Abstract
A contract between Endless River and TransUnion for consulting services contained a provision which waived liability for lost profit damages unless they directly stemmed from the subject matter of the contract. At trial, Endless River persuaded the jury that TransUnion's breach cost it $18.3 million in profits, and the jury awarded damages in that amount. TransUnion moved for Judgment as a Matter of Law ("JMOL") and the Court overturned the jury's damage award, finding that the damages Endless River sought were too attenuated to be considered direct damages and were therefore consequential lost profit damages that the contract precluded.
Background
In 2014, Endless River and TransUnion entered a contract for commercializing a platform for providing insurers on-line, real-time comparison price quotes to consumers called the Quote Exchange. The contract gave TransUnion discretion to terminate the contract but also stated that if TransUnion chose to do so, Endless River would maintain ownership of the Quote Exchange source code, which TransUnion was obliged to return. The contract also included a provision stipulating that neither party is liable for lost profits in the event of a breach.
TransUnion terminated the contract on October 4, 2017 but failed to promptly return the source code. Endless River sued, alleging breach.
The Court awarded Endless River summary judgment on its breach claim and sent the question of damages to the jury. It found that Endless River suffered $18.3 million in lost profits damages. TransUnion then moved for Judgment as a Matter of Law ("JMOL"), arguing that the parties' contract explicitly prohibited the jury's damages award.
The Endless River Decision
JMOL asks the judge to overturn the jury's verdict on the basis that no reasonable jury could have found for the prevailing party. Put another way, the court would grant JMOL in TransUnion's favor if, after reviewing all of the presented evidence, it determined that no reasonable jury, correctly applying the law, could have awarded Endless River the $18.3 million damages award.
In a contracts case, the court explained, there are two main types of damages: (1) direct, or general damages and (2) consequential damages. Direct damages must stem from a breach of a contract, whereas consequential damages must be: (1) caused by the breach; and (2) be foreseeable. Parties may contractually limit liability for consequential damages, commonly referred to as damages waivers. Illinois courts generally uphold damage waivers and construe them against the benefitting party (Illinois law governed the contract).
The contract between the parties contained such a damages waiver, barring recovery of consequential damages. Under Illinois law, however, lost profit damages, such as those awarded to Endless River, may be either direct or consequential damages. Both parties agreed that for damages purposes, lost market opportunities were identical to lost profits. But the parties disagreed as to whether those lost profit damages represented direct or consequential damages for TransUnion's breach.
Endless River argued that its lost profits were directly related to the breach. It argued that the agreement between Endless River and TransUnion anticipated the continuation of profits following a potential TransUnion breach. Endless River thus argued that profit was the basis for the code-return provision TransUnion breached and that its lost profits stemmed directly from the breach.
The court disagreed. It ruled that the primary purpose of the contract was to provide services to TransUnion to help develop the Quote Exchange, not to monetize the Quote Exchange source code. The court pointed out that the contract between Endless River and TransUnion did not require that Quote Exchange be marketed, sold, or licensed, and did not define an expected amount of profit that the parties should expect to make if the product was launched. Instead, the contract focused on the service that Endless River was to provide and its expected compensation.
The court explained that the breach that Endless River alleged involved TransUnion failing to return the Quote Exchange source code after terminating the contract. In that instance, the direct damages associated with that breach would be a portion of the Quote Exchange source code's value. However, Endless River did not attempt to calculate that value nor seek it as damages. Instead, Endless River sought only lost profits based on future transactions with third parties, which the court ruled, lacked the requisite "link in the causal chain" to connect damages with the contract. Accordingly, the court overturned the jury's damage award.
Strategy and Conclusion
This case draws a distinct line in the sand for lost-profit damages in contract cases, holding that they must flow directly from the subject matter of the contract or proven breach to avoid damages waivers. This case also strengthens existing Illinois precedent that damages waivers will be strictly construed against the benefitting party. Companies should be deliberate when including damages waivers in contracts to ensure they understand their rights should a contract later be breached.
The Endless River v. TransUnion decision can be found here.
Originally Published by LES Insights
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