American Movie Classics v. Rainbow Media Holdings

FILED
United States Court of Appeals
Tenth Circuit
January 29, 2013
UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
AMERICAN MOVIE CLASSICS, a
New York limited liability company;
WE WOMENS ENTERTAINMENT, a
New York limited liability company,
Consolidated Plaintiffs
- Appellees,
BASIC RESEARCH, a Utah limited
liability company,
Plaintiff -Counter-
Defendant - Appellant,
v. No. 11-4141
D. Utah
RAINBOW MEDIA HOLDINGS, a (D.C. No. 2:08-CV-00661-DAK)
corporation; RAINBOW
ADVERTISING SALES, a corporation,
Defendants-Counter-
Claimants - Appellees.
ORDER AND JUDGMENT *
Before KELLY, MURPHY, and HARTZ, Circuit Judges.
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
I. Introduction
Basic Research, L.L.C. (“Basic”) advertised its products on television
networks owned by Rainbow Media Holdings, Inc. (“Rainbow”) through an
advertising agency called Icebox Advertising, Inc. (“Icebox”). Although Basic
paid Icebox for the ads, Icebox failed to pass some of those payments on to
Rainbow. Icebox subsequently filed for bankruptcy. Rainbow was able to recoup
a portion of what it was owed for Basic advertising from Icebox’s bankruptcy
estate and sought the remainder from Basic based on theories of, inter alia,
agency and unjust enrichment. Both parties filed motions for summary judgment.
The district court granted Rainbow’s motion and denied Basic’s motion,
concluding Basic was liable under both theories. The district court erred.
Rainbow failed to come forward with sufficient evidence that Icebox, as Basic’s
agent, had actual authority to purchase ads from Rainbow on Basic’s credit.
Rainbow also failed to come forward with sufficient evidence that Basic was
unjustly enriched when it retained the benefit of the advertising even though
Rainbow was not paid for some of the ads. Exercising jurisdiction pursuant to 28
U.S.C. § 1291, we therefore reverse the district court’s grant of summary
judgment for Rainbow and order on remand that summary judgment be entered
for Basic on Rainbow’s agency and unjust enrichment claims.
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II. Background
Rainbow Media Holdings, Inc. owns and operates cable television
networks. Basic Research, L.L.C. sells nutritional products. Basic advertised its
products on Rainbow’s networks through an advertising agency called Icebox
Advertising, Inc.
In April 2003, when Basic first began advertising on Rainbow’s networks,
Basic submitted a credit application to Rainbow. The parties dispute whether
Rainbow ever actually extended credit to Basic. Basic asserts it believed Icebox
was required to pay Rainbow for all advertisements with cash in advance and,
therefore, it provided Icebox with cash in advance for the ads it placed on
Rainbow’s networks. The record shows, however, that Icebox did not always pay
Rainbow cash in advance for the ads it purchased on Basic’s behalf. Rainbow
regularly allowed Icebox to pay up to sixty days after Rainbow invoiced Icebox
for ads that had already run on Rainbow’s networks. There were times when
Icebox paid Rainbow more than sixty days after receiving an invoice. There is no
evidence, however, Basic knew, prior to February 2008, that Icebox had ever paid
Rainbow for the advertisements it purchased on Basic’s behalf other than with
cash in advance.
Rainbow apparently received payment from Icebox for all of the ads placed
by Icebox on Rainbow’s networks until January 2008. Rainbow asserts Icebox
failed to pay Rainbow for Basic’s ads which ran on Rainbow’s networks from
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January through March of 2008. Rainbow does not dispute Basic’s assertion it
paid Icebox for those ads. Basic established an escrow account in December
2007, into which it placed funds sufficient to pay for the advertising it placed
through Icebox on Rainbow’s networks for the first quarter of 2008. While
Icebox could withdraw funds from the escrow account to pay for the ads it
purchased on Basic’s behalf, Basic had to approve all such ads and also authorize
the withdrawal of funds.
The evidence shows Basic learned by early February 2008, that Icebox was
not paying Rainbow cash in advance and by early March 2008, that Rainbow was
owed a substantial amount of money for advertisements Icebox had placed on
Basic’s behalf. The evidence also shows, however, in February 2008, Icebox
assured Basic that Icebox had paid for all of the ads that had already run on
Rainbow’s networks and Icebox would pay for all of the ads that had been placed
but had not yet run on the networks. Indeed, Basic contacted Rainbow in late
January 2008, to ask whether Icebox was required to pay Rainbow cash in
advance and Rainbow told Basic it could not divulge that information.
In May 2008, Icebox declared bankruptcy. Rainbow was able to recover a
portion of the amounts due for the unpaid advertisements from Icebox’s
bankruptcy estate. Rainbow sought the remainder from Basic through this lawsuit
under theories of agency, unjust enrichment, and breach of contract.
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Basic and Rainbow filed cross-motions for summary judgment. The district
court granted Rainbow’s motion on its agency and unjust enrichment claims and
entered judgment in favor of Rainbow for the unpaid advertisements,
approximately $406,000. The district court declined to address the breach of
contract claim as unnecessary. 1 Basic appeals, urging this court to order the
district court to grant summary judgment in its favor or, at the very least,
conclude there are genuine issues of material fact which preclude summary
judgment. Basic argues it is not liable under an agency theory because, even
assuming Icebox was its agent, Icebox did not have authority to purchase ads on
Basic’s credit and, therefore, exceeded its authority when it incurred the debt at
issue here. Basic also argues it was not unjustly enriched because, even though
Rainbow did not receive payment, Basic paid Icebox in full for all of the ads that
ran on Rainbow’s networks and Rainbow’s own conduct and lack of oversight
caused the losses at issue.
III. Analysis
A. Standard of Review
This court reviews a district court’s grant of summary judgment de novo,
applying the same standard as the district court. Adler v. Wal-Mart Stores, Inc.,
144 F.3d 664, 670 (10th Cir. 1998). Summary judgment is appropriate “if the
1
Neither party addresses Rainbow’s breach of contract theory on appeal
and, therefore, we do not reach that issue.
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movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). When
applying this standard, this court views the evidence and draws all reasonable
inferences therefrom in the light most favorable to the nonmoving party. Adler,
144 F.3d at 670.
“An issue is ‘genuine’ if there is sufficient evidence on each side so that a
rational trier of fact could resolve the issue either way.” Id. “An issue of fact is
‘material’ if under the substantive law it is essential to the proper disposition of
the claim.” Id. “If a party that would bear the burden of persuasion at trial does
not come forward with sufficient evidence on an essential element of its prima
facie case, all issues concerning all other elements of the claim and any defenses
become immaterial.” Id.The moving party “bears the initial burden of making a prima facie
demonstration of the absence of a genuine issue of material fact and entitlement
to judgment as a matter of law.” Id. at 670-71. A moving party “that will not
bear the burden of persuasion at trial,” however, need not negate the nonmoving
party’s claim. Id. at 671. “Such a movant may make its prima facie
demonstration simply by pointing out to the court a lack of evidence for the
nonmovant on an essential element of the nonmovant’s claim.” Id. If the moving
party carries its initial burden, the nonmoving party that would bear the burden of
persuasion at trial must “go beyond the pleadings and set forth specific facts that
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would be admissible in evidence in the event of trial from which a rational trier of
fact could find for the nonmovant.” Id. (quotation omitted).
B. Agency
The parties do not dispute Icebox was an agent of Basic for purposes of
purchasing advertisements from Rainbow or that Icebox had express authority to
purchase ads on Basic’s behalf. Instead, the parties dispute the scope of Icebox’s
authority. Rainbow argues that because Icebox had authority to purchase ads on
Basic’s behalf, Basic is liable to Rainbow for the unpaid advertisements. Basic
asserts it is not liable because Icebox’s authority was limited to purchasing ads
with cash in advance and, therefore, Icebox did not have authority to purchase ads
on Basic’s credit. 2
“[A]n agent cannot make its principal responsible for the agent’s actions
unless the agent is acting pursuant to either actual or apparent authority.” Zions
First Nat’l Bank v. Clark Clinic Corp., 762 P.2d 1090, 1094 (Utah 1988);
2
Contrary to Rainbow’s assertions, Basic preserved the argument it makes
on appeal. Basic argued below that Icebox did not have authority to incur debt on
Basic’s behalf because “Basic prepaid Icebox, via an escrow account, for all of
the advertising run on [Rainbow’s] Networks from January to March, 2008.”
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McGarry v. Miller, 158 A.D.2d 327, 328 (N.Y. App. Div. 1990). 3 Actual
authority includes both express and implied authority:
Express authority exists whenever the principal directly states that its
agent has the authority to perform a particular act on the principal’s
behalf. Implied authority, on the other hand, embraces authority to
do those acts which are incidental to, or are necessary, usual, and
proper to accomplish or perform, the main authority expressly
delegated to the agent. Implied authority is actual authority based
upon the premise that whenever the performance of certain business
is confided to an agent, such authority carries with it by implication
authority to do collateral acts which are the natural and ordinary
incidents of the main act or business authorized. This authority may
be implied from the words and conduct of the parties and the facts
and circumstances attending the transaction in question.
Zions First Nat’l Bank, 762 P.2d at 1094-95 (footnotes omitted); accord Burke v.
Bonat, 255 N.Y. 226, 230 (N.Y. 1931); O.A. Skutt, Inc. v. J. & H. Goodwin, 251
A.D. 84, 86-87 (N.Y. App. Div. 1937). As the party claiming an agency
relationship, it is Rainbow’s burden to prove that the scope of Icebox’s authority
included authority to purchase ads on Basic’s credit. See Westport Marina, Inc. v.
Boulay, 783 F. Supp. 2d 344, 353 (E.D.N.Y. 2010); CIG Exploration, Inc. v. Hill,
824 F. Supp. 1532, 1541 (D. Utah 1993); Oldman-Magee Boiler Works, Inc. v.
Ocean & Inland Transp. Co., Inc., 210 A.D. 183, 184-85 (N.Y. App. Div. 1924);
3
It is not clear whether Utah or New York law applies to Rainbow’s agency
claim. The district court relied on both states’ laws. Basic relies primarily on
Utah law and Rainbow relies primarily on New York law but neither party argues
one or the other state’s law applies or engages in a choice of law analysis.
Because this court concludes the outcome of this case would be the same under
Utah or New York law, we need not conduct a choice of law analysis. See
Dummar v. Lummis, 543 F.3d 614, 619 (10th Cir. 2008).
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Wilkerson v. Stevens, 403 P.2d 31, 32 (Utah 1965). Rainbow does not argue
Icebox had express authority to purchase ads on Basic’s credit and, in its brief on
appeal, expressly disclaims any argument Icebox had apparent authority to do so.
Thus, Rainbow must come forward with sufficient evidence that Icebox had
implied authority to purchase ads on Basic’s credit. Basic argues Rainbow cannot
make that necessary showing because it provided Icebox with cash in advance to
make the purchases. We agree.
“It is settled that an agent may not buy on credit and charge the principal
where the latter has furnished funds with which to pay.” Saugerties & N.Y.
Steamboat Co. v. Miller, 76 A.D. 167, 168-69 (N.Y. App. Div. 1902); see also
Allred v. Hinkley, 328 P.2d 726, 728 (Utah 1958) (noting the undisputed principle
that “an agent whose employment is restricted to purchases for cash supplied by
the principal . . . has no authority to bind the principal’s credit”); 3 Am. Jur. 2d
Agency § 100 (2012); 2A C.J.S. Agency § 189 (2012). Thus, an agent, even one
who is expressly authorized to make purchases on the principal’s behalf, does not
have implied authority to purchase on the principal’s credit if he is supplied with
funds in advance. Rainbow argues this principle is inapplicable because there is
no evidence to support Basic’s contention it paid Icebox cash in advance.
The record shows Icebox told Basic that Icebox was required to prepay
media companies, including Rainbow, for advertising. The record also shows
Basic provided Icebox with cash in advance with the understanding Icebox would
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use those funds to pay Rainbow cash in advance for the advertising at issue. In
December 2007, Basic deposited funds into an escrow account, jointly controlled
by Icebox and Basic, with which Icebox was to pay Rainbow for all advertising
purchased from Rainbow on Basic’s behalf during the first quarter of 2008.
Rainbow argues the evidence shows Icebox could not access the funds Basic
placed in the escrow account until it invoiced Basic for the advertising and Basic
approved Icebox’s request for a draw. The evidence does not support Rainbow’s
argument.
Gary Sandberg, who worked in Basic’s marketing department, testified
Basic “always” prepaid Icebox for advertising. Sandberg testified Basic adhered
to the following ad placement process. Representatives of Icebox and Basic
agreed on a weekly advertising plan. Icebox then submitted an authorization form
to Basic, which allowed Icebox to withdraw funds from the escrow account to pay
for the advertising. Basic’s advertisements on the networks ran in discounted,
remnant spots which the networks were looking to fill. The ads placed in these
remnant time slots could be bumped in favor of another advertiser willing to pay a
higher rate. Thus, the Wednesday after the ads ran, Basic received “post logs”
from Icebox showing how much of the advertising actually ran in the scheduled
remnant slots during the previous week and, therefore, what Basic had actually
spent for advertising it had authorized. Because Basic had already paid Icebox
for the advertising, any overpayment was applied to advertising that ran in a
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future week. Each month, Basic received invoices in the form of “affidavits”
from Rainbow, which confirmed the amount Basic actually spent for advertising
during the previous month.
In describing this process, Sandberg confirmed Basic prepaid Icebox for the
advertising at the time Basic signed off on the authorization, i.e., before the
advertising was placed, and that Icebox was expected to use those funds to prepay
for the ads. Thus, the record shows that while Icebox had to submit invoices to
Basic and Basic had to approve Icebox’s requests for draws from the escrow
account, Icebox received cash in advance from the escrow account to purchase
ads on Basic’s behalf.
Rainbow argues that even if Basic generally paid Icebox in advance, it did
not always do so and, therefore, Icebox had implied authority to obligate Basic’s
credit to pay for the ads. See Zions First Nat’l Bank, 762 P.2d at 1094-95
(describing implied authority as “based upon the premise that whenever the
performance of certain business is confided to an agent, such authority carries
with it by implication authority to do collateral acts which are the natural and
ordinary incidents of the main act or business authorized”). Rainbow claims the
evidence also shows Basic paid Icebox late on a “regular basis.” None of this
evidence, however, concerns the unpaid advertising at issue here. Instead, it
concerns payments for advertising placed in early 2007, before the escrow
account was established. Rainbow does not dispute that the escrow account was
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in place when all the ads at issue were purchased. Further, the evidence shows
late payments from Basic to Icebox were inadvertent, isolated incidents, and that
Basic was usually “a perfect payer.” Thus, this evidence does not support
Rainbow’s position Basic did not prepay for the ads at issue here.
Rainbow also argues Basic knew, at least as of early February 2008, that
Icebox was not paying Rainbow cash in advance, and as of at least early March
2008, that Icebox owed Rainbow money in connection with ads which previously
ran on Rainbow’s networks. The evidence shows, however, that in January 2008,
Icebox assured Basic it was current on its obligations and that Icebox’s situation,
whatever it was, would have no impact on Basic. Moreover, Basic asserts it
ceased placing ads through Icebox on Rainbow’s networks after it learned this
information, and only a small portion of the unpaid advertising at issue ran on the
networks after February 2008. Even assuming Basic’s ads, which the evidence
shows had already been placed, ran on Rainbow’s networks after Basic learned
this information, Rainbow does not explain, and we fail to see, how this evidence
is relevant to the question whether Basic prepaid for the ads placed by Icebox.
Evidence that Basic submitted a signed credit application to Rainbow,
along with credit references, and listed Rainbow as a credit reference on an
application to another media company as late as August 2007, is also irrelevant.
Even assuming Basic and Rainbow entered into an agreement which allowed
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Rainbow to extend credit to Basic, the evidence shows Basic paid Icebox for the
advertising at issue with cash in advance.
Because the evidence points to just one conclusion—that Basic provided
Icebox with cash in advance—no reasonable jury could find Icebox had implied
authority to purchase ads on Basic’s credit. See Saugerties, 76 A.D. at 168-69;
Allred, 328 P.2d at 728. In light of this conclusion, Rainbow’s remaining
arguments are irrelevant.
Rainbow’s reliance on In re Dean L. Burdick Associates, Inc., 19 B.R. 813,
814-15 (Bankr. S.D.N.Y. 1982), is unavailing because that case addresses whether
an agency relationship existed and the scope of that relationship. Here, it is
conceded Icebox was Basic’s agent, and we have already concluded no reasonable
jury could find Icebox had implied authority to purchase ads on Basic’s credit
because Basic prepaid for all the ads at issue. Rainbow’s reliance on Rainbow
Advertising Sales Corp. v. Huntington Chevrolet Inc., Index No. CEC 6076-01
(N.Y. Civ. Ct. Dec. 2, 2002) (unpublished memorandum decision), is inapposite
because that case involved an agent’s apparent authority to purchase advertising
on behalf of the principal. In this case, Rainbow expressly disclaimed any
argument Icebox acted with apparent authority in purchasing the ads on Basic’s
credit.
Rainbow also argues “secret limitations on a purchasing agent’s power,
restricting it to the making of cash purchases, have no operation as against those
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selling without notice or knowledge thereof and as to them the authority is as
extensive as if no such restrictions existed.” See 2A C.J.S. Agency § 189 (2012).
The rule applicable to secret limitations, however, appears to apply only in cases
involving an undisclosed principal or an assertion of apparent authority. See,
e.g., Herkert & Meisel Trunk Co. v. Duncan, 42 P.2d 587, 590 (Kan. 1935)
(holding undisclosed principal liable because purchasing merchandise on credit
was “common” for retail merchants and consistent with “the manner in which
such business ordinarily is conducted”); Hubbard v. Tenbrook, 16 A. 817, 817-18
(Pa. 1889) (holding undisclosed principal liable because agent was clothed with
apparent authority to purchase merchandise on credit). Because Rainbow does
not argue Basic was an undisclosed principal and has disclaimed any apparent
authority argument, the rule applicable to secret limitations does not apply. 4
Finally, Rainbow argues the fact Basic paid Icebox for the advertisements
does not absolve Basic of liability. While this may be true generally, none of the
authorities relied on by Rainbow addressed the threshold issue here, which is
whether an agent provided with cash in advance to purchase advertising
nevertheless has implied authority to purchase on the principal’s credit. See
4
Rainbow has not directed this court to any case applying the secret
limitations doctrine to a claim of implied authority. In any event, this court has
already concluded no reasonable jury could find Icebox had implied authority to
purchase on Basic’s credit. Thus, we need not even consider the potential
applicability of the secret limitations doctrine to an assertion of implied authority.
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Burdick, 19 B.R. at 814; News Am. Mktg., Inc. v. Lepage Bakeries, Inc., 16
A.D.3d 146, 147-48 (N.Y. App. Div. 2005); Okla. Publ’g Co. v. Video Indep.
Theatres, Inc., 522 P.2d 1029, 1030-31 (Okla. 1974); Restatement (Second) of
Agency § 183 (2012).
In sum, because the record shows Icebox was supplied with cash in advance
to pay for the advertising at issue in this case, Rainbow cannot show Icebox had
implied authority to purchase ads on Basic’s credit.
C. Unjust Enrichment
Rainbow asserts Basic is liable for the unpaid advertising under a theory of
unjust enrichment. Relying on what is known as the “two innocents” rule,
Rainbow argues Basic should bear the loss caused by Icebox because Basic
elected to use Icebox as its agent. Rainbow also argues Basic is liable because it
allowed its ads to continue running on Rainbow’s networks even after it learned
Icebox was not paying Rainbow cash in advance and Rainbow was owed a
substantial amount of money. Basic argues it was not enriched because it paid
Icebox, in advance, for all the advertising at issue. Moreover, Basic asserts
Rainbow should bear responsibility for the unpaid advertisements because its own
conduct and lack of oversight caused the losses at issue.
The elements of an unjust enrichment claim are (1) “a benefit conferred by
one person on another,” (2) “the conferree must appreciate or have knowledge of
the benefit,” and (3) “acceptance or retention by the conferee of the benefit under
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such circumstances as to make it inequitable for the conferee to retain the benefit
without payment of its value.” Allen v. Hall, 148 P.3d 939, 945 (Utah 2006). 5
Rainbow’s unjust enrichment claim is foreclosed by the undisputed fact Basic
paid Icebox in full for the advertising at issue, even though Icebox did not pass
some of those payments on to Rainbow. See Nickerson Co. v. Energy W. Mining
Co., No. 20090221-CA, 2009 WL 4681778, at *2 (Utah Ct. App. Dec. 10, 2009)
(declining to hold a principal liable under a theory of unjust enrichment because
the principal had paid the agent in full for the property at issue and, therefore,
“did not receive or retain any benefit for which it did not pay”); Restatement
(Third) of Restitution And Unjust Enrichment § 25 (2012).
In support of its argument this court should apply the “two innocents” rule
to hold Basic liable, Rainbow relies on Lubbock Feed Lots, Inc. v. Iowa Beef
Processors, Inc., 630 F.2d 250, 272-74 (5th Cir. 1980) and Oklahoma Publishing,
522 P.2d at 1031. In neither case, however, did the court apply Utah law or the
two innocents rule in the context of an unjust enrichment claim. Lubbock applied
Texas law to an equitable estoppel claim, 630 F.2d at 272-74, and Oklahoma
5
The district court applied Utah law to Rainbow’s unjust enrichment claim
and the parties appear to agree Utah law applies. Thus, this court will apply Utah
law without deciding whether Utah law in fact applies. Strickland Tower
Maintenance, Inc. v. AT&T Commc’ns, Inc., 128 F.3d 1422, 1426 (10th Cir.
1997).
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Publishing applied Oklahoma law to an agency claim. 522 P.2d at 1031. 6 In sum,
because the evidence shows Basic paid Icebox in full for the advertising at issue,
Rainbow has not come forward with sufficient evidence on an essential element
of its unjust enrichment claim.
IV. Conclusion
For the foregoing reasons, this court reverses the district court’s grant of
summary judgment for Rainbow Media Holdings, Inc. and orders on remand that
summary judgment be entered for Basic on Rainbow’s agency and unjust
enrichment claims. 7
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
6
Furthermore, neither Lubbock Feed Lots, Inc. v. Iowa Beef Processors,
Inc., 630 F.2d 250, 272-74 (5th Cir. 1980) nor Oklahoma Publishing Co. v. Video
Independent Theatres, Inc., 522 P.2d 1029, 1030-31 (Okla. 1974) support
Rainbow’s argument that Basic should bear the loss caused by Icebox’s failure to
pay Rainbow merely because Icebox was Basic’s agent for the purpose of
purchasing ads on Basic’s behalf. Indeed, in Saugerties & N.Y. Steamboat Co. v.
Miller, 76 A.D. 167, 170 (N.Y. App. Div. 1902), the New York appellate court
applied something akin to the two innocents rule and concluded a principal was
not liable to a third party when its agent acted outside the scope of its authority in
purchasing on the principal’s credit: “This is not a case where one of two
innocent parties must suffer. . . . If there be no implied authority in the agent from
the mere fact of agency to pledge the credit of his principal, the plaintiff was not
an innocent party in giving that credit.”
7
See supra note 1.
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