The U.S. Court of Appeals for the Fifth Circuit has ordered Yahoo to pay a Dallas promotions company $4.4 million after it backed out of a deal to offer a $1 billion prize for any person who correctly predicted the winners of all 63 games during the 2014 NCAA Men’s Basketball Tournament.
The Aug. 21 decision in SCA Promotions v. Yahoo! reversed an earlier trial court judgment that dismissed a breach of contract claim against the web portal and rendered a $4.4 million judgment in favor of the plaintiff that sued them.
Yahoo wanted to sponsor a perfect bracket contest in connection with the 2014 NCAA tournament with a $1 billion prize so it contracted with SCA Promotions, a Dallas company that provides risk management for marketing and prize promotions.
The contract that Yahoo signed on Jan. 2, 2014, allowed the company to cancel the agreement, with cancellation fees that varied according to when Yahoo terminated it. According to invoices attached to the contract, the contract fee was $11 million, with $1.1 million due immediately with the remaining $9.9 million due by Feb. 15, 2014.
Yahoo paid the $1.1 million deposit to SCA but later revealed that it decided to co-sponsor a similar $1 billion perfect bracket with Quicken Loans, along with Warren Buffett and Berkshire Hathaway. Yahoo then canceled the contract with SCA on Jan. 27, 2014, and demanded the repayment of its $1.1 million initial deposit.
SCA then sued Yahoo in a Dallas U.S. district court for breach of contract. Pointing to a provision in the contract that allowed SCA to recover 50 percent of the contract fee if Yahoo canceled before Feb. 15, SCA alleged Yahoo owed them $4.4 million: half of the $11 million contract fee minus the $1.1 initial deposit.
The district court granted summary judgment to Yahoo, dismissing SCA’s breach of contract claim and dismissing counterclaims filed by Yahoo against SCA alleging, among other things, a breach in the contract’s confidentiality provision. The district court later the final judgment by awarding Yahoo $550,000 — half of the $1.1 million initial deposit Yahoo paid to SCA.
SCA then appealed the decision to the Fifth Circuit, alleging the district court had incorrectly interpreted the cancellation fee provision of its contract with Yahoo. And in its recent decision, Fifth Circuit agreed with SCA.
“SCA argues that the cancellation fee is $5.5 million because ’50% of the fee’ means 50 percent of the $11 million contract fee. Yahoo argues that the cancellation fee is $550,000 because ’50% of the fee’ means 50 percent of the $1.1 million that Yahoo had already paid to SCA when Yahoo cancelled the contract,” wrote Justice Edith Brown Clement.
While the trial court went with Yahoo’s interpretation, the Fifth Circuit went with SCA’s by awarding the $4.4 million they requested.
“It is clear to use that ’50% of the fee’ means 50 percent of the $11 million contract fee,” Brown wrote. “This interpretation is consistent with the plain language and structure of the cancellation fees provision, as well as with several other provisions of the contract.”
Jeff Tillotson, a Dallas attorney who represents SCA, said he is ecstatic about the Fifth Circuit’s decision.
“It made my day,” Tillotson said. “The Fifth Circuit agreed with us, wiped out the refund to Yahoo and put money in our pocket.”
“This is a case where Warren Buffet was deposed, David Filo, the co-founder of Yahoo was deposed, and Marissa Mayer, Yahoo’s former CEO, was deposed,” Tillotson noted. “There was a lot of wattage in this case but at the end of the day it came down to a very simple reading of the contract, which the Fifth Circuit did.”
Thomas Patrick Lane, a partner Winston & Strawn who represents Yahoo, did not return a call for comment.