SUBARU OF AMERICA, INC. v. DDB WORLDWIDE COMMUNICATIONS GROUP, INC.
Filing
105
OPINION. Signed by Judge Joseph E. Irenas on 9/22/2011. (dmr)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
SUBARU OF AMERICA, INC.,
Plaintiff,
v.
DDB WORLDWIDE COMMUNICATIONS
GROUP, INC.,
Defendant.
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HONORABLE JOSEPH E. IRENAS
CIVIL NO. 08-6218(JEI)(KMW)
OPINION
APPEARANCES:
FRANKFURT KURNIT KLEIN SELZ, PC
By: Patrick J. Boyle, Esq.
Maura J. Wogan, Esq.
Marisa Sarig, Esq.
488 Madison Avenue, 9th Floor
New York, NY 10022
Counsel for Plaintiff
SORINROYERCOOPER LLC
By: Michael B. Roth, Esq.
Joshua H. Epstein, Esq.
515 Madison Avenue, 13th Floor
New York, NY 10022
Counsel for Defendant
IRENAS, Senior District Judge:
This is a contract dispute between Subaru of America, Inc.,
(“Subaru”), and its former advertising agency, DDB Worldwide
Communications Group, Inc. (“DDB”).1
DDB presently moves for
summary judgment on Counts 2 though 4 of the Second Amended
1
The Court exercises diversity of citizenship subject
matter jurisdiction pursuant to 28 U.S.C. § 1332. The parties
are completely diverse and the amount in controversy well-exceeds
$75,000.
Complaint.2
For the reasons stated herein, the Motion will be
granted in part and denied in part.
I.
Subaru asserts that DDB breached certain terms of the
“Agreement” that governed the parties’ relationship during the
period of January 1, 2005 through 2007 and part of 2008.3
To
understand the contract’s provisions, however, some background
concerning the advertising business in the United States is
necessary.
Large national retailers, such as Subaru (which sells
automobiles), hire outside advertising agencies to handle almost
every aspect concerning the national advertising of their products.
While the ad agencies apparently provide a wide array of services,
including the actual production of advertisements, at issue in this
case are the “media buying and planning” services DDB performed on
Subaru’s behalf.4
2
The Court previously denied Subaru’s Motion for Summary
Judgment as to Count 1 of the Amended Complaint. Since that
time, Subaru has amended its Complaint once again but Count 1 was
unaffected by the subsequent amendment.
3
The Agreement is dated “[a]s of January 1, 2005,” and was
signed by Subaru on February 10, 2005 and by DDB on February 4,
2005. In October, 2007, Subaru terminated the agreement pursuant
to the Agreement’s 180-day notice provision. (Mayer Decl. Ex. A)
4
Because media planning and buying “require[s] in-depth
knowledge of the ever-changing media landscape, industry
experience and relationships with the media outlets” ad agencies
“typically” delegate these services to an affiliate “dedicated
exclusively” to media planning and buying. (Mayer Decl. ¶ 6) In
-2-
Media planning is the process whereby the ad agency creates a
“strategic plan” for delivering the “advertiser’s creative message”
to the “proper audience in the most cost-effective manner.” (Mayer
Decl. ¶ 7)
Media buying is the purchasing of commercial time from
the appropriate national and local television stations in order to
best achieve the media plan’s objectives.
(Mayer Decl. ¶ 9)5
The
ad agency purchases commercial time for its clients “based in large
part on the GRPs [(‘gross ratings points’)]6 that the stations
project will be achieved by a particular television schedule.”
(Mattimore Decl. ¶ 4).
In other words, through its media planning
and buying, the ad agency tries to ensure that its clients’
“television ads [will] be seen by an advertiser’s target audience”
(Mattimore Decl. ¶ 3), by placing the right advertisement on the
right network, at the right time.
After the media planning and buying has occurred, ad agencies
also conduct “post-buy analyses” to determine whether the
this case, DDB delegated media planning and buying for: (a) the
national cable and broadcast networks (such as CNN and NBC); and
(b) the local stations for individual markets (such as
Philadelphia, Chicago, and Miami) to its affiliates, Prometheus
and Spot Plus, respectively. No one disputes, however, that DDB
ultimately remained contractually responsible for the actions of
its affiliates.
5
Media planning and buying can encompass other types of
media, such as print and digital media (Mayer Decl. ¶ 5), but the
instant dispute concerns only television advertisements.
6
“GRPs are the sum of the individual programs ratings for
a schedule. Ratings are calculated, and published, by third
parties like the Nielsen Company.” (Mattimore Decl. ¶ 4) High
GRPs indicate a large number of viewers. (See Mayer Decl. ¶ 11)
-3-
television stations performed as expected.
7; Mayer Decl. ¶ 15)
(See Mattimore Decl. ¶
The post-buy analyses generally look for two
problems: “underdeliveries” and “violations.”
An underdelivery occurs when a television station fails to
deliver a minimum number of viewers (expressed in GRPs) for the
commercial time purchased.
(Mayer Decl. ¶ 12; Mattimore Decl. ¶ 4)
Because the price of commercial time is based upon GRPs (Mattimore
Decl. ¶ 4; Mayer Decl. ¶ 11), when a station underdelivers, an
advertiser such as Subaru has quite literally not gotten what it
paid for.
Violations, on the other hand, can occur in several different
situations.
Most commonly, a station commits a violation by
running a commercial too frequently (“double-spotting”), running a
commercial during a prohibited program (“restricted programming”),
or simply running the wrong commercial (“trafficking”).
(Mayer
Decl. ¶ 14)
When post-buy analyses reveal underdeliveries or violations,
the ad agency asks the television stations for “make goods”-- free
additional commercial time intended to make up for the problem.
(Mattimore Decl. ¶ 6; Mayer Decl. ¶ 16)
“Sometimes the Stations
agree to provide make goods, and sometimes they refuse if they
disagree that a make good is owed.”
(Mattimore Decl. ¶ 8)
Subaru
does not dispute that the stations ultimately decide whether to
provide a make good.
Relevant to the instant Motion, Subaru asserts that over the
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course of the parties’ contractual relationship, DDB failed to
pursue certain make goods, leaving approximately $5 million-worth
of make goods unclaimed.
Subaru also asserts that it was entitled
to terminate the parties’ agreement upon 90-days notice, rather
than 180-days, based on its subsequent discovery that a key DDB
employee did not bill any time to Subaru’s account in 2007.
The relevant provisions of the Agreement are as follows:
1.
APPOINTMENT OF AGENCY
[Subaru] (hereinafter ‘you’) desires to retain the
services of [DDB] (hereinafter ‘we’ or ‘us’) to provide
effective marketing and advertising communications and
advice in marketing your products.
Accordingly, you
hereby engage and appoint us as your Agency of Record in
the United States for your automotive products to
provide strategy development, creative development and
production, media planning, buying, monitoring and postbuy analysis, day-to-day account service, competitive
tracking and reporting, billing and budget reporting.
. . .
2.
AGENCY SERVICES
We will perform for you the specific services set
forth in . . . Exhibit A [to this Agreement.]7 In
addition, we will perform the following general services
. . .
. . .
(iv)
Through our affiliated company . . .
7
Exhibit A provides, in relevant part, “[i]n the broadest
sense, [DDB] will be engaged to provide a full service
advertising program for [Subaru]. . . . This includes the entire
process– from strategy and creative development to media
planning/buying and overall advertising plan implementation. . .
. [DDB will provide a] full-service media team dedicated to
delivering . . . formal media planning, negotiating and buying .
. . and post-buy analyses.”
-5-
provide media planning.
(v)
Through our affiliated company . . .
contract . . . for and otherwise obtain
. . . time . . . for . . . broadcasting
. . . your advertising, endeavoring to
secure the most advantageous rates
available.
(vi)
Check and verify . . . broadcasts . . .
to such degree is normally performed by
advertising agencies.
(vii)
Audit invoices for space, time, material
preparation and services.
(viii)
Review, approve and pay invoices for
media, production and other third party
charges.
(ix)
Provide post-buy analyses
‘make goods’ or credits.
and
obtain
. . .
10.
TERMINATION
(a) The term of this agreement shall
commence as of the date hereof and shall continue
in full force and effect unless terminated by
either party giving the other not less than 180
days prior written notice of such termination. . .
. You may terminate this agreement on 90 days prior
written notice if there is a personnel change or
reduction in the job responsibilities of . . .
Peter Hempel, the Executive Vice President,
Managing Director.
. . .
17.
GENERAL PROVISIONS
. . .
(f)
We will endeavor to the best of our
ability to guard against any loss to you
through failure of media or suppliers to
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execute properly their commitments but we
shall not be held responsible for any
failure on their part in the absence of
gross negligence or willful misconduct on
our part.
(g)
To the extent we are able to do so, we
will verify all media invoices by
obtaining from the media . . . proof of
performance of . . . television time and
we will confirm the accuracy of all media
charges.
These services will include
post buy analyses and negotiation of make
goods. Upon reasonable notice . . . we
will
make
our
files
and
records
pertaining
to
the
above
material
available to you for examination.
(Epstein Decl. Ex. B)
Count 2 of the Second Amended Complaint asserts that DDB
breached the Agreement “by failing to ensure that Subaru obtained
the full amount of credits and make goods for its media buying
expenditures.” (Second Amend. Compl. ¶ 52)
Count 3 asserts that
DDB breached the Agreement by “failing to accede to Subaru’s demand
to terminate the [Agreement] on 90 days notice, and accordingly
Subaru is entitled to a refund of the monthly fees it paid during
the 90 day period beyond the proper 90 day notice period.”
59)
(Id. ¶
Count 4 seeks a declaratory judgment that DDB is “obligated
under the terms if the Agreement to negotiate any and all available
credits and make goods due to Subaru in connection with media
charges expended in 2006 and 2007.”
8
(Id. ¶ 64)8
As noted previously, Count 1 of the Second Amended
Complaint alleges an independent breach of a different provision
of the Agreement. It is not implicated by the instant Motion.
-7-
DDB moves for summary judgment on Counts 2 through 4.
II.
“Under Rule 56(c), summary judgment is proper ‘if the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.’”
Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)).
In deciding a motion for summary judgment, the Court must
construe the facts and inferences in a light most favorable to the
nonmoving party.
Pollock v. Am. Tel. & Tel. Long Lines, 794 F.2d
860, 864 (3d Cir. 1986).
“‘With respect to an issue on which the
nonmoving party bears the burden of proof, the burden on the moving
party may be discharged by ‘showing’—that is, pointing out to the
district court—that there is an absence of evidence to support the
nonmoving party’s case.’”
Conoshenti v. Pub. Serv. Elec. & Gas,
364 F.3d 135, 145-46 (3d Cir. 2004) (quoting Celotex, 477 U.S. at
325).
The role of the Court is not “to weigh the evidence and
determine the truth of the matter but to determine whether there is
a genuine issue for trial.”
Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249 (1986).
“Summary judgment, of course, looks only to admissible
evidence.”
Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc., 826 F.2d
1335, 1339 (3d Cir. 1987); see also Blackburn v. United Parcel
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Service, 179 F.3d 81, 95 (3d Cir. 1999)(noting that hearsay
statements that are inadmissible at trial should not be considered
when determining whether Plaintiff has established a triable issue
of fact).
III.
The Court first addresses the Counts related to make goods
(Counts 2 and 4) and then turns to Count 3 concerning termination.9
A.
With regard to Subaru’s contention that DDB breached the
Agreement by failing to pursue make goods (Count 2 of the Second
Amended Complaint), DDB makes two arguments in support of its
Motion for Summary Judgment: (1) pursuant to paragraph 17(f),
Subaru must establish that DDB was grossly negligent in failing to
pursue make goods, and Subaru’s evidence fails to meet this
standard; and (2) Subaru has come forth with no admissible evidence
proving that DDB failed to obtain make goods (i.e., Subaru cannot
prove that DDB breached the Agreement).
9
Both arguments fail.
The Agreement provides that “This agreement and all
issues collateral thereto shall be governed and construed in
accordance with the laws of the State of New Jersey pertaining to
contracts made and to be performed entirely therein without
regard to its conflict of laws and policies.” (Epstein Decl. Ex.
B, paragraph 17(e)) The parties agree that New Jersey law
applies.
-9-
(1)
Paragraph 17(f) of the agreement provides, “[DDB] will
endeavor to the best of our ability to guard against any loss to
[Subaru] through failure of media or suppliers to execute properly
their commitments but [DDB] shall not be held responsible for any
failure on their part in the absence of gross negligence or willful
misconduct on [DDB’s] part.”
added)
(Epstein Decl. Ex. B) (emphasis
With this provision in mind, DDB attempts to characterize
Subaru’s breach of contract claim for make goods not as a failure
on its part, but rather “a result of the [television] Stations’
purported failure to provide make goods for underdelivery and
violations.”
(Moving Brief, p. 22)
According to DDB,
it is the Stations, not DDB, that are responsible for
delivering
ratings
and
complying
with
Subaru’s
guidelines
[concerning double-spotting,
restricted
programs, and trafficking]. As a result, the only way
for Subaru to recover the dollar value of any
underdelivery or violation from DDB is to demonstrate
that Subaru’s loss was caused by DDB’s gross negligence.
. . . Subaru cannot possibly meet this burden.
(Id., p. 22-23)(italics in original).
DDB mischaracterizes Subaru’s claim.
Subaru’s breach of
contract claim is based upon its assertion (supported by the
evidence discussed further infra) that DDB simply failed to ask the
television stations for make goods in the first place.
Perhaps
paragraph 17(f) would apply if DDB asked the television stations
-10-
for the make goods and the stations refused,10 but here Subaru’s
claim is based on evidence that DDB simply failed to act on
underdeliveries and violations revealed by the post-buy analyses.
The Agreement’s language is clear.
DDB agreed to “verify all
media invoices by obtaining from the media . . . proof of
performance of . . . television time and . . .
accuracy of all media charges.
These services will include post
buy analyses and negotiation of make goods.”
paragraph 17(g))
confirm the
(Epstein Decl. Ex. B,
DDB’s asserted failure to “negotiate” make-goods
after discovering underdeliveries and violations-- as opposed to
any failure of the television stations to actually provide a make
good-- is a breach of paragraph 17(g) the Agreement.
Paragraph
17(f) simply is not implicated because Subaru asserts DDB’s
failure, not the stations’ failure.
Thus, Subaru need not prove
DDB’s gross negligence in order to prove that DDB breached its
clear obligation to ask the television stations for make goods.11
(2)
Next, DDB challenges the sufficiency of Subaru’s proof that it
10
That issue is not before the Court, and the Court makes
no ruling on it.
11
While a television station’s refusal to provide a make
good is not directly relevant to whether DDB breached its
agreement with Subaru, this fact is relevant to the calculation
of Subaru’s resulting damages. Even if DDB failed to pursue
$5,072,318.00-worth of make goods, calculation of the actual loss
to Subaru may involve complex factual and legal issues.
-11-
failed to pursue certain make goods.12
There is no genuine dispute
that Subaru has put forth evidence from which a reasonable
factfinder might conclude that DDB failed to pursue make goods, but
DDB contends Subaru’s evidence, which the Court describes next, is
inadmissible, and therefore cannot be considered.
Subaru, on the
other hand, contends its evidence is admissible.
Subaru almost exclusively relies upon audit reports created by
its “media auditor” Performance Analysis Group, Inc. (“PAG”), which
was retained by Subaru from the beginning of Subaru’s contractual
relationship with DDB specifically to double-check DDB’s post-buy
analyses.
(See Mayer Decl. ¶ 41; Shain Decl. ¶¶ 13, 15)
According
to Kevin Mayer, who was Subaru’s Director of Marketing
Communications during the relevant time period, “Subaru . . .
engaged PAG to prepare [] quarterly repots as a tool to help DDB
identify and obtain make-goods.”
(Mayer Decl. ¶ 41)
PAG performed quarterly audits beginning in the first quarter
of 2005 through the fourth quarter of 2007.
(Shain Decl. ¶ 15;
Shain Decl. Ex. F– quarterly audit reports for 2006 and 2007)
creating these audit reports, PAG worked directly with DDB.
In
DDB
gave PAG all of the data upon which PAG’s audits were based, and
PAG submitted drafts of its quarterly reports to DDB so that DDB
could “rectify any inaccuracies.”
(Shain Decl. ¶ 17; Mayer Decl.
12
At times, DDB seems to characterize Subaru’s claim as
asserting that DDB pursued no make goods. However, Subaru admits
that DDB did pursue some make goods. Subaru claims that DDB
should have pursued additional make goods.
-12-
¶¶ 42, 43; see, e.g., Shain Decl. Ex. C– email to PAG from DDB’s
affiliate, Prometheus, transmitting data for PAG’s use in its “4Q
2006 audit”)
Each quarterly audit report specifically documents that DDB
failed to act on certain underdeliveries and violations, and
ascribes a monetary value for the make goods and credits13 it
recommends DDB should negotiate.
(See Shain Decl. Ex. F– audit
reports)
DDB makes two attacks on the audit reports, and Shain’s
accompanying declaration and deposition testimony.
First, DDB argues that the evidence is inadmissible because
paragraph 16 of the Agreement requires all audits to be performed
by a CPA, and there is no dispute that neither Shain, nor anyone
else employed by PAG, are CPAs.
The Court rejects this argument
because paragraph 16 does not apply to audits of post-buy analyses.
Paragraph 16 provides, in relevant part,
We will keep accurate records of transactions executed
on your behalf in accordance with Generally Accepted
Accounting Principles. You will have the right . . .
to audit our books and records relating to third party
vendor charges, and actual staffing hours compared to
the applicable Annual Fee/Staffing Schedule (Schedule
C). . . . Audits must be conducted by a licensed
Certified Public Accounting firm or individual.
On its face, paragraph 16 makes no sense when applied to post-
13
In the audit reports, “credits” apparently correspond to
violations, while “make goods” apparently correspond to
underdeliveries. The parties’ briefs seem to refer to both make
goods and credits as “make goods,” so the Court will do the same.
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buy analyses because the information contained in those reports
simply cannot be kept “in accordance with Generally Accepted
Accounting Principles,” and a CPA, who has no specialized knowledge
of the advertising field, could not conduct a meaningful audit of
the information.
Moreover, the Court concludes that paragraph 17(g) applies to
post-buy analyses, and notably that provision does not require a
CPA audit.
Paragraph 17(g) provides:
To the extent we are able to do so, we will verify all
media invoices by obtaining from the media . . . proof
of performance of . . . television time and we will
confirm the accuracy of all media charges.
These
services
will
include
post
buy
analyses
and
negotiation of make goods. Upon reasonable notice .
. . we will make our files and records pertaining to
the above material available to you for examination.
Thus, the Court concludes that paragraph 16 of the Agreement
does not prevent this Court from considering the PAG Reports and
Shain’s testimony in opposition to DDB’s Motion for Summary
Judgment.14
Second, DDB argues that the audit reports and accompanying
testimony by Shain is “impermissible lay opinion.”
In essence, DDB
reasons that the audit reports and testimony are the product of
specialized knowledge, therefore such evidence may only be
14
Even if the Agreement required media audits to be
performed by a CPA, the Court questions whether such a
contractual provision is even relevant to the evidentiary issue
of the admissibility of certain documents and testimony.
However, since the Court holds that the Agreement does not
require media audits to be performed by a CPA, the Court need not
answer the question.
-14-
introduced by way of an expert.15
According to DDB, because Subaru
has not proffered Shain as an expert witness, the Court cannot
consider the audit reports or his testimony.
In response, Subaru argues that the audit reports themselves
are business records created in the ordinary course of business,
and therefore: (1) they are admissible, and (2) such evidence is
sufficient to establish a genuine issue of material fact as to
whether DDB breached the agreement.
With regard to the quarterly audit reports, the Court agrees
that there is no hearsay problem.
an objection.)
(Indeed, DDB has not raised such
Subaru’s Declarations from Mayer and Shain
establish that each audit report is: (1) a “report . . .
or data
compilation . . . of acts, events, conditions, [or] opinions . . .
made at or near the time by . . . a person with knowledge;” (2)
“kept in the course of a regularly conducted business activity;”
and (3) “it was the regular practice of that business activity to
make the . . . report . . . or data compilation.”
Fed. R. Evid.
803(6).
The question is whether there is an independent bar precluding
the audit reports.
the Court disagrees.
DDB asserts that Rule 701 bars the reports, but
First, Rule 701 specifically addresses
15
See Fed. R. Evid. 701 (lay witness “opinions or
inferences” cannot be “based on scientific, technical, or
specialized knowledge”); Fed. R. Evid. 702 (expert witnesses may
testify to “opinions” based on “scientific, technical, or other
specialized knowledge.”).
-15-
“Opinion Testimony by Lay Witnesses” speaking only to limits on
“witness[] testimony in the form of opinions or inferences.”
The
audit reports are documentary evidence, not testimonial evidence by
a witness.16
Second, rather than drawing an inference or stating
an opinion, the reports tend to prove a disputed fact: that DDB
failed to pursue certain make goods on Subaru’s behalf.17
To the
extent that Subaru wants to use the audit reports for that purpose,
they are admissible, and sufficient to raise a triable issue of
fact as to what efforts DDB made or failed to make in pursing make
goods.
Indeed, the record before the Court is murky as to the
quantity of make goods DDB did pursue and obtain, and the quantity
it did not pursue.
As noted previously, no one asserts that DDB
failed to pursue any make goods, the factual question for the jury
will be: to what extent did DDB pursue make goods?
The PAG reports
contribute to this factual uncertainty and therefore summary
judgment is inappropriate.
It appears that there may be a legitimate question as to
whether portions of Shain’s testimony will be based on specialized
16
DDB’s argument lumps together the audit reports and
Shain’s testimony but they are separate pieces of evidence that
must be analyzed individually.
17
Indeed, DDB has never denied that it did not ask for the
disputed make goods; its implicit position seems to be that it
exercised its professional judgment in deciding which make goods
were worth pursuing. On the other hand, Subaru asserts that
DDB’s decisions in that regard were not in accordance with
industry standards.
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knowledge, and may not be admissible as lay testimony.
But the
scope of Shain’s testimony at trial, and the admissibility of the
audit reports for purposes not encompassed by this Opinion are
issues that are more appropriately decided closer to, or during,
trial.
DDB’s Motion for Summary Judgment on Count 2 of the Second
Amended Complaint will be denied.
B.
While DDB is not entitled to summary judgment on Count 2, it
is entitled to summary judgment on Count 4, which seeks a
declaration that DDB has a present obligation to pursue make goods
owed to Subaru from 2006 and 2007.
DDB is entitled to judgment as a matter of law because it is
undisputed that the parties’ Agreement has been terminated.
(Indeed, it was terminated by Subaru, who not only terminated it,
but now asserts that it would have terminated the contract earlier
if certain facts had been known at the time of termination.
infra Section III. C.)
See
Under New Jersey law, “[t]ermination . . .
causes the contract to cease existing” and the parties’ respective
obligations under the contract are extinguished.
Nickels Midway
Pier, LLC v. Wild Waves, LLC (In re Nickels Midway Pier), 372 B.R.
218, 222 (D.N.J. 2007); see also 2-6 Corbin on Contracts § 6.10
(“If the power [to terminate a contract] is exercised, both parties
are freed from the promissory duties.
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If it is not exercised,
neither one is freed.”)
Thus, DDB has no current obligation to
pursue make goods on Subaru’s behalf.
If Subaru successfully proves at trial that DDB failed to
pursue valid make goods in 2006 and 2007 its remedy will be
compensatory damages, not an order compelling DDB to attempt to
obtain make goods from 2006 and 2007.
Summary judgment will be granted to DDB on Count 4 of the
Second Amended Complaint.
C.
Lastly, in Count 3 of the Second Amended Complaint, Subaru
demands three-months’ worth of the fee it paid to DDB (a total of
$3,753,708), asserting that while it terminated the Agreement upon
180 days notice, it was entitled to terminate the Agreement upon 90
days notice, and therefore should be refunded the extra 90 days
(approximately 3 months) of fees it paid to DDB.
According to
Subaru, at the time it sent DDB its formal written letter
terminating the Agreement upon 180 days notice, it was unaware of
grounds for terminating upon 90 days notice-- namely, that Peter
Hempel had not worked on the Subaru account at all during 2007.18
18
Disputed issues of fact exist as to whether there was a
“reduction” in Hempel’s “job responsibilities” (Epstein Decl. Ex.
B, paragraph 10(a)): Hempel states in his affidavit that he
“remained highly involved with the Subaru account for the entire
duration of the Agreement” (Hempel Aff. ¶ 3); yet DDB does not
dispute that a staffing audit revealed that Hempel billed no time
specifically to the Subaru account in 2007. See fn. 22 infra.
However, because it does not alter the disposition of the instant
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Subaru attempts to characterize its claim as one for breach of
contract, asserting in its Second Amended Complaint that “DDB has
materially breached the Agreement by failing to accede to Subaru’s
demand to terminate the account on 90 days notice.”
(Second Amend.
Compl. ¶ 59)(emphasis added)
Subaru’s claim fails because the undisputed facts demonstrate
that DDB did not breach the agreement.
The Agreement does not obligate DDB to terminate the agreement
upon a “personnel change or reduction in the job responsibilities
of . . . Peter Hempel” (Epstein Decl. Ex. B-- Agreement ¶ 10(a))19;
nor does the Agreement automatically terminate in 90 days upon the
same condition.
The Agreement merely gave Subaru a right of
termination, which Subaru did not exercise.
The undisputed evidence demonstrates that on October 16, 2007,
Subaru gave “Notice . . . pursuant to Section 10(a) of the
Agreement, that [Subaru] is exercising its right to terminate the
Agreement.
The termination shall take effect 180 days from the
date of this letter.”
(Mayer Decl. Ex. A)
Later, on November 12, 2007, Subaru “proposed” that the
parties terminate their agreement effective January 15, 2008 (i.e.,
90, rather than 180, days from October 16, 2007) writing, “[d]ue to
Motion, the Court will assume that Subaru did in fact have
legitimate grounds for terminating the Agreement upon 90 days
notice.
19
Indeed, the Agreement does not even obligate DDB to
disclose such a change or reduction.
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the fact that [Subaru] will not require much work from DDB after
January 15th, 2008 we would like to propose January 15th, 2008 as
the official end-date of our contractual relationship.”
Decl. Ex. B)
(Mayer
But Subaru admits that DDB did not agree to the
proposal.20
The undisputed record demonstrates that Subaru never invoked
its right to terminate the agreement upon 90 days notice.
Its
failure to exercise an option to terminate is not tantamount to
DDB’s breach.21
The fact that Subaru contends that it was not aware of grounds
to terminate upon 90 days notice until a staffing audit of DDB’s
records was completed “during the Summer of 2008” (Subaru’s Brief,
p. 47)-- i.e., well after the 180 day termination period had
expired-- does not change this Court’s conclusion.
Subaru does not
allege that DDB attempted to conceal Hempel’s role at DDB nor his
20
Documents submitted by Subaru suggest that DDB made a
counteroffer, proposing the agreement be terminated at “the end
of March, 2008” which was approximately two weeks shorter than
180 days. (Mayer Decl. Ex. D)
21
See generally, In re Nickels Midway Pier, 372 B.R. at
222-23 (discussing the conceptual differences between termination
of a contact and breach of a contract); 2-6 Corbin on Contracts §
6.10 (“Termination occurs when a party exercises a power created
by agreement or law to end a contract otherwise than for its
breach. . . . The legal power created by [the] option to
terminate . . . . is a power to terminate if the contractor so
wills and desires. . . . If the power is exercised, both parties
are freed from the promissory duties. If it is not exercised,
neither one is freed.”) (emphasis added).
-20-
involvement with the Subaru account.22
Moreover, it is undisputed
that the Agreement gave Subaru the right to conduct a staffing
audit prior to terminating the Agreement.
(See Epstein Decl. Ex.
B-- Agreement, ¶ 16 (“[Subaru] will have the right, upon reasonable
advance notice and no more frequently than annually, to audit
[DDB’s] books and records related to . . . actual staffing and
hours.”)).
Thus, the record evidence suggests that Subaru could
have discovered the circumstances concerning Hempel’s work and
responsibilities vis a vis Subaru before terminating the Agreement.
DDB’s Motion for Summary Judgment on Count 3 of the Second
Amended Complaint will be granted.
V.
For the reasons stated herein, DDB’s Motion for Summary
Judgment will be granted as to Counts 3 and 4 of the Second Amended
Complaint and denied as to Count 2.
The Court will issue an
appropriate Order.
Dated: September 22, 2011
s/ Joseph E. Irenas
JOSEPH E. IRENAS, S.U.S.D.J.
22
In July 2005, Hempel was promoted to President of DDB’s
New York office. (DDB’s Supplemental Response to Interrogatory
Nos. 1-6) After that time, DDB explains that Hempel billed
Subaru work to “the ‘administrative’ category in line with
accepted industry practice,” rather than to a client number
specific to Subaru. (Id.) DDB directly informed Subaru’s Vice
President of Marketing of the promotion before making a public
announcement. (Epstein Reply Decl. Ex. E)
-21-
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