Entm't USA, Inc. v. Moorehead Commc'ns, Inc.

Decision Date26 July 2018
Docket NumberNo. 17-2847,17-2847
Citation897 F.3d 786
Parties ENTERTAINMENT USA, INC., Plaintiff-Appellant, v. MOOREHEAD COMMUNICATIONS, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Jason M. Kuchmay, Attorney, Snyder Morgan Federoff & Kuchmay LLP, 200 W. Main Street, Syracuse, IN 46567-0000, for Plaintiff-Appellant.

Kevin J. Mitchell, Attorney, Karen T. Moses, Attorney, Faegre Baker Daniels LLP, Suite 2400, 110 W. Berry Street, Fort Wayne, IN 46802-0000, for Defendant-Appellee.

Before Ripple, Kanne, and Hamilton, Circuit Judges.

HAMILTON, Circuit Judge.

In 2006, plaintiff Entertainment USA sold cellular telephones and service contracts in central Pennsylvania through a network of retail dealers. Defendant Moorehead Communications, an Indiana company, sought to break into that geographic market by offering dealers the chance to sell Verizon products and services. Without aid of counsel, the two companies signed a two-page "referral agreement" connecting Moorehead with a number of Entertainment USA’s dealers. The agreement promised Entertainment USA a "referral fee" for every Verizon activation or upgrade that resulted.

Six years later, this referral agreement became the subject of litigation in the Northern District of Indiana. Entertainment USA alleged that Moorehead breached the agreement by discontinuing the referral payments. After a bench trial, the district court agreed that Moorehead had breached, but in much narrower ways than Entertainment USA had claimed. The court also found, however, that Entertainment USA had failed to prove the amount of its damages with reasonable certainty. The court therefore awarded no damages to Entertainment USA. Entertainment USA, Inc. v. Moorehead Communications, Inc ., 2017 WL 3432319 (N.D. Ind. Aug. 9, 2017). We affirm.

I. Factual Background and Procedural History
A. The Referral Agreement

This case is about selling cell phones. More specifically, it is about who sells cell phones. When a customer walks into a cellular telephone retail store, depending on the store, the customer may have a choice of wireless carrier service contracts with different companies (e.g., AT&T, T-Mobile, etc.), or the store may offer only one option (e.g., only Verizon or only Sprint). Whether the customer has a choice of carrier or not depends on the licensing status of the store owner and its wholesaler, and the licensing policies of the various carriers.

In 2006, plaintiff Entertainment USA—doing business as One Wireless World or "OWW," as the parties’ documents sometimes called it—operated as a cell phone wholesaler and licensor. It had a network of affiliated dealers and retail stores in central Pennsylvania.1 At that time, the stores affiliated with Entertainment USA offered their customers service contracts through several different carriers, including AT&T, Sprint, and T-Mobile. Entertainment USA did not have a relationship with Verizon, however, so its stores could not offer customers Verizon service. Around this time, defendant Moorehead Communications, a Verizon master agent based in Indiana, sought to expand its presence in central Pennsylvania by signing up dealers and their stores with Verizon.

Entertainment USA had the kind of stores Moorehead sought to do business with, but Entertainment USA would probably lose out on some revenue from offering service through other carriers if its stores added Verizon to its lineup. So the parties made a deal: the referral agreement whereby Entertainment USA agreed to refer some of its stores to Moorehead for consideration as potential new Verizon locations. In return, Moorehead agreed to pay Entertainment USA a "referral bonus" for each new Verizon activation that eventually resulted from this arrangement, whether or not the referred stores continued to offer service with other carriers. Representatives for both sides worked together to draft a two-page contract formalizing this arrangement in January 2006, though neither side engaged counsel. The relevant portions of the referral agreement are as follows:

The proposed referral fee is designed to compensate OWW for location handoffs and offset loss incurred from adding another carrier to their Branded Store’s existing lineup. This will also include any locations, other than the current list of Branded stores that are approved through Verizon and signed up under Moorehead Communications in the future that are referred directly to us by the OWW group.
Moorehead is proposing the following:
- For all handoffs/referrals from OWW, dating back to Jan. 1, 2006 and any locations that are approved following that date as a direct result of an OWW referral, we will pay a referral bonus in the amount described below.
Monthly Activations for the referred group
*** 20$ per activation (New Activations Only) to assist with ramp up period which will remain in effect 6 months from the date this agreement is signed by both parties. After which, referral bonus will be adjusted to the appropriate tier. (See Below)
50-150 per month—10$ referral bonus per activation
151-250 per month—15$ referral bonus per activation
251-350 per month—20$ referral bonus per activation
351-450 per month—25$ referral bonus per activation
451-500 per month—30$ referral bonus per activation
501 per month and higher—35$ referral bonus per activation
*There will be a flat fee of 10$ per 2 year upgrade in addition to items listed above.

Dkt. 1 at 7.

From early 2006 until sometime in 2008, Moorehead paid referral fees on a regular basis to Entertainment USA under this agreement. Though the agreement did not specifically define the term "activation," Moorehead paid referral fees for "two-year phone activations (new lines of service) and two-year upgrades"—the kinds of phone sales that entailed new two-year service contracts with Verizon. Though it also did not define "location," the agreement did include an initial list of referred locations, with the name of each store, its owner/operator, and its address or city. After Sprint required exclusivity from all of its wholesalers and dealers in late 2006, Entertainment USA referred several more stores to Moorehead—the stores that did not wish to become exclusive Sprint retailers. From 2006 to 2008, Moorehead paid $70,979.50 in referral fees with respect to six referred stores that sold Verizon products.

In 2008, Moorehead stopped paying referral fees to Entertainment USA, and around that time, Entertainment USA’s "OWW group" of stores stopped selling Sprint products entirely. Chau Nguyen then started a new company and proposed a new referral agreement to Moorehead. Moorehead declined. From 2009 to 2011, Chau Nguyen sent several more requests for commission reports and payments to Moorehead, to no avail.

B. The Lawsuit

In April 2012, about four years after the payments stopped, Entertainment USA filed its complaint alleging a breach of contract, requesting an equitable accounting, and claiming unjust enrichment. Since "Moorehead has and continues to enjoy the fruits of" the plaintiff’s referrals, the complaint alleged, Moorehead should have continued to pay referral fees under the contract. Moorehead agreed in part, as shown by two additional payments it made to Entertainment USA after the suit was filed, totaling $52,273.24. After tendering those additional payments, though, Moorehead answered the complaint and asserted that it had paid Entertainment USA in full. Given that the parties were citizens of different states litigating an amount in controversy estimated in the millions, federal jurisdiction was secure. See 28 U.S.C. § 1332(a). The parties agreed that Indiana contract law applied.

The parties filed cross-motions for summary judgment in 2014. Entertainment USA, Inc. v. Moorehead Communications, Inc. , 93 F.Supp.3d 915, 922 (N.D. Ind. 2015). Judge Lozano resolved several of the disputed issues on summary judgment. He decided that the agreement’s term "referred locations" meant only physical locations and not individuals and entities, id. at 924–25, 926, and decided that Entertainment USA’s unjust enrichment claim had to be rejected as duplicative because it covered the same subject matter as a contract (the referral agreement), id. at 934–35. The rest of the issues, including questions about the duration of the agreement, the precise meaning of the term "activations," and whether there were additional "directly referred" locations beyond a list stipulated to by Moorehead, remained for trial. Id. at 927, 930, 931–32.

The case was transferred to Judge Miller, who held a bench trial in August 2016 and set forth his findings in a thorough order. Judge Miller agreed with Entertainment USA that the parties "intended an agreement that would live on as long as any referred location was producing activations," though he sided with Moorehead that only two-year post-paid phone contracts counted as "activations." 2017 WL 3432319, at *6, *13. Since the agreement required fee payments from any "referred location," the district court went store-by-store to determine which of the many alleged stores were in fact referred by the plaintiff, settling on a list of twelve stores. Id. at *14.

Although the district court’s findings on liability could have set up Entertainment USA to recover a significant portion of its requested damages, the district court saw a fundamental problem with the plaintiff’s damages presentation: Entertainment USA "provides no help in identifying any difference between what was paid and what was due under the referral agreement as the court construes it." Id. at *15. In essence, the plaintiff presented a damages calculation aligned with its broad theories of liability, but it did not present an estimate or evidence that could, with reasonable effort, be disaggregated and recalculated in accordance with the district court’s much narrower bases for finding liability. Id. Examining other exhibits in the record did not help the judge, since the plaintiff’s "numbers differ...

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