Yellow
pages damage clause enforceable
By
David Ziemer
Wisconsin Law Journal
Nov.
30, 2005
| What
the court held Case:
Rainbow Country Rentals and Retail, Inc. v. Ameritech Publishing, Inc., No. 2004AP239 Issue:
Is a stipulated damages clause in a yellow pages contract enforceable? Holding:
Yes. The telephone company is no longer a state-sponsored monopoly, and, unlike
exculpatory clauses that bar all liability, stipulated damages clauses are not
disfavored. Counsel:
Jonathan P. Groth, Milwaukee, for appellant; Terry E. Johnson, Peter F. Mullaney,
Milwaukee, for respondent. |
A
liquidated damages clause in a yellow pages contract is enforceable, the Wisconsin
Supreme Court held on Nov. 22.
In
so holding, the court reaffirmed its holding in Discount Fabric House of Racine,
Inc. v. Wisconsin Telephone Co., 117 Wis. 2d 587, 345 N.W.2d 417 (1984), that
an exculpatory clause in a yellow pages contract was contrary to public policy,
but distinguished the case based on changes in the telecommunications industry,
and the contract’s language.
In
1999, Rainbow Country Rentals and Retail, Inc., contracted with Ameritech Publishing,
Inc. (API), for the listing of its business in the Oconomowoc, Waukesha, and Watertown
Ameritech Pages Plus Yellow Pages telephone directories. API subsequently omitted
Rainbow’s entire listing from each of the directories.
Rainbow
brought suit against API, alleging breach of contract and negligence for lost
business. API asserted, as an affirmative defense, its stipulated damages clause,
barring liability for lost profits or consequential damages, and limiting damages
to a full refund, plus an advertising credit in that amount in a future edition.
Waukesha
County Circuit Court Judge Lee S. Dreyfus granted partial summary judgment to
API. The court found Discount Fabric not controlling, because of the existence
of competing yellow pages that did not exist when Discount Fabric was decided.
Rainbow
appealed, and the court of appeals certified the case to the Supreme Court, which
affirmed in a decision by Justice Jon P. Wilcox. Justice Ann Walsh Bradley dissented,
and Chief Justice Shirley S. Abrahamson did not participate.
In
Discount Fabric, as in the case at bar, the telephone company omitted the plaintiff’s
ad from the 1978 directory. The Supreme Court held an exculpatory damages clause
unenforceable, because of Wisconsin Telephone’s monopoly status.
Despite
the similarities between the two cases, the Supreme Court in the case at bar found
Discount Fabric not controlling, for two reasons: first, the defendant is no longer
a state-approved monopoly; and second, the clause at issue is a stipulated damages
clause, rather than an exculpatory clause.
The
court noted that, on Jan. 1, 1984, AT&T suffered divestiture as a result of
an antitrust suit by the Department of Justice. Subsequently, in 1986, the Wisconsin
Legislature partially deregulated telecommunications services.
In
doing so, the Legislature recognized that “[t]he telecommunications industry
currently is in a state of transition. The industry is moving from a system of
a single monopoly provider of telecommunications services in an area to a system
of competition, with multiple providers of services in an area.” Legislative
Council Information Memorandum 86-11, at 3 (May 7, 1986).
Later,
Congress passed the Telecom-munications Act of 1996, “to transition the entire
industry from regulated monopoly to unregulated competition.”
As
a result of these developments, the court concluded Discount Fabric was not controlling:
“In sum, in 1999, after the divestiture of AT&T, the passage of 1985
Wisconsin Act 297, and the passage of the Telecommunications Act of 1996, there
was not a single telephone company with ‘an exclusive private advertising
business’ that published a directory that was ‘inexorably tied to the
telephone service.’ Discount Fabric, 117 Wis. 2d at 594. Indeed, there were
numerous competitive local, long distance, and to a lesser degree, cellular carriers.
Furthermore, … there were competitive directory publishers competing with
API in the relevant markets. As such, the rationale behind much of Discount Fabric
is simply not applicable to this case.”
The
court also found important differences in the clauses limiting liability. Defining
exculpatory clauses are those “which relieve a party from liability for harm
caused by his or her own negligence.” Merten v. Nathan, 108 Wis.2d 205, 210,
321 N.W.2d 173 (1982), the court determined the API contract did not meet this
definition.
The
court reasoned, “The contract restricts Rainbow’s recoverable damages,
but it does not release API from liability. Under the express terms of the contract,
Rainbow is entitled to all or a portion of the cost of advertisement following
an error or omission. Additionally, because API completely omitted Rainbow from
its directories, Rainbow is entitled to a future PAGESPLUS advertising credit
of like amount.”
The
court also found that Rainbow had an opportunity to bargain for different terms,
citing the following clause in the contract: “If you wish to negotiate any
one or more different terms than those above, including higher liability limits,
you may do so. However, any change to this document or to these terms must be
in writing, signed by both you and us, and dated by both you and us at least fourteen
(14) weeks prior to the Issue Date of the directory (Capitalization in original).”
Turning
to reasonableness, the court held the clause was reasonable, concluding, “In
our view, the contract drafted by API attempted to strike a fair bargain between
the parties in order to keep advertising rates reasonable and competitive with
other telephone directory publishers. API was merely trying to add predictability
to its advertising contracts to avoid the difficulties inherent in attempting
to calculate lost profits due to the differing types of potential errors or omissions.
Furthermore, we conclude that returning the full contract price, along with a
future advertising credit of like amount, is a reasonable award of damages in
light of the completely speculative damages that Rainbow may have suffered.”
Before
concluding, the court emphasized the difference between stipulated damages clauses,
which are regularly upheld, and exculpatory clauses, which are disfavored under
Wisconsin case law.
The
court wrote, “There is a common thread that runs through this line of [exculpatory
contract] cases that is absent from the circumstances of this case. In each of
the above cases, an owner or operator, through a broad, all-inclusive release
form, attempted to avoid all liability for death or serious personal injuries
arising from virtually any conduct, including intentional or reckless acts, of
the owner or operator. There is a fundamental difference between the above situation
and the current one, which deals with one business entity agreeing to limit the
maximum financial recovery for a potential mistake of the other business entity
(emphasis in original).”
Accordingly,
although the court concluded that Discount Fabric is still good case law, the
court found it inapplicable, and affirmed.
The
Dissent
Justice
Bradley dissented, concluding, “The majority obfuscates the focus of the
summary judgment inquiry by engaging in generalizations as to time and location
rather than focusing on the specific times and locations relevant here.”
Bradley
explained, “The question is not, as the majority would have it, simply whether
the telecommunications industry has generally opened to competition since the
time of Discount Fabric in 1984. Of course it has. … The majority shifts
the focus of the summary judgment inquiry. The relevant time is 1999-2000. The
relevant locations are Oconomowoc, Wau-kesha, and Watertown. The majority obfuscates
this by engaging in generalizations, apparently relying on data for 2002 and data
for Milwaukee.”
Bradley
also took issue with the majority’s conclusion that Rainbow had a meaningful
opportunity to bargain over the terms, noting that, contradictory to the clause
cited by the majority on this point, the contract also stated that, in order to
maintain its pricing schedules, API cannot accept liability for lost profits or
consequential damages, and under no circumstances will liability exceed a refund
of the advertising cost, plus a future credit in the same amount.
Bradley
concluded that the inconsistency raises an inference that the opportunity to bargain
stated in the contract is illusory, precluding summary judgment.
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here for Case Analysis.
David
Ziemer can be reached by email.
