ESPN, INC. v. OFFICE OF COM'R OF BASEBALL

The opinion of the court was delivered by: Scheindlin, District Judge.

Introduction

This is a contract dispute between ESPN, Inc. ("ESPN"), an all-sports cable television network, and The Office of Major League Baseball ("Baseball"), which acts on behalf of the Major League Baseball clubs. In 1996, the parties entered into a telecasting agreement (the "1996 Agreement") pursuant to which Baseball granted ESPN the right to telecast regular season major league baseball games on its primary cable service. In exchange, ESPN agreed, among other things, to pay Baseball yearly rights fees and to produce baseball game telecasts on Wednesday and Sunday nights during the regular season.

A. Background*fn1

The 1996 Agreement includes two provisions that are the primary focus of this litigation. The first is a representation by ESPN that "it has not made nor will it make any contractual or other commitments that conflict with or will prevent full performance [of the 1996 Agreement]." 1996 Agreement, Ex. O to 10/15/99 Affidavit of Robert J. Kheel, attorney for Baseball ("Kheel Aff."), at 60. The second provision permits ESPN to preempt up to ten baseball games a season with Baseball's prior written approval, which may not be unreasonably withheld. The preemption provision states:

Id. at 48-49. Pursuant to this provision, Baseball may telecast the preempted baseball games on its secondary cable service, ESPN2. Id. at 49 & 1997 Amendment.

On January 13, 1998, ESPN entered into a telecasting contract with the National Football League ("NFL") whereby ESPN obtained the rights to broadcast regular season NFL games on Sunday nights. See JPTO at 23, 38. On January 30, 1998, ESPN requested Baseball's approval to telecast NFL games in place of baseball games on three Sunday nights in September 1998. See id. at 23, 43. Baseball declined to approve ESPN's request. See id. at 23, 44. Despite Baseball's disapproval, however, ESPN substituted NFL games for baseball games on the three Sunday nights in question. See id. at 25, 45. Baseball refused to allow ESPN to broadcast the preempted baseball games on ESPN2. See id. at 25, 41-42.

This exact series of events repeated itself in January 1999, when ESPN again sought Baseball's approval to replace three baseball games scheduled for Sunday nights in September 1999 with football games. See id. at 25, 45. Baseball denied ESPN's preemption request; ESPN preempted the three September 1999 baseball games in favor of football games; and Baseball refused to allow ESPN to broadcast the preempted games on ESPN2. See id. at 26-27; 45.

B. Contentions of the Parties

In April 1999, Baseball terminated the 1996 Agreement contending that ESPN had materially breached the contract. In response, ESPN commenced the instant litigation in which it alleges that Baseball materially breached the contract by (i) unreasonably withholding its approval of ESPN's preemption requests in 1998 and 1999; (ii) precluding ESPN from broadcasting the preempted baseball games on ESPN2; and (iii) improperly terminating the parties' agreement. See id. at 3. ESPN seeks damages and declaratory and injunctive relief. See id.

Baseball has asserted counterclaims against ESPN in which it alleges that ESPN materially breached the 1996 Agreement by (i) entering into a "conflicting" contract with the NFL; (ii) preempting Baseball games in 1998 and 1999 without ESPN's prior written approval; and (iii) utilizing highlight footage of baseball games in excess of the amount authorized by the 1996 Agreement. See id. at 4. Baseball also seeks damages and declaratory and injunctive relief. See id.

C. Motions in Limine

On October 15, 1999, the parties moved in limine to preclude the admission of certain evidence and argument at their forthcoming trial. Ten separate motions — five by Baseball and five by ESPN — were fully submitted on October 29, 1999. The following constitutes the Court's ruling on six of the ten motions in limine. The remaining four motions will be the subject of separate orders or rulings from the bench.

Motions in Limine

In its Amendment Answer to Baseball's counterclaim, ESPN asserts the affirmative defense of "election of remedies". By this motion, Baseball seeks to preclude ESPN from asserting such a defense.

A. Election of Remedies

The doctrine of "election of remedies" provides as follows:

Bigda v. Fischbach Corp., 898 F. Supp. 1004, 1011-12 (S.D.N Y 1995) (citations omitted). See also Apex Pool Equip. Corp. v. Lee, 419 F.2d 556, 561-63 (2d Cir. 1969) (Under New York law, "`[w]here a contract is broken in the course of performance, the injured party has a choice . . . of continuing the contract or of refusing to go on'. . . . If the injured party chooses to go on [it] loses [its] right to terminate the contract because of the default.") (quoting Emigrant Indus. Sav. Bank v. Willow Builders, 290 N.Y. 133, 145, 48 N.E.2d 293 (1943)); Inter-Power of New York, Inc. v. Niagara Mohawk Power Corp., 259 A.D.2d 932, 686 N.Y.S.2d 911, 913 (3d Dep't 1999) (Although a party can either "treat the entire contract as broken and sue immediately for the breach or reject the proposed breach and continue to treat the contract as valid", the party must "make an election and cannot `at the same time treat the contract as broken and subsisting. One course of action excludes the other.'").

ESPN contends that because Baseball accepted full performance by ESPN for the 1998 and 1999 seasons, it elected to continue the 1996 Agreement and therefore cannot seek termination of the contract based on any alleged breaches by ESPN during those years. According to ESPN, Baseball can only seek damages for ESPN's alleged breaches of the 1996 Agreement.

B. Ability to Terminate for Alleged 1998 Breaches

To the extent Baseball seeks termination based solely on ESPN's 1998 contract with the NFL or its preemption of three baseball games in 1998 — assuming that those acts constitute material breaches of the 1996 Agreement — the election of remedies defense bars such relief. That is, with respect to both of the alleged 1998 breaches, Baseball continued to perform and continued to accept performance under the 1996 Agreement for more than a year, and thus it lost its right to terminate for those breaches. See Inter-Power of New York, Inc., 686 N.Y.S.2d at 913 (A party must "make an election and cannot `at the same time treat the contract as broken and subsisting. One course of action excludes the other.'"); see also Lazard Freres & Co. v. Crown Sterling Management Inc., 901 F. Supp. 133, 136 (S.D.N.Y. 1995) (same); V.S. Int'l, S.A. v. Boyden World Corp., 862 F. Supp. 1188, 1196 (S.D.N.Y. 1994) (same).

Baseball concedes that it "continued performance of the 1996 Agreement after ESPN's 1998 breach" but claims that its ability to terminate the agreement based on those breaches is preserved by the contract's broadly worded "no waiver" provision. BB MIL at 5.*fn2 Essentially, Baseball argues that a contractual "no waiver" provision trumps the common law contract principle of election of remedies. Although Baseball's contention is legally without merit, it raises interesting and seldom addressed issues regarding the relationship between the doctrines of waiver and election and thus merits a more detailed analysis.*fn3

1. Waiver Versus Election of Remedies

The doctrines of waiver and election of remedies are complementary rather than competing common law contract principles. Under the doctrine of waiver, "a party may, by words or conduct, waive a provision in a contract or eliminate a condition in a contract which was inserted for [its] benefit." Oleg Cassini, Inc. v. Couture Coordinates, Inc., 297 F. Supp. 821, 830 (S.D.N.Y. 1969); see also Farnsworth, Contracts § 8.18 (3d ed. 1999). Suppose, for example, that under the 1996 Agreement ESPN is obligated to make bi-weekly payments of $100,000 to Baseball. Suppose further that after several months of making the required bi-weekly payments, ESPN begins to tender monthly payments of $100,000 to Baseball. If Baseball accepts and/or fails to object to ESPN's deficient payments, then Baseball has eliminated or "waived" its contractual right to bi-weekly payments of $100,000 under the 1996 Agreement.*fn4

In contrast to a waiver of contractual rights, an election is simply a choice among remedies by the party; it is a decision by that party as to how it should proceed in the wake of the breaching party's nonperformance. In other words, "an election is not a waiver of any rights under the contract but rather a choice between two inconsistent remedies for breach of the contract." Bigda, 898 F. Supp. at 1014.

Returning to the hypothetical, suppose that Baseball had, in fact, objected when ESPN began to tender monthly rather than bi-weekly payments. Under these facts, Baseball has preserved its contractual right to bi-weekly payments of $100,000, and thus there is no waiver of that provision. However, Baseball must still decide how to proceed in light of ESPN's hypothetical nonperformance. Assuming that ESPN's hypothetical failure to make timely and sufficient payment is a material breach, Baseball has two choices. It can terminate the parties' contract and claim damages for total breach. Or, it can continue the contract and sue for partial breach. The election of remedies simply requires that Baseball choose or "elect" a single course of action. Thus, if Baseball terminates the contract, then it has elected termination, and it cannot continue to perform or expect performance under the contract. If Baseball chooses to continue the contract, then it has elected to continue, and it cannot later decide to terminate based on the same breach. In essence, the election of remedies doctrine is implicated only in the absence of waiver. That is, if a party waives her right to performance under a contract, then she has no remedies to elect because she has waived her ability to enforce the relevant provision. If a party has not waived her right to enforce a provision in the event of breach, then she can elect the appropriate and desired remedy. The key is that once a party has elected a remedy for a particular breach, her choice is binding with respect to that breach.

2. "No-Waiver", Provision

A "no-waiver" provision is simply an explicit agreement between the parties that a certain act or, more commonly, the failure to act does not constitute a waiver of rights under the agreement. For example, the no-waiver provision included in the 1996 Agreement protects the parties from inadvertently waiving their rights by requiring that any waiver be made in writing. The clause explicitly states that a party's failure to object to nonperformance is not a waiver of the right to that performance. The 1996 Agreement provides as follows:

H. No Waiver of Rights

1996 Agreement, Ex. O to Kheel Aff., at 69. It is Baseball's position that this clause preserves its ability to terminate the contract regardless of when in time the terminating breach occurred and regardless of whether Baseball initially decided to continue the contract despite the breach, such as it did in response to ESPN's alleged 1998 breaches. Baseball is wrong.

As set forth above, waiver and election are distinct principles that do not overlap but rather control different phases of the contractual relationship. Waiver governs both the parties' bargained-for rights to performance and their rights to seek certain remedies for non-performance; it determines whether something has occurred — an action or inaction — to alter or eliminate a term of the parties' agreement or an available remedy. Election applies in the absence of waiver when one party has, in fact, breached the agreement. Election has no effect on the parties' "rights" under the agreement, nor does it in any way limit the party's "right" to pursue available remedies. Rather it demands that the party exercise its rightful remedies in a consistent and binding manner. The party must either terminate or continue, but not both. Nor may the party choose one avenue and then change its mind.

Put simply, an election is not a waiver of rights but an exercise of rights. As a result, I conclude that a standard "no-waiver" provision does not immunize or excuse parties from the requirements and consequences of election.*fn5

Although it appears that only one court in the Second Circuit has squarely addressed the issue of whether a no-waiver provision bars the operation of election of remedies, that court reached the same conclusion, namely that a no-waiver provision has no application to the doctrine of election. In Bigda v. Fischbach Corp., the plaintiff employee argued that a "no-waiver" provision in his employment contract "enabled him to continue to perform while reserving his right to [terminate] at some later date." 849 F. Supp. 895, 901 n. 2 (S.D.N.Y. 1994). The court rejected plaintiff's argument finding that "the decision of a non-breaching party to continue to perform is not a `waiver' of that party's right to terminate the contract, but an election, and so the clause is irrelevant to this dispute." Id. Moreover, although Apex Pool Equip. Corp. v. Lee, 419 F.2d 556 (2d Cir. 1969), did not involve a no-waiver provision, the Court of Appeals' findings in that case would appear to compel the result reached here. See Apex, 419 F.2d at 562. The Apex court stated:

Id. (quoting 5 Williston, Contracts § 684 (3d ed. 1961)).

Moreover, as a textual matter, the no-waiver provision of the 1996 Agreement does not purport to limit the application of election of remedies. Although the language of the provision is broad and sweeping, it speaks only to issues of waiver. An examination of the no-waiver provision in the context of the hypothetical set forth above illustrates this point.

Assume again that Baseball failed to object in any way when ESPN rendered monthly rather than bi-weekly payments under the parties' hypothetical contract terms. Although Baseball's inaction would normally constitute a waiver of its right to bi-weekly payments, the contractual no-waiver provision protects Baseball from such a result. The provision works as follows:

Thus, Baseball's hypothetical failure "to seek redress . . . or to insist upon the strict performance" of ESPN's obligation to tender bi-weekly payments does not waive Baseball's right to receive bi-weekly payments or to seek enforcement of that term. The provision further states: "All waivers must be made in writing. Any waiver of a right or remedy pertaining to this Agreement shall not be deemed to be a waiver of any other right or remedy." These two sentences are nothing more than further protection against inadvertent waiver. They demand that any waiver of a right — such as the right to bi-weekly payment — or a remedy — such as termination or specific performance — be made affirmatively in writing. Moreover a party's written agreement to waive one right or remedy does not in any way affect that party's other rights or remedies under the contract. Accordingly, under the hypothetical, if Baseball agrees in writing to waive ESPN's obligation to make bi-weekly payments, such waiver does not mean that Baseball has waived its additional rights to the telecast of a certain number of Baseball games each year. Similarly, if Baseball agrees in writing to waive its "right" to terminate the contract for a material breach, such waiver does not mean that Baseball has waived its right to seek damages or specific performance.

The no-waiver provision sets forth one final protection for the parties: "The various rights and remedies of either party contained herein shall not be considered exclusive of, but shall be considered cumulative to, any rights or remedies now or hereafter existing at law, in equity or by statute." Thus, that a remedy is not explicitly referenced in the contract does not mean it is unavailable to the parties. The remedies in the contract are in addition to all other remedies at law or in equity.*fn6

Finally, to read the no-waiver provision as allowing Baseball to now terminate the contract based on breaches that occurred almost two years ago would violate important principles of contract law. As set forth above, "[t]he law simply does not . . . permit a party to exercise two alternative or inconsistent rights or remedies." Apex, 419 F.2d at 562 (internal quotations omitted). Election enforces this principle by preventing parties to a contract from pursuing two opposing courses of action in the wake of a material breach. A party cannot "elect to continue with the contract, continue to receive benefits from it, and thereafter bring an action for rescission or total breach." Macfarlane & Assocs., Inc. v. Noxell Corp., 93 Civ. 5192, 1994 WL 369324, *4 (S.D.N Y July 13, 1994). In addition to the obvious uncertainty and concomitant unfairness that would result from allowing a party to treat its agreement as both "broken and subsisting", there is a more fundamental problem when a party terminates after continuing the contract for a period of time: the party's legal justification for termination has disappeared.

The remedy of termination — or, more accurately, the "right" to terminate — is available only where one party has materially breached the contract. A breach is material if it defeats the object of the parties in making the contract and "deprive[s] the injured party of the benefit that it justifiably expected." Farnsworth, Contracts § 8.16 (3d ed. 1999). Where a breach is material, the party is justified in refusing to go on, and thus the law provides that party with the right to terminate. And, a party who terminates in response to a material breach presumably does so because it can no longer derive a worthwhile benefit from its contractual relationship.

On the other hand, where a party with the right to terminate chooses instead to continue, the only inference to be drawn is that the party will derive a worthwhile benefit from its contractual relationship. Therefore, the party's election to continue rather than end the contract essentially moots its legal justification for termination. Once a party recognizes contractual benefits in the wake of a material breach, that particular breach can no longer be considered the antithesis of the contract, and it can no longer serve as the basis for termination. Of course, if a party chooses to continue with the contract and the other party subsequently commits another material breach, the party has the right to terminate based on the new breach. This is the scenario to which I now turn.*fn7

C. Termination for Alleged 1999 Breach

Baseball elected to continue the 1996 Agreement despite ESPN's alleged material breaches in 1998. As a result, Baseball can no longer terminate the parties' contract based on those breaches. However, to the extent Baseball seeks termination based upon ESPN's preemption of three baseball games in 1999 — assuming arguendo that the 1999 preemptions constitute material breaches of the parties' agreement — the election of remedies doctrine does not bar such relief.

In January 1999, ESPN sought permission to preempt baseball games on three Sunday nights in September 1999. On February 11, Baseball declined to approve the requested preemption. On March 1, ESPN advised Baseball that it would preempt the September games notwithstanding Baseball's denial of its request. In response, on April 21, 1999, Baseball terminated the parties' agreement effective at the end of the Baseball season in October. Baseball's notice of termination stated: "As outlined above, ESPN has materially breached the [1996] Agreement. Therefore, Baseball hereby terminates the Agreement pursuant to Paragraph XX.B. thereof effective immediately following the last game of the 1999 regular season." See 5/21/99 letter from Paul Beeston, President and CEO of Baseball, to various officers of ESPN, Ex. I to 10/24/99 Affidavit of Eric J. Lobenfeld, attorney for ESPN, in Opposition to Baseball's Motion to Strike the Affirmative Defense of Election of Remedies ("Lobenfeld Election Aff.").

It is useful to compare Baseball's actions in connection with the alleged 1998 breaches to its actions in connection with the alleged 1998 breaches. In 1998, Baseball clearly elected to continue its contract with ESPN. Although Baseball informed ESPN that it considered the NFL contract and the 1998 preemptions to be material breaches, see, e.g., 8/18/98 letter from Thomas Ostertag, General Counsel of Baseball, to Edwin M. Durso, Executive Vice President of Administration of ESPN, Ex. F to Lobenfeld Election Aff., and although it "reserved" its right to terminate, see, e.g., id., there is no question that Baseball elected to continue and did continue the agreement throughout 1998 and into the 1999 season. In 1999, however, Baseball did not merely mention or reserve its right to terminate, it in fact terminated the agreement.

Despite Baseball's purported election to terminate in April 1999, ESPN maintains that Baseball cannot seek termination based on the 1999 preemptions

ESPN Op. at 8. According to ESPN, "Baseball plainly made a choice. It elected to continue the contract in the face of the claimed breaches and anticipatory breaches as to five years of the contract that it now cites as the basis for termination, and elected to obtain substantial benefits under the contract from ESPN by so doing." Id. In particular, ESPN argues that because Baseball purported to terminate in April 1999 but continued to accept performance under the contract for nearly six more months, it was pursuing two inconsistent courses of action, the very behavior election of remedies disdains.

In response, Baseball asserts that its method of delayed termination was the most reasonable way to sever the parties' contractual relationship. Baseball argues:

BB Reply at 7. Baseball also states that "the effective date of termination was chosen out of fairness to ESPN and its scheduling arrangements." Id. at 6.

As Baseball notes, there is little guidance regarding whether a party can give present notice of future termination without running afoul of election of remedies. Again, it is helpful to look at the policy underlying that doctrine. To begin, "the doctrine of election permits parties to wait a `reasonable time' after learning of the alleged breaches before terminating the contract. . . . [H]ow much time is reasonable depends on the nature of the performance to be rendered under the contract." Bigda, 898 F. Supp. at 1012-13. The critical factor is not the passage of time but "whether the non-breaching party has taken an action (or failed to take an action) that indicated to the breaching party that [it] had made an election." Id. See also 5 Williston, Contracts § 684 (3d ed. 1961) ("Election . . . generally need not be exercised until the time arrives when, by the terms of the contract, the party entitled to elect must render some performance. Then either performing or failing to perform will indicate an election.").

In the instant case, the issue is not whether Baseball rendered or accepted performance during the time between breach and election but whether Baseball rendered or accepted performance during the time between its election of termination and the effective date of that termination.*fn8 On the one hand, both Baseball and ESPN tendered and accepted dozens of performances during the six months between April and October 1999. Indeed, ESPN telecast approximately eighty baseball games during the 1999 season. ESPN Op. at 8. However, those individual performances were part of a more global performance. Stated somewhat differently, the 1996 Agreement, in keeping with its subject matter, is seasonal in nature. As a result, it calls for seasonal performance. For example, the baseball games that are ultimately telecast on ESPN are organized and scheduled months in advance. Indeed, under the 1996 Agreement, Baseball must provide ESPN with a regular season schedule of games "no later than August 15th of the calendar year preceding each Baseball season." See 1996 Agreement, Ex. O to Kheel Aff. at 5. By the time the baseball season commences each spring, the parties' global performance for that season is already well under way. Games and other programming have been scheduled and those schedules have been published to, and relied upon by, third parties including sponsors, advertisers, the media and the public. Of course, performance continues throughout the summer and fall as baseball games are telecast and payment is made, but it is clearly all part of the same seasonal undertaking.

This difference is critical because it demonstrates that Baseball did not act inconsistently when it terminated effective at the end of the season. Instead, Baseball's method of termination merely mirrored the nature of the 1996 Agreement. At the time Baseball elected to terminate the contract in April 1999, the 1999 season and performance for that season was well underway. Thus, rather than stop the agreement mid-performance at a high cost to both parties and nonparties, Baseball simply notified ESPN that it would render and accept no "new" performance under the contract; it would not go forward with the 2000 season.*fn9

Not only do I find that Baseball's approach did not violate the doctrine of election, I also find that it was eminently reasonable under the circumstances. Had Baseball terminated effective immediately, not only would both parties have suffered enormous hardship, an immeasurable number of third parties including sponsors, advertisers and the public would have been affected. In an industry where so much time and energy is expended in advance preparation, it makes little sense to treat the fruits of those efforts as a wholly separate "performance" for purposes of the election of remedies defense. I suspect that if ESPN were not Baseball's adversary in this litigation, it would appreciate rather than complain of Baseball's considerate approach to termination.

Accordingly, I find as a matter of law that if the 1999 preemptions by themselves or in connection with other alleged breaches constitute a material breach, Baseball has a ...