Lativafter Liquidating Trust v. Clear Channel Communications , 345 F. App'x 46 ( 2009 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0578n.06
Case No. 08-5959 FILED
Aug 18, 2009
UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk
FOR THE SIXTH CIRCUIT
LATIVAFTER LIQUIDATING TRUST, )
)
Plaintiff-Appellee, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE EASTERN
CLEAR CHANNEL COMMUNICATIONS, ) DISTRICT OF TENNESSEE
INC., )
)
Defendant-Appellant. )
)
_______________________________________ )
BEFORE: BATCHELDER, Chief Judge, CLAY, Circuit Judge; and COX*, District Judge.
ALICE M. BATCHELDER, Chief Judge. In this contract dispute, Defendant-Appellant
Clear Channel Communications, Inc. (“Clear Channel”) appeals a jury award of compensatory
damages and the district court’s award of pre-judgment interest to Plaintiff-Appellee Eon Streams,
Inc. (“Eon”).1 For the reasons that follow, we AFFIRM.
I.
Clear Channel operates a network of approximately 1200 radio stations. Prior to going out
of business, Eon provided internet streaming services, which allow radio stations to broadcast live
*
The Honorable Sean F. Cox, United States District Judge for the Eastern District of Michigan, sitting by
designation.
1
On July 23, 2007, the district court granted Eon’s motion to substitute “Lativafter Liquidating Trust” as the
real party in interest.
1
programming on their websites. In January 2004, Eon and Clear Channel entered into a one-year,
automatically renewable Service Agreement, under which Eon would provide internet streaming for
some of Clear Channel’s stations.
Later that year, Stephen Newman, Eon’s chief executive officer, approached Brian Parsons,
Clear Channel’s Vice President of Technology, with a proposal for Eon to provide ad-insertion
technology2 for Clear Channel’s internet broadcasts. On October 13, 2004, Newman e-mailed
Parsons a “Letter of Agreement” (“LOA”) that would amend the Service Agreement between Clear
Channel and Eon. Under the proposed LOA, Eon would, among other things, develop and
implement internet ad-insertion technology for Clear Channel. In return, Clear Channel was to
extend the Service Agreement for a minimum three-year term and move all streaming radio stations
within its network to Eon.
On October 19, 2004, Parsons sent an e-mail to Newman and Emma Woods of Eon, and to
Kim Johnson, Clear Channel’s Vice President of Sales and Marketing. Parsons began the e-mail by
stating: “I am going to have to start from scratch on this but wanted to make sure the deal points
were put into and verified via email first.” Parsons then listed the deal points as including: (1) a
three-year term under which Eon would be Clear Channel’s preferred streaming partner; (2) Eon’s
maintaining competitive pricing, quality, and features; (3) Clear Channel’s maintaining editorial
control of network and branding; and (4) a 15% commission for Eon on any internet advertisement
sale within Clear Channel’s network. The same day, Johnson “replied to all” to note that the 15%
commission would be on advertisement sales initiated by Eon, not on all sales.
2
Ad-insertion technology allows a station to insert advertisements into its “streamed” internet broadcasts to
replace the advertisements that air on the station’s local radio broadcasts.
2
After another round of revisions between Eon and Clear Channel, Woods e-mailed Parsons
what she referred to as “hopefully the final version” of the LOA on October 21, 2004. The next day,
Parsons e-mailed Newman an “updated draft” of the LOA. Parsons wrote: “[A]s a reminder, I won’t
be able to get an answer on a three-year commitment until I confirm with my cohort VPs.” The
attached “updated draft” included all the deal points Parsons had listed in his October 19 e-mail,
including the three-year term.
Parsons attended Eon’s January 2005 board meeting and informed the board that the contract
was “in legal” but assured them: “[W]e have a deal, so nobody has to worry about anything here;
we do have a deal.” At some point after that board meeting, Newman met with Jeffrey Littlejohn,
a Clear Channel Senior Vice President. Newman testified that Littlejohn told him: “We’ve
absolutely got a deal.”
Over the next several months, Eon sought to secure a written expression of that deal so it
could show potential investors that Eon had a solid commitment from Clear Channel. In an effort
to get a signed LOA, Newman presented Parsons with several new proposals suggesting changing
the term from three years to a one-year or two-year renewable term, and even expressing a
willingness to eliminate Eon’s commission on advertisement sales it initiated. Meanwhile, Eon
began developing the ad-insertion technology. Parsons regularly met with Eon during this time.
Representatives of Eon and Clear Channel together met with potential advertising customers. Clear
Channel’s internal communications referred to Eon’s responsibilities to develop the ad-insertion
technology and expressed an objective of moving all streaming stations over to Eon.
Parsons even joined Eon’s board of directors. The minutes of Eon’s April 2005 board
meeting reflect that Parsons announced that Clear Channel was “committed to executing the written
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contract . . . .” At Eon’s July 2005 board meeting, Parsons assured the directors that a signed
contract would be sent that day. That contract, however, never arrived.
In September 2005, Clear Channel signed an agreement with Akamai Technologies, Inc., one
of Eon’s competitors, to serve as Clear Channel’s streaming provider. In November 2005, Clear
Channel notified Eon of its intent to let its Service Agreement with Eon expire. In May 2006, Eon
sold substantially all of its assets to a third party for $17 million.
Eon filed suit against Clear Channel, alleging breach of contract, promissory estoppel, and
negligent misrepresentation. Both parties unsuccessfully moved for summary judgment, and the case
proceeded to a jury trial. Following Eon’s evidence and again at the close of all evidence, Clear
Channel unsuccessfully moved for judgment as a matter of law under Rule 50(a). A jury found for
Clear Channel on Eon’s promissory estoppel and negligent misrepresentation claims, but found for
Eon on the breach of contract claim and awarded Eon $40 million in damages. Clear Channel filed
a post-verdict Rule 50(b) motion for judgment as a matter of law, or, in the alternative, a new trial;
and Eon moved to alter the judgment to include pre-judgment interest. The district court denied
Clear Channel’s motion and granted Eon’s, bringing the total award to approximately $44.2 million.
Clear Channel timely filed its Notice of Appeal.
II.
Clear Channel makes several arguments on appeal. First, it argues it was entitled to judgment
as a matter of law because there was no “meeting of the minds” regarding Eon’s proposed LOA, and
thus no contract for it to breach. Next, Clear Channel contends that the district court erred in
allowing Grady Vanderhoofen, an Eon board member, to testify regarding Eon’s diminished value
4
and that Vanderhoofen’s testimony was, in any event, insufficient evidence of Eon’s damages.
Finally, Clear Channel argues that the district court erred in awarding Eon pre-judgment interest.
A. Was there a contract?
We review a district court’s denial of a Rule 50(b) motion de novo. Radvansky v. City of
Olmsted Falls, 496 F.3d 609, 614 (2007). “[I]n a diversity case, when a Rule 50 motion for
judgment as a matter of law is based on the sufficiency of the evidence, this court applies the
standard of review of the state whose substantive law governs the matter.” American Trim, L.L.C.
v. Oracle Corp., 383 F.3d 462, 471 (6th Cir. 2004) (citing Morales v. Am. Honda Motor Co., 151
F.3d 500, 506 (6th Cir.1998)). In Tennessee,
The standards governing trial courts in ruling on motions for directed verdict or
JNOV . . . are well established. In ruling on the motion, the court must take the
strongest legitimate view of the evidence in favor of the non-moving party. In other
words, the court must remove any conflict in the evidence by construing it in the light
most favorable to the non-movant and discarding all countervailing evidence. The
court may grant the motion only if, after assessing the evidence according to the
foregoing standards, it determines that reasonable minds could not differ as to the
conclusions to be drawn from the evidence. If there is any doubt as to the proper
conclusions to be drawn from the evidence, the motion must be denied.
Potter v. Ford Motor Co., 213 S.W.3d 264, 267-68 (Tenn. Ct. App. 2006) (quoting Eaton v. McLain,
891 S.W.2d 587, 590 (Tenn. 1994)) (internal citations omitted).
Clear Channel argues that the LOA regarding Eon’s ad-insertion technology was not a
contract because Clear Channel never accepted the terms of any of Eon’s various offers. It contends
that there was no meeting of the minds between it and Eon and that their volleys of e-mails and draft
proposals were simply ongoing negotiations that never culminated in a mutual agreement.
Eon, on the other hand, argues that Parsons’s October 22 e-mail with the attached “updated
draft” of the LOA set forth an express contract between the parties. Eon contends that “[t]he jury
5
could legitimately have concluded that the only open item in November 2004 was whether Clear
Channel would confirm a three-year term for the Letter of Agreement.” Eon submits that “[t]he jury
could have concluded that any doubt on this point was removed when Parsons attended the Eon
board meeting in January 2005 and manifested Clear Channel’s unqualified and unconditional
acceptance by stating ‘we have a deal.’” In other words, Eon argues that the evidence was sufficient
for the jury to find that an express contract existed as of October 22, 2004, the date of the final LOA
draft, or at least by January 2005, the date of Parsons’s appearance before the Eon board.
“[A]n enforceable contract must, among other elements, result from a meeting of the minds
and must be sufficiently definite to be enforced.” Rice v. N.N. Inc., Ball & Roller Div., 210 S.W.3d
536, 542 (Tenn. Ct. App. 2006) (quoting Jamestowne on Signal, Inc. v. First Federal Sav. & Loan
Ass’n, 807 S.W.2d 559, 564 (Tenn. Ct. App. 1990)). Taking “the strongest legitimate view of the
evidence in favor of” Eon, and “discarding all countervailing evidence” in favor of Clear Channel,
Potter, 213 S.W.3d at 267, the jury reasonably could have concluded that the parties reached an
agreement on the LOA’s material terms. In replying to Emma Wood’s October 21, 2004, e-mail
containing the “hopefully [] final version” of the LOA, Parsons attached an “updated draft”
containing all the “deal points” listed by Woods in her version. True, Parsons cautioned that he
would have to get approval for a three-year term from his fellow Clear Channel Vice Presidents.
This approval, however, was manifested by Parsons’s and Littlejohns’s subsequent assurances to Eon
CEO Stephen Newman that they “had a deal.” Moreover, the conduct of the parties also served as
evidence that the deal was sealed: Eon and Clear Channel even made joint sales calls to potential
advertising customers. Even if we were inclined to reach an opposite determination, we cannot say
6
“that reasonable minds could not differ as to the conclusions to be drawn from the evidence.” Potter,
213 S.W.3d at 267.
B. Should the district court have allowed Vanderhoofven to testify, and was his
testimony sufficient evidence of Eon’s damages?
Grady Vanderhoofven is a venture capitalist, the Executive Vice-President of Southern
Appalachian Fund (which invested in Eon), and was a member of Eon’s board. Vanderhoofven
testified that Eon’s value would have been $57 million with the Clear Channel contract, instead of
the $17 million it sold for in 2006. As an investor in Eon, Vanderhoofven in 2005 investigated
Eon’s financials, retaining a market research firm to verify Eon’s market potential. When he became
a member of Eon’s board in March 2005, he received Eon’s monthly financial reports, including
income statements, balance sheets, and cash flow statements. Vanderhoofven testified that between
June 2004 and June 2005, the number of stations Eon was streaming increased by over 500%. After
June 2005, however, the revenue from Clear Channel began to dwindle, and Vanderhoofven
determined that Clear Channel was moving its streaming business to another company.
Vanderhoofven based his $57 million valuation on the revenue Clear Channel had been generating
for Eon prior to the discontinuation of their business, and the projection for the 12-month period
prior to Eon’s sale.
Clear Channel argues, as an initial matter, that Eon cannot recover damages for its
diminished value because Tennessee does not recognize diminished-value damages outside the
context of commercial real estate, and because a potential loss in Eon’s value was not contemplated
by the parties when they entered into the contract.
7
In BVT Lebanon Shopping Center, Ltd. v. Wal-Mart Stores, Inc., 48 S.W.3d 132, 136 (Tenn.
2001), the Tennessee Supreme Court upheld a diminished-value award to a shopping center whose
value had decreased when its anchor tenant breached a covenant of continuous occupancy. The court
held that its conclusion was in line with general contract remedies: “The purpose of assessing
damages in breach of contract cases is to place the plaintiff as nearly as possible in the same position
she would have been in had the contract been performed[.]” Id. (quoting Lamons v. Chamberlain,
909 S.W.2d 795, 801 (Tenn. Ct. App.1993)). “Generally speaking,” the court recognized, “damages
for breach of contract include only such as are incidental to or directly caused by the breach and may
be reasonably supposed to have entered into the contemplation of the parties.” Id. (quoting Simmons
v. O’Charley’s, Inc., 914 S.W.2d 895, 903 (Tenn. Ct. App.1995)). The court in BVT Lebanon did
not limit its holding to the commercial real estate context; indeed, it relied on basic principles of
contract law to place the plaintiff in the position it would have enjoyed had the contract been kept.
Here, had Clear Channel not breached the contract, Eon would have had a fixed-term
agreement to stream internet broadcasts for hundreds of radio stations, obviously increasing its
attractiveness to potential investors and buyers. And by the time Clear Channel executives assured
Stephen Newman and the Eon board that a deal was in place, Clear Channel knew that Eon was
seeking assurances to mollify investors; Clear Channel knew that the amended Service Agreement
was integral to Eon’s financial health. Diminished-value damages were in order here and were not
outside the contemplation of the contracting parties.
Clear Channel contends that even if diminished-value damages are allowed in this setting,
they cannot be proven without expert testimony, and that Vanderhoofven’s testimony as a lay
opinion witness under Federal Rule of Evidence 701 was improper. “‘We review for abuse of
8
discretion a district court’s evidentiary rulings, including rulings on witness testimony under Rule[]
701 . . . of the Federal Rules of Evidence.’” United States v. White, 492 F.3d 380, 398 (2007)
(quoting JGR, Inc. v. Thomasville Furniture Indus., Inc., 370 F.3d 519, 524 (6th Cir.2004)). That
Rule provides:
If the witness is not testifying as an expert, the witness’ testimony in the form of
opinions or inferences is limited to those opinions or inferences which are (a)
rationally based on the perception of the witness, (b) helpful to a clear understanding
of the witness’ testimony or the determination of a fact in issue, and (c) not based on
scientific, technical, or other specialized knowledge within the scope of Rule 702.
Fed. R. Evid. 701. The advisory commission notes to the 2000 amendments to Rule 701 provide:
[M]ost courts have permitted the owner or officer of a business to testify to the value
or projected profits of the business, without the necessity of qualifying the witness
as an accountant, appraiser, or similar expert. See, e.g., Lightning Lube, Inc. v.
Witco Corp., 4 F.3d 1153 (3d Cir. 1993) (no abuse of discretion in permitting the
plaintiff’s owner to give lay opinion testimony as to damages, as it was based on his
knowledge and participation in the day-to-day affairs of the business). Such opinion
testimony is admitted not because of experience, training or specialized knowledge
within the realm of an expert, but because of the particularized knowledge that the
witness has by virtue of his or her position in the business.
Id. (emphasis added).
As an investor who researched Eon’s financial condition, and later as a member of Eon’s
board, Vanderhoofven had personal, particularized knowledge of Eon’s value. The district court did
not abuse its discretion in permitting him to testify about Eon’s projected value if it had retained
Clear Channel’s business. Moreover, contrary to Clear Channel’s assertions, Vanderhoofven’s
testimony rested on a sufficient foundation — his personal research into Eon’s financial reports.3
3
On March 13, 2009, Clear Channel moved this Court to certify three questions of law to the Supreme Court
of Tennessee under Tennessee Supreme Court Rule 23. Specifically, Clear Channel asked us to inquire of that court:
“(1) whether Tennessee would permit a corporate plaintiff to recover $40 million in diminished value damages for a
breach of contract that does not involve either permanent damage to real estate or a covenant of continuous occupancy;
(2) whether Tennessee permits a plaintiff to recover diminished value damages for a breach of an implied contract; and
(3) whether Tennessee required diminished value damages to be proven by expert testimony.” Because we hold that an
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C. Should the district court have awarded Eon pre-judgment interest?
We review for an abuse of discretion a district court’s prejudgment-interest award. Gentek
Bldg Products, Inc. v. Steel Peel Litigation Trust, 491 F.3d 320, 333 (2007) (quoting Anderson v.
Whittaker Corp., 894 F.2d 804, 809 (6th Cir.1990)). “There is no dispute that in a diversity action
the question of prejudgment interest must be determined under state law.” Daily v. Gusto Records,
Inc., 14 F. App’x 579, 591 (6th Cir. 2001) (citing Mass. Benefit Ass’n v. Miles, 137 U.S. 689
(1891)). Tennessee law favors “awarding prejudgment interest whenever doing so will more fully
compensate plaintiffs for the loss of use of their funds. Fairness will, in almost all cases, require that
a successful plaintiff be fully compensated by the defendant for all losses caused by the defendant,
including the loss of use of money the plaintiff should have received.” Scholz v. S.B. Intern., Inc.,
40 S.W.3d 78, 83 (Tenn. Ct. App. 2000). The court determined that “Eon’s demise was assured
when Clear Channel breached the parties’ contract on September 9, 2005.” The court then calculated
interest as accruing from that date at a rate equal to 4.666%, the average rate from September 9, 2005
to December 14, 2007. The district court did not abuse its discretion in awarding Eon prejudgment
interest.
III.
Accordingly, we AFFIRM the judgment of the district court.
express contract existed between Eon and Clear Channel, that the Tennessee Supreme Court in BVT Lebanon did not
limit its holding to the real estate context, and that Federal Rule of Evidence 701 permits Vanderhoofen’s testimony, we
hereby DISM ISS Clear Channel’s motion to certify.
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