Sam's Style Shop v. Cosmos Broadcasting Corp.

• Decision Date: 28 December 1982
• Docket Number: No. 81-3296,81-3296
• Citation: 694 F.2d 998
• Parties: SAM'S STYLE SHOP, d/b/a Sam's Women's Apparel, Plaintiff-Appellee, v. COSMOS BROADCASTING CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 998

694 F.2d 998

SAM'S STYLE SHOP, d/b/a Sam's Women's Apparel, Plaintiff-Appellee, v. COSMOS BROADCASTING CORPORATION, Defendant-Appellant.

No. 81-3296.

United States Court of Appeals Fifth Circuit.

Dec. 28, 1982.

Stephen B. Lemann, Edward T. Meyer, New Orleans, La., for defendant-appellant.

Lawrence S. Kullman, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before RUBIN, RANDALL and JOLLY, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

Cosmos Broadcasting Corporation appeals from a jury verdict casting it in damages for breach of a contract to televise commercials comparing the price of apparel sold by Sam's Style Shops with the price charged by other New Orleans retail stores. In this diversity case, governed by Louisiana law, Cosmos asserts that decisions of Louisiana intermediate appellate courts on the controlling legal issues are erroneous. We decline the invitation to appraise the Louisiana courts' knowledge of the Louisiana Civil Code and, on that basis, to reverse the district court's legal conclusions. Because the judge's instructions were in accordance with Louisiana law, we affirm the judgment of the district court. However, the commercial cost only $2,500 to produce and was to be broadcast only twelve times for periods of thirty seconds each. We conclude that the award of $50,000 for the cost of the commercial plus lost profits is clearly excessive, and we reverse the judgment insofar as it denies a remittitur or a new trial on the issue of damages.

I.

Sam's is a Florida partnership engaged in selling women's clothing as a discounter, charging what it advertises to be a lower price than conventional retail stores. In 1977, Sam's management decided to run a television advertising campaign comparing its price for a specific garment with the price charged by a named competitor.

Sam's advertising representative, Craig Bourgeois, telephoned John Parham, sales representative for Cosmos' New Orleans affiliate WDSU. Both Parham and Bourgeois testified that they reached agreement on the sale of television time for the proposed comparative advertising campaign to Sam's, ¹ and Parham sent Bourgeois a written confirmation of their conversation. This called for twelve commercials of thirty seconds each for a price of $2,400. Parham also testified, however, that he insisted on WDSU's right to screen, i.e., to review, the commercial before televising it. Bourgeois stated that he did not recall that condition.

Bourgeois then had the commercial prepared and sent it to WDSU. The station's management screened the commercial and declined to run it. Cosmos admitted that the quality of the advertisement was acceptable (it was "of broadcast quality") and that the commercial was neither obscene nor fraudulent. WDSU Sales Manager Levy testified that the difficulty with Sam's ad was the station's inability to verify the pricing claims. ² General Sales Manager Wexo deposed that his decision not to run the commercial was based on his concern that it would confuse viewers. The station's general manager testified that he was troubled because the ad might be deceptive.

After Sam's rested, Cosmos moved for a directed verdict. It claimed that there was insufficient evidence to support a finding that the parties had contracted for WDSU to broadcast a particular commercial rather than merely to sell some commercial time units. ³ It also contended that, even if a contract to broadcast a particular commercial had been formed, subparagraph 8(d) of the confirmation order was a purely potestative condition permitting Cosmos to decide not to be bound by the agreement. ⁴

Reasserting the reasons given when the same issue had been raised in a motion for summary judgment, the district judge denied the motion on the ground that the condition was a "simple" rather than a "pure" potestative condition and prevented Cosmos from rejecting the commercial unless it had a reasonable basis, in accordance with objective standards prevailing in the television industry, for doing so. See Sam's Style Shop v. Cosmos Broadcasting Corp., 496 F.Supp. 46 (E.D.La.1980). The jury found for Sam's and awarded $50,000 damages.

Cosmos' appeal challenges the judge's characterization of subparagraph 8(d) as a simple potestative condition, his instructions to the jury on the burden of proof, and the quantum of the damage award. ⁵

II.

Cosmos first argues that subparagraph 8(d) operated as a purely potestative condition, preventing any contractual obligation from being formed until WDSU actually screened a commercial and accepted it. ⁶ Therefore, Cosmos contends that, even after agreeing to accept a certain type of commercial, it had the right to reject any particular ad submitted for any reason or for no reason at all.

Potestative conditions make the formation of an obligation depend entirely on the obligor's will. See La.Civ.Code Ann. arts. 2024, 2035 (West 1977). Yet there can also be conditions requiring "that the obligor shall do or not do a certain act, although the doing or not doing of the act depends on the will of the obligor, yet the obligation depending on such condition, is not void." Id. art. 2035 (emphasis added). "The jurisprudence establishes that ... those potestative conditions which are dependent solely upon the will, whim, or caprice of the obligor invalidate the contract. If the condition shows on its face that the obligor may or may not fulfill [its] obligation as per [its] desire, then the obligation is null." Franks v. Louisiana Health Services & Indemnity Co., 382 So.2d 1064, 1068 (La.App.1980). That court continued:

However, if the condition imposes on the obligor the duty of making a sincere effort to fulfill the obligation, then the fact that the obligor is in a position to hinder or prevent the execution of the contract does not make the contract null.... [T]he obligor has the duty to reasonably perform the condition which is a condition precedent to the obligation.

(citations omitted). In short, as the district court pointed out, a "simple" potestative condition suspends execution rather than formation of the obligation and requires the obligor to make a good-faith effort to carry out the obligation. Sam's Style Shop, 496 F.Supp. at 49. See M. Planiol, Treatise on the Civil Law vol. 2, No. 1269A, at 721 (11th ed. 1939) (simple potestative condition "consists in the happening" of a future fact dependent on one of the parties' will, such as, "I will sell you my house if I decide two years from now to transfer my domicile"); S. Litvinoff, Louisiana Civil Law Treatise vol. 6, Sec. 25e, at 463 n. 36 (1966) (example of purely potestative condition is A saying to B, "I promise to pay you $100 tomorrow, if I do not change my mind in the meantime").

Louisiana law does not favor the interpretation of contract conditions as purely potestative; instead, whenever possible agreements are to be interpreted to preserve their validity. Schwegmann Brothers v. Calvert Distillers Corp., 184 F.2d 11, 14 (5th Cir.1950), rev'd on other grounds, 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035 (1951); see McTee & Co. v. Brown Funeral Home, 183 So. 558 (La.App.1938) (in construing a contract the court will not presume that the parties intended to enter into a one-sided and nugatory agreement). Thus, in Franks the court held that a group health policy exclusion of hospital admissions found by the insurer not to be medically necessary was not a purely potestative condition. The clause stated: "Benefits are not provided ... when in the judgment of the Carrier the medical services did not require the ... hospital[ization] .... THE FACT THAT A PHYSICIAN MAY PRESCRIBE, ORDER, RECOMMEND, OR APPROVE A SERVICE OR SUPPLY DOES NOT, OF ITSELF, MAKE IT MEDICALLY NECESSARY." 382 So.2d at 1066. The court concluded that the insurer was obligated to make a sincere effort to determine whether hospitalization was necessary and to use medical experts in making that determination.

Similarly, in Professional Billing Agency, Inc. v. Tarantino, 350 So.2d 258 (La.App.1977), the court held that a contract term stating: "[a]ssignee shall have the right to grant extensions and indulgences to accounts receivable debtors in its sole discretion ...." was not purely potestative. Id. at 261. The court concluded: "Clearly the performance of the contract is not dependent upon the sole will of the assignee. Rather, plaintiff must act reasonably and make an effort to collect the accounts if his ... business is to be profitable. The extensions or indulgences contemplated in the agreement are those reasonable indulgences allowed by creditors." Id.

Recognizing these decisions, Cosmos contends that they are based on an erroneous interpretation of Louisiana law. It relies on Professor Vernon Palmer's article, A Review of the Louisiana Law on Potestative Conditions, 47 Tul.L.Rev. 284 (1973), proposing an interpretation argued to be more consonant with the text of the code articles. Cosmos contends that the Louisiana Supreme Court would adopt the view proposed in the article. Absent some indication from the Louisiana Supreme Court that the several cases decided by the state intermediate courts incorrectly interpreted the definitions of the types of potestative conditions, absent any change in legislation, absent any reason to disregard the Franks and Professional Billing decisions save the hypothesis that the appellate courts were misguided, we consider ourselves bound to follow these decisions by Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

The condition in subparagraph 8(d) is similar to the clauses considered in Franks and Professional Billing. It impliedly imposes on the station the duty of making a good-faith judgment, based on industry custom or some other reasonable basis, whether a given program or commercial is acceptable. The station's explicit reservation of...