Yellow Pages Case Analysis

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An interesting question not entirely answered by the opinion is whether the result would be the same, regardless of where in the state the suit arose. Arguably, it could be limited to southeastern Wisconsin and other parts of the state where there is, in fact, competition to the Ameritech yellow pages from others.

Nevertheless, the case will be difficult to distinguish, regardless of whether any competition actually exists, and an identical clause should be interpreted to bar lost profits and consequential damages, wherever the affected business may be located.

At one point, the court gave the following two reasons for distinguishing Discount Fabric House of Racine, Inc., v. Wisconsin Telephone Co., 117 Wis.2d 587, 345 N.W.2d 417 (1984): “Ameritech does not possess a monopoly as Wisconsin Telephone did when Discount Fabric was decided”; and “the clause at issue is not exculpatory, but rather, a valid and enforceable stipulated damages clause.”

Later, however, the court stated the first reason differently: “there is no longer a state-approved monopoly.”

The court devotes many pages of analysis towards documenting that there is no longer a monopoly on phone service in the United States: the 1984 divestiture of AT&T; deregulation in Wisconsin in 1986 and by Congress in 1996; competition for both local and long-distance service, cellular phone service; and the Internet.

The court’s sole discussion of whether there is a monopoly in the market for yellow pages, on the other hand, is one sentence: “Furthermore, as detailed in Craig Cerqua’s affidavit, there were competitive directory publishers competing with API in the relevant markets.”

Earlier in the opinion, when stating the factual background of the case, the court had noted that, in southeastern Wisconsin, there are two competitors to the yellow pages: the Milwaukee One Book; and Yellow Book USA.

Because of the short shrift given to discussion of competition in the yellow pages market, it would seem that it is of only marginal significance, compared to the statewide competition for phone service.

Apart from the majority opinion, Justice Bradley’s dissent also supports the interpretation. Bradley points out that the data on which the majority relies is primarily data from Milwaukee in the year 2002, rather than data from Watertown, Oconomowoc, and Waukesha in 1999-2000. The majority fails to address the argument.

A reasonable inference from the failure of the majority to address the dissent’s argument is that the presence of actual competition from other yellow pages is only minimally relevant. What is important appears to be that Ameritech is subject to competition, and phone service is no longer a state-protected monopoly, as Wisconsin Telephone was in 1978.

Far more problematic than this potential ambiguity in the meaning of “monopoly,” however, is the court’s acceptance of the contract as containing a stipulated damages clause.

A stipulated damages clause is supposed to provide that, if X breaches the contract in such-and-such manner, the damages shall be $Y. The contract at issue does not provide this.

Instead, the contract provides, at the beginning of the clause, that a following schedule of damages is the maximum damages for which Ameritech shall be liable. Thus, it is a limitation of damages clause, rather than a stipulated damages clause.

Interestingly, Bradley’s dissent cites a provision at the end of the damages clause stating, under no circumstances, will liability exceed the amount actually paid for the advertisement, plus a credit equal to that amount in future yellow books.

Bradley interprets this to render the contract ambiguous, because the contract earlier states that the buyer may negotiate different damage terms.

A more plausible construction, however, given the use of the word “maximum” at the beginning of the clause, is that it is instead another iteration of the limitation of damages provision.

These provisions arguably should make the damage clause invalid, because, rather than setting damages, it caps them. Such a provision guts the entire purpose of a stipulated damage clause:

“The clauses allow the parties to control their exposure to risk by setting the payment for breach in advance. They avoid the uncertainty, delay, and expense of using the judicial process to determine actual damages. They allow the parties to fashion a remedy consistent with economic efficiency in a competitive market, and they enable the parties to correct what the parties perceive to be inadequate judicial remedies by agreeing upon a formula which may include damage elements too uncertain or remote to be recovered under rules of damages applied by the courts. In addition to these policies specifically relating to stipulated damages clauses, considerations of judicial economy and freedom of contract favor enforcement of stipulated damages clauses. (quoting Wassenaar v. Panos, 111 Wis. 2d 518, 528, 331 N.W.2d 357 (1983)).”

Suppose that Rainbow was not seeking lost profits and consequential damages in this case, but all they had sought was a refund, plus the credit for the next year, and cited the “stipulated damages clause” for support. Suppose that instead of complying, Ameritech replied that it would only give the refund, but that Rainbow would have to go to court and prove actual damages, if it wanted more than the refund.

The clause does not provide stipulated damages, but only establishes its maximum liability. Thus, the contractual language would support Ameritech’s interpretation.

The court should have distinguished between a stipulated damages clause and a limitation of damages clause.

If a customer must go to court and prove damages that are highly speculative in order to obtain anything more than a refund for the advertisement (those damages would be indisputable), then the clause wholly fails as a stipulated damages clause.

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The court only touches on this issue in a footnote: “The clause could also rightly be termed a ‘liquidated damages’ clause, a ‘limited liability’ clause or a ‘limitation of damages’ clause. We elect to use the term ‘”stipulated damages’ to mean the damages specified in the contract’ and the term ‘”liquidated damages” to mean reasonable and enforceable stipulated damages.’ (citing Wassenaar, and Kernz v. JL. French Corp., 2003 WI App 140, 266 Wis.2d 124, 667 N.W.2d 751.”

However, a stipulated damages clause and a limitation of damages clause are not the same thing. The court has, without discussion, conflated the meanings of a “limitation of damages” clause (which the clause in the case at bar actually is), with a “stipulated damages” clause (which it is not).

– David Ziemer

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David Ziemer can be reached by email.