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ESPN, INC. v. OFFICE OF COM'R OF BASEBALL
November 23, 1999
ESPN, INC., PLAINTIFF,
v.
OFFICE OF THE COMMISSIONER OF BASEBALL, DEFENDANT.
The opinion of the court was delivered by: Scheindlin, District Judge.
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.
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:
With the prior written approval of Baseball, which
shall not be unreasonably withheld or delayed, ESPN
may . . . preempt any [Baseball game telecast]
hereunder, up to a maximum of ten [Baseball game
telecasts] per year, for an event of significant
viewer interest.
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.
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.
I. Baseball's Motion Pursuant to Fed. R.Civ.P. 12(f) and 56 to
Strike the Affirmative Defense of Election of Remedies or in
the Alternative for Summary Judgment
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.
The doctrine of "election of remedies" provides as follows:
When a party materially breaches a contract, the
non-breaching party must choose between two remedies
— [it] can elect to terminate the contract and
recover liquidated damages or [it] can continue the
contract and recover damages solely for the breach. A
party can indicate that [it] has chosen to continue
the contract by continuing to perform under the
contract or by accepting the performance of the
breaching party. Once a party elects to continue the
contract, [it] can never thereafter elect to
terminate the contract based on that breach, although
[it] retains the option of terminating
the contract based on other, subsequent breaches.
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:
The failure of either party to seek redress for any
violation of, or to insist upon the strict
performance of, any term of this Agreement shall not
constitute a waiver of such rights or in any way
limit or prevent the subsequent enforcement of any
such term. 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. 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 or
regulation.
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:
The failure of any party to seek redress for any
violation of, or to insist upon the strict
performance of, any term of this Agreement [i.e.,
bi-weekly payments] shall not constitute a waiver of
such rights [i.e., the right to receive bi-weekly
payments; the right to seek redress for failure to
make bi-weekly payments; and the right to seek strict
performance of bi-weekly payments] or in any way
limit or prevent the subsequent enforcement of any
such term [i.e., bi-weekly payments].
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
because even while the parties were litigating their
claims and counterclaims about the propriety of
termination, in which Baseball was insisting that
ESPN's actions threatened not just 1998 or 1999 but
all five remaining years on the contract, the parties
both continued performing under the contract for the
full remainder of the 1999 season, with Baseball
again receiving from ESPN the full 1999 rights fee of
$3.4 million and the national cable telecasting of
over 80 of its games.
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:
ESPN has cited no cases, nor, we submit, could they,
to suggest that Baseball's termination notice was
defective because it was not immediately effective at
the time the notice was given. Baseball gave ESPN
reasonable notice to wind down its relationship with
Baseball once Baseball determined that it had no
choice but to terminate the 1996 Agreement in view of
ESPN's breaches and anticipatory breaches in 1999.
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.
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 ...