Conwell v. Gray Loon Outdoor Marketing

• Citation: 906 N.E.2d 805
• Decision Date: 19 May 2009
• Docket Number: No. 82S04-0806-CV-00309.,82S04-0806-CV-00309.
• Parties: Dennis CONWELL and Frank Splittorff, d/b/a Piece of America, Appellant (Defendant below), v. GRAY LOON OUTDOOR MARKETING GROUP, INC., Appellee (Plaintiff below).
• Court: Supreme Court of Indiana

906 N.E.2d 805

Dennis CONWELL and Frank Splittorff, d/b/a Piece of America, Appellant (Defendant below), v. GRAY LOON OUTDOOR MARKETING GROUP, INC., Appellee (Plaintiff below).

No. 82S04-0806-CV-00309.

Supreme Court of Indiana.

May 19, 2009.

Robert T. Faulkner, Evansville, IN, Attorney for Appellant.

Catherine Nestrick, Andrew Ozete, James E. Gentry, Jr., Evansville, IN, Attorneys for Appellee.

On Petition to Transfer from the Indiana Court of Appeals, No. 82A04-0609-CV-00488

SHEPARD, Chief Justice.

As the Internet becomes a ubiquitous presence in American commerce, the nation's courts work to find satisfactory legal frameworks for resolving the disputes that inevitably arise. In this suit between a business enterprise and the marketing firm that created and hosted its website, we conclude that the Uniform Commercial Code does not apply and that the web design firm may collect for its work under principles of common law contract. As for a counter-claim alleging conversion of the intellectual product, we conclude that copyright law supports ownership by the designer. We affirm the trial court's judgment for the marketing firm.

Facts and Procedural History

In November 2003, Piece of America was a limited partnership pursuing the sale of novelty packages: one-square-inch parcels of land in each of the fifty states. The general partners were F.W. Splittorff, Dennis Conwell, and Robert Aswell. To market and sell its products, Piece of America sought to establish a website. None of the partners had any sophistication in Internet technologies or website design, so they approached Gray Loon Marketing, which provides various marketing and communication services, to design and publish its website. In September 2003, Gray Loon gave POA a design proposal for the website and an estimated price of $8,080. Among other things, Gray Loon's proposal for POA's package stated, "It is Gray Loon's philosophy that clients have purchased goods and services from us and that inherently means ownership of those goods and services as well." (Appellants' App. at 59.)

Piece of America agreed to the proposal and paid a 50% deposit, and design commenced. During the design process, POA asked for a few minor changes, none of which requests were written down. Gray Loon finished the site in December 2003 at a final cost of about $8,500. Once the website was running to POA's satisfaction, it paid Gray Loon in full during the first quarter of 2004. Both parties undisputedly fulfilled their obligations under the agreement of November 2003.

In April 2004, POA requested that Gray Loon make several changes, some of which required major programming work. In particular, POA wanted to allow customers to make two payments in purchasing its packages. Gray Loon agreed over the phone to make these changes, and, following its policy, Gray Loon immediately began the requested alterations. Piece of America did not request a proposal or a quote, and Gray Loon did not provide one. Gray Loon did produce an internal memorandum outlining the changes, but did not supply it to POA. Piece of America did not request that Gray Loon save a copy of the original website before it made the alterations, and Gray Loon does not regularly do so without such a request. Once Gray Loon completed the modifications, Gray Loon contacted POA for approval to post the modifications. At that time, POA told Gray Loon that it did not want to implement the system for two payments by consumers. Gray Loon subsequently sent POA a bill for $5,224.50.

Gray Loon made several phone calls attempting to collect the bill. Gray Loon owner Jonathan Ruthenburgh talked to Dennis Conwell (the contact person representing POA to Gray Loon) a week or so after the net 30 days invoice went unpaid —that is, sometime in July 2004. Conwell stated he did not have any issues with the invoice, but POA needed time to obtain additional funds. In August 2004, Conwell advised Gray Loon that he would no longer be the contact person. Piece of America does not contest that Conwell had authority to deal with Gray Loon on behalf of the partnership at the time he accepted the invoice terms.

During this period, Gray Loon was also charging POA seventy-five dollars a month for hosting the site. Once Gray Loon published the modified website, it remained available from July to September 2004.¹ Piece of America neither negotiated a payment schedule, nor did it tell Gray Loon anything more than that it needed time.

After several failed attempts to get a commitment that payment would be made, Gray Loon sent a letter by certified mail on September 29, 2004, advising POA that if payment was not made by October 6th, the website would "be taken offline and other means of collection will be initiated." (Appellants' App. at 63-64.) Piece of America did not pay for either the modifications or Gray Loon's hosting fee, and Gray Loon took the website offline on October 6, 2004. Piece of America never requested the site files in the course of these events, but if it had, Gray Loon asserts the files would have been unavailable at the time Gray Loon took the site offline.

Gray Loon filed suit for non-payment, naming Splitorff, Conwell, and POA.² Piece of America countersued for conversion, claiming Gray Loon had taken the original website, for which it had paid.

The trial court entered judgment for Gray Loon on its claim and against POA on its counter-claim. The Court of Appeals affirmed. Conwell v. Gray Loon Outdoor Mktg. Group, No. 82A04-0609-CV-488, 873 N.E.2d 205 (Ind.Ct.App. Sept. 7, 2007). We granted transfer.

To resolve this case, we must determine which law applies in interpreting the agreement between the parties. Then, we must consider whether the applicable law recognizes a contract here and whether POA should be required to pay Gray Loon. Finally, we must consider whether Gray Loon committed conversion by taking down the website and not making a copy of the original site for POA.

A World of Websites

We start with a short introduction of the relevant background regarding websites.³ As befits the subject, we begin by reference to Merriam-Webster's Online Dictionary, which defines a website as "a group of World Wide Web pages usually containing hyperlinks to each other and made available online by an individual, company, educational institution, government, or organization." http://www.merriam-webster. com/dictionary/website.⁴ It defines the World Wide Web as "a part of the Internet accessed through a graphical user interface and containing documents often connected by hyperlinks." http://www. merriam-webster.com/dictionary/worldwideweb.

A web page consists of computer programming that is decoded by an Internet browser to show the "graphic user interface" that ranges from a simple combination of graphics and text to interactive applications.⁵ For our purposes, there are essentially two aspects of a website: the content that the pages on a website display and the programming that encodes it in such a way for a browser to interpret. In some web design relationships, the hiring party provides all content while the designer simply translates it into a format appropriate for viewing in the World Wide Web. On other occasions, the hiring party provides a vision and a goal for the site and the designer creates both the content and the programming. The latter characterization seems to fit the facts here, though POA provided some content.

The website at issue here was distributed by Gray Loon for free to any Internet user who directed an Internet browser to POA's domain. Piece of America paid Gray Loon to author and to distribute (or "host") the website files via its server, making it available to any computer connected through the Internet. Piece of America could have bifurcated these two tasks and hired a third party to host the site or to design it. If it had hired a third company to host the site for distribution over the Internet, it would have had to transfer the files to the other company's servers. Gray Loon could have copied them to a disk and physically delivered it or transferred the files over the Internet using any number of methods.

Inasmuch as the information technology industry runs to hundreds of billions of dollars a year in projects, it is quite ordinary that clients and providers often find themselves locked in disputes. The leading source of statistics about the industry, the Standish Group, reports in its 2009 analysis of information technology performance that 32% of engagements result in a timely product billed more or less on budget.⁶ Their historic analysis reflects outright cancellation by clients about 20% of the time and projects completed very late or substantially over budget about 50% of the time.

Contract Law

The common law of contracts governs agreements between private parties, except to the extent that it has been modified by legislation (like the Uniform Commercial Code). Piece of America argues that the contract it made with Gray Loon should be considered as one for services, such that the common law of contracts should apply. (Transfer Pet. at 7-8.) Further, it asserts that the common law strictly requires essential elements of a contract, one of which is price, in order to form an enforceable agreement, and that price was not agreed to in the instant case. (Reply Br. at 3.) For its part, Gray Loon simply advances a general contract argument that it effected the website changes at POA's request and was not paid for the work. (Appellee's Br. 8-11.)

The trial court applied the U.C.C. in its conclusions of law. (Appellant's App. at 11-12.) The Court of Appeals did likewise. Conwell v. Gray Loon Outdoor Mktg. Group, Inc., No. 82A04-0609-CV-488, 873 N.E.2d 205 (Ind.Ct.App. Sept. 7, 2007). We will begin by considering whether the U.C.C. was the right law to deploy.

I. Does the U.C.C. Govern this Agreement?

Indiana's U.C.C. Article 2 "applies to transactions in goods." Ind.Code. §...