Endless River Technologies LLC vs. Trans Union LLC.

Filing 288

Memorandum Opinion and Order. Defendant's Motion for Judgment as a Matter of Law is GRANTED, in part. (ECF # 276 ). The Judgment is hereby amended as follows: The Court enters Judgment in favor of the Plaintiff and against the Defendan t on Count One (Breach of Contract) of its Second Amended Complaint in the amount of zero dollars. Judgment is entered in favor of the Defendant on all other counts. All costs, including costs related to the jury, are to be paid by the Defendant. IT IS SO ORDERED. Judge Donald C. Nugent on 1/3/2023. (M,S)

Case: 1:18-cv-00936-DCN Doc #: 288 Filed: 01/03/23 1 of 11. PageID #: 14625

IN THE UNITED STATES DISTRICT COURT •
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

ENDLESS RIVER TECHNOLOGIES LLC,

CASE NO.: 1:18 CV 936

Plaintiff/Counter-Defendant,
JUDGE DONALD C. NUGENT

V.

TRANS UNION LLC,
MEMORANDUM OPINION

AND ORDER
Defendant/Counter-Plaintiff.

This case is currently before the Court on Defendant, TransUnion LLC's("TransUnion")
Motion for Judgment as a Matter ofLaw. (ECF # 276). Endless River Technologies LLC
("Endless River")filed a Briefin Opposition to the motion(ECF # 276), and TransUnion filed a
Reply Briefin support ofits motion. (ECF #285). The matter is now fully briefed and ready for
disposition. Having reviewed the briefs and fully analyzed the contracts and applicable law,the
Court finds that TransUnion's Motion for Judgment as a Matter ofLaw should be GRANTED.
Plaintiffs Second Amended Complaint alleged seven causes of action:(1)Breach of
Contract;(2)Trade Secret Misappropriation;(3)Conversion;(4)Defamation;(5)Slander of
Title;(6)Tortious Interference with Business Expectancy; and,(7) Violations ofthe Ohio
Deceptive Trade Practices Act. The Defendant asserted counterclaims for Breach of Contract
and Declaratory Judgment. Plaintiffs claim for conversion, and Defendant's claim for

Declaratory Judgment were dismissed on summaryjudgment. (ECF #170). Also during
summaryjudgment,the Court found that the contract plainly and unambiguously provided that
ownership ofthe QE Code reverted to Endless River ownership when TransUnion terminated the

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contract at the end of2018. (ECF #170,PagelD # 9764-65). Although Endless River did not

seek summaryjudgment on its breach ofcontract claim, the parties subsequently agreed that this
finding established that TransUnion's failure to timely return the Code to Endless River was a
breach ofthe contract.

On the first day oftrial, prior to voir dire, the Defendants volvmtarily dismissed their
counterclaim. (ECF #261,PagelD #12744). On the third day, Plaintiff voluntarily dismissed its

claim for Tortious Interference with Business Expectancy. (ECF #271). Following the
Plaintiffs presentation ofevidence, the Court granted Defendant's Rule 50 motion for judgment
as a matter oflaw on Count Four(Defamation), and reserved ruling as to the other remaining
counts. (ECF #272). At the close of evidence,the Court found in favor of Endless River on

Count One(Breach of Contract), and dismissed Cormts 2(Trade Secret Misappropriation), 5
(Slander of Title), and 7(Violations ofthe Ohio Deceptive Trade Practices Act).(ECF #268,
PagelD 14202-03; ECF #273). The jury was instructed to determine whether damages had been
proven on the breach of contract claim, and if so, in what amount. (ECF #274).
On September 16,2022,the twelve member Jury returned a unanimous finding that

Plaintiff, Endless River proved, by a preponderance ofthe evidence that it suffered damages in

the amount of$18.3 million, proximately caused by TransUnion's failure to timely retum the
*

Quote Exhange code in accordance with the contract terms. (ECF #274). The Court accepted
the Jury's findings and entered Judgment in favor ofPlaintiffs and against the Defendant
TransUnion in that amount.(ECF #273, 275). Defendant now moves for judgment as a matter of

law, arguing that the jury's damages award is prohibited by the terms ofthe contract, and
otherwise precluded as a matter oflaw.

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STANDARD OF REVIEW

Fed. R. Civ. P. 50 provides in relevant part that:
If a party has been fully heard on an issue during a jury trial and the
court finds that a reasonable jury would not have a legally

sufficient evidentiary basis to find for the party on that issue, the
court may;

(A)resolve the issue against the party; and

(B)grant a motion for judgment as a matter oflaw against
the party on a claim or defense ...

Fed.R.Civ.P. 50(b)provides that if a court does not grant a motion for judgment as a
matter oflaw made after the close of all the evidence and the party renews its request after a

verdict is returned, the court may(1)allow the judgment to stand,(2)order a new trial, or(3)
direct entry ofjudgment as a matter oflaw. The "standard for granting a renewed motion for
judgment as a matter oflaw under Rule 50(b)is precisely the same as the standard for granting
the pre-submission motion." Wright & Miller, Federal Practice and Procedure: Civil 2d § 2537,
p. 347(footnote omitted).

That is,judgment as a matter oflaw may be granted when "a party has been fully heard
on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that

party on that issue." Imwalle v. Reliance Medical Products, Inc., 515 F.3d 531,543 (6'*' Cir.
2008)(citing Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 149(2000); see also Fed.

Civ. R.50(b). "The Court is not fi:ee to weigh the parties' evidence or to pass upon the credibility
of witnesses. Nor may the Court substitute its own judgment for that ofthe jury.... When the

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evidence would permit reasonable minds to differ on the issues decided, a motion for judgment
as a matter oflaw must be denied. In short, every effort must be made to uphold the verdict if
reasonably possible." In re Scrap Metal Antitrust Litigation, No. 1:02 CV 0844,2006 WL
2850453, at *8(N.D. Ohio Sept. 30,2006).

FACTS

In 2014,the parties entered into a Development Agreement and Contract for Services

("the Agreement") outlining their rights and obligations in the joint development and
commercialization of a method for providing insurers on-line, real-time comparison price quotes
to consumers("Quote Exchange"). The parties agree that the Agreement provided that "[i]n the
event the Quote Exchange [did] not meet expectations at any time in Trans Union's sole

discretion," Trans Union could "terminate the contract upon 180 days prior written notice."
(ECF #1, Ex. A). TransUnion exercised this right on October 4,2017. The contract further

provided that should TransUnion choose to terminate the Contract,"the Quote Exchange
platform source code developed hereunder will revert to ERT [Endless River] ownership."
Following termination, TransUnion failed to recognize Endless River's ownership rights, thereby
breaching the Contract.

TransUnion is not disputing the determination that it breached the contract. Rather, it

raises six separate challenges to the validity ofthe damages sought by the Plaintiff and awarded
by the jury. First, TransUnion claims that the verdict awards damages that are specifically barred
under Section 8.2 ofthe Contract. Second, it claims that the damages violate Illinois'"New
Business Rule," which precludes lost profit damages for start-up businesses. TransUnion also

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claims that the amount awarded include improper amounts for potential profits that predate the
breach; violate Illinois' prejudgment interest limits; ignore mitigation evidence; and are
unsupported by the evidence presented at trial.

ANALYSIS

A. Damages Waiver

In a breach of contract action,"the law of damages seeks to place the aggrieved party in
the same economic position the aggrieved party would have attained ifthe contract had been
performed." 11 Corbin on Contracts §55.11 (2022)(citing Restatement(First) of Contracts §
329); see also Restatement(Second)of Contracts §347("Contract damages are ordinarily based

on the injured party's expectation interest and are intended to give him the benefit of his bargain

by awarding him a sum of money that will, to the extent possible, put him in as good a position
as he would have been in had the contract been performed."). There are two broad categories of
contract damages:(1)direct, or general damages and(2)consequential, or special damages. 24

Williston on Contracts §64:16 (4"^ ed.).
Although consequential damages can generally be awarded in a breach of contract action,
the parties may contractually limit liability for these types of damages. Illinois law, which
governs the Agreement in this case, recognizes the "strong public policy favoring freedom of
contract," and permits enforcement of damage limiting clauses. See, Westlake Fin. Grp., Inc. V.

CDH-Delnor Health Sys., 25 N.E. 3d 1166, 1174 (111. App. Ct. 2015). However,Illinois also
holds that damages waivers should be strictly construed against the benefitting party. Aculocity,
LLC V. Force Marketing Holdings, LLC,NO. 17-CV-2868,2019 WL 764040, at *2(N.D. 111.

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Feb. 21,2019). Section 8.2 ofthe Contract between the parties contains this type oflimiting
clause in the form ofa waiver of liability barring recovery of any consequential or indirect
damages,including lost profits or revenue:
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR,AND BOTH

[TRANSUNION]AND [ENDLESS RIVER]HEREBY WAIVE AS TO THE
OTHER PARTY,ANY CONSEQUENTIAL,INCIDENTAL,INDIRECT,
SPECIAL OR PUNITIVE DAMAGES INCURRED BY THE OTHER PARTY

AND ARISING OUT OF THE PERFORMANCE OF THIS CONTRACT,
INCLUDING BUT NOT LIMITED TO LOSS OF GOOD WILL AND LOST

PROFITS OR REVENUE,WHETHER OR NOT SUCH LOSS OF DAMAGES
IS BASED IN CONTRACT,WARRANTY,TORT,NEGLIGENCE,STRICT
LIABILITY,INDEMNITY,OR OTHERWISE EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE

LIMITATIONS SHALL APPLY NOT WITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OR ANY LIMITED REMEDY.

(ECF #1-1, Development Agreement §8.2). The parties recognize that Illinois courts have read
similar language to mean that the waiver precludes recovery oflost profits or revenue only when
they constitute consequential damages, and not when they can be considered direct damages.
Endless River presented a damages theory based on the Venture Capital Approach("VC
Approach") which seeks to define a start-up company's projected value, in the absence ofany

breach, through the capture oflost market opportunities. Both parties agree that this calculation
is, in essence, a calculation oflost profits.(ECF #283,PageID14552;ECF # 276-1
PageID14348,14367-68). They disagree on whether these damages are direct or consequential.
The question the Court must, therefore, answer is whether the Plaintiff's evidence ofdamages

proves direct damages, which are recoverable, or consequential damages which are barred imder
the Contract.

Direct damages are "[djamages that the law presumes follow the type of wrong

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complained of." Id. (citing Black's Law Dictionary 394(y"* ed. 1999). In contract cases, they are
those "arising naturally and usually from the breach." or "loss of bargain" damages stemming
from the failure ofthe promised performance itself. 11 Corbin on Contracts § 55.6(2022).
Illinois further defines direct contractual damages as "utterly foreseeable, indeed certain to stem

from a breach ofthe contract." See Tate & Lyle Americas LLC v. Glatt Air Technologies, Inc.,
2016 WL 7422289, at *4(C.D. 111. 2016). Generally they are considered to be damages that flow

from the subject matter ofthe contract. See, e.g., DaimlerChrysler Motors Co., LLC v. Manuel,
362 S.W.3d 160,180-81,183-84(Tex. App.- Fort Worth 2012).
Consequential damages, on the other hand,"are losses or injuries that do not flow directly
and immediately from a party's wrongful act but rather result indirectly from the act." Aculocity,
LLC V. Force Mktg. Holdings, LLC,No. 17-CV-2868,2019 U.S. Dist. LEXIS 27409, at *5(N.D.
111. 2019). They are "recoverable only if, at the time of[the contract'sjformation, the defendant

has reason to know offacts indicating that particular or unusual damages will or may result from
the defendant's breach." 11 Corbin on Contracts § 55.6(2022). Consequential damages must
still be proximately caused by the breach and must be foreseeable, but they are not the invariable

result ofa breach. Id. The difference between direct and consequential damages in breach of
contract claims lies "in the degree to which the damages are a foreseeable ... highly probable[]
consequence ofa breach." Rexnord Corp. v. DeWolffBoberg & Assocs., Inc., 286 F.3d 1001,

1004(7"" Cir. 2002). Consequential damages require proof of an additional "link in the causal
chain" in order to connect the damages to the contract. Powell Elec. Sys., Inc. v. Hewlett
Packard Co., 356 S.W.3d 113(Tex. App. 2011).
Plaintiff relies in large part on the decision in Midland Hotel Corp. V. Reuben H.

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Donnelley Corp.,SIS N.E.2d 61 (111. 1987), to argue that the lost profits in this case are direct and
not consequential damages. In that case, the Midland Hotel entered into a contract with Reuben
H. Donnelley Corp.("RHD")to include Midland in the first issue ofa new phone directory RHD
was publishing. Midland agreed to distribute the directory in its hotel, in return for an

advertisement on the outside back-cover and a listing in the appropriate section ofthe directory.
When the directory was published. Midland's listing was not placed in the hotel section, but
rather in the "banquet rooms" section ofthe directory. Midland argued that it lost $1.3 million in

business because it was not included in the hotel section ofthe directory. The Illinois Supreme
Court held that the lost profits sought by Midland were direct damages because they were a direct
and natural consequence of RHD's breach. Specifically, the court found that "the very purpose

of a Yellow Pages listing is to increase profits," and "the plaintiffs profits formed the very basis
of its contract with the defendant." Id. at 67.

Endless River argues that the Development Agreement anticipated the continuation of

profits following a potential TransUnion termination. They cite Phase III ofthe Agreement
which provides that,"should TU choose to terminate the contract and should ERT continue to

market and monetize the TU developed code,repajment ofthe TU incurred development fees
shall be paid to TU from future ERT revenues generated over a period oftime not to exceed 36
months." (Endless River Trial Ex 201,Phase III). Based on this provision,they contend that
their future profits "formed the very basis" ofthe provision that TransUnion breached and are
analogous to the damages sought in Midland.

Contrary to Plaintiffs assertion, the Development Agreement between Endless River and
TransUnion was not formed for the direct purpose of allowing Endless River to monetize the

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Quote Exchange by selling the product/company. Rather,the Agreement was primarily a service
contract through which Endless River would provide its expertise to TransUnion to help develop
the Quote Exchange. The contract does not address obtaining customers, does not require that
the Quote Exchange be marketed, sold, or licensed, and does not define an expected amount of

profit or minimum value that the parties should expect to make ifthe product was laimched. It
defines a profit sharing percentage split between the parties ifthe Quote Exchange does launch

while the Agreement is in force. However,the completion ofthe Agreement does not require a

product launch, and allows TransUnion to unilaterally terminate the Agreement prior to any
laimch or realization of profit, which it did. The contract does permit Endless River to "continue
to market and monetize the TU developed code," should TransUnion terminate the Agreement. It

does not require that it do so. TransUnion has no contractual obligation, post-termination, with
regard to any decision relating to the marketing or monetization ofthe Quote Exchange.
The Agreement instead focuses on the details ofthe relationship between Endless River

and Trans Union. It provides that Endless River would be an independent contractor, and would
receive a consulting fee for providing their expertise during the development ofthe Quote
Exchange. It defines the compensation that Endless River was to expect imder the contract:

$300,000.00 annually for their services, and reimbursement for certain expenses up to
$10,000.00 per month. It further specifies that Endless River was to devote a minimum of 160
man hours to the project each month, and that any hours in excess ofthat requirement would by

billed to TransUnion at a rate of$175 per hour. Had TransUnion failed to compensate Endless
River under these terms, those damages would have been direct damages under the contract.
However,Endless River did not allege non-payment rmder these terms and did not seek damages

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for any unpaid compensation or expenses under the contract.' The actual breach that Endless
River alleged and proved was that TransUnion failed to timely return the Quote Exchange source
code after the contract was terminated. The direct damages associated with this breach would
have been a portion ofthe value ofthe source eode itself. Endless River did not attempt to define

that value and did not seek that value as damages. Instead it sought to recover allegedly lost
profits, which in this case were,losses or injuries that did not flow directly and immediately from
the suhjeet matter ofthe contraet or the proven breach, but rather were indirect losses not

invariably tied to the contract's terms. The lost profit damages sought in this case require proof
of more than just a breaeh ofthe Agreement. They rely on an additional "link in the causal

chain" in order to coimect the damages to the contract. Powell Elec. Sys., Inc. v. Hewlett
Packard Co., 356 S.W.3d 113(Tex. App. 2011). Although there is arguably a foreseeable causal

link between TransUnion's failure to timely provide the source code, and the lost opportunity for
profit, that loss was not a certain consequence ofthe breach. The profits Endless River claims to
have lost were reliant on future transaetions with third parties. The opportunities lost were not in
existence at the time TransUnion terminated the Agreement. Further, TransUnion was not a
party to those transactions and had no contractual obligation to promote or otherwise enable
them.

The lost profit damages sought by Plaintiff, and awarded by the jury after trial, could only
have been based on the evidence presented by the Plaintiffs expert. As set forth above,that

Conversely, had Endless River failed to provide services, in the manner and amount
defined in the Agreement, TransUnion would have been able to claim the value ofthose
services as direet damages.

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evidence calculated lost profits that did not flow directly and immediately from the subject matter

ofthe contract. The awarded damages, therfore, could only have included consequential
damages specifically barred by Section 8.2 ofthe Development Agreement. Consequently, the
jury's determination of damages must be overturned.
TransUnion also argues that the jury's damage award should be overturned because
Illinois law does not permit recovery of expected profits for a new commercial business, and
because the Jury did not have a sufficient evidentiary basis upon which it could properly have
based its damages finding. As the Court finds that the only evidence of damages that the
Plaintiff presented was a calculation of consequential damages, and those damages are barred by
the Development Agreement,there is no need to address these alternative arguments.

CONCLUSION

For the reasons set forth above. Defendant's Motion for Judgment as a Matter of Law is

GRANTED,in part. (ECF #276). The Judgment is hereby amended as follows: The Court

enters Judgment in favor ofthe Plaintiff and against the Defendant on Count One (Breach of
Contract) of its Second Amended Complaint in the amount ofzero dollars. Judgment is entered
in favor ofthe Defendant on all other counts. All costs, including costs related to the jury, are to
be paid by the Defendant. IT IS SO ORDERED.

Donald C. Nugent
United States District
Date:

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