Echols v. Pelullo

• Decision Date: 30 July 2004
• Docket Number: No. 03-2740.,03-2740.
• Parties: Antwun ECHOLS, an individual v. Arthur PELULLO, an individual; Banner Promotions, Inc., a Delaware Corporation, Appellants
• Court: U.S. Court of Appeals — Third Circuit

377 F.3d 272

Antwun ECHOLS, an individual v. Arthur PELULLO, an individual; Banner Promotions, Inc., a Delaware Corporation, Appellants

No. 03-2740.

United States Court of Appeals, Third Circuit.

Argued February 24, 2004.

Filed: July 30, 2004.

Appeal from the United States District Court for the Eastern District of Pennsylvania, Clarence C. Newcomer, J George A. Bochetto [Argued], Bochetto & Lentz, Philadelphia, PA, Harry P. Marquis, Las Vegas, NV, Counsel for Appellant.

Robert A. Burke, Blank Rome, Philadelphia, PA, Lamont Jones [Argued], Los Angeles, CA, Counsel for Appellee.

Before: RENDELL, BARRY and ROSENN, Circuit Judges.

RENDELL, Circuit Judge.

A boxing promoter seeks to recover from the District Court's knockout punch aimed, and delivered, at the enforceability of its promotional agreement. Banner Promotions, Inc. entered into a promotional agreement with boxer Antwun Echols, the terms of which left Echols's compensation for participating in bouts secured by Banner subject to negotiation between the two parties, and to renegotiation under certain circumstances. The District Court determined that the agreement's failure to specify minimum compensation for Echols's participation in these bouts rendered it so indefinite as to be unenforceable. For the reasons set forth below, we will reverse.

I.

Arthur Pelullo is the president and owner of Banner Promotions, Inc. ("Banner"), a company engaged in the promotion of professional boxers and professional boxing matches. Antwun Echols is a professional boxer with a current record of twenty nine wins, five losses and one draw.

In November 1999, Echols signed a Promotional Agreement ("the Agreement") with Banner, receiving a $30,000 signing bonus. The Agreement granted Banner "the sole and exclusive right to secure all professional boxing bouts requiring [Echols's] services as a professional boxer and to promote all such bouts" for a term of at least four years, and possibly longer, if certain conditions were met. In essence, the Agreement gave Banner the right to be Echols's sole representative in negotiations with any third parties that were interested in having Echols box on their television networks, in their arenas, or against boxers they represented.

Banner's major obligation under the Agreement was to "secure, arrange and promote" not less than three bouts for Echols during each year of the contract. Banner had sole discretion to determine the time and place of each bout. While Echols had to approve each opponent, his approval could not be "unreasonably withheld." Under Section Five of the Agreement, Banner could satisfy its obligation to secure a bout "if it shall have made a bona fide offer in writing irrespective of whether such [b]out actually takes place for any reason other than Banner's nonperformance."

Section Six of the Agreement delineated Echols's compensation for his appearance in the bouts secured by Banner:

Your purse for all bouts covered by this agreement shall be structured as follows (a) non television, not less than $7,500.00 (b) Univision, not less than $10,000.00 (c) Telemundo, not less that $10,000.00 (d) ESPN 2, Fox Sports or small pay-per-view, not less than $20,000.00 plus $10,000.00 training expenses. (e) HBO AFTER DARK as a challenger or in a non title bout, not less than $45,000.00 plus $10,000.00 training expenses. (f) HBO AFTER DARK as a World Champion not less than $80,0000.00 plus $10,000.00 training expenses. (g) HBO as a challenger or in a non-title bout, not less than $50,000.00 plus $10,000 training expenses. (h) HBO as a World Champion, not less than $125,000.00 plus $15,000.00 training expenses.

Thus, Banner was to pay Echols not less than a stated minimum amount for each bout in which he appeared, with the amount of the minimum depending on where the bout was televised and whether Echols appeared as a champion or not. However, these "minimum purses" could be subject to renegotiation, or the entire Agreement cancelled, at Banner's option, by operation of Section Eight, which provided that "[i]f during the course of this Agreement Boxer should lose any bout, Banner shall [sic] the right but not the obligation to rescind this Agreement or the purses set forth in paragraph (6) shall be subject to renegotiation."

One month after entering the Agreement, Echols lost a world championship bout to Bernard Hopkins, triggering Section Eight. Banner chose not to exercise its right to rescind the Agreement, but took the position that Echols's compensation would thereafter be negotiated on a bout-by-bout basis. Indeed, the parties proceeded to negotiate several individual bout purse agreements in the years after the loss to Hopkins.

Echols, however, became dissatisfied with the situation. According to him, Banner had made him "take it or leave it" offers — offering him bouts for what he believes is below-market compensation, and then rescinding the offers if he attempted to negotiate for a larger purse. Because the operation of Section Eight eliminated the minimum purses specified in Section Six, Echols felt that he was forced to accept Banner's unsatisfactory offers in order to receive any compensation at all.

Tension also arose between the two parties over a "step-aside" fee that Banner negotiated on Echols's behalf in connection with a fight in Germany.¹ Echols believed that Banner misrepresented the amount of the "step-aside" fee, telling him that it was less than it actually was, so that Banner could pocket the difference.

Finally, in February 2003, Echols requested information about the purse for a fight on March 15 of that year. Banner offered $30,000. When Echols made a counter-offer, Banner responded by rescinding the offer and stating it would offer the March 15 fight to another boxer. Echols filed this suit shortly thereafter.

II.

In his complaint, Echols alleged that: (I) the Agreement was unenforceable for indefiniteness; (II) Banner and Pelullo breached the covenant of good faith and fair dealing by misrepresenting the amount of the "step-aside" fee; (III) Banner and Pelullo committed fraud against him by misrepresenting the amount of the "step-aside" fee; (IV) Banner and Pelullo violated the Muhammad Ali Boxing Reform Act ("the Ali Act"), 15 U.S.C. § 6301, by misrepresenting the amount of the "step-aside" fee; and (V) he was entitled to a constructive trust over monies that Banner and Pelullo owed him.

Echols also moved for injunctive relief preventing Banner and Pelullo from asserting their rights under the Agreement in conjunction with a title bout that was to take place in June 2003. The District Court denied the motion, finding that Echols had not established irreparable harm.

Banner and Pelullo then moved to dismiss the Ali Act claim, arguing that because the Ali Act did not apply to boxing matches fought outside the United States and Echols had predicated his Ali Act claim on misrepresentations relating to a match in Germany, Echols had failed to state a claim upon which relief could be granted. The District Court granted the motion.

The defendants then moved to dismiss the remaining claims for lack of subject matter jurisdiction, and both sides moved for partial summary judgment to decide the enforceability issue. The District Court denied the motion to dismiss, holding that the parties were diverse and that the amount in controversy satisfied the statutory requirement for diversity jurisdiction. It then granted Echols's motion for partial summary judgment and denied Appellants' cross-motion, holding that the Agreement was unenforceable for indefiniteness, as the Agreement contained no price term. The parties then settled Echols's remaining claims, with Banner and Pelullo reserving the right to appeal the order declaring the Agreement unenforceable. They now exercise that right.

III.

The District Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291. Our review of an order granting summary judgment is plenary. Morton Int'l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 679 (3d Cir.2003).

IV.

A federal court exercising diversity jurisdiction must apply the choice of law rules of the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 497, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Accordingly, we apply Pennsylvania choice of law rules in this case. Pennsylvania courts generally enforce choice-of-law provisions in contracts. Kruzits v. Okuma Mach. Tool, Inc., 40 F.3d 52, 55 (3d Cir.1994). In this case, Section Nineteen of the Agreement provides that it "shall be governed and construed under the laws of the state of Delaware." Thus, our task is to predict how the courts of Delaware would resolve this issue if presented with these facts. The District Court, applying principles of Delaware contract law, held that the Agreement was unenforceable. However, we predict that the Delaware Supreme Court would conclude otherwise, and will accordingly reverse.

In Delaware, as in most jurisdictions, a court will not enforce a contract that is indefinite in any of its material and essential provisions. Hindes v. Wilmington Poetry Society, 138 A.2d 501, 503 (Del.Ch.1958). However, a court will enforce a contract with an indefinite provision if the provision is not a material or essential term. Id. The Delaware courts have not spoken on this issue recently, nor have they ever really focused on what types of contract provisions are material and what types are not, although they noted decades ago that "[t]he general rule is that price is an essential ingredient of every contract." Raisler Sprinkler Co. v. Automatic Sprinkler Co., 171 A. 214 (Del.Super.Ct.1934) (citation and quotations omitted); see also Hindes, 138 A.2d at 503 ("A provision for compensation is certainly one of the most important aspects of any agreement.").

Here, the District Court held that the operation of Section Eight of the Agreement, which...