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In re WorldCom, Inc., 361 B.R. 675 |
United States Bankruptcy Court |
2007 |
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Chapter |
20 |
Title |
Contract Remedies |
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Page |
754 |
Topic |
The Expectation Interest |
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Quick Notes |
A lost volume seller is one who has the capacity to perform the contract that was breached in addition to other potential contracts due to unlimited resources or production capacity |
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Issue |
o Whether Jordans inaction not to pursue other contracts dismisses his as a lost volume seller? Yes. |
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Procedure |
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B.R |
o Jordan has not established he is a lost volume seller |
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Facts |
Rules |
Reason |
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o Pl - Jordan o Df - In re WorldCom What happened? o Jordan and the Debtors entered into an endorsement agreement. o Jordan was considered to be one of the most popular athletes in the world. o The Agreement granted MCI a ten-year license to use Jordan's name, likeness. o The Agreement did not prevent Jordan from endorsing most other products or services. o Could not endorse the same products or services that MCI produced. o $5 million signing bonus, o Annual base compensation of $2 million for Jordan. o The Agreement provided that Jordan would be treated as an independent contractor o Four days, not to exceed four hours per day, for commercials. WorldCom Chapter 11 Bankruptcy o MCI Rejected agreement with Jordan with 2 years left. o Jordan filed a claim for $4 million. |
Lost Volume Seller o A lost volume seller is one who has the capacity to perform the contract that was breached in addition to other potential contracts due to unlimited resources or production capacity.
Lost Volume Seller Claim o To claim lost volume seller status, Jordan must establish that he would have had the benefit of both the original and subsequent contracts if MCI had not rejected the Agreement. o The non-breaching party must show that it could and would have entered into a subsequent agreement.
Jordan Arg Capacity to enter subsequent agreements o The loss of MCI's sixteen-hour annual time commitment hardly affected his ability to perform additional endorsement services. o On this prong alone, Jordan likely would be considered a lost volume seller of endorsement services because he had sufficient time to do multiple endorsements. o Although he does not have the "infinite capacity" that some cases discuss, a services provider does not need unlimited capacity but must have the requisite capacity and intent to perform under multiple contracts at the same time.
Courts do not focus solely on capacity.
Subsequent Transaction Requirement o The seller claiming lost volume status must also demonstrate that it would have entered into subsequent transactions.
Court Analysis o Jordan has not shown he could and would have entered into a subsequent agreement. o Rather, the evidence shows that Jordan did not have the "subjective intent" to take on additional endorsements.
Scale Back For NBA Franchise o If Jordan had been seeking additional endorsement agreements independent of the Agreement's rejection, the Court could conclude that Jordan was a lost volume seller and irretrievably lost the money from the MCI Agreement. o However, given Jordan's planned limitation on his endorsement activity based upon a desire to cultivate an image he perceived more compatible with that of an owner of an NBA team, rather than to continue to market his celebrity athlete image, the Court cannot make that conclusion.
Car Analogy o If you have an inexhaustible supply of car, the breach would have cost the sale of two cars instead of one. o Jordan made no attempt to put his car back on the car lot, thus he withdrew his services. Holding o Jordan has not established he is a lost volume seller. |
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Class Notes |
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Did Jordan engage in a substitute transaction? No. Must he? No.
HYPO o Nike engaged Jordan for 3 Mill. o Df: Would say you got more money, so there is not damages.
HYPO o Craft cheese for 1 million. o Jordan: I want the million difference.
HYPO o Boy Scotts of American, not charging anything. o Jordan: The difference is 2 million dollars. o Df: You did not use good faith in finding an alternative.
How do go about comparing the Nikie, Craft and MCI deal o What the contract what requires.
Court is savvy. o What happens when Michael when he offers his service? His publicity value as an endorser will be diluted.
It is not only your capacity to do it, but it is your intent to do it.
Courts do not focus solely on capacity.
What is the likelihood that Jordan was going to continue? He was scaling back. What if he would have continued then he would have gotten? The rest of the contract. What if currently did not have something but wanted to have something? He would get the difference between the market value and contract value. o Market > Contract = entitled to something o Market <= Contract = entitled to nothing.
Subsequent Transaction Requirement o The seller claiming lost volume status must also demonstrate that it would have entered into subsequent transactions.
Court Analysis o Jordan has not shown he could and would have entered into a subsequent agreement. o Rather, the evidence shows that Jordan did not have the "subjective intent" to take on additional endorsements.
347 Measure of Damages in General Subject to the limitations stated in 350-53, the injured party has a right to damages based on his expectation interest as measured by (a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform.
11. A contracts to send his daughter to B's school for $ 5,000 tuition. After the academic year has begun, A withdraws her and refuses to pay anything. A's breach does not reduce B's instructional or other costs and B is unable to find another student to take the place of A's daughter. B has a right to damages equal to the full $ 5,000.
(1) that the seller of services had the capability to perform both contracts simultaneously; (2) that the second contract would have been profitable; and (3) that the seller of service would have entered into the second contract if the first contract had not been terminated").
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