Yahoo! ordered to pay $4.4 million after backing out of March Madness contest

By Angela Underwood | Sep 12, 2017

NEW ORLEANS – U.S. Court of Appeals for the 5th Circuit Chief Judge Carl Stewart reversed a district court’s ruling in favor of Yahoo! Inc. and ordered the web service to pay $4.4 million for breach of contract.  

Stewart and Judges Edith Jones and Edith Brown Clement reversed a circuit court's summary judgment on Aug. 21 granting plaintiff and promoter SCA Promotions (SCA) $4.4 million in unpaid contractual cancellation fees by defendant Yahoo for a canceling a 2014 NCAA March Madness perfect basketball bracket.  

According to the ruling, after back-and-forth breach of contract claims and counterclaims between the risk management company and Web provider for an initial contract of $11 million, Yahoo paid a $1.1 million deposit in January 2014. However, Yahoo canceled due to billionaire Warren Buffett and Berkshire Hathaway boasting a similar contest and only paid $550,000 to SCA for cancellation rather than the remaining $9.9 million, which was due in February 2014 if the contract was kept.

SCA argued the reimbursement for cancellation was $5.5 million based on “cancellation fees pursuant to the contract—50 percent of the $11 million contract fee—minus the $1.1 million initial deposit Yahoo already paid. Yahoo brought multiple counterclaims, alleging, among other things, that SCA breached a previous agreement’s confidentiality provision as well as the contract’s requirement to obtain risk coverage,” the court's decision states.

Before ruling on the matter, Clement wrote that based on McLane Foodservice Inc. v. Table Rock Restaurants LLC (2013), “interpretation of a contract—including whether the contract is ambiguous—is a question of law.” 

Disputing the meaning of 50 percent in two attached invoices connected with the contract, the plaintiff and defendant argued millions of alleged dollars owed until Aug. 21. But Clement cleared that up, writing that “the plain reading of the relevant clause is that ‘the fee’ refers to the ‘contract fee’ the parties agreed to in the contract.”

“The plain reading is thus that ‘the fee’ means the $11 million contract fee,” the judge wrote, adding, “the cancellation fees provision repeatedly states that ‘a cancellation penalty...will be paid to SCA by Sponsor [Yahoo].’ If ‘50 percent of the fee' means 50 percent of the fees already paid, there is no situation in which a cancellation fee ‘will be paid’ to SCA by Yahoo. Yahoo’s interpretation would thus render this language meaningless.”

“The district court held that Yahoo’s interpretation of the cancellation fees provision is correct. We disagree and hold that “50 percent of the fee” means 50 percent of the $11 million contract fee,” the judge wrote in the ruling, further dismissing SCA's appeal of the district court order as moot.

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