Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

THE SMART MARKETING GROUP v. PUBLICATIONS INTERNATIONAL (October 28, 2010)

For years, Publications International operated ConsumerGuide.com, a website that provides free automobile price quotes. In turn, Publications transformed the price quote request into sales leads that they then sold to wholesalers, who turned around and sold them to local automobile dealers. In 2003, Publications decided to revise its business model and sell those sales leads directly to dealers. It turned to The Smart Marketing Group for help. They developed two programs – “Approved” and “Leads & Listings.” In Approved, dealers were designated as "approved" dealerships and obtained certain marketing advantages. Leads & Listings involved the actual delivery of specific sales leads to a dealer every month. Smart and Publications entered into a contract in October of 2003. Although the venture failed miserably, each party (not surprisingly) had a different story. According to Publications, Smart botched the Approved program from the beginning – and its failure put pressure to launch Leads & Listings sooner than it was ready. On the other hand, Smart claim that Approved was a big success and the reason some dealers and did not like it was because of Publication's failure to deliver the promised advantages of the program. Even after the October contract, Publications still had not finished the software necessary to deliver the sales leads. Publications decided to terminate its relationship with Smart. It purported to rely on a "termination for cause" provision in the contract. Smart filed suit for breach of contract. The case eventually went to trial. Because of certain pre-trial rulings, the only significant issue at trial was Smart's damages. Smart asked for $8.8 million. Its expert testified about each of the hundreds of dealer contracts and, making certain assumptions and estimations, projected the amount of lost profit. Although the court rendered him unqualified to testify as an expert, it did allow him to explain his calculations. Publication's experts testified that Smart's expert used unreasonable assumptions and estimations. The jury awarded lost profits of $5.6 million. Publications moved for judgment as a matter of law under Rule 50 (b) and, alternatively, for a new trial under Rule 59. Judge Gottschall (N.D. Ill.) denied the motions. Publications appeals.

In their opinion, Judges Wood, Evans, and Sykes vacated and remanded. Under Illinois law, the Court said, a plaintiff has the burden of proof in showing lost profits to a reasonable degree of certainty. This can sometimes be difficult even for established businesses, but at least they can rely on past profit history. New businesses have an even more formidable task. The Court concluded that the venture at issue was a new business even though Publications and Smart both had prior related experience. Neither, however, had experience in the web-based sales promotion venture they were attempting to create. The Court reviewed Smart’s evidence. It found the it "sorely lacking," "just guesses," "at best predictions," and "unreliable." Nevertheless, it concluded that the district court did not err in denying the Rule 50 (b) motion -- it found it conceivable that the entire record could support some damages for Smart. It did, however, find the verdict excessive under Rule 59 and remanded for a new trial on damages. Given the weaknesses in Smart's evidence, the Court concluded that the amount of the verdict was outside any reasonable range of just compensation. 

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ALLIANCE 3PL CORP. v. NEW PRIME, INC. (August 2, 2010)

Loders Croklaan USA produces fats and oils used in the food industry. Until 2003, the company dealt directly with trucking companies to transport its product to its customers. One of the companies with whom it had such a relationship was New Prime, Inc. In 2003, Loders retained Alliance 3PL Corp., a transportation management services company, to manage its transportation needs. In turn, Alliance entered into a contract with New Prime to continue transporting Loder's products. The contract contained a back-solicitation clause which prohibited New Prime from soliciting any “traffic” from a company which it first learned about through Alliance. When Loders' contract with Alliance ended, New Prime submitted a successful bid directly to Loders. Alliance brought suit against New Prime for breach of the back-solicitation clause. A jury awarded Alliance $2.2 million in damages. Judge Bucklo (N.D. Ill.) denied New Prime's Rule 50 and 59 motions. New Prime appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Rovner reversed. The basic facts were not in dispute. The parties agreed that New Prime had a relationship with Loders before being retained by Alliance and that the amount of business available to New Prime increased during the Alliance era. The Court noted that the dispute arose regarding the meaning of the word "traffic" in the back-solicitation clause. The district court judge concluded that the word was ambiguous and allowed the jury to decide which meeting to apply. New Prime relied on the ordinary definition of the word in conjunction with the purpose behind the back-solicitation clause to conclude that, since it knew of the company and its general transportation needs before its contract with Alliance, it did not breach the clause. The Court found this position supported by Illinois restrictive covenant law. The Court added that a party that wants to divert from the normal definition of the term can do so with either parol or trade usage evidence -- and Alliance did neither. There is therefore no record support for Alliance's position that "traffic" should be defined as "amount of traffic" in order to hold New Prime liable.

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