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Yellow pages damage clause enforceable

By: dmc-admin//November 30, 2005//

Yellow pages damage clause enforceable

By: dmc-admin//November 30, 2005//

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What the court held

Case: Rainbow Country Rentals and Retail, Inc. v. Ameritech Publishing, Inc., No. 2004AP239

Issue: Is a stipulated damages clause in a yellow pages contract enforceable?

Holding: Yes. The telephone company is no longer a state-sponsored monopoly, and, unlike exculpatory clauses that bar all liability, stipulated damages clauses are not disfavored.

Counsel: Jonathan P. Groth, Milwaukee, for appellant; Terry E. Johnson, Peter F. Mullaney, Milwaukee, for respondent.

A liquidated damages clause in a yellow pages contract is enforceable, the Wisconsin Supreme Court held on Nov. 22.

In so holding, the court reaffirmed its holding in Discount Fabric House of Racine, Inc. v. Wisconsin Telephone Co., 117 Wis. 2d 587, 345 N.W.2d 417 (1984), that an exculpatory clause in a yellow pages contract was contrary to public policy, but distinguished the case based on changes in the telecommunications industry, and the contract’s language.

In 1999, Rainbow Country Rentals and Retail, Inc., contracted with Ameritech Publishing, Inc. (API), for the listing of its business in the Oconomowoc, Waukesha, and Watertown Ameritech Pages Plus Yellow Pages telephone directories. API subsequently omitted Rainbow’s entire listing from each of the directories.

Rainbow brought suit against API, alleging breach of contract and negligence for lost business. API asserted, as an affirmative defense, its stipulated damages clause, barring liability for lost profits or consequential damages, and limiting damages to a full refund, plus an advertising credit in that amount in a future edition.

Waukesha County Circuit Court Judge Lee S. Dreyfus granted partial summary judgment to API. The court found Discount Fabric not controlling, because of the existence of competing yellow pages that did not exist when Discount Fabric was decided.

Rainbow appealed, and the court of appeals certified the case to the Supreme Court, which affirmed in a decision by Justice Jon P. Wilcox. Justice Ann Walsh Bradley dissented, and Chief Justice Shirley S. Abrahamson did not participate.

In Discount Fabric, as in the case at bar, the telephone company omitted the plaintiff’s ad from the 1978 directory. The Supreme Court held an exculpatory damages clause unenforceable, because of Wisconsin Telephone’s monopoly status.

Despite the similarities between the two cases, the Supreme Court in the case at bar found Discount Fabric not controlling, for two reasons: first, the defendant is no longer a state-approved monopoly; and second, the clause at issue is a stipulated damages clause, rather than an exculpatory clause.

The court noted that, on Jan. 1, 1984, AT&T suffered divestiture as a result of an antitrust suit by the Department of Justice. Subsequently, in 1986, the Wisconsin Legislature partially deregulated telecommunications services.

In doing so, the Legislature recognized that “[t]he telecommunications industry currently is in a state of transition. The industry is moving from a system of a single monopoly provider of telecommunications services in an area to a system of competition, with multiple providers of services in an area.” Legislative Council Information Memorandum 86-11, at 3 (May 7, 1986).

Later, Congress passed the Telecom-munications Act of 1996, “to transition the entire industry from regulated monopoly to unregulated competition.”

As a result of these developments, the court concluded Discount Fabric was not controlling: “In sum, in 1999, after the divestiture of AT&T, the passage of 1985 Wisconsin Act 297, and the passage of the Telecommunications Act of 1996, there was not a single telephone company with ‘an exclusive private advertising business’ that published a directory that was ‘inexorably tied to the telephone service.’ Discount Fabric, 117 Wis. 2d at 594. Indeed, there were numerous competitive local, long distance, and to a lesser degree, cellular carriers. Furthermore, … there were competitive directory publishers competing with API in the relevant markets. As such, the rationale behind much of Discount Fabric is simply not applicable to this case.”

The court also found important differences in the clauses limiting liability. Defining exculpatory clauses are those “which relieve a party from liability for harm caused by his or her own negligence.” Merten v. Nathan, 108 Wis.2d 205, 210, 321 N.W.2d 173 (1982), the court determined the API contract did not meet this definition.

The court reasoned, “The contract restricts Rainbow’s recoverable damages, but it does not release API from liability. Under the express terms of the contract, Rainbow is entitled to all or a portion of the cost of advertisement following an error or omission. Additionally, because API completely omitted Rainbow from its directories, Rainbow is entitled to a future PAGESPLUS advertising credit of like amount.”

The court also found that Rainbow had an opportunity to bargain for different terms, citing the following clause in the contract: “If you wish to negotiate any one or more different terms than those above, including higher liability limits, you may do so. However, any change to this document or to these terms must be in writing, signed by both you and us, and dated by both you and us at least fourteen (14) weeks prior to the Issue Date of the directory (Capitalization in original).”

Turning to reasonableness, the court held the clause was reasonable, concluding, “In our view, the contract drafted by API attempted to strike a fair bargain between the parties in order to keep advertising rates reasonable and competitive with other telephone directory publishers. API was merely trying to add predictability to its advertising contracts to avoid the difficulties inherent in attempting to calculate lost profits due to the differing
types of potential errors or omissions. Furthermore, we conclude that returning the full contract price, along with a future advertising credit of like amount, is a reasonable award of damages in light of the completely speculative damages that Rainbow may have suffered.”

Before concluding, the court emphasized the difference between stipulated damages clauses, which are regularly upheld, and exculpatory clauses, which are disfavored under Wisconsin case law.

The court wrote, “There is a common thread that runs through this line of [exculpatory contract] cases that is absent from the circumstances of this case. In each of the above cases, an owner or operator, through a broad, all-inclusive release form, attempted to avoid all liability for death or serious personal injuries arising from virtually any conduct, including intentional or reckless acts, of the owner or operator. There is a fundamental difference between the above situation and the current one, which deals with one business entity agreeing to limit the maximum financial recovery for a potential mistake of the other business entity (emphasis in original).”

Accordingly, although the court concluded that Discount Fabric is still good case law, the court found it inapplicable, and affirmed.

The Dissent

Justice Bradley dissented, concluding, “The majority obfuscates the focus of the summary judgment inquiry by engaging in generalizations as to time and location rather than focusing on the specific times and locations relevant here.”

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Case Analysis

Bradley explained, “The question is not, as the majority would have it, simply whether the telecommunications industry has generally opened to competition since the time of Discount Fabric in 1984. Of course it has. … The majority shifts the focus of the summary judgment inquiry. The relevant time is 1999-2000. The relevant locations are Oconomowoc, Wau-kesha, and Watertown. The majority obfuscates this by engaging in generalizations, apparently relying on data for 2002 and data for Milwaukee.”

Bradley also took issue with the majority’s conclusion that Rainbow had a meaningful opportunity to bargain over the terms, noting that, contradictory to the clause cited by the majority on this point, the contract also stated that, in order to maintain its pricing schedules, API cannot accept liability for lost profits or consequential damages, and under no circumstances will liability exceed a refund of the advertising cost, plus a future credit in the same amount.

Bradley concluded that the inconsistency raises an inference that the opportunity to bargain stated in the contract is illusory, precluding summary judgment.

Click here for Case Analysis.

David Ziemer can be reached by email.

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