach of the contract. This Court agrees. When viewed in totality, this Court can not say as a matter of law that TargetFirst breached the contract when it refused to make the December 22 payment. Rather, there is a genuine issue of material fact as to which party breached the contract, and this Court will, therefore, deny summary judgment on About's breach of contract claim for failure to make the $200,000 payment.
For the same reasons, this Court will also deny About's motion for summary judgment on the portions of TargetFirst's counterclaims to the extent the counterclaims seek to recover damages incurred after December 22, 2000. These counterclaims are intrinsically tied to TargetFirst's other counterclaim against About for anticipatory breach. As stated earlier, there is a genuine issue of material fact as to which party committed the breach, and therefore this Court will also deny About's motion for summary judgment against TargetFirst on the portion of TargetFirst's counterclaims that seek damages after December 22, 2000.
About further moves for summary judgment on TargetFirst's breach of contract counterclaim with respect to TargetFirst's allegation that About failed to deliver the 50 million impressions. Section 2(B) of the agreement provides:
Commencing on the Effective Date and continuing until approximately September 30, 2000, About.com shall deliver to [TargetFirst] a total of 50,000,000 banner advertising impressions (the "Impressions") which shall be displayed throughout the About.com network of Web sites (RON)[.]
Agreement § 2(B), Hirose Aff., Exhibit C (emphasis added). The agreement, by its plain language, provided for flexibility in the final delivery date. It is undisputed that About began delivery of the promotional impressions on September 21, 2000. As of September 30, About had delivered 41,735,045 impressions. By October 3, About had delivered 49,964,389 impressions, or 99.9% of the total impressions. By October 11, About completed delivery on the remaining impressions. Thus, eleven days after September 30, delivery had been completed.
TargetFirst claims that the approximate date in Section 2(B) does not mean what it says. Rather, TargetFirst argues that section 2(B) must be read in conjunction with Section 5(A) of the agreement, which details the terms of payment. Again, Section 5(A) provides:
Upon execution of this Agreement, [TargetFirst] agrees to pay About.com [a] nonrefundable, nonrecoupable fee of Three Hundred Thousand Dollars ($300,000) in connection with the delivery of the Impressions prior to September 30, 2000, pursuant to Section 2(A)[.]
Agreement § 5(A), Hirose Aff., Exhibit C. TargetFirst claims that in light of section 5(A), the contract requires About to deliver the 50 million impressions prior to September 30, not approximately by September 30.
TargetFirst's reading of the agreement is contrary to its plain language. Section 2(B) is clear in that the final delivery date of the impressions is merely an approximation. About delivered all of the impressions within eleven days of that approximate date. TargetFirst does not even argue that an eleven day window is an unreasonable amount of time. Rather, TargetFirst insists that Section 5(A) alters the meaning of Section 2(B). However, Section 5(A) references Section 2(B) merely to discuss the terms of payment by which TargetFirst was obligated. Section 5(A) states that TargetFirst was obligated to make the $300,000 payment prior to September 30, and that this payment is made in connection with the delivery of impressions discussed under Section 2(B). Nothing about Section 5(A) alters the plain meaning of Section 2(B), and this Court finds, as a matter of law, that About did not breach the contract in relation to the delivery of the 50 million impressions. Therefore, this Court grants summary judgment in favor of About on TargetFirst's counterclaim for breach of contract relating to the delivery of the impressions.
III. Conclusion
TargetFirst's motion for leave to amend its Answer is denied. Further, this Court denies About's motion for summary judgment on its breach of contract claim against TargetFirst for payment of the $200,000, as well as About's motion for summary judgment with respect to the portions of TargetFirst's counterclaims that seek damages incurred after December 22, 2000. This Court grants About's motion for summary judgment dismissing TargetFirst's breach of contract counterclaim relating to the delivery of the 50 million impressions.
SO ORDERED.