ESPN vs MLB - Election of Remedies

ESPN vs. Major League Baseball (MLB)

Basic Facts

  • In 1996, MLB granted ESPN the right to telecast regular season games for five years.
  • ESPN paid MLB 440,000,000 for the broadcast rights.
  • Current media rights for professional sports are now in the tens or hundreds of billions of dollars.
  • The increasing value of media rights contributes to higher athlete salaries.
  • ESPN agreed to televise MLB games on Wednesday and Sunday nights.
  • Two key provisions in the agreement:
    • ESPN represented it would not make conflicting commitments.
    • ESPN could preempt up to 10 games a year with MLB's permission.
  • In 1998, ESPN contracted with the NFL to broadcast games on Sunday nights, conflicting with the last three Sundays of the MLB season in September.
  • ESPN requested permission to preempt the Sunday night baseball games, but MLB denied the request.
  • Football has significantly more viewers than baseball, leading to more revenue through ads.
  • ESPN preempted the games anyway.
  • In the spring of 1999, ESPN again requested to preempt the last three weeks of the season, and MLB again denied.
  • ESPN preempted the games again.
  • Baseball sent a letter to ESPN terminating the 1996 contract, effective at the end of the 1999 season.
  • ESPN filed suit against baseball.

Parties' Arguments

Plaintiff (ESPN) Arguments:

  • MLB materially breached the contract.
    • MLB unreasonably withheld approval of ESPN's preemption requests in 1998 and 1999.
    • Precluding ESPN from broadcasting the preempted games on ESPN2 was a breach.
    • MLB breached by improperly terminating the agreement at the end of the '99 season because, per ESPN, any breach wasn't "material."

Defendant (MLB) Counterclaims:

  • ESPN materially breached by entering into a conflicting contract with the NFL.
  • ESPN materially breached by preempting games in '98 and '99 without approval.
  • ESPN materially breached by using highlight footage of baseball games in excess of the authorized amount.

MLB's Motion

  • MLB filed a motion to strike ESPN's affirmative defense of election of remedies.
  • MLB aimed to prevent ESPN from arguing that by continuing with the agreement after ESPN's breach, MLB waived its right to terminate the agreement and sue for damages.

Issues Before the Court

  • Did baseball's continuation of the agreement accept deficient performance, waiving the ability to terminate due to that performance?
  • Does baseball's letter terminating the contract at a future date impair its ability to terminate the contract for material breach?

Doctrine of Election of Remedies

  • When a party materially breaches a contract, the non-breaching party must choose between two remedies:
    • Terminate the contract and recover liquidated damages.
    • Continue the contract and recover damages solely for the breach.
  • A party can indicate its choice to continue the contract by performing under the contract or accepting the breaching party's performance.
  • Once a party elects to continue, it cannot later terminate the contract based on that prior breach.
  • ESPN argued that because baseball accepted full performance from ESPN for both the '98 and '99 seasons, it elected to continue the agreement and cannot seek termination based on breaches during those years.
  • ESPN's argument was to ensure that MLB could not terminate the agreement and ESPN would still get the right to broadcast games in the final year of the agreement.

Court's Analysis and Findings

1998 Breaches

  • The court stated that to the extent baseball seeks termination based solely on ESPN's 1998 contract with the NFL or its preemption of the three games in 1998, the election of remedies defense bars such relief.
  • Baseball continued to perform and accept performance for more than a year after the alleged breaches, losing its right to terminate for those breaches.

No Waiver Provision

  • Baseball argued that its right to terminate the contract, notwithstanding the fact that it continued performance after the nineteen ninety eight breaches, is based on this no waiver provision of the contract, which preserves all rights unless they're expressly waived in writing.
  • The court rejected baseball's argument, stating that the doctrines of waiver and election of remedies are complementary rather than competing common law principles.
  • The court clarified the difference between waiver and election of remedies.
    • 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.
    • In contrast to waiver of contractual rights, an election is simply a choice amongst remedies by the party. It is a decision by the party as to how it should proceed in the wake of the breaching party's nonperformance.
  • An election is not a waiver of any rights under the contract, but rather a choice between two inconsistent remedies for breach of contract.
  • The election of remedies doctrine is implicated only in the absence of waiver. 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 remedy the appropriate and desired remedy.
  • Once a party has elected a remedy for a particular breach, her choice is binding with respect to that breach.

Material Breach Doctrine

  • The remedy of termination is only available where a party has materially breached the agreement.
  • A breach is material if it defeats the object of the parties in making the contract and deprives the injured party of the benefit that it justifiably expected.
  • When a party with the right to terminate chooses instead to continue, the only inference to be drawn is that that party will derive a worthwhile benefit from its contractual relationship. There's a therefore, the party's election to continue rather than in the contract essentially moves its legal justification for termination.

1999 Breaches

  • Court stated that to the extent that baseball seeks termination based on ESPN's preemption of the three baseball games in September of nineteen ninety nine, assuming that those preemptions constitute material breaches, the election of remedies doctrine does not bar such relief.
  • Timeline:
    • January 1999: ESPN asked permission to preempt baseball games in September.
    • February 1999: Baseball says no.
    • March 1999: ESPN notifies baseball that it's gonna preempt the games anyway.
    • April 1999: Baseball terminates the agreement effective at the end of the season at the September 1999.
  • The court contrasted how baseball handled this in 1999 with how it handled it in 1998.
  • ESPN argued that baseball elected to continue the contract because it sent notice of termination in April 1999 but continued to accept performance through the rest of the 1999 season.
  • Baseball responded that immediate termination is not a requirement of the doctrine of choice of remedies.
  • The doctrine of election permits parties to wait a reasonable time after learning of the alleged breaches before terminating the contract.
  • The critical factor is not the passage of time but whether the non-breaching party has taken an action or failed to take an action that indicated to the breaching party that it had made an election.
  • 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.
  • The court stated that the agreement was seasonal in nature and thus called for seasonal performance.
  • The court concluded that baseball did not act inconsistently when it terminated effective at the end of the season and that baseball's method of termination merely mirrored the nature of the agreement itself.
  • At the time baseball elected to terminate the contract in April 1999, the 1999 season and performance for that season was already well underway.
  • The court finds as a matter of law that baseball cannot terminate 1996 agreement based on ESPN's nineteen ninety eight breaches. But if the 1999 preemptions constitute a material breach of the party's agreement, then baseball can terminate the agreement based on those breaches.

Remand

  • The court held that ESPN did breach the agreement by preempting the games and that baseball was entitled to a jury trial to prove that the breach was material.
  • The court held that because baseball had not specified or shown any reasonable basis for claiming damages, they weren't entitled to those damages.