Block Financial Corp. v. America Online, Inc.

• Decision Date: 09 November 2004
• Docket Number: No. WD 62317.,No. WD 62286.,WD 62286.,WD 62317.
• Citation: 148 S.W.3d 878
• Parties: BLOCK FINANCIAL CORP., Respondent-Appellant, v. AMERICA ONLINE, INC., Appellant-Respondent.
• Court: Missouri Court of Appeals

148 S.W.3d 878

BLOCK FINANCIAL CORP., Respondent-Appellant, v. AMERICA ONLINE, INC., Appellant-Respondent.

No. WD 62286.

No. WD 62317.

Missouri Court of Appeals, Western District.

November 9, 2004.

Lawrence A. Rouse, Kansas City, MO, for appellant-respondent.

Robert L. Ward, Kansas City, MO, for respondent-appellant.

Before NEWTON, P.J., BRECKENRIDGE and SPINDEN, JJ.

PATRICIA BRECKENRIDGE, Judge.

A jury awarded Block Financial Corporation $17 million in damages on its breach of contract claim against America Online, Inc. (AOL). The court entered judgment on the verdict and further ordered AOL to pay Block Financial $4,441,890.41 in prejudgment interest. Both AOL and Block Financial appeal. In its appeal, AOL claims that the trial court erred in denying its motion for a directed verdict or a judgment notwithstanding the verdict because the language of the contract unambiguously terminated the rights Block Financial sought to assert. AOL further claims that, even if the contract language was ambiguous, the trial court erred in admitting irrelevant extrinsic evidence offered by Block Financial. Additionally, AOL argues that the court erred in awarding prejudgment interest. In its cross-appeal, Block Financial argues that the trial court erred in calculating the prejudgment interest award from the date it filed its petition instead of from the date AOL breached the contract.

Because the language of the contract is susceptible to different interpretations, the trial court did not err in ruling that the contract is ambiguous, permitting the introduction of extrinsic evidence to construe the contract, and submitting Block Financial's breach of contract claim to the jury. AOL failed to preserve its claim that the trial court admitted irrelevant extrinsic evidence to construe the ambiguous contract, so that claim will not be reviewed. As for the award of prejudgment interest, Block Financial was entitled to prejudgment interest, computed from the date it filed its petition. Therefore, the trial court's judgment is affirmed.

Factual and Procedural Background

Block Financial is a wholly-owned financial services subsidiary of H & R Block, Inc., and is engaged primarily in the mortgage and credit card businesses. In 1994, Block Financial entered into a credit card program agreement with CompuServe, a wholly-owned computer services subsidiary of H & R Block, to provide CompuServe-branded Visa credit cards to CompuServe customers. Under the terms of the credit card program agreement, Block Financial was given the exclusive right to market CompuServe Visa credit cards to CompuServe customers. Every six months, CompuServe was to provide a list of its customers to Block Financial for this purpose. The credit card program agreement authorized Block Financial to use CompuServe's name and trademarks "in connection with the Credit Card Accounts on the Credit Cards, periodic statements, Cardholder Agreements and in other communications to Cardholders with respect to the Credit Card Accounts and related services." The agreement provided that Block Financial retained this right during the term of the agreement "and after its termination for as long as Credit Cards are outstanding." The term of agreement was three years, beginning October 1, 1994, and would automatically renew every three years unless Block Financial or CompuServe provided written notice of its intention to terminate the agreement at least one year before the end of the initial or renewal term.

In 1996, H & R Block decided to sell CompuServe. H & R Block sold twenty percent of CompuServe's stock to investors through an initial public offering and then decided to sell the remainder of the company outright. H & R Block retained an investment banker, Salomon Brothers, to help sell CompuServe by gathering information about CompuServe and distributing the information to companies who might have an interest in acquiring CompuServe. AOL emerged as a potential buyer, and AOL and H & R Block began negotiating the terms of the sale. Negotiations eventually broke down, however, and H & R Block sought other buyers.

A few months later, in the summer of 1997, WorldCom expressed interest in buying CompuServe. WorldCom was particularly interested in CompuServe's network services business. WorldCom informed H & R Block that, if it bought CompuServe, WorldCom would keep CompuServe's network services business, but it was separately negotiating with AOL to sell to AOL CompuServe's online services business. H & R Block's sale of CompuServe to WorldCom was to be treated as a separate transaction from WorldCom's sale of CompuServe's online services business to AOL. On September 7, 1997, H & R Block, H & R Block Group, Inc., CompuServe WorldCom, and Walnut Acquisition Company, L.L.C.,¹ executed an Agreement and Plan of Merger (the Merger Agreement) providing for the sale of CompuServe to WorldCom. On that same day, WorldCom, AOL, and ANS Communications, Inc.,² executed a Purchase and Sale Agreement providing for the sale of CompuServe's online services business to AOL.

Before the sales were closed, however, Block Financial decided to sell its credit card portfolio. Block Financial's credit card portfolio included the CompuServe Visa card and the WebCard Visa, which was another credit card that Block Financial began marketing in January 1996 to Internet users who bypass online services such as CompuServe. Block Financial hired Salomon Brothers and Smith Barney, Inc., to prepare an offering memorandum to promote the sale of the portfolio to potential buyers.

In the offering memorandum, Block Financial represented that the sale of CompuServe to WorldCom and the subsequent sale of CompuServe's online services business to AOL would not affect the credit card program agreement. Specifically, Block Financial stated that the credit card program agreement, referred to as the "affinity" agreement, was "currently in force through September 30, 2000," and would "remain in place upon completion of the sale of CompuServe." The memorandum detailed the major terms of the affinity agreement between Block Financial and CompuServe. Under the agreement, Block Financial was named the exclusive provider of CompuServe credit card services; had exclusive access to the CompuServe subscriber list; could use a "store" in CompuServe's electronic mall; and could use CompuServe's name, trademark and reputation for purposes of marketing the credit card. CompuServe also agreed to "generally" promote the credit card and provide a one-time credit to subscribers of the credit card for five hours of free online connect time. Block Financial was not required to pay a fee to CompuServe for establishing or maintaining the agreement and could assign the agreement to a third-party purchaser of the accounts.

Several credit card providers and others expressed interest in the portfolio, and Block Financial learned that two companies were going to offer bids to purchase the portfolio. The higher of the two potential bids was from Providian Financial Corporation. Before Providian made its final bid, however, it expressed to Block Financial that it would need written assurances from AOL, in light of the pending sale of CompuServe to WorldCom and subsequent sale of CompuServe's online services business to AOL, that the credit card program agreement between Block Financial and CompuServe would "absolutely transfer" as part of the sale of Block Financial's credit card portfolio to Providian. Block Financial contacted AOL, but was unable to obtain such assurances from AOL. Block Financial then received the final offer letter from Providian. The final offer letter stated that Providian's bid to purchase Block Financial's credit card portfolio was contingent upon, among other things, "assurances to Providian's satisfaction (which may include written assurances from America Online Inc.) that no third party has the right to market credit cards or other consumer loans to the Portfolio customer list or the currently existing or future customer list of CompuServe prior to September, 2000," which was the end of the latest three-year renewal term.

After receiving Providian's final offer letter, H & R Block's general counsel, Jim Ingraham, contacted George Vradenburg, AOL's general counsel, to obtain the assurances regarding the continued performance of the credit card program agreement. Mr. Vradenburg told Mr. Ingraham that AOL would not be able to provide such assurances because, in AOL's opinion, the credit card program agreement concluded as of the closing of the sale of CompuServe to WorldCom. AOL believed that H & R Block released the credit card program agreement in H & R Block's contract selling CompuServe to WorldCom.

Because AOL would not provide assurances that it would perform CompuServe's obligations under the credit card program agreement, Providian withdrew its offer. The other company that had submitted a bid to purchase Block Financial's credit card portfolio also withdrew its offer, for the same reason.

On January 31, 1998, H & R Block completed the sale of CompuServe to WorldCom, and WorldCom sold CompuServe's online services business to AOL. Also that day, AOL sent a letter to WorldCom indicating that it would allow H & R Block to use the CompuServe trademark in the CompuServe Visa credit card program for thirty days from January 31, 1998. Shortly thereafter, Mr. Vradenburg of AOL contacted Mr. Ingraham of Block Financial and reminded him of their earlier conversation in which Mr. Vradenburg had said that the credit card program agreement terminated on January 31, 1998, the day the sale of CompuServe to WorldCom was finalized. Mr. Vradenburg told Mr. Ingraham he was concerned that Block Financial was still using the name CompuServe on the credit cards. Mr. Ingraham told Mr. Vradenburg that Block Financial was converting its CompuServe-branded credit cards to WebCards, but that it would take several months to...