Yellow
Pages Case Analysis
Nov.
30, 2005
An
interesting question not entirely answered by the opinion is whether the result
would be the same, regardless of where in the state the suit arose. Arguably,
it could be limited to southeastern Wisconsin and other parts of the state where
there is, in fact, competition to the Ameritech yellow pages from others.
Nevertheless,
the case will be difficult to distinguish, regardless of whether any competition
actually exists, and an identical clause should be interpreted to bar lost profits
and consequential damages, wherever the affected business may be located.
At
one point, the court gave the following two reasons for distinguishing Discount
Fabric House of Racine, Inc., v. Wisconsin Telephone Co., 117 Wis.2d 587, 345
N.W.2d 417 (1984): “Ameritech does not possess a monopoly as Wisconsin Telephone
did when Discount Fabric was decided”; and “the clause at issue is not
exculpatory, but rather, a valid and enforceable stipulated damages clause.”
Later,
however, the court stated the first reason differently: “there is no longer
a state-approved monopoly.”
The
court devotes many pages of analysis towards documenting that there is no longer
a monopoly on phone service in the United States: the 1984 divestiture of AT&T;
deregulation in Wisconsin in 1986 and by Congress in 1996; competition for both
local and long-distance service, cellular phone service; and the Internet.
The
court’s sole discussion of whether there is a monopoly in the market for
yellow pages, on the other hand, is one sentence: “Furthermore, as detailed
in Craig Cerqua’s affidavit, there were competitive directory publishers
competing with API in the relevant markets.”
Earlier
in the opinion, when stating the factual background of the case, the court had
noted that, in southeastern Wisconsin, there are two competitors to the yellow
pages: the Milwaukee One Book; and Yellow Book USA.
Because
of the short shrift given to discussion of competition in the yellow pages market,
it would seem that it is of only marginal significance, compared to the statewide
competition for phone service.
Apart
from the majority opinion, Justice Bradley’s dissent also supports the interpretation.
Bradley points out that the data on which the majority relies is primarily data
from Milwaukee in the year 2002, rather than data from Watertown, Oconomowoc,
and Waukesha in 1999-2000. The majority fails to address the argument.
A
reasonable inference from the failure of the majority to address the dissent’s
argument is that the presence of actual competition from other yellow pages is
only minimally relevant. What is important appears to be that Ameritech is subject
to competition, and phone service is no longer a state-protected monopoly, as
Wisconsin Telephone was in 1978.
Far
more problematic than this potential ambiguity in the meaning of “monopoly,”
however, is the court’s acceptance of the contract as containing a stipulated
damages clause.
A
stipulated damages clause is supposed to provide that, if X breaches the contract
in such-and-such manner, the damages shall be $Y. The contract at issue does not
provide this.
Instead,
the contract provides, at the beginning of the clause, that a following schedule
of damages is the maximum damages for which Ameritech shall be liable. Thus, it
is a limitation of damages clause, rather than a stipulated damages clause.
Interestingly,
Bradley’s dissent cites a provision at the end of the damages clause stating,
under no circumstances, will liability exceed the amount actually paid for the
advertisement, plus a credit equal to that amount in future yellow books.
Bradley
interprets this to render the contract ambiguous, because the contract earlier
states that the buyer may negotiate different damage terms.
A
more plausible construction, however, given the use of the word “maximum”
at the beginning of the clause, is that it is instead another iteration of the
limitation of damages provision.
These
provisions arguably should make the damage clause invalid, because, rather than
setting damages, it caps them. Such a provision guts the entire purpose of a stipulated
damage clause:
“The
clauses allow the parties to control their exposure to risk by setting the payment
for breach in advance. They avoid the uncertainty, delay, and expense of using
the judicial process to determine actual damages. They allow the parties to fashion
a remedy consistent with economic efficiency in a competitive market, and they
enable the parties to correct what the parties perceive to be inadequate judicial
remedies by agreeing upon a formula which may include damage elements too uncertain
or remote to be recovered under rules of damages applied by the courts. In addition
to these policies specifically relating to stipulated damages clauses, considerations
of judicial economy and freedom of contract favor enforcement of stipulated damages
clauses. (quoting Wassenaar v. Panos, 111 Wis. 2d 518, 528, 331 N.W.2d 357 (1983)).”
Suppose
that Rainbow was not seeking lost profits and consequential damages in this case,
but all they had sought was a refund, plus the credit for the next year, and cited
the “stipulated damages clause” for support. Suppose that instead of
complying, Ameritech replied that it would only give the refund, but that Rainbow
would have to go to court and prove actual damages, if it wanted more than the
refund.
The
clause does not provide stipulated damages, but only establishes its maximum liability.
Thus, the contractual language would support Ameritech’s interpretation.
The
court should have distinguished between a stipulated damages clause and a limitation
of damages clause.
If
a customer must go to court and prove damages that are highly speculative in order
to obtain anything more than a refund for the advertisement (those damages would
be indisputable), then the clause wholly fails as a stipulated damages clause.
The court
only touches on this issue in a footnote: “The clause could also rightly
be termed a ‘liquidated damages’ clause, a ‘limited liability’
clause or a ‘limitation of damages’ clause. We elect to use the term
‘”stipulated damages’ to mean the damages specified in the contract’
and the term ‘”liquidated damages” to mean reasonable and enforceable
stipulated damages.’ (citing Wassenaar, and Kernz v. JL. French Corp., 2003
WI App 140, 266 Wis.2d 124, 667 N.W.2d 751.”
However,
a stipulated damages clause and a limitation of damages clause are not the same
thing. The court has, without discussion, conflated the meanings of a “limitation
of damages” clause (which the clause in the case at bar actually is), with
a “stipulated damages” clause (which it is not).
-
David Ziemer
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David
Ziemer can be reached by email.
