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A federal appeals court has reversed a lower court ruling and awarded $4.4 million to a marketing company in a contract dispute with Yahoo Inc. over a basketball promotion that indirectly involved Warren Buffett and Berkshire Hathaway Inc.
In late 2013, Sunnyvale, California-based Yahoo signed a contract with Dallas-based SCA Promotions Inc. in which SCA agreed to pay a $1 billion prize if any contestant predicted the winner of all 63 games of the 2014 NCAA Men’s Basketball Tournament, according to Monday’s ruling by the 5th U.S. Circuit Court of appeals In New Orleans in SCA Promotions Inc. v. Yahoo Inc.
Under the contract, SCA would arrange to obtain coverage to pay the $1 billion from insurers with an A+ A.M. Best rating, according to the ruling. Yahoo paid SCA an initial $1.1 million deposit, with another $9.9 million due.
In January 2014, Detroit-based Quicken Loans Inc. revealed it was sponsoring a similar $1 billion perfect bracket contest with Omaha, Nebraska-based Berkshire Hathaway and its CEO, Mr. Buffet.
Yahoo and Quicken agreed Yahoo would co-sponsor the Quicken contest. Yahoo then canceled the SCA contract and demanded repayment of the $1.1 million.
SCA filed suit against Yahoo in U.S. District Court in Fort Worth, Texas, for breach of contract, alleging that under its contract’s cancellation provision, Yahoo owed it $4.4 million, or 50% of the $11 million contract fee, minus the $1.1 million deposit Yahoo had already paid. Yahoo charged multiple counterclaims, including that SCA had breached a previous agreement’s confidentiality provision as well as the contract’s requirement to obtain risk coverage.
The District Court granted summary judgment to Yahoo on SCA’s breach of contract claim, and granted summary judgment to SCA on Yahoo’s counterclaims. It subsequently amended its judgment and awarded Yahoo a $550,000 refund.
A three-judge appeals court panel unanimously reversed the District Court’s summary judgment in favor of Yahoo on the breach of contract claim, vacated the $550,000 award and ruled SCA was entitled to the $4.4 million. It affirmed the court’s summary judgment to SCA on Yahoo’s counterclaims.
The applicable clause in the Yahoo-SCA contract’s cancellation provision provided that “a cancellation of 50% of the fee will be paid to SCA by Sponsor (Yahoo),” said the ruling.
“The parties dispute the meaning of the ‘50% of the fee,’” said the ruling. SCA argued it was $5.5 million, while Yahoo argued it was $550,00 because the phrase referred to 50% of the $1.1 million that Yahoo had paid in its initial deposit, according to the ruling.
The District Court agreed with Yahoo’s interpretation, but the appeals court did not. “It is clear to us that ‘50% of the fee’ means 50 percent of the $11 million contact fee,” said the ruling.
“This interpretation is consistent with the plain language of the structure of the Cancellation Fees Provision, as well as with several other provisions of the contract.”
Nobody claimed the $1 billion prize.
A putative securities class action lawsuit has been filed against Yahoo Inc. in response to two data breaches, including one in which more than 1 billion user accounts were compromised.