Z-Corp v. Ancestry.Com Inc. , 821 Utah Adv. Rep. 23 ( 2016 )

2016 UT App 192THE UTAH COURT OF APPEALS
Z-CORP AND ONEGREATFAMILY LLC,
Appellants,
v.
ANCESTRY.COM INC. AND ANCESTRY.COM OPERATIONS INC.,
Appellees.
Opinion
No. 20150405-CA
Filed September 9, 2016
Fourth District Court, Provo Department
The Honorable Fred D. Howard
No. 140401466
Robert L. Jeffs, Randall L. Jeffs, and Liisa A.
Hancock, Attorneys for Appellants
Mark O. Morris and Amber M. Mettler, Attorneys
for Appellees
JUDGE GREGORY K. ORME authored this Opinion, in which JUDGE
KATE A. TOOMEY and SENIOR JUDGE JUDITH M. BILLINGS
concurred. 1
ORME, Judge:
¶1 Z-Corp and its wholly owned subsidiary OneGreatFamily
LLC (collectively, OGF) appeal from the district court’s decision
dismissing OGF’s complaint against Ancestry.com Inc. and its
affiliate (collectively, Ancestry) for failure to state a claim. We
affirm the dismissal as to the majority of the claims but reverse
1. Senior Judge Judith M. Billings sat by special assignment as
authorized by law. See generally Utah R. Jud. Admin. 11-201(6).
Z-Corp v. Ancestry.com
as to OGF’s claim that Ancestry wrongfully withheld a portion
of the fees owed to OGF. 2
BACKGROUND
¶2 In April 2009, OGF entered into a marketing agreement
with Archives.com. Each agreed to advertise membership
subscriptions for the other on their respective websites. In
return, the marketing party was to receive sixty percent of the
profit from any subscriptions sold through the advertisements.
The agreement also expressly directed that both parties were to
undertake this marketing “at their sole cost and expense, and
2. In its brief, OGF states that it “does not appeal the trial court’s
dismissal of its conversion claim or its tortious interference with
prospective economic relations claim.” We therefore have no
occasion to address the validity of the district court’s dismissal
of those claims. Furthermore, OGF makes a claim for punitive
damages based on a provision of the contract allowing punitive
damages in the event of “breach . . . as a result of gross negligence
or willful misconduct.” Because OGF does not actually allege that
Ancestry’s claimed breach resulted from “gross negligence or
willful misconduct,” and because punitive damages are not
ordinarily available in a contract action in any event, see TruGreen
Cos. v. Mower Bros., Inc., 2008 UT 81, ¶ 19, 199 P.3d 929, we affirm
the dismissal of that claim. Finally, OGF claims that Ancestry
breached the covenant of good faith and fair dealing. We readily
affirm the dismissal of that claim, too, as explained in this
opinion, that Ancestry was within its rights under the contract to
do as much or as little marketing for OGF as it pleased. See
generally Young Living Essential Oils, LC v. Marin, 2011 UT 64,
¶ 10, 266 P.3d 814 (noting that the covenant of good faith and
fair dealing may not be invoked to “create obligations
inconsistent with express contractual terms”) (citation and
internal quotation marks omitted).
20150405-CA 2 2016 UT App 192Z-Corp v. Ancestry.com
under their own exclusive control.” And the contract contained a
provision allowing for an accounting at the request of either
party.
¶3 Ancestry later purchased Archives and assumed its
contractual obligations. Ancestry continued to operate a separate
Archives website. At some point following the purchase, OGF
noticed a sharp decrease in income from membership
subscriptions. After investigation, OGF concluded that Ancestry
had removed OGF advertisements from the Archives website.
OGF sought an accounting from Ancestry and, dissatisfied with
Ancestry’s progress in complying with its audit request, OGF
sued Ancestry, alleging that Ancestry had materially breached
the contract. Ancestry filed a motion to dismiss for failure to
state a claim. The district court granted the motion and
dismissed OGF’s complaint. OGF appeals.
STANDARD OF REVIEW
¶4 Because this appeal stems from the district court’s
dismissal of OGF’s complaint for failure to state a claim, we
apply a single standard of review to the claims still at issue. See
supra note 2. “[W]e accept the factual allegations in the complaint
as true and consider them and all reasonable inferences to be
drawn from them in a light most favorable to the plaintiff,” and
“we give the trial court’s ruling no deference and review it
under a correctness standard.” Alvarez v. Galetka, 933 P.2d 987,
989 (Utah 1997) (citation and internal quotation marks omitted).
ANALYSIS
I. OGF Did Not State a Claim for Breach of Contract Based on
Ancestry’s Refusal To Continue Marketing on OGF’s Behalf.
¶5 Any contract interpretation properly begins with a
consideration of the “plain language” or “plain meaning” of the
20150405-CA 3 2016 UT App 192Z-Corp v. Ancestry.com
contract. South Ridge Homeowners’ Ass’n v. Brown, 2010 UT App
23, ¶ 1, 226 P.3d 758 (citations and internal quotation marks
omitted). The plain language of the contract at issue is unique in
several ways. For example, each party to the contract, in its role
as a marketing resource for the other, was to conduct marketing
activity for the other “at [its] sole cost and expense, and under
[its] own exclusive control.” Thus, neither party had the right to
require that the marketing efforts undertaken on its behalf take
any particular form, so long as the marketing was, as specified in
the parties’ agreement, contained “within the paid area of the
[marketing party’s] website or [distributed] via email to previous
paying customers.” The rationale underlying the arrangement
was not one of mandated obligations but rather an attractive
financial incentive; the marketing partner was to retain sixty
percent of the membership subscription fees collected while the
party for whom it was marketing would receive only forty
percent of the fees paid for membership subscriptions. Either
party, then, stood to make more money marketing for the other
party than it did from having the other party market for it. 3
3. This arrangement is very much like a unilateral contract and
operates in a similar manner, see Citynet, LLC v. Toney, 772 S.E.2d
36, 41 (W. Va. 2015) (“The concept of unilateral contract[ is]
where one party makes a promissory offer and the other accepts
by performing an act rather than by making a return promise[.]”)
(citation and internal quotation marks omitted), albeit with a
uniquely mutual aspect, i.e., each party could earn the payment
promised by the other by rendering the specified service for the
other. The basic principles of unilateral contracts are helpful in
sorting out the present dispute. Particularly, “[a] unilateral
contract is a contract in which performance is based on the wish,
will, or pleasure of one of the parties. . . . The essence of a
unilateral contract is that one party’s promise is conditional
upon the other party’s performance[.]” 17A Am. Jur. 2d Contracts
§ 7 (2016). Furthermore, in a unilateral contract, the parties do
(continued…)
20150405-CA 4 2016 UT App 192Z-Corp v. Ancestry.com
¶6 As the agreement was written, Ancestry was obligated to
pay OGF a portion of the subscription fees that it collected for
OGF through advertising undertaken on OGF’s behalf. The
contract does not obligate Ancestry to engage in any particular
amount or sort of advertising; rather, it allows Ancestry to
advertise for OGF in hopes of collecting membership subscription
fees for OGF “at [its] sole cost and expense.” If successful,
Ancestry would retain sixty percent of the subscription revenue
it received on behalf of OGF. But whether to advertise at all
was within Ancestry’s “own exclusive control.” Accordingly,
Ancestry’s decision to reduce (or even end) its advertising for
OGF was not a breach of the contract. It just meant that Ancestry
would not be marketing OGF membership subscriptions and
would thereby miss out on its substantial cut of the resulting
subscription fees. So despite OGF’s ongoing promise to allow
Ancestry to retain sixty percent of the membership subscription
fees collected on its behalf, because Ancestry never promised to
market for OGF, Ancestry was free to cease marketing for OGF
anytime it pleased. 4 See 17A Am. Jur. 2d Contracts § 7 (2016).
Therefore, the district court correctly dismissed this claim.
(…continued)
not exchange promises; rather one party makes a promise
inviting the performance of an act that the other party may
choose to accept (or not accept) through its performance (or
nonperformance) of the specified act. Id.
4. Though our decision rests on our conclusion that OGF’s
interpretation of the contract is incorrect, it is far from clear that
OGF would prevail even under its own interpretation. OGF’s
theory is that Ancestry is required to advertise for OGF either
through ad placement on “the paid area of [Ancestry’s] website
or via email to previous paying customers.” OGF has never
alleged, however, that Ancestry ceased to advertise “via email to
previous paying customers.” On the other hand, Ancestry in its
(continued…)
20150405-CA 5 2016 UT App 192Z-Corp v. Ancestry.com
II. OGF Did State a Claim for Breach of Contract with Regard to
Ancestry’s Alleged Nonpayment of Membership Subscription
Fees Collected by Ancestry but Not Remitted to OGF.
¶7 Although it might have been more prudent of OGF to
pursue its audit of Ancestry to verify whether Ancestry had, in
fact, retained subscription fee payments collected on behalf of
OGF in excess of the authorized amount, 5 the terms of the
contract make clear that such an audit, while authorized, is
voluntary and may be called for at any time by either party,
subject to minor restrictions. Thus, OGF was not obligated to
complete an audit as a precondition to filing its lawsuit, as
Ancestry contends.
(…continued)
motion to dismiss explicitly stated that it “ha[s] included [OGF]
in various emails to paying Archives.com subscribers.” Indeed,
Ancestry even included in its motion a form email presumably
sent to such a customer dated February 5, 2013, which was after
the time when OGF claims subscriptions to its website began to
decrease. In its response to Ancestry’s motion, OGF made no
mention of Ancestry’s email marketing efforts. On appeal, OGF
still does not suggest that Ancestry failed to market OGF
through emails to paid Archives subscribers, whereas Ancestry
again stated that it “ha[s] included OGF in various emails to
paying Archives.com subscribers.” In short, it appears that
Ancestry may well be correct in characterizing OGF’s claim as
essentially one of sour grapes: OGF sued because Ancestry
ceased to market in the manner to which OGF had become
accustomed, even though Ancestry was not required to do so
and even though it apparently continued to market on behalf of
OGF in another approved way.
5. This is especially so given Ancestry’s avowed willingness,
expressed during oral argument, to pay OGF should an
accounting demonstrate monies are owed.
20150405-CA 6 2016 UT App 192Z-Corp v. Ancestry.com
¶8 OGF’s claim that “Ancestry . . . withheld payments for
subscriptions that are due to OGF” is sufficient to state a claim
for breach of contract. This is so because if the claim is true—as
we must assume on appeal, see Alvarez v. Galetka, 933 P.2d 987,
989 (Utah 1997)—Ancestry’s failure to remit the specified
percentage of the membership subscription fees to OGF
undeniably violated the contractual arrangement between the
parties. We therefore agree with OGF that it “had properly
articulated [a] separate and actionable breach of contract claim[]
for failure to remit payment,” and we reverse the decision of the
district court insofar as it dismissed that claim.
CONCLUSION
¶9 With respect to OGF’s breach of contract claim based on
Ancestry’s refusal to continue marketing for OGF on its website,
we affirm the district court’s dismissal. With respect to OGF’s
breach of contract claim premised upon the alleged nonpayment
of subscription fees due and owing to OGF, however, we reverse
because OGF has stated a claim upon which relief could be
granted. We remand to the district court for such proceedings as
may now be in order.
20150405-CA 7 2016 UT App 192