Balmoral Racing Club, Inc. et al v. Churchill Downs, Incorporated
Filing
122
MEMORANDUM OPINION Signed by the Honorable John F. Grady on June 18, 2013. Mailed notice(cdh, )
11-1028.131-RSK
June 18, 2013
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BALMORAL RACING CLUB, INC.,
MAYWOOD PARK TROTTING CLUB
ASSOCIATION, INC., and THE
ILLINOIS HARNESS HORSEMEN’S
ASSOCIATION, INC.,
)
)
)
)
)
)
Plaintiffs,
)
)
v.
)
)
CHURCHILL DOWNS, INC., CHURCHILL
)
DOWNS TECH. INITIATIVES CO. d/b/a )
TWINSPIRES.COM and YOUBET.COM, LLC,)
)
Defendants.
)
No. 11 C 1028
MEMORANDUM OPINION
Before the court are: (1) the defendants’ motion for summary
judgment; (2) the plaintiffs’ motion for summary judgment; and (3)
the defendants’ motion to strike certain exhibits and factual
assertions.
For the reasons explained below, we deny the parties’
motions.
BACKGROUND
A.
The Co-Branding Agreement (“CBA”)
Plaintiffs Balmoral Racing Club, Inc. (“Balmoral”) and Maywood
Park Trotting Association, Inc. (“Maywood”) operate horse-racing
tracks located near Chicago, Illinois.
(Pls.’ Stmt. of Material
Facts in Supp. of Mot. for Summ. J. (hereinafter, “Pls.’ Stmt.”) ¶
1.)
On December 13, 2007, Balmoral, Maywood, Fairmount Park, Inc.
- 2 -
(“Fairmount”), Hawthorne Racecourse, Inc., and Suburban Downs,
Inc.1 entered into the CBA with Youbet.com, Inc. (“Youbet”).
(Id.
at ¶ 6; see also CBA, attached as Tab 16 to Defs.’ Appx. in Supp.
of Rule 56 Stmts. (hereinafter, “Defs.’ Appx.”).)
At that time,
Youbet operated an advanced deposit wagering (“ADW”) service that
(Pls.’ Stmt. ¶ 8.)2
permitted online wagering on horse races.
Pursuant to the CBA, Youbet agreed to develop a “co-branded
version” of its primary website, “www.youbet.com” (the “Co-Branded
Pages”).
(CBA Recitals ¶ D; see also id. at § 1.)
The agreement
originally contemplated the development and promotion of a separate
website, “www.youbetillinois.com,” but the parties later agreed to
use “www.youbet.com” as the Co-Branded Pages.
(Pls.’ Smt. ¶ 11.)3
The parties mutually agreed to promote the Co-Branded pages “in
order to maximize the number of visitors.”
(CBA § 2.1; see also
id. at § 2.2.)
1/
We will follow the parties’ lead and refer to Hawthorne Racecourse,
Inc. and Suburban Downs, Inc. collectively as “Hawthorne” because they share a
Fairmount and
common owner. (See Defs.’ Rule 56.1(a)(3)(C) Stmt. ¶ 42.)
Hawthorne, like Balmoral and Maywood, own and operate horse-racing tracks in
Illinois. (Id.)
2/
ADW is a form of pari-mutel wagering on horse races in which an
individual establishes an account with a licensed entity, deposits money into
that account, and uses the account balance to pay for wagers via the Internet or
telephone. (Defs.’ Rule 56.1(a)(3) Stmt. (hereinafter, “Defs.’ Stmt.”) ¶ 15.)
A portion of the money wagered is returned to the winning bettors, a portion is
paid to the horsemen, a portion is paid to the state, and a portion is paid to
the host track. (Id. at ¶ 17.)
3/
The parties’ agreement to use www.youbet.com as the Co-Branded Pages
was not reduced to writing.
(See Defs.’ Stmt.¶ 37.)
- 3 -
Under the CBA, the tracks (referred to in the agreement as
“Associates”) were entitled to a share of wagers placed through
www.youbet.com by Illinois residents, including Illinois residents
who were already Youbet customers when the parties executed the
CBA.
(See Pls.’ Stmt. ¶ 8; Defs.’ Stmt. ¶¶ 25, 28.)
The
Associates’ fees were calculated and distributed as follows:
The Company [Youbet] shall retain one-third (1/3) of Net
Commissions plus one-third (1/3) of breakage plus onethird (1/3) of Net Revenues (collectively, “Company
Fees”). After deducting the Company Fees, the remainder
of Net Commissions, breakage and Net Revenues will be
paid to Associates. The Company will pay such amounts to
Associates in accordance with written instructions signed
by all Associates.
(See Second Am. to CBA § 6.1.)4
their
potion
of
Net
The Associates agreed to split
Commissions,
breakage,
and
Net
Revenues
according to the “distribution by zip code” set forth in Profit and
Loss Statements (“P&L’s”) prepared by Youbet: approximately 10% to
Fairmount, with the balance divided between Hawthorne (52.5%) and
Maywood/Balmoral (47.5%).
(See Defs.’ Rule 56.1(b)(3)(C) Stmt. ¶
54; see also Hannon Dep. 2012, attached as Ex. N to Pls.’ Supp.
Designation of Evidence, at 182.)
B.
Fairmount
After signing the CBA, the Associates agreed that Fairmount’s
share of CBA fees would be placed into an escrow account because
Fairmount was concerned about the legality of ADW in Illinois.
4/
“Net Commissions” and “Net Revenues” are defined in the agreement at
§§ 6.2 and 6.3, respectively. “[B]reakage” is not defined.
- 4 -
(Defs.’ Rule 56.1(b)(3)(C) Stmt. ¶ 46.) Fairmount decided in early
2009 that it no longer planned to participate in the CBA.
¶ 47; Pls.’ Stmt. ¶ 19.)
(Id. at
The plaintiffs sought to negotiate with
Fairmount to obtain Fairmount’s share of the CBA fees, (see Defs.’
Rule
56.1(b)(3)(C)
Stmt.
negotiations is unclear.
¶
48),
but
the
outcome
of
those
There is evidence in the record that
Hawthorne and Balmoral/Maywood split the money (approximately
$78,000) that was being held in the escrow account for Fairmount’s
benefit.
(See Hannon Dep. 2012 at 230-31.)
But the record does
not disclose any specifics about this transaction.
The parties
agree, however, that Youbet stopped paying Fairmount’s share of CBA
fees in June 2009. (See Defs.’ Rule 56.1(b)(3)(C) Stmt. ¶ 49.)
In
October 2009, Fairmount entered into an ADW agreement with a
competing
provision.
C.
On
ADW
provider,
contrary
to
the
CBA’s
exclusivity
(Id. at ¶ 50; see also CBA § 4.1.)
The Youbet Merger & ADW Platform Integration
November
11,
2009,
defendant
Churchill
Downs,
Inc.
(“Churchill”) announced that it had reached an agreement to acquire
Youbet.
(Defs.’ Stmt. ¶ 29.)
The transaction, which the parties
finalized on June 2, 2010, took the form of a merger between Youbet
and a wholly-owned subsidiary of Churchill.
(Id. at ¶ 30.)
The
surviving entity, Tomahawk Merger, LLC, was renamed Youbet.com,
- 5 -
(Id.)5
LLC.
The merger triggered the plaintiffs’ right to
terminate the CBA.
(See CBA § 10.2(c) (authorizing the Associates
to terminate the CBA with 30 days notice if there is a change-ofcontrol transaction affecting Youbet).)
The plaintiffs chose not
to exercise their termination right, although the parties dispute
why.
The plaintiffs contend that they did not terminate the CBA
because of Churchill’s assurances that Youbet would continue to
honor the agreement’s terms.
Defs.’ Stmt. ¶ 34.)6
(See Pls.’ Stmt. ¶ 31; see also
The defendants contend that the plaintiffs
were motivated instead by their desire to be bought out of the
agreement.
(See Defs.’ Rule 56.1(b)(3)(B) Stmt. ¶ 31.)
At the time of the merger, another Churchill subsidiary —
defendant Churchill Downs Technical Initiatives Company, d/b/a
TwinSpires.com (“TwinSpires”) — operated a competing ADW service.
(Defs.’ Stmt. ¶ 31; see also Pls.’ Stmt. ¶¶ 3, 32.)
The two
companies operated separate ADW services for a period of time after
the merger, but soon began preparing to integrate the two ADW
5/
Although Youbet.com, Inc. ceased to exist as a separate corporate
entity, the parties agree that the new entity succeeded to the company’s rights
and duties under the CBA. (See Pls.’ Stmt. ¶ 26); see also U.S. Shoe Corp. v.
Hackett, 793 F.2d 161, 163-64 (7th Cir. 1986). For the sake of convenience, we
will refer to both Youbet.com, Inc. and Youbet.com, LLC as “Youbet.”
6/
The plaintiffs contend that Churchill representatives assured the
Associates that the two ADW platforms would always remain separate. (See Pls.’
Stmt. ¶ 31.) They rely on the deposition testimony of James Hannon, a
representative of Balmoral and Maywood. Hannon’s testimony is unclear, however,
about whether he received explicit assurances to that effect or, instead, whether
that was simply his understanding of what it meant to “honor” the CBA. (See
Hannon Dep 2011, attached as Ex. A to Pls.’ Designation of Evidence in Supp. of
Mot. for Summ. J. (hereinafter, “Pls.’ Designation”) at 137-39; Hannon Dep 2012,
attached Ex. B to Pls.’ Designation, at 249-50.)
- 6 -
platforms.
Churchill
(See Defs.’ Stmt. 39.)
had
publically
The plaintiffs were aware that
expressed
its
intent
to
integrate the two ADW platforms under one brand name.
¶ 33.)
eventually
(See id. at
But the defendants did not tell the plaintiffs about their
specific plans until November 9, 2010.
(Id. at ¶ 40.)
On that
date, Bradley Blackwell (an officer of Churchill, TwinSpires, and
Youbet) and Lucky Kalanges (a legacy Youbet employee) convened a
conference call with representatives of the Associates, including
Hannon.
(Id.)
During the call Blackwell and Kalanges told the
Associates that, on November 16, 2010, the defendants were going to
integrate the Youbet and TwinSpires ADW platforms — combining the
best features of both — under the TwinSpires brand name.
¶¶ 40-41.)
integrated
(Id. at
Current Youbet customers would have access to the
platform
using
their
passwords, and account balances.
existing
Youbet
(Id. at ¶ 42.)
user
names,
The defendants
would assign “cable codes” to those customers, permitting the
parties to continue tracking their wagering activity in order to
calculate the Associates’ CBA fees. (Id. at ¶ 43.) The defendants
would phase out www.youbet.com over time and establish a new URL,
www.youbetillinois.com.
(Id. at ¶ 44.)
New customers who signed
up through the new URL would be counted as customers under the CBA
for purposes of calculating the plaintiffs’ fees regardless of
which
URL
—
www.twinspires.com,
www.youbet.com,
or
www.youbetillinois.com — they used to access the platform. (Id. at
- 7 -
¶ 47.)
However, the plaintiffs would not be entitled to fees for
wagers placed by new customers who signed up to use the service
after
integration
through
either
www.youbet.com
or
www.twinspires.com. (Id. at ¶¶ 47, 58.)
After hearing the defendants’ integration plans, Hannon asked
the
defendants
to
continue
counting
as
CBA
“Customers”
new
customers who signed up to use the integrated platform through
www.youbet.com.
(Id. at ¶ 50.)
would look into his request.
Blackwell told Hannon that he
(Id.)
Hannon emailed Blackwell the
following day and pressed the point more forcefully, demanding that
the Associates get the benefit of new customer sign-ups through
www.youbet.com “for a period of time.”
(Id. at ¶ 51.)
On November
11, 2010, Blackwell agreed to credit the Associates for wagers
placed by new customers who signed up via www.youbet.com through
the end of 2010.
(Id. at ¶ 53.)
satisfied with the change.
Hannon responded that he was
(Id. at ¶ 53; see also id. at ¶¶ 59-61
(Hannon emailed certain interested parties about the changes and
testified at his deposition that the emails were consistent with
his “agreement” with Blackwell concerning “how customers and wagers
would be tracked under the [CBA] after the migration.”).)
The
defendants emphasize that the plaintiffs did not assert at that
time that the integration breached the CBA. (See id. at ¶¶ 54-55.)
The plaintiffs contend that Hannon voiced his dissatisfaction
during
other
conversations
with
Blackwell,
(see
Pls.’
Rule
- 8 -
56.1(b)(3)(B) Stmt. ¶¶ 54-55), but Hannon’s testimony on this
subject is vague.
(See Hannon Dep. 2012, attached as Tab 12 to
Defs.’
34-37
Appx.,
at
(testifying
Blackwell
about
vaguely
his
about
subsequent
communications
with
integration).)
It is undisputed that the plaintiffs did not send
a written notice of breach at that time.
unhappiness
with
the
(Defs.’ Stmt. ¶ 56; see
also CBA § 10.2(d) (authorizing the parties to terminate the CBA
for a material breach that is not cured within 30 days after
providing written notice thereof).)
On November 16, 2010, the
defendants integrated the Youbet and TwinSpires ADW platforms
consistent with their representations the prior week.
(Defs.’
Stmt. ¶¶ 62-64.)
D.
Youbet’s License
Termination
Renewal
Application
and
the
CBA’s
The Illinois Horse Racing Act requires ADW providers to obtain
a license from the Illinois Racing Board (“IRB”).
5/3.28
(“An
advance
deposit
wagering
licensee
See 230 ILCS
shall
be
an
organization licensee or a person or third party who contracts with
an organization licensee in order to conduct advance deposit
wagering.”);7 5/3.29 (“Any person who accepts an advance deposit
wager who is not licensed by the Board as an advance deposit
wagering licensee shall be considered in violation of this Act and
the Criminal Code of 2012.”).
7/
In June 2010, Youbet.com, LLC (the
An “organization licensee” is licensed to conduct horse races.
ILCS 5/3.11.
See 230
- 9 -
new entity) applied for and received a license to operate its ADW
platform in Illinois through December 31, 2010.
56.1(a)(3)(C) Stmt. ¶¶ 24, 26.)
(See Defs.’ Rule
On October 29, 2010, Youbet
submitted an application to renew its ADW license for 2011.
(Defs.’ Stmt. ¶ 67.)
On November 10, 2010 — the day after the
conference call regarding the YouBet/TwinSpires integration —
Hannon spoke with Marc Laino, the IRB’s Executive Director.8
at ¶ 70.)
(Id.
In an email summarizing his conversation with Laino,
Hannon stated that he told Laino about the integration and about a
“possible illegal business practice.”
(Id.)
He went on to
indicate that he regarded Youbet’s license renewal application as
a possible bargaining chip in his negotiations for a buy out. (See
id. (“On Tuesday, November 30th an item on the Board agenda will be
the renewal of Twinspires, Youbet, TVG and Xpressbet Illinois ADW
licensees [sic] for 2011 — this is good timing for us in our
negotiations
with
meeting.”).)
CDI
for
the
buy
out
prior
to
this
Board
On November 26, 2010, Hannon sent an email to a
representative of Day at the Track, another ADW operator, stating:
“things are progressing slowly with [Churchill] — (getting out of
my Youbet contract) however, they are still moving forward — we are
asking for conditions to be put on them when they go up for
licensing next week therefore, we hope they will now want out of
the contract.”
(Id. at ¶ 71.)
Before the November 30, 2010 IRB
8/
Laino’s duties as Executive Director include the “review and
investigation of license applications . . . .” (See Laino Aff., attached as Ex.
I to Pls.’ Designation, ¶ 2.)
- 10 -
meeting, Hannon sent a memo to IRB members entitled “Youbet
Concerns” that listed a range of grievances including alleged
“credit card abuse” and CBA violations.
(Id. at ¶ 72.)
In the
memo, Hannon urged the IRB to “postpone the licensing of Youbet LLC
until the December Board meeting in order to give the parties to
the Agreement more time to resolve these issues.”
(Id.)
Laino
opened the November 30 IRB meeting by recommending that the Board
deny Youbet’s application because Youbet was no longer eligible for
an ADW license after the integration. (See Trans. of IRB Meetings,
dated Nov. 30, 2010, attached as Tab 27 to Defs.’ Appx., at 6;
Laino Aff. ¶ 13.)9
During the course of the meeting, Hannon (1)
accused Youbet of “anticompetitive practices” that he said should
be brought to the “Justice Department’s attention;” (2) asked the
Board
to
“investigate
[Youbet’s]
license
based
on
these
anticompetitive practices and rule violations . . . ;” and (3)
asked that the Board place “conditions” on Youbet before granting
its license application.
chose
to
defer
(Defs.’ Stmt. ¶ 75.)
further
consideration
of
The IRB ultimately
Youbet’s
renewal
application until the Board’s December 21, 2010 meeting.
(Id. at
¶ 77.)
On December 1, 2010, Youbet notified the plaintiffs that it
was terminating the CBA (as to plaintiffs) based upon their failure
9/
We discuss the bases for Laino’s recommendation in greater detail later
in this opinion.
- 11 -
to use their “best efforts” to assist Youbet in renewing its ADW
license.
(Id. at ¶ 79; see also CBA § 10.2(d) (termination for
cause); Second Am. to CBA § 9 (“best efforts” clause).)
On that
same day, Youbet notified Hawthorne that it was terminating the CBA
(as to Hawthorne) because Youbet had learned that Hawthorne had
entered into an agreement with another ADW provider.
(Defs.’ Rule
56.1(b)(3)(C) Stmt. ¶ 51.) The plaintiffs responded with their own
notice of material breach on December 20, 2010 citing, among other
things, the alleged assignment and delegation of the CBA to
“[Churchill], TwinSpires and/or Youbet.com, LLC.” (See Letter from
D. Brown and S. Groth to B. Blackwell, dated Dec. 20, 2010,
attached as Tab 51 to Defs.’ Appx.)
The plaintiffs filed this
lawsuit on February 14, 2011, alleging breach of contract (Count
I),
trade
secret
misappropriation
(Count
II),
and
tortious
interference (Count III).
DISCUSSION
The parties have filed cross-motions for summary judgment on
the plaintiffs’ claim for breach of contract, only.
“The court
shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
In
considering such a motion, the court construes the evidence and all
inferences that reasonably can be drawn therefrom in the light most
favorable to the nonmoving party.
See Pitasi v. Gartner Group,
- 12 -
Inc., 184 F.3d 709, 714 (7th Cir. 1999).
"The court need consider
only the cited materials, but it may consider other materials in
the record.”
Fed. R. Civ. P. 56(c)(3).
“Summary judgment should
be denied if the dispute is ‘genuine':
‘if the evidence is such
that a reasonable jury could return a verdict for the nonmoving
party.'”
Talanda v. KFC Nat'l Mgmt. Co., 140 F.3d 1090, 1095 (7th
Cir. 1998) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986)). The court will enter summary judgment against a party
who does not “come forward with evidence that would reasonably
permit the finder of fact to find in [its] favor on a material
question.”
A.
McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir. 1995).
The Defendants’ Motion to Strike
In
their
opening
brief,
the
plaintiffs
argued
that
the
defendants knew as early as June 2010 that integrating the Youbet
and
TwinSpires
ADW
platforms
(Pls.’ Mem. at 13-14.)
would
imperil
Youbet’s
license.
In support of this contention, they quoted
the following email from IRB staff member Mickey Ezzo:
We have a question about the acquisition of Youbet by
CDI. It’s our impression that CDI is going to maintain
the Youbet license, therefore, the Board has to approve
the ownership change as well as new officers and
directors. One of the commissioners thinks that CDI is
closing down Youbet and merging the current Youbet
customers into TwinSpires, therefore, the current Youbet
license would be cancelled. Can you clear this up?
(See Email from M. Ezzo to R. Reed, dated June 18, 2010, attached
as Ex. M to Pls.’ Supp. Designation of Evidence.)
included
the
email
in
their
“designation”
of
The plaintiffs
evidence,
(see
- 13 -
Blackwell Dep. 2012, Dep. Ex. 33, attached as Ex. D. to Pls.’
Designation), but did not address it in their Rule 56.1 statement
of facts.
See Jorden v. United States, Nos. 09 C 6814, 10 C 3144,
2011 WL 4808165, *1 (N.D. Ill. Oct. 11, 2011) (it is improper for
a party to cite “raw record materials” instead of its Rule 56.1
statement)
(collecting
cases).
Responding
in
part
to
the
plaintiffs’ violation of the Local Rules, the defendants sought
(and we granted) leave to file additional statements of fact. (See
Minute Entry, dated December 10, 2012, Dkt. 95.)
One of those
statements addresses Enzo’s communication: “[w]hen IRB staff member
Mickey Ezzo inquired whether Youbet still needed a license in its
own name, Youbet explained that it sought to maintain that license
in order to honor its contractual commitment to the Associates.”
(See Defs.’ Rule 56.1(a)(3)(C) Stmt. ¶ 25 (citing Blackwell Decl.
2012 ¶ 33).)
In their reply brief, the plaintiffs argue that
Ezzo’s email was really a warning about the likely consequences of
integration, and not an innocuous inquiry.
They cite two “new”
exhibits: (1) the partially redacted email string including Ezzo’s
June 18, 2010 email, which they included with their original
submission (see supra); and (2) the affidavit of IRB member Angelo
Ciambrone. Ciambrone states in his affidavit that he directed Ezzo
to send the email, and that it “was intended to, and did, signal
that an IRB Commissioner believed that the migration of Youbet
customers to TwinSpires and shutting down the Youbet website would
- 14 -
result in cancellation of the Youbet ADW license.”
(See Ciambrone
Aff., attached as Ex. M to Pls.’ Supp. Designation of Evidence at
¶¶ 4-5.)
According to the plaintiffs, the defendants’ redacted
internal emails are evidence that they understood the true import
of Ezzo’s email.
(See Pls.’ Reply at 9.)
The defendants argue that the plaintiffs have improperly backfilled the record on reply to support statements in their original
filing.
However,
appropriate
to
we
agree
consider
this
with
the
evidence
plaintiffs
as
that
responsive
it
to
is
the
defendants’ characterization of Ezzo’s communication in their
statement of additional facts. See Beck v. University of Wisconsin
Bd. of Regents, 75 F.3d 1130, 1334 n.* (7th Cir. 1996) (a party may
file new materials with its reply brief that address arguments
raised in the other party’s response).
We take the defendants’
point that the plaintiffs first introduced the subject of Ezzo’s
email, and that they did so in a way that did not comply with our
Local Rules.
But their concern that they will be prejudiced if
this material is not stricken is unfounded.
As we discuss below,
there is evidence in the record that the IRB did not consider the
integration an insuperable obstacle to renewing Youbet’s license.
Moreover, the IRB never actually cancelled Youbet’s license — it
simply
deferred
ruling
on
Youbet’s
renewal
application
indefinitely. So, the significance of Ezzo’s cryptic email in June
2010 is questionable.
Finally, the inference that the plaintiffs
- 15 -
seek to draw from the defendants’ redactions — i.e., that the
defendants knew in June 2010 that shutting down Youbet’s website
would imperil its license — is pure speculation.
We do not know
what the redacted portions of the emails say, and the plaintiffs
have
not
suggested
that
the
redactions
were
improper.
The
defendants’ motion to strike is denied.
B.
The Defendants’ Motion for Summary Judgment
The
defendants
argue
that
they
are
entitled
to
summary
judgment on the plaintiffs’ claim for breach of contract because:
(1)
the
plaintiffs
agreed
to
modify
the
CBA
to
permit
the
integration of the two ADW platforms; and/or (2) the plaintiffs are
estopped
from
challenging
the
integration
based
upon
their
acquiescence.
1.
Modification
The defendants argue that the plaintiffs agreed to modify the
CBA to permit the changes that the defendants disclosed on November
9, 2010 and implemented the following week.
“A modification of a
contract is a change in one or more respects which introduces new
elements into the details of the contract and cancels others but
leaves the general purpose and effect undisturbed.
A valid
modification must satisfy all the criteria essential for a valid
contract: offer, acceptance, and consideration.
A contract is
validly modified if the party which did not propose the changes is
shown to acquiesce in the modification through a course of conduct
- 16 -
consistent with acceptance.” International Business Lists, Inc. v.
American Tel. & Tel. Co., 147 F.3d 636, 641 (7th Cir. 1998)
(citations omitted).
These are fact-intensive questions generally
unsuited for summary judgment.
See Prignano v. Prignano, 934
N.E.2d 89, 810 (Ill. App. Ct. 2010) (“[T]he issues of whether a
contract existed, the parties’ intent in forming it, and its terms
are all questions of fact to be determined by the trier of fact.”).
The defendants rely chiefly on Hannon’s email the day after
the defendants informed the plaintiffs that they were integrating
the ADW platforms:
Per our conversation yesterday, we are requiring CDI
(TwinSpires and Youbet), for a period of time, to
identify then credit as a Balmoral, Maywood, and
Hawthorne customer, per our Agreement, any person in
Illinois who initially uses the URL Youbet.com to sign up
for a new account but is directed to the URL
TwinSpires.com.
Our companies have invested a considerable amount of
money marketing the Youbet.com brand name in Illinois
therefore, we will continue to expect a return in (sic)
our investment during the time period CDI phases out the
Youbet.com brand name. We further understand that we
will begin marketing YoubetIllinois.com and any person in
Illinois who signs up for a new account using this URL
will be identified as a Balmoral, Maywood and Hawthorne
customer.
We will need CDI assurance that these requirements will
happen prior to the announced migration date of Tuesday,
November 16.
(Defs.’ Stmt. ¶ 51.)
Blackwell responded by offering to extend
through the end of 2010 the period during which the plaintiffs
would
receive
fees
for
wagers
placed
by
new
customers
via
- 17 -
www.youbet.com.
(Id. at ¶ 52.)
Hannon indicated that same day
that he was satisfied with that particular change.
(“I
want
to
thank
you
for
efforts
in
(Id. at ¶ 53
accomplishing
request/requirement for URL Youbet sign ups . . . .”)
our
However, he
did not affirmatively state that this was his only objection to the
integration, and there is evidence in roughly contemporaneous
communications that the plaintiffs were not satisfied with the
changes.
(See, e.g., Email from D. Hutchinson to D. Johnston,
dated Nov. 29, 2010, attached as Tab 25 to Defs.’ Appx. (attaching
a document entitled “Youbet Concerns” listing the plaintiffs’
grievances,
including
TwinSpires).)
the
transfer
of
Youbet
customers
to
More importantly, the CBA provides that “[a]ny
waiver, amendment or other modification of any provision of this
Agreement will be effective only if in writing and signed by the
parties.” (CBA § 11.8.) The defendants point out that the parties
had modified the CBA to utilize www.youbet.com as the Co-Branded
Pages without a signed document memorializing the change.
Defs.’ Mem. at 15.)
(See
But the absence of such a writing is certainly
evidence that they did not intend to modify the contract.
In the
alternative, the defendants argue that the parties’ email exchange
could constitute a “writing” electronically signed by the parties.
(See id.)
But as we just discussed, Hannon’s email does not
unequivocally establish that he agreed to all aspects of the
integration.
Viewing the evidence in the light most favorable to
- 18 -
the plaintiffs, we conclude that the defendants are not entitled to
summary judgment on their theory that the plaintiffs agreed to
modify the CBA to permit the Youbet/TwinsSpires integration.
2.
Estoppel
In the alternative, the defendants argue that the plaintiffs
should be estopped from asserting breach of contract.
“The
elements of estoppel are: (1) a party has acted; (2) another party
reasonably relied on those acts; and (3) the latter party thereby
changed its position for the worse.”
LCI Intern. Telecom Corp.,
Inc. v. American Teletronics Long Distance, Inc., 978 F.Supp. 799,
802 (N.D. Ill. 1997).
It is undisputed that the defendants worked
for months to integrate the ADW platforms before notifying the
plaintiffs.
Moreover, there is evidence in the record supporting
the plaintiffs’ contention that the defendants did not present the
integration as a proposal.
Instead, they told the plaintiffs, in
detail and with only a week’s notice, what was going to happen on
November
16,
2010.
Viewing
the
evidence
in
the
light
most
favorable to the plaintiffs, there is a genuine dispute of material
fact regarding whether the defendants reasonably relied on the
plaintiffs’ conduct when they integrated the Youbet and TwinSpires
ADW platforms.
C.
Plaintiffs’ Motion for Summary Judgment
- 19 -
The plaintiffs contend that the defendants breached the CBA
by: (1) assigning rights and delegating duties to TwinSpires and
Churchill (see CBA § 11.7); (2) failing to maintain the Co-Branded
Pages and the Youbet brand (see CBA §§ 1, 3, and 4.2); and (3)
failing to maintain Youbet’s eligibility for an ADW license (see
CBA § 7.2).
(1)
the
The elements of a claim for breach of contract are:
existence
of
a
valid
and
enforceable
contract;
(2)
substantial performance by the plaintiff; (3) a material breach by
the defendant; and (4) damages. Reger Development, LLC v. National
City Bank, 592 F.3d 759, 764 (7th Cir. 2010) (applying Illinois
law); see also Prima Tek II, L.L.C. v. Klerk's Plastic Industries,
B.V., 525 F.3d 533, 538 (7th Cir. 2008) (“[A] party can only be
held
liable
for
damages
(applying Illinois law).
resulting
from
a
material
breach.”)
The parties focus their arguments on the
third and fourth elements.
1.
Whether Youbet Breached the CBA
(a)
Assignment and Delegation
The plaintiffs argue that Youbet improperly delegated certain
duties to TwinSpires and Churchill.
Section 11.7 of the CBA
broadly prohibits assignment and delegation without the opposite
party’s written consent:
No party may assign its rights or delegate its
obligations hereunder, either in whole or in part,
whether by operation of law or otherwise, without the
prior written consent of the other party. Any attempted
assignment or delegation without such written consent
will be void.
- 20 -
(CBA § 11.7.)
The record is not as detailed as it could be
regarding the specific duties that the plaintiffs accuse Youbet of
delegating and how they were delegated. However, we think that the
record is sufficiently clear to establish that Youbet at least
partially delegated certain duties to its corporate affiliates
after the merger. Churchill eliminated certain Youbet data centers
and call centers as redundant in light of the corresponding
facilities
at
TwinSpires.
(See
Pls.’
Stmt.
¶¶
42-43.)
“[F]inancial reporting obligations [were] switched from Youbet
employees over to [Churchill] employees.”
(Blackwell Dep. 2012 at
31-33.) Specifically, Churchill employees calculated the fees that
the Associates were entitled to under the CBA, (id. at 31), a
function
previously
performed
by
Youbet’s
marketing
team
overseen
TwinSpires employee.
was
Youbet.
by
After
the
Jeremy
Clemons
promotional
made
Clemons,
a
(See Defs.’ Rule 56.1(b)(3)(B) Stmt. ¶ 33;
Clemons Dep., attached as Tab 9 to Defs.’ Appx., at 5.)
that
merger,
the
materials,
decision
to
anticipating
eliminate
that
the
It appears
certain
Youbet
change
would
“significantly” reduce the “amount of traffic and sign-ups coming
to Youbet . . . .”
(Pls.’ Stmt. ¶ 43.)
In sum, Youbet no longer
performed its obligations to operate and market the Co-Branded
Pages independently.
Instead, those obligations were performed,
“in whole or in part,” by TwinSpires and Churchill.
(emphasis added).)
(CBA § 11.7
Youbet did not obtain the Associates’ prior
- 21 -
written
consent
before
delegating
these
obligations
to
its
corporate affiliates. We conclude, therefore, that Youbet breached
§ 11.7.
Baxter v. O.R. Concepts, Inc., 69 F.3d 785 (7th Cir. 1995),
cited by the defendants, is distinguishable.
In Baxter, the
plaintiff entered into a distribution agreement with the defendant
requiring the plaintiff to purchase $3 million worth of the
defendant’s products over a 27-month period.
the
contract’s
term,
the
defendant’s
Id. at 787.
president
and
During
majority
stockholder sold substantially all of his stock to a third party.
Id.
The plaintiff argued that the stock sale constituted an
assignment in violation of the distribution agreement’s antiassignment clause.
Id. at 788.
The Baxter Court held that the
stock sale was not an assignment, citing the “well settled”
principle that “a change in corporate ownership does not constitute
a variation of that corporation’s contractual obligations.”
Id.
Even assuming that Baxter’s reasoning applies to the merger in this
case,10 the plaintiffs have not argued that the merger itself was
an assignment/delegation.
10/
Instead, their claim is based upon the
The anti-assignment clause in Baxter did not prohibit assignments "by
operation of law," unlike the CBA. Compare Baxter, 69 F.3d at 788, with CBA §
11.7. Moreover, Baxter involved a stock sale, not a merger. The Court expressly
relied on this fact to distinguish its earlier decision in Sally Beauty Co. v.
Nexus Products Co., 801 F.2d 1001 (7th Cir. 1996), which held that “a merger
between a contracting corporation and another corporation could constitute an
assignment of the contracting corporations rights in a contract.” Baxter, 69
F.3d at 788 (summarizing the holding in Sally Beauty); see also id. ("[M]ost
importantly, the Sally Beauty case involved a merger of two corporations, as
opposed to a simple change of ownership. There, the contracting corporation lost
its independent identity because of the merger.").
- 22 -
delegation of contractual duties to Youbet’s corporate affiliates
after the parties completed the merger.11 It may have made business
sense for Youbet to delegate certain duties to Churchill and
TwinSpires in the wake of the merger, but it needed the plaintiffs’
prior written consent to do so.
(b)
The Co-Branded Pages
The CBA required Youbet to create the Co-Branded Pages on its
server with a mutually agreed URL address. (See CBA, Recitals ¶ C;
see also id. at § 1.)
As originally drafted, the agreement
contemplated a website and URL distinct from Youbet’s primary site.
(See CBA Recitals ¶¶ C-D, §§ 1, 2.2, 3.1.a, 4.2.)
The Co-Branded
Pages would look like the primary site and offer the same or
similar services, (see id. at § 1), and Youbet agreed that it would
attempt to drive its existing Illinois customers to the new site.
(See id. at § 4.2.)
But as we understand the agreement as
originally conceived, existing and future Illinois customers were
free to place wagers on www.youbet.com.
If they did so, the
plaintiffs would not be entitled to fees based upon those wagers.
(See CBA § 6.)
The parties later agreed to modify the CBA to make
“www.youbet.com” the Co-Branded Pages.
11/
(See Pls.’ Stmt. ¶ 11.)
As the defendants point out, the selling shareholder in Baxter told the
plaintiff that the defendant would begin marketing its product jointly with the
acquiring company and that the defendant was relocating its headquarters.
See
Baxter, 69 F.3d at 787. But the Seventh Circuit merely recited these facts, it
did not rely on them when analyzing the plaintiff’s claims.
Also, there is no
indication in Baxter that these facts affected any duty that the defendant owed
the plaintiff under the distribution agreement at issue in that case.
- 23 -
The change meant that the Co-Branded Pages and Youbet’s primary
site would not compete for Illinois customers.
It also meant that
the plaintiffs benefitted from the national marketing of Youbet’s
brand.
(See Defs.’ Rule 56.1(b)(3)(B) Stmt. ¶ 12.)
The extent to
which the plaintiffs directly marketed www.youbet.com is disputed.
(See id.)
But it is undisputed that they were allocated a portion
of Youbet’s marketing expenses throughout the CBA’s term.
id.)
(See
So, they had a contractual right to, and financial interest
in, the continued existence and promotion of www.youbet.com.
The changes that the defendants implemented in November 2010
significantly altered the parties’ bargain.
The defendants began
to phase out www.youbet.com, the website that the plaintiffs had
paid to promote for two years.
Clemmons Dep. at 47.)
(See Pls.’ Stmt. ¶ 34; see also
And in its place they substituted (1) an
integrated ADW platform under the “TwinSpires” brand name; and (2)
a
new
URL,
www.youbetillinois.com,
contrary
to
the
parties’
agreement to use www.youbet.com as the Co-Branded Pages and the CoBranded Pages URL.
The defendants point out that CBA § 1 required
Youbet to create Co-Branded Pages with the “functionality and look
and feel of [Youbet’s] standard offering of the Service.”
1.)
According
to
the
defendants,
after
the
(CBA §
integration
www.twinspires.com became the “standard offering,” and that the
change
was
consistent
with
Youbet’s
authority
modifications . . . after the initial design.”
to
make
“page
(CBA § 1.)
It
- 24 -
would be a closer case if the defendants had offered to pay the
plaintiffs for all wagers placed on www.twinspires.com by customers
with Illinois addresses.
In that case, the defendants would have
a colorable argument that they were simply substituting one brand
for another while preserving the essence of the parties’ bargain.
(See Defs.’ Resp. at 7, 17.)
But after the parties modified the
CBA to make www.youbet.com the Co-Branded Pages, Youbet no longer
had authority to develop and implement Co-Branded Pages separate
from its primary site. Youbet cannot rely on terms in the original
agreement that are inconsistent with the modification.
See Curia
v. Nelson, 587 F.3d 824, 830 (7th Cir. 2009) (“A modified contract
containing a term inconsistent with a term of an earlier contract
between the same parties is interpreted as including an agreement
to
rescind
the
inconsistent
term
in
the
earlier
contract.”)
(citation and internal quotation marks omitted).
This leaves the defendants’ argument that the plaintiffs
acquiesced to the material terms of the integration.
As we
discussed before, the defendants rely chiefly on Hannon’s email
responding to the defendants’ revelation that they were integrating
the Youbet and TwinSpires ADW platforms.
Viewing the evidence in
the light most favorable to the defendants, Hannon and Blackwell
expressly agreed to the terms governing new customer sign-ups
through www.youbet.com while the defendants phased out that URL.
And although Hannon did not expressly state that he was satisfied
- 25 -
with all aspects of the integration, he did indicate that he
understood the essential terms and requested only one change, which
the defendants granted.
(See Defs.’ Stmt. ¶ 51 (“We further
understand that we will begin marketing YoubetIllinois.com and any
person in Illinois who signs up for a new account using this URL
will
be
identified
as
a
Balmoral,
Maywood
and
Hawthorne
customer.”).) The fact that there is no unequivocal signed writing
modifying the contract is significant, but not dispositive.
The
parties had previously agreed to make www.youbet.com the Co-Branded
Pages — a substantial change from the CBA’s original terms —
without such a document.
The plaintiffs note that the parties
performed under the modified CBA for two years, whereas only three
weeks separate the conference call disclosing the integration and
Youbet’s termination notice.
(See Pls.’ Resp. at 10.)
Moreover,
some of the plaintiffs’ conduct during this brief time period was
inconsistent with having agreed to modify the contract.12
But we
do not weigh evidence when ruling on a motion for summary judgment.
See Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003) (“On summary
judgment a court may not make credibility determinations, weigh the
evidence, or decide which inferences to draw from the facts; these
are jobs for a factfinder.”). We conclude that the defendants have
12/
Hannon’s list of “Youbet Concerns” included the transfer of customer
accounts from www.youbet.com to www.twinspires.com.
(See Email from D.
Hutchinson to D. Johnston, dated Nov. 29, 2010.) On the other hand, there is
also evidence in the record that Hannon was merely seeking leverage in his
negotiations for a buy-out. (See supra.)
- 26 -
come forward with sufficient evidence of a contract modification to
preclude summary judgment.
(c)
YouBet’s Eligibility for an ADW License
The plaintiffs argue that Youbet violated § 7.2 of the CBA
because, after the integration, it was no longer eligible for an
ADW license.
(See CBA § 7.2 (Youbet agreed to “comply with
Illinois Law and the Rule of the Illinois Racing Board.”).)
cite
Laino’s
affidavit
for
the
proposition
that
ADW
They
license
applicants must satisfy two requirements: (1) the applicant must
have its own ADW platform; and (2) the applicant must have a
totalizing vendor (a machine or system that calculates odds,
records bets, pays out winners, etc.).
(See Laino Aff. ¶ 13.)
According to Laino, Youbet did not fulfill either requirement after
the integration, and he recommended that the IRB deny Youbet’s
application on that basis.
(See id.)
with the plaintiffs’ argument.
There are several problems
First, none of the materials that
the plaintiffs have cited — including Laino’s affidavit — refer to
a
statute
or
requirements.
rule
expressly
Second,
the
imposing
plaintiffs
the
ignore
cited
the
license
defendants’
argument that the IRB has granted ADW licenses in comparable
circumstances.
Third,
the
(See Defs.’ Resp. at 15; cf. Pls.’ Reply at 9.)
IRB
notwithstanding
the
considered
“technical
granting
Youbet’s
deficiencies”
deficiencies — that Laino had identified:
—
if
application
they
were
- 27 -
I know there were some technical deficiencies in the
application. But the applicant is not withdrawing the
application and there is no objection to the application.
So that’s my inclination. Just — by denying the license,
we could cause some trouble. By granting it — I don’t
see a downside to granting it.
[. . .]
You know, the delicious irony of all this is last month
— the only reason we didn’t issue the license last month
was Balmoral ran up here at the last minute and asked us
not to.
(See Trans. of IRB Proceedings, dated December 21, 2010, attached
as Tab 45 to Defs.’ Appx. (testimony of IRB Chairman Joseph
Sinopoli).) Finally, the IRB never voted to grant or deny Youbet’s
application — it deferred decision indefinitely.
Aff. ¶¶ 16-17.)
(See Sinopoli
We conclude that the plaintiffs are not entitled
to summary judgment that Youbet breached CBA § 7.2.
2.
Whether Youbet’s Breach of the CBA’s Anti-Assignment
Clause Was Material
The defendants argue that any breach of the CBA was immaterial
and therefore cannot support liability.
“[A] party can only be
held liable for damages resulting from a material breach.”
Tek II, 525 F.3d at 538.
Prima
“The test of whether a breach is
‘material’ is whether it is ‘so substantial and fundamental as to
defeat the objects of the parties in making the agreement, or
whether the failure to perform renders performance of the rest of
the contract different in substance from the original agreement.’”
InsureOne Independent Ins. Agency, LLC v. Hallberg, 976 N.E.2d
1014, 1027 (Ill. App. Ct. 2012) (quoting Village of Fox Lake v.
- 28 -
Aetna Casualty & Surety Co., 534 N.E.2d 133, 141 (Ill. App. Ct.
1989)).
“[T]he determination of ‘materiality’ is a complicated
question of fact, involving an inquiry into such matters as whether
the breach worked to defeat the bargained-for objective of the
parties or caused disproportionate prejudice to the non-breaching
party, whether custom and usage considers such a breach to be
material, and whether the allowance of reciprocal non-performance
by the non-breaching party will result in his accrual of an
unreasonable or unfair advantage.”
Sahadi v. Continental Illinois
Nat. Bank and Trust Co. of Chicago, 706 F.2d 193, 196 (7th Cir.
1983).
Accordingly,
materiality
resolution by summary judgment.”
is
“especially
unsuited
to
Id. at 197.
We conclude that the parties genuinely dispute whether Youbet
materially breached the CBA’s anti-assignment clause.
When ruling
on the plaintiffs’ preliminary-injunction motion, we held that the
plaintiffs’ rights under the CBA’s change-of-control and antiassignment provisions are “distinct.”
Balmoral Racing Club, Inc.
v. Churchill Downs, Inc., No. 11 C 1028, 2011 WL 3020776, *4 (N.D.
Ill. July 21, 2011).
Nevertheless, we think that the plaintiffs’
decision not to terminate the agreement pursuant to the change-ofcontrol clause is relevant to the question of materiality.
If the
plaintiffs believed that Youbet’s independence was a central aspect
of the CBA, they could have terminated the agreement. Indeed, they
were aware in June 2010 that the defendants had publicly announced
- 29 -
their intention to eventually integrate the two platforms under a
single brand name.
(See Defs.’ Stmt. ¶ 33.)
The plaintiffs argue
that they were lulled into a false sense of security by the
defendants’ promises to “honor” the CBA.
But there is evidence in
the record that the plaintiffs were motivated instead by a desire
to be bought out of the contract.
(See Defs.’ Rule 56.1(b)(3)(B)
Stmt. ¶ 31; see also Defs.’ Stmt. ¶ 71.)
Moreover, the plaintiffs
have not cited any evidence indicating that Churchill and/or
TwinSpires provided services inferior to the services that Youbet
provided
before
the
merger.
A
reasonable
fact-finder
could
conclude that any delegation was ancillary to the CBA’s main
purpose; namely, for the plaintiffs to earn fees for ADW wagers.
(See Defs.’ 56.1(a)(3)(C) Stmt. ¶ 45 (“Maywood/Balmoral’s only
‘objective in entering the [CBA] was to share in the revenues
generated by wagers made through an ADW service.’”) (quoting Hannon
Dep. 2012 at 15).)
In sum, although we find that Youbet breached the antiassignment clause, we conclude that the plaintiffs are not entitled
to summary judgment that the breach was material.
3.
Damages
Based upon the foregoing discussion, we will deny the parties’
summary judgment motions.
However, they have extensively briefed
two issues regarding damages that we think it is appropriate to
address at this time: (1) whether the plaintiffs’ damages may
- 30 -
include fees that would have been paid to Hawthorne but for its
termination; and (2) whether the plaintiffs’ damages are limited by
their alleged breach of the CBA’s “best efforts” clause.
See Fed.
R. Civ. P. 56(g) (“If the court does not grant all of the relief
requested by the motion, it may enter an order stating any material
fact — including an item of damages or other relief — that is not
genuinely in dispute and treating the fact as established in the
case.”).
a.
CBA Section 6.1
The plaintiffs argue that the appropriate measure of damages
for defendants’ alleged breach includes fees that otherwise would
have been paid to Hawthorne. At issue is the proper interpretation
of CBA § 6.1:
The Company [Youbet] shall retain one-third (1/3) of Net
Commissions plus one-third (1/3) of breakage plus onethird (1/3) of Net Revenues (collectively, “Company
Fees”). After deducting the Company Fees, the remainder
of Net Commissions, breakage and Net Revenues will be
paid to Associates. The Company will pay such amounts to
Associates in accordance with written instructions signed
by all Associates.
(CBA § 6.1.) The first step is to determine whether this provision
is ambiguous, a question of law for the court.
See Metalex Corp.
v. Uniden Corp. of America, 863 F.2d 1331, 1333 (7th Cir. 1988).
If we determine that the contract is ambiguous, then the meaning of
the disputed term becomes a question of fact for the jury.
Id.
We
agree with the plaintiffs that § 6.1 is unambiguous on its face: it
provides that Youbet will retain 1/3 of the applicable fees and
- 31 -
that the Associates will receive the “remainder,” to be distributed
by Youbet according to the Associates’ written instructions.
We
conclude, however, that a latent ambiguity emerges when this
provision is applied to the particular facts of this case.
See
Napleton v. Ray Buick, Inc., 704 N.E.2d 864, 872 (Ill. Ct. App.
1998) (“A latent ambiguity exists where a contract’s terms are
clear on their face, but extrinsic evidence creates uncertainty as
to the meaning of the terms.”). When the parties executed the CBA,
there were four Associates.
Now only two of the Associates
(Balmoral and Maywood) assert a claim to the fees remaining after
subtracting the “Company Fees.”
Does that mean, as the plaintiffs
argue, that they are entitled to the entire “remainder” if they
prevail on their breach of contract claim?
Or, as the defendants
maintain, are they only entitled to the portion (47.5%) that they
received during the CBA’s term?
We turn, first, to the CBA’s other provisions.
See Thompson
v. Gordon, 948 N.E.2d 39, 47 (Ill. 2011) (“A contract must be
construed as a whole, viewing each provision in light of the other
provisions. The parties’ intent is not determined by viewing a
clause or provision in isolation, or in looking at detached
portions of the contract.”) (internal citation omitted).
Both
parties cite CBA §§ 10.2(i) and (j) to support their arguments:
(i) In the event that Company terminates this Agreement
with an Associate for cause pursuant to the provisions of
this section, the termination shall only affect the
terminated Associate.
- 32 -
(j) In the event any Associate terminates this Agreement
with Company for cause pursuant to any of the provisions
of this section, such termination shall only affect the
terminating Associate.
(CBA
§§
10.2(i)
and
(j).)
The
plaintiffs
argue
that
these
provisions indicate that “the parties did not intend for the rights
of the Associates as a group to be affected by the actions of any
individual Associate.”
(Pls.’ Mem. at 17.)
According to the
plaintiffs, this means that Youbet and the Associates must always
split the applicable fees in the proportion established in § 6.1
(one-third to Youbet, two-thirds to the “Associates”), no matter
how many Associates still assert claims under the CBA.
The
defendants argue that the other Associates would be “affected”
(contrary to § 10.2(i) and (j)) if their portion of the “remainder”
increased after Youbet terminated the CBA as to another Associate
for cause.
affected.
ambiguity
evidence.
After all, the CBA says “affected,” not “adversely
Both side’s arguments are reasonable, leaving the
in
§
6.1
unresolved.
We
turn,
then,
to
extrinsic
See Thompson, 948 N.E.2d at 441 (“If the contract
language is ambiguous, a court can consider extrinsic evidence to
determine the parties’ intent.”).
The plaintiffs argue that the parties’ course of dealing
supports
their
interpretation,
citing:
(1)
the
parties’
P&L
statements; and (2) the parties’ handling of Fairmount’s portion of
the ADW fees.
But the record is not as clear cut as the plaintiffs
- 33 -
suggest.
Youbet offered ADW services to Illinois residents before
Illinois required ADW providers to contract with Illinois race
tracks.
(See Stip. Stmt. of Facts, attached as Tab 36 to Defs.’
Appx., ¶¶ 34, 37); cf. 230 ILCS 5/3.28. After Illinois imposed the
requirement, Youbet needed to enter into a contract with an
Illinois race track to continue providing ADW services in Illinois
(hence, the CBA).
Its competitor, TwinSpires, had an agreement in
place with Arlington Park.
(See Stip. Stmt. of Facts ¶ 92; see
also Defs.’ Rule 56.1(a)(3)(C)Stmt. ¶ 43.)
The race tracks that
would eventually execute the CBA approached Youbet as a group and
proposed a partnership that would benefit Youbet by permitting
Youbet to lock up the rest of the ADW market in Illinois.
Defs.’ Rule 56.1(a)(3)(C) Stmt. ¶ 43.)
(See
This purpose is reflected
in the provision prohibiting the Associates from contracting with
any other ADW provider during the CBA’s term.
(See CBA § 4.1.)
As
we mentioned earlier, Youbet initially paid Fairmount’s share of
CBA fees into an escrow account for its benefit.
The fact that
Hawthorne and Balmoral/Maywood ultimately split that money amongst
themselves
tends
to
support
the
plaintiffs’
view
that
the
Associates are entitled to the “remainder” of CBA fees after the
“Company Fees” are deducted, no matter how many Associates there
are.
But without knowing more about the circumstances surrounding
this transaction, we cannot draw a reliable inference that the
parties understood that the Associates’ claim to Fairmount’s share
- 34 -
of CBA fees was superior to Youbet’s.
Moreover, the parties agree
that Youbet ultimately stopped paying Fairmount’s share.
We
understand this to mean that Youbet retained a greater portion of
Net Commissions, Net Revenues, and breakage after Fairmount’s
departure, which is consistent with the defendants’ interpretation
of § 6.1 as applied to Hawthorne.
The plaintiffs seem to argue
that the P&L statements show otherwise, but the evidence that they
cite does not clearly establish that point. (See Pls.’ Mem. at 1718.)13
According to the defendants, their interpretation makes
sense in the broader context of the agreement: Youbet should be
compensated because it lost the benefits of exclusivity.
The
parties genuinely dispute the proper interpretation of their course
of dealing, making summary judgment inappropriate.
In sum, we conclude that the proper interpretation of § 6.1 as
applied to plaintiffs’ claim for damages is a question for the
jury.
b.
Partial Breach
The defendants argue that the plaintiffs’ damages, if any,
should be limited to the two-week period between the integration
and the defendants’ notice of termination under the partial-breach
doctrine.
13/
After a party materially breaches a contract, the non-
The cited portions of Michael Cody’s deposition testimony merely refer
to the P&L statements in a general way. (See Cody Dep., attached as Ex. G to
Pls.’ Designation, at 80, 83-85.) As for the P&L statements themselves, and the
figures contained therein, the plaintiffs have made no attempt to explain how
they support their position.
- 35 -
breaching party has a choice: either terminate the contract, or
insist on continued performance and sue for damages caused by the
breach.
See Emerald Investments Ltd. Partnership v. Allmerica
Financial Life Ins. and Annuity Co., 516 F.3d 612, 618 (7th Cir.
2008); see also 14 Williston on Contracts § 43:15 (4th ed.) (“[T]he
general
rule
that
one
party’s
uncured,
material
failure
of
performance will suspend or discharge the other party’s duty to
perform does not apply where the latter party, with knowledge of
the facts, either performs or indicates a willingness to do so,
despite the breach, or insists that the defaulting party continue
to render future performance.”).14
If the non-breaching party
elects not to terminate the contract, it must continue to abide by
its terms.
Emerald Investments, 516 F.3d at 618.
Section 10.2(d)
of the CBA provides that either party may terminate the agreement
by providing written notice of a material breach that has not been
cured within 30 days after notice thereof.
(CBA § 10.2(d).)
The
plaintiffs did not provide written notice of a material breach in
14/
The plaintiffs cite the general rule that “a party to a contract who
commits the first breach of its terms cannot maintain an action for a subsequent
breach by the other party.” Daniggelis v. Pivan, 513 N.E.2d 92, 96 (Ill. App.
Ct. 1987); (see also Pls.’ Reply at 12-13). The plaintiffs have not cited, nor
are we aware of, any Illinois case expressly reconciling the “first breach” rule
with the partial-breach doctrine. But the two doctrines appear compatible: the
first breaching party cannot sue for a later breach unless the other party
insists on continued performance. See 14 Williston on Contracts § 43:15 (4th
ed.) (recognizing the partial-breach doctrine as an exception to the general rule
that a material breach discharges the non-breaching party’s duty to perform).
Moreover, a reasonable jury could conclude that the first material breach was
Hannon’s conversation with Laino on November 10, 2010 in which he accused the
defendants of “a possible illegal business practice.” (See Defs.’ Stmt. ¶ 70;
see also infra (discussing the CBA’s “best efforts” clause).) This conversation
occurred approximately a week before the defendants integrated the ADW platform.
- 36 -
the immediate wake of the integration. In addition, Hannon’s email
on November 10, 2010 — before the integration — could be construed
to insist on continued performance.
(See Defs.’ Stmt. ¶ 51
(stating that he understood the terms of the integration and
demanding a single change before it was implemented).)
In that
case, the plaintiffs were required to continue to uphold their end
of the bargain despite the defendants’ alleged breach. Among other
duties, the CBA required the plaintiffs to “use their best efforts
to secure and/or assist Youbet in securing any licenses required or
available
in
Illinois
with
respect
www.youbetillinois.com . . . .”
to
this
Agreement
and/or
(See Second Am. to CBA ¶ 9.)
Before and during the November 2010 IRB proceedings, the plaintiffs
accused the defendants of anti-competitive practices and creditcard abuse, going so far as to say that the Justice Department
should investigate the defendants’ conduct.
The plaintiffs insist
that they did not breach the “best efforts” clause because they did
not ask the IRB to deny Youbet’s application, but instead asked it
to impose “conditions” on Youbet. Neither party has cited any case
law construing a comparable “best efforts” clause. But we think it
would be absurd to construe the term “best efforts” to permit the
plaintiffs to malign the defendants before the IRB so long as they
did not formally object to Youbet’s application.
See, e.g.,
International Broth. of Elec. Workers, Local 21 v. Illinois Bell
Telephone
Co.,
491
F.3d
685,
688
(7th
Cir.
2007)
(“When
- 37 -
interpreting a contract, we look first to the plain meaning of the
provision, and strive to avoid absurd results.”) (applying Illinois
law).
The plaintiffs clearly did not use their “best efforts” to
assist Youbet in obtaining renewal of its ADW license.
However, we are not prepared to rule as a matter of law that
the plaintiffs cannot recover damages after December 1, 2010.
First, whether the plaintiffs elected to continue the contract is
a
disputed
question
of
fact.
Only
two
weeks
separated
the
integration and Youbet’s termination notice, which is relatively
little time to establish a course-of-dealing consistent with an
intent to continue the CBA. Also, as we discussed before, there is
evidence
from
this
time
period
that
the
plaintiffs
were
dissatisfied with the integration, despite the conciliatory tone of
Hannon’s email the week before.
Second, the Executive Director’s
recommendation to deny Youbet’s renewal application was expressly
based upon the terms of the ADW-platform integration and his
interpretation of Illinois racing law, and not on any alleged
misconduct by the defendants. So, a reasonable jury could conclude
that the plaintiffs’ lobbying efforts were immaterial.
Third,
there is evidence in the record that Youbet applied to renew its
license simply to fulfill obligations to the plaintiffs under the
CBA. (See Defs.’ Rule 56.1(a)(3)(C) Stmt. ¶ 25.) As we understand
it,
the
IRB’s
decision
to
defer
ruling
on
Youbet’s
renewal
application did not affect the defendants’ ability to receive
- 38 -
wagers from Illinois residents through the integrated platform
because TwinSpires was separately licensed.
A reasonable jury
could conclude that the defendants seized on a nonmaterial breach
of the agreement to terminate the CBA without having to pay the
plaintiffs a break-up fee.
CONCLUSION
The parties’ cross-motions for summary judgment [88 and 100]
are denied.
The defendants’ motion to strike [111] is denied.
A
status hearing is set for June 26, 2013 at 10:30 a.m. to set the
case for trial.
DATE:
June 18, 2013
ENTER:
___________________________________________
John F. Grady, United States District Judge
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