Denial of damages in cellphone vendor breach affirmed

An Indiana company that breached a contract to pay referral fees to a chain of Pennsylvania cellphone stores that signed up Verizon customers years ago owes nothing to the party that proved the breach, the 7th Circuit Court of Appeals affirmed Thursday.

Anderson-based Moorehead Communications sought to expand into central Pennsylvania in 2006 to sell Verizon products and services. It did so by signing a two-page referral agreement with Entertainment USA, which had a network of One Wireless World cellphone stores in the market. Neither party was aided by counsel when the agreement was signed.

“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,” Judge David Hamilton wrote.

The arrangement worked for a few years. From 2006 to 2008, Moorehead paid nearly $71,000 in referral fees to six stores that sold Verizon products, but then Moorehead stopped paying. After the parties could not reach a new agreement, Entertainment USA sued in 2012. Moorehead agreed to pay more than $52,000, and answered Entertainment USA’s complaint by saying that it had paid in full.

Judge Robert Miller in the Northern District of Indiana ruled after a bench trial that Moorehead had breached the agreement, but he awarded no damages. The 7th Circuit agreed, citing the unreliability of claimed damages. Moorehead claimed it only owed about $20,000 in fees — and had paid more than twice that amount after the suit was filed — while Entertainment USA claimed damages of more than $2 million.

“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,’” Hamilton wrote for the panel.

“There is no reason for us to wade into the many contractual interpretation arguments advanced by the parties in this case regarding the scope of Moorehead’s liability. Even if Entertainment USA were to prevail on them all, its gains would be merely academic since it failed to prove its damages with anything close to reasonable certainty,” the 7th Circuit held.

The case is Entertainment USA Inc. v. Moorehead Communications Inc., 17-2847.

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