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Media Alerts - Vici Racing, LLC vs. T-Mobile USA, Inc. - Third Circuit
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August 14, 2014
  Vici Racing, LLC vs. T-Mobile USA, Inc. - Third Circuit
Headline: Once a Plaintiff proves damages from a breach of contract, the Defendant has the burden of proof on whether the Plaintiff had opportunity to mitigate damages.

Area of Law: Contract Law

Issues Presented: Who has the burden of proof to show a plaintiff in a breach of contract case did not adequately mitigate damages.

Brief Summary: T-Mobile USA, Inc. ("T-Mobile") entered into a contract with VICI Racing LLC ("VICI") to sponsor a racecar. After the racecar had an accident and could not race, T-Mobile did not provide the money as promised under the sponsorship contract. VICI sued in the District Court of Delaware for breach of contract, and T-Mobile cross-claimed for the same. The District Court ruled in favor of VICI in the claim because T-Mobile claimed VICI breached a provision of the contract, which was ultimately unenforceable and severable from the contract. The Court only awarded VICI with $7,000,000 even though T-Mobile still owed $14,000,000 because VICI could not prove there was no way to mitigate damages. The Third Circuit Court of Appeals affirmed the District Court in the decision except with respect to mitigating damages. The Third Circuit ruled the defendant has the burden of proving a plaintiff in a breach of contract case could have mitigated damages once the plaintiff proves the amount of damages. The Third Circuit remanded the case to determine the expectation damages under contract law for the remaining amount as VICI does not still race cars.

Significance (if any):

Extended Summary: T-Mobile USA, Inc. ("T-Mobile") entered into a contract with VICI Racing LLC ("VICI") to sponsor a racecar or March 30, 2009. The contract provided T-Mobile would give VICI $1,000,000 by April 1, 2009 and $7,000,00 by January 1, 2009 and 2010 in exchange for VICI driving once T-Mobile sponsored Porsche racecar during the 2009 season, and two during the 2010 and 2011 seasons. VICI further promised to have T-Mobile be the exclusive wireless carrier supplying wireless connectivity for the Porsche, Audi and VW telematics programs beginning in cars produced after 2011. Additionally, the contract contained a standard force majeure clause, a standard severability clause, and an agreement to limit liabilities (sounding like a liquidated damages clause). In July 18, 2009, the T-Mobile sponsored racecar sustained severe damage from an accident, and could not race for approximately two months. After T-Mobile did not pay $7,000,000 at the beginning of 2010, VICI sent a notice of default. In response, T-Mobile sent a letter terminating the agreement claiming VICI materially breached the contract because of their failure to secure telematics contracts and because the racecar had not raced in a specific race, where T-Mobile had business guests. On September 30, 2010, VICI filed suit in the District Court of Delaware claiming breach of contract against T-Mobile seeking $14,000,000 in damages. T-Mobile asserted an affirmative defense and counterclaim asserting VICI did not perform its obligations under the contract.
At a bench trial in the District Court of Delaware, the judge awarded VICI $7,000,000 in damages based on expectation under the contract. The District Court judge did not award $14,000,000 because the judge placed the burden of proof of mitigating damages upon VICI, and believed VICI could successfully mitigate damages for year 2011. In addition, the District judge ruled T-Mobile breached the contract first because the section detailing VICI's promise to T-Mobile to be the exclusive wireless carrier was ambiguous, even after admitting parole evidence, therefore unenforceable and severable under a separate clause of the contract. T-Mobile appealed the verdict arguing they owe no damages because VICI breached the contract originally because of its failure to provide T-Mobile with an exclusive contract and because the racecar accident did fall under the force majeure provision of the contract. VICI appealed the verdict because it believes it is owed $7,000,000 for both 2010 and 2011, not just 2010.
The Third Circuit Court of Appeals ruled in favor of VICI on all matters. First, it affirmed the District Court in severing the contract provision dealing with the exclusive wireless carrier due to ambiguous terms and no clear error of fact-finding in the district court. The court reasoned the rest of the contract would still be enforceable without this provision and there were no facts that the parties would not have entered into this contract without this provision. Second, the Third Circuit affirmed the District Court ruling that the force majeure provision excused VICI's breach of contract since VICI conformed to the necessary steps under the provisions. Additionally, since T-Mobile did not raise the issue originally in the District Court, it could not bring the issue up during appeal. The Third Circuit addressed the issue of foreseeability in the issue of force majeure under Delaware Law, but ultimately did not reach a conclusion because the issue was not raised in district court. Next, the Third Circuit affirmed the District Court's award of $7,000,000 damages even though T-Mobile claimed the contract damages should have been lower because VICI had lower costs because it did not participate in races during 2010. The Third Circuit deferred to the fact finding of the district court and found no clear error was committed. Lastly, the Third Circuit overturned the District Court's assertion VICI has the burden of proof when mitigating damages under the expectation theory of contracts. The Third Circuit ruled a plaintiff must prove damages, and therefore, the defendant has the burden of the proof to show possible avenues of mitigation of damages after the plaintiff proves damages exist. In the present case, the District Judge expected VICI to prove damages and then show it was not possible to mitigate damages. The Third Circuit remanded the question of damages for the year of 2011 based on what costs VICI would avoid because it did not participate in racing cars.

To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/131615p.pdf.

Panel (if known): Ambro and Greenway Jr., Circuit Judges, and Baylson, District Judge sitting by designation.

Argument Date: January 14, 2014

Argument Location: Philadelphia, PA

Date of Issued Opinion: August 13, 2014

Docket Number: Nos. 13-1615 & 13-1780

Decided: Affirmed in part, reversed and remanded in part.

Case Alert Author: Ilya Gomelsky

Counsel: John D. Lowery, Esq., Gavin W. Skok, Esq., James C. Martin, Esq., Colin E. Wrabley, Esq., Peter J. Walsh, Jr., Esq., and Jennifer C. Wasson, Esq. for Appellant in 13-1615 and Cross Appellee in 13-1780. Juan C. Antorcha, Esq., Joseph P. Klock, Jr., Esq., and Christopher D. Loizides, Esq. for Appellee in 13-1615 and Cross Appellant in 13-1780.

Author of Opinion: Baylson, District Judge.

Circuit: 3rd Circuit

Case Alert Circuit Supervisor: Prof. Susan L. DeJarnatt

    Posted By: Susan DeJarnatt @ 08/14/2014 02:38 PM     3rd Circuit  

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