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Target Corp. v. Richrelevance, Inc.

United States District Court, S.D. New York

February 14, 2017

TARGET CORPORATION, Plaintiff,
v.
RICHRELEVANCE, INC., Defendant.

          OPINION AND ORDER

          LORA G. SCHOFIELD UNITED STATES DISTRICT JUDGE

         This case was filed after Plaintiff Target Corp. (“Target”) terminated its contract with Defendant RichRelevance, Inc. (“RichRelevance”), which had allowed RichRelevance to provide services to third parties that placed advertisements on Target's website. Under the contract, the parties shared the revenue from these online advertisements. Target sues RichRelevance, alleging it breached the parties' contract by failing to remit Target's portion of the revenue. RichRelevance asserts seven counterclaims (the “Counterclaims”), including that Target breached the contract by failing to share revenue derived from Target's advertising agreements with third parties executed after the contract's termination. Target moves for summary judgment on its breach of contract claim and on all Counterclaims. For the following reasons, the motion is granted in part and denied in part.

         I. BACKGROUND

         The following facts are drawn from the evidence submitted by the parties in connection with the present motion. For purposes of this motion, all factual disputes are resolved, and all reasonable inferences are drawn, in favor of RichRelevance. See Wright v. N.Y. State Dep't of Corr., 831 F.3d 64, 71-72 (2d Cir. 2016).

         A. The Agreement

         Target is a retailer that operates stores nationwide and a retail website, Target.com. Target's website includes space for third parties to place advertisements. RichRelevance provides services that help third parties display advertisements on the websites of its business partners.

         In June 2010, RichRelevance and Target executed a written agreement (the “Agreement”). Under the Agreement, RichRelevance was to provide advertising services --referred to as Enrich for Brands or E4B Services (“E4B Services”) -- that enabled third-party advertisers to promote products and services on Target's website. New York law governs the Agreement.

         The Agreement contains the following defined terms: Each third-party advertiser is a “Brand.” “E4B Placements” are the “placements of Target Creative[1] and Brand advertising collateral within Onsite Display Inventory.” “Onsite Display Inventory” is the “space on Target['s] Website onto which RichRelevance may sell and serve E4B Placements as more particularly described in an Insertion Order.” An “Insertion Order” is the “order form and related terms and conditions entered into between RichRelevance or Target and a Brand or [its] agent . . . for the serving of E4B Placements.” The Agreement requires the parties to share “Brand Funds, ” which refers to the revenue paid “in connection with the E4B Placements less any out-of-pocket creative costs incurred by RichRelevance in providing E4B Services.”

         The E4B Services that RichRelevance provides include “sourc[ing] Brands interested in promoting products or services in exchange for Brand Funds” and “execut[ing] Insertion Orders with such Brands or their respective agents . . . for the placement of E4B Placements and the payment of Brand Funds to Target or RichRelevance.” According to witnesses, “sourcing” refers to the process of establishing a business relationship with a Brand, which involves finding Brands interested in advertising opportunities and having them commit to placing advertisements on Target's website. The Agreement obligates Target, among other things, to “display the E4B Placements sold by RichRelevance on [Target.com] and otherwise adhere to the terms of the Insertion Order or other agreement executed by RichRelevance for the sale of such E4B Placements.”

         In exchange for the E4B Services, RichRelevance is entitled under the Agreement to a certain percentage of “any Brand Funds related to E4B Placements.” The Agreement defines RichRelevance's portion of Brand Funds as “E4B Fees.”

         The parties' dispute in part turns on the E4B Fees provision. Between 2010 and 2013, the parties executed a written amendment each year that extended the applicability of the provision's “fee schedule.” As of March 2013, the E4B Fees provision provided: “For the one year period starting February 1, 2013 RichRelvance shall be entitled to 35% of any Brand Funds related to E4B Placements that are earned for Target by RichRelevance from Brands where the Insertion Order was sourced or negotiated from the efforts of RichRelevance plus additional cash bonuses” in specified amounts. In August 2013, the parties amended the E4B Fees provision to eliminate the cash bonuses and, “[e]ffective August 1, 2013, ” to increase the percentage for E4B Fees “from 35% to 45% for any Insertion Orders that were sourced or negotiated from the efforts of RichRelevance.” The amendment set the “revenue share percentage” for a term of one year, “through July 31, 2014 and, upon written notice from Target to RichRelevance prior to July 31, 2014, . . . extended to January 31, 2015.” Target did not extend the percentage beyond July 31, 2014.

         The E4B Fees provision also includes “Audit Rights.” It states that “[e]ither party may, upon reasonable written notice during the Term . . . examine the other party's accounting records related to the amounts due hereunder.” RichRelevance gave written notice of an audit request, which Target declined.

         The Agreement sets forth additional “Advertising Obligations, ” three of which are relevant here. First, “Target shall make Onsite Display Inventory available to RichRelevance for sale to Brands throughout the Term as determined by Target, in its sole discretion.” Second, “[t]he parties shall work together to . . . avoid channel conflict for the sales of E4B Placements.” Third, “Target shall promptly notify RichRelevance if Target is approached by a potential Brand in relation to a potential sale of E4B Placements to such Brand.”

         The Agreement also provides that “[a]ny waiver, amendment or modification of any provision of this Agreement must be in writing and executed by both parties.”

         B. The Parties' Dealings with Brands and Advertising Agencies

         Throughout the term of the Agreement, RichRelevance worked primarily with advertising agencies that provide advertising services to companies and manage each company's “National Brand Funds” budget. Target's Director of Digital Vendor Marketing (“DVM”), David Peterson, testified that Target had not been “pursuing the sale of online advertising in the [N]ational [B]rand [F]unds space” and instead hired RichRelevance to do so. According to Peterson, National Brand Funds refer to money that is aimed to “drive brand awareness” and “total sales.”

         While RichRelevance worked primarily with agencies that handled companies' National Brand Funds budgets, Target interacted directly with the companies -- i.e, the brands. Specifically, Target worked with a brand's representative who handled that brand's “shopper-marketing” budget for advertisements. For instance, RichRelevance worked with the advertising agency Mediavest, which managed the National Brand Funds budget of Proctor & Gamble (“P&G”). Target worked with P&G directly to sell advertisements funded through its shopper-marketing budget. As Peterson testified, Target had no prior dealings with Mediavest, and RichRelevance “sourced” the relationship for Target.

         RichRelevance's process for selling advertising to Mediavest on behalf of P&G usually began with negotiating the annual “upfront.” William Vail, who was RichRelevance's Vice President of Sales, testified that an “upfront” is a “promise of a commitment for advertising” and acknowledged that it formed “the baseline for the advertising spend for that year.” Vail worked on the upfronts with Mediavest throughout the Agreement. He testified that the upfront was important to securing P&G-related business. As he explained, “you have the formalized upfront documentation, and then you have RFPs” -- i.e., “a request for a proposal for individual brands to run campaigns on Target.com” -- “that are in addition to that upfront. . . . [I]f you get the final yes on the upfront, you secure the majority of those RFPs. If you don't, you don't.” Vail clarified that with the “P&G relationship through Media[v]est, ” RFPs could “come in throughout the year” on a “rolling” basis after the upfront.

         C. RichRelevance's October 2012 Presentation

         In October 2012, RichRelevance's CEO, David Selinger, presented to Target a strategy for earning $50 million in online advertisement revenue for the following year. Peterson had facilitated the meeting, provided input to RichRelevance on the presentation's content and proposed the $50 million revenue target. Selinger testified that Peterson told him before the meeting that Target was “having a bad year, ” it “need[ed] to do something” and RichRelevance was “the best path.”

         At the presentation, Selinger displayed a PowerPoint entitled “The Path to $50 Million.” The PowerPoint indicates that the revenue goal depended on the “Three Pillars of Success” --“Alignment, ” “Data” and “Inventory.” Alignment refers to “Execution Calendar Alignment” and a “Consolidated Account Execution Plan.” Data refers to Target introducing “offline data” to its “reports” that would help assess an advertising campaign's effectiveness. Inventory refers to the amount of space or types of placements that RichRelevance could offer to third-party advertisers on Target's website. The presentation states that in order to achieve the revenue goal, there was “[z]ero-wiggle room on [the] 3 pillars.”

         Casey Carl, Target's Chief Strategy and Innovation Officer, was present at the October presentation and was the decision-maker with respect to the RichRelevance proposal. As Selinger testified, immediately after the presentation, Carl told him that Target needed “to get this business to 50 million dollars, ” that “RichRelevance [was] the only way by which [Target] believe[d]” it could “get there” and that “if this is the plan that can get [Target] there, let's go.”

         RichRelevance and Target began discussing RichRelevance increasing its spending on resources to help Target achieve its goal. A few weeks after the presentation, RichRelevance's Vice President of Emerging Businesses, Janet Megdadi, sent an email recounting a discussion she had with Peterson in which they discussed the need for RichRelevance to increase spending on personnel and office space. In February 2013, Peterson received an email stating that RichRelevance had “added 8 new people across sales and marketing ops since we last met in Jan[uary] . . . and expressed our concern with their staffing levels.”

         D. The Alleged Channel Conflict with Mediavest

         Around April 2014, Peterson and several team members met with representatives of P&G and Jyoti Menon, who worked for Mediavest. They discussed Target working directly on both P&G's shopper-market budget and its National Brand Funds budget, which RichRelevance had previously handled.

         The April 2014 meeting was not the first time that Target had discussed transitioning away from RichRelevance. In February 2014, Target's National Partnership Manager, Jackie Bosacker, sent an email to Peterson in which she wrote that she “assum[ed] that we plan to cut ties with [RichRelevance] in July” and recommended not making “new products, ” such as “brand pages, ” available to it. She also stated, “[a]t a time when not only DVM but Target as a whole is moving from [RichRelevance] I believe limiting our business relationship with them is the best thing to do especially because [RichRelevance] will soon be an active competitor in the marketplace selling against us.”

         On May 8, 2014, RichRelevance's President, Eduardo Sanchez, sent an email to Peterson regarding the “Q2 Forecast.” He wrote that although RichRelevance “received $7.9M in RFPs from P&G over the last several days, ” the “$7.9M appears to be degrading into $2.9M” because of a lack of access to “brand page[s]” for certain products. The next day, Peterson wrote Sanchez an email after speaking with him. He stated that although he and Sanchez had “discussed the current P&G business and how [they] could work to provide the pieces needed to close the business, ” two “things at play” made Target's decision “complex.” First, he cited the parties' “current rev[enue] share agreement and channel conflict.” Second, he emphasized that “P&G [was] looking to work ...


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