Western Publ Co, Inc v. Mindgames, Inc

In the
United States Court of Appeals
For the Seventh Circuit
No. 98-1879
MindGames, Inc.,
Plaintiff-Appellant,
v.
Western Publishing Company, Inc.,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
Nos. 94-C-552, 94-C-998--Lynn S. Adelman,
Judge.
Argued April 17, 2000--Decided June 22, 2000
Before Posner, Chief Judge, and Fairchild
and Diane P. Wood, Circuit Judges.
Posner, Chief Judge. This is a diversity
suit for breach of contract, governed by
Arkansas law because of a choice of law
provision in the contract. The plaintiff,
MindGames, was formed in March of 1988 by
Larry Blackwell to manufacture and sell
an adult board game, "Clever Endeavor,"
that he had invented. The first games
were shipped in the fall of 1989 and by
the end of the year, 75 days later,
30,000 had been sold. In March of 1990,
MindGames licensed the game to the
defendant, Western, a major marketer of
games. Western had marketed the very
successful adult board games "Trivial
Pursuit" and "Pictionary" and thought
"Clever Endeavor" might be as successful.
The license contract, on which this suit
is premised, required Western to pay
MindGames a 15 percent royalty on all
games sold. The contract was by its terms
to remain in effect until the end of
January of 1993, or for another year if
before then Western paid MindGames at
least $1.5 million in the form of
royalties due under the contract or
otherwise, and for subsequent years as
well if Western paid an annual renewal
fee of $300,000.
During the first year of the contract,
Western sold 165,000 copies of "Clever
Endeavor" and paid MindGames $600,000 in
royalties. After that, sales fell
precipitously (though we’re not told by
how much) but the parties continued under
the contract through January 31, 1994,
though Western did not pay the $900,000
($1.5 million minus $600,000) that the
contract would have required it to pay in
order to be entitled to extend the
contract for a year after its expiration.
In February of 1994 the parties finally
parted. Later that year MindGames brought
this suit, which seeks $900,000, plus
lost royalties of some $40 million that
MindGames claims it would have earned had
not Western failed to carry out the
promotional obligations that the contract
imposed on it, plus $300,000 on the
theory that Western renewed the contract
for a third year, beginning in February
of 1994; Western sold off its remaining
inventory of "Clever Endeavor" in that
year.
The district court granted summary
judgment for Western, holding that the
contract did not entitle MindGames to a
renewal fee and that Arkansas’s "new
business" rule barred any recovery of
lost profits. 944 F. Supp. 754 (E.D. Wis.
1996); 995 F. Supp. 949 (E.D Wis. 1998).
Although the victim of a breach of
contract is entitled to nominal damages,
Mason v. Russenberger, 542 S.W.2d 745
(Ark. 1976); Movitz v. First Nat. Bank of
Chicago, 148 F.3d 760, 765 (7th Cir.
1998); E. Allan Farnsworth, Contracts
sec. 12.8, p. 784 (3d ed. 1999),
MindGames does not seek them; and so if
it is not entitled to either type of
substantial damages that it seeks,
judgment was correctly entered for
Western. By not seeking nominal damages,
incidentally, MindGames may have lost a
chance to obtain significant attorneys’
fees, to which Arkansas law entitles a
prevailing party in a breach of contract
case. See Dawson v. Temps Plus, Inc., 987
S.W.2d 722, 729 (Ark. 1999).
The rejection of MindGames’ claim to the
renewal fee for the second year (and a
fortiori the third) was clearly correct.
The contract conditioned Western’s right
to renew the contract for a second year
on its paying a renewal fee of $1.5
million (minus royalties already paid);
it was silent on the terms of a renewal
adopted by a new agreement of the parties
rather than by the exercise of an option
granted by the original contract. If
MindGames hadn’t wanted to renew the
contract and Western had insisted, then
Western would have had to pay the fee.
But if Western did not invoke a
contractual right to renew, if instead
the parties entered into a new agreement
to renew the contract, then MindGames had
no right to the renewal fee fixed in the
contract; that right was conditional on
Western’s exercising its contractual
right to renew. A conditional right in a
contract does not become an enforceable
right until the condition occurs,
Restatement (Second) of Contracts sec.
225(1) (1981), unless noncompliance with
the condition is excused by agreement,
Uebe v. Bowman, 420 S.W.2d 889 (Ark.
1967); Normand v. Orkin Exterminating
Co., 193 F.3d 908, 912 (7th Cir. 1999),
or by operation of law, Farnsworth, supra
sec. 8.3, p. 526, as where the other
party to the contract wrongfully prevents
the condition from occurring, id., sec.
8.6, pp. 544-45; Restatement, supra, sec.
225, comment b, which is not alleged, for
Western had no duty to exercise its right
of renewal. The condition that would have
entitled MindGames to demand a renewal
fee thus did not occur here; Western did
not invoke its contractual right to
extend the contract; after January 31,
1993, the parties were operating under a
new contract.
The more difficult issue is MindGames’
right to recover lost profits for
Western’s alleged breach of its duty to
promote "Clever Endeavor." A minority of
states have or purport to have a rule
barring a new business, as distinct from
an established one, from obtaining
damages for lost profits as a result of a
tort or a breach of contract. E.g.,
Lockheed Information Management Systems
Co. v. Maximus, Inc., 524 S.E.2d 420,
429-30 (Va. 2000); Bell Atlantic Network
Services, Inc. v. P.M. Video Corp., 730
A.2d 406, 419-20 (N.J. Super. 1999);
Interstate Development Services of Lake
Park, Georgia, Inc. v. Patel, 463 S.E.2d
516 (Ga. App. 1995); Stuart Park
Associates Limited Partnership v.
Ameritech Pension Trust, 51 F.3d 1319,
1328 (7th Cir. 1995) (Illinois law);
Bernadette J. Bollas, Note, "The New
Business Rule and the Denial of Lost
Profits," 48 Ohio St. L. J. 855, 859 & n.
32 (1987). The rule of Hadley v.
Baxendale, 9 Ex. 341, 156 Eng. Rep. 145
(1854), often prevents the victim of a
breach of contract from obtaining lost
profits, but that rule is not invoked
here. Neither the "new business" rule nor
the rule of Hadley v. Baxendale stands
for the general proposition that lost
profits are never a recoverable item of
damages in a tort or breach of contract
case.
Arkansas is said to be one of the "new
business" rule states on the strength of
a case decided by the state’s supreme
court many years ago. The appellants in
Marvell Light & Ice Co. v. General
Electric Co., 259 S.W. 741 (Ark. 1924),
sought to recover the profits that they
claimed to have lost as a result of a
five and a half month delay in the
delivery of icemaking machinery; the
delay, the appellants claimed, had forced
them to delay putting their ice factory
into operation. The court concluded,
however, that because there was no
indication "that the manufacture and sale
of ice by appellants was an established
business so that proof of the amount lost
on account of the delay . . . might be
made with reasonable certainty," "the
anticipated profits of the new business
are too remote, speculative, and
uncertain to support a judgment for their
loss." It quoted an earlier decision in
which another court had said that "he who
is prevented from embarking in [sic--must
mean ’on’] a new business can recover no
profits, because there are no provable
data of past business from which the fact
that anticipated profits would have been
realized can be legally deduced." Central
Coal & Coke Co. v. Hartman, 111 Fed. 96,
99 (8th Cir. 1901). That quotation is
taken to have made Arkansas a "new
business" state, although the rest of the
Marvell opinion indicates that the court
was concerned that the anticipated
profits of the particular new business at
issue, rather than of every new business,
were too speculative to support an award
of damages. On its facts, moreover,
Marvell was a classic Hadley v. Baxendale
type of case--in fact virtually a rerun
of Hadley, except that the appellants
alleged that they had notified the seller
of the icemaking machinery of the damages
that they would suffer if delivery was
delayed, and the seller had agreed to be
liable for those damages. The decision is
puzzling in light of that allegation; it
is doubly puzzling because, assuming that
by the time of the trial the ice factory
was up and running, it should not have
been difficult to compute the damages
that the appellants had lost by virtue of
the five and a half month delay in
placing the factory in operation.
Presumably it would have had five and a
half months of additional profits.
Marvell has never been overruled; and
federal courts ordinarily take a
nonoverruled decision of the highest
court of the state whose law governs a
controversy by virtue of the applicable
choice of law rule to be conclusive on
the law of the state. E.g., Milwaukee
Metropolitan Sewerage District v.
Fidelity & Deposit Co., 56 F.3d 821, 823
(7th Cir. 1995); C & B Sales & Service,
Inc. v. McDonald, 111 F.3d 27, 29 n. 1
(5th Cir. 1997); New York Life Ins. Co.
v. K N Energy, Inc., 80 F.3d 405, 409
(10th Cir. 1996). But this is a matter of
practice or presumption, not of rule. The
rule is that in a case in federal court
in which state law provides the rule of
decision, the federal court must predict
how the state’s highest court would
decide the case, and decide it the same
way. Treco, Inc. v. Land of Lincoln
Savings & Loan, 749 F.2d 374, 377 (7th
Cir. 1984); New Hampshire Ins. Co. v.
Vieira, 930 F.2d 696, 701 (9th Cir.
1991); 19 Charles Alan Wright, Arthur R.
Miller & Edward H. Cooper, Federal
Practice and Procedure sec. 4507, pp.
126-50 (2d ed. 1996). Law, Holmes said,
in a controversial definition that is,
however, a pretty good summary of how
courts apply the law of other
jurisdictions, is just a prediction of
what the courts of that jurisdiction
would do with the case if they got their
hands on it. Oliver Wendell Holmes, "The
Path of the Law," 10 Harv. L. Rev. 457,
461 (1897). Since state courts like
federal courts do occasionally overrule
their decisions, there will be
occasional, though rare, instances in
which the best prediction of what the
state’s highest court will do is that it
will not follow its previous decision.
See, e.g., Burgess v. Lowery, 201 F.3d
942, 948 (7th Cir. 2000); Treco, Inc. v.
Land of Lincoln Savings & Loan, supra,
749 F.2d at 377; Lightning Lube, Inc. v.
Witco Corp., 4 F.3d 1153, 1176 (3d Cir.
1993); 19 Wright, Miller & Cooper, supra,
sec. 4507, pp. 141-49.
That is the best prediction in this
case. Marvell was decided more than three
quarters of a century ago, and the "new
business" rule which it has been thought
to have announced has not been mentioned
in a published Arkansas case since. The
opinion doesn’t make a lot of sense on
its facts, as we have seen, and the
Eighth Circuit case on which it relied
has long been superseded in that circuit.
See, e.g., Central Telecommunications,
Inc. v. TCI Cablevision, Inc., 800 F.2d
711, 727-28 (8th Cir. 1986). The Arkansas
cases decided since Marvell that deal
with damages issues exhibit a liberal
approach to the estimation of damages
that is inconsistent with a flat rule
denying damages for lost profits to all
businesses that are not well established.
Jim Halsey Co. v. Bonar, 683 S.W.2d 898,
902-03 (Ark. 1985); Tremco, Inc. v.
Valley Aluminum Products Corp., 831
S.W.2d 156, 158 (Ark. App. 1992); Ozark
Gas Transmission Systems v. Barclay, 662
S.W.2d 188, 192 (Ark. App. 1983); J.W.
Looney, "The ’New Business Rule’ and
Breach of Contract Claims for Lost
Profits: Playing Mindgames with Arkansas
Law," 1997 Ark. L. Notes 43, 46-47. The
Ozark decision, for example, allowed an
orchard farmer to recover for the damages
to a new orchard. The "new business" rule
has, moreover, been abandoned in most
states that once followed it, e.g.,
Beverly Hills Concepts, Inc. v. Schatz &
Schatz, Ribicoff & Kotkin, 717 A.2d 724,
733-35 (Conn. 1998); AGF, Inc. v. Great
Lakes Heat Treating Co., 555 N.E.2d 634,
637-39 (Ohio 1990); No Ka Oi Corp. v.
National 60 Minute Tune, Inc., 863 P.2d
79, 81-82 (Wash. App. 1993); Orchid
Software, Inc. v. Prentice-Hall, Inc.,
804 S.W.2d 208, 210-11 (Tex. App. 1991);
Beck v. Clarkson, 387 S.E.2d 681, 683-84
(S.C. App. 1989); see also McNamara v.
Wilmington Mall Realty Corp, 466 S.E.2d
324, 330 (N.C. App. 1996); International
Telepassport Corp. v. USFI, Inc., 89 F.3d
82, 85-86 (2d Cir. 1996) (per curiam)
(New York law); Restatement, supra, sec.
352, comment b, and it seems to retain
little vitality even in states like
Virginia, which purport to employ the
hard-core per se approach. See Commercial
Business Systems, Inc. v. Bellsouth
Services, Inc., 453 S.E.2d 261, 268-69
(Va. 1995); see generally Eljer Mfg.,
Inc. v. Kowin Development Corp., 14 F.3d
1250, 1256 (7th Cir. 1994).
Western tries to distinguish Ozark by
pointing to the fact that the plaintiff
there was an established orchard farmer,
albeit the particular orchard represented
a new venture for him. This effort to
distinguish that case brings into view
the primary objection to the "new
business" rule, an objection of such
force as to explain its decline and make
it unlikely that Arkansas would follow it
if the occasion for its supreme court to
choose arose. The objection has to do
with the difference between rule and
standard as methods of legal governance.
A rule singles out one or a few facts and
makes it or them conclusive of legal
liability; a standard permits
consideration of all or at least most
facts that are relevant to the standard’s
rationale. A speed limit is a rule;
negligence is a standard. Rules have the
advantage of being definite and of
limiting factual inquiry but the
disadvantage of being inflexible, even
arbitrary, and thus overinclusive, or of
being underinclusive and thus opening up
loopholes (or of being both over- and
underinclusive!). Standards are flexible,
but vague and open-ended; they make
business planning difficult, invite the
sometimes unpredictable exercise of
judicial discretion, and are more costly
to adjudicate--and yet when based on lay
intuition they may actually be more
intelligible, and thus in a sense clearer
and more precise, to the persons whose
behavior they seek to guide than rules
would be. No sensible person supposes
that rules are always superior to
standards, or vice versa, though some
judges are drawn to the definiteness of
rules and others to the flexibility of
standards. But that is psychology; the
important point is that some activities
are better governed by rules, others by
standards. States that have rejected the
"new business" rule are content to
control the award of damages for lost
profits by means of a standard--damages
may not be awarded on the basis of wild
conjecture, they must be proved to a
reasonable certainty, e.g., Beverly Hills
Concepts, Inc. v. Schatz & Schatz,
Ribicoff & Kotkin, supra, 717 A.2d at
733-34; AGF, Inc. v. Great Lakes Heat
Treating Co., supra, 555 N.E.2d at
638-39--that is applicable to proof of
damages generally. See, e.g., Jones Motor
Co. v. Holtkamp, Liese, Beckemeier &
Childress, P.C., 197 F.3d 1190, 1194-95
(7th Cir. 1999), and cases cited there;
Ashland Management Inc. v. Janien, 624
N.E.2d 1007, 1010 (N.Y. 1993);
Restatement, supra, sec. 352. The "new
business" rule is an attempt now widely
regarded as failed to control the award
of such damages by means of a rule.
The rule doesn’t work because it manages
to be at once vague and arbitrary. One
reason is that the facts that it makes
determinative, "new," "business," and
"profits," are not facts, but rather are
the conclusions of a reasoning process
that is based on the rationale for the
rule and that as a result turns the rule
into an implicit standard. What, for
example, is a "new" business? What, for
that matter, is a "business"? And are
royalties what the rule means by
"profits"? MindGames was formed more than
a year before it signed the license
agreement with Western, and it sold
30,000 games in the six months between
the first sales and the signing of the
contract. MindGames’ only "business,"
moreover, was the licensing of
intellectual property. An author who
signs a contract with a publisher for the
publication of his book would not
ordinarily be regarded as being engaged
in a "business," or his royalties or
advance described as "profits." He would
be surprised to learn that if he sued for
unpaid royalties he could not get
thembecause his was a "new business."
Suppose a first-time author sued a
publisher for an accounting, and the only
issue was how many copies the publisher
had sold. Under the "new business" rule
as construed by Western, the author could
not recover his lost royalties even
though there was no uncertainty about
what he had lost. So construed and
applied, the rule would have no relation
to its rationale, which is to prevent the
award of speculative damages.
Western goes even further, arguing that
even if it, Western, a well-established
firm, were the plaintiff, it could not
recover its lost profits because the sale
of "Clever Endeavor" was a new business.
On this construal of the rule, "business"
does not mean the enterprise; it means
any business activity. So Western’s sale
of a new game is a new business, yet we
know from the Ozark decision that an
orchard farmer’s operation of a new
orchard is an old business.
The rule could be made sensible by
appropriate definition of its terms, but
we find it hard to see what would be
gained, given the existence of the
serviceable and familiar standard of
excessive speculativeness. The rule may
have made sense at one time; the
reduction in decision costs and
uncertainty brought about by avoiding a
speculative mire may have swamped the
increased social costs resulting from the
systematically inadequate damages that a
"new business" rule decrees. But today
the courts have become sufficiently
sophisticated in analyzing lost-earnings
claims, and have accumulated sufficient
precedent on the standard of undue
speculativeness in damages awards, to
make the balance of costs and benefits
tip against the rule. In any event we are
far in this case, in logic as well as
time, from the ice factory whose opening
was delayed by the General Electric
Company. We greatly doubt that there is a
"new business" rule in the common law of
Arkansas today, but if there is it surely
does not extend so far beyond the facts
of the only case in which the rule was
ever invoked to justify its invocation
here. There is no authority for, and no
common sense appeal to, such an
extension.
But that leaves us with the question of
undue speculation in estimating damages.
Abrogation of the "new business" rule
does not produce a free-for-all. What
makes MindGames’ claim of lost royalties
indeed dubious is not any "new business"
rule but the fact that the success of a
board game, like that of a book or movie,
is so uncertain. Here newness enters into
judicial consideration of the damages
claim not as a rule but as a factor in
applying the standard. Just as a start-up
company should not be permitted to obtain
pie-in-the-sky damages upon allegations
that it was snuffed out before it could
begin to operate (unlike the ice factory
in Marvell, which did begin production,
albeit a little later than planned),
capitalizing fantasized earnings into a
huge present value sought as damages, so
a novice writer should not be permitted
to obtain damages from his publisher on
the premise that but for the latter’s
laxity he would have had a bestseller,
when only a tiny fraction of new books
achieve that success. Damages must be
proved, and not just dreamed, though
"some degree of speculation is
permissible in computing damages, because
reasonable doubts as to remedy ought to
be resolved against the wrongdoer." Jones
Motor Co. v. Holtkamp, Liese, Beckemeier
& Childress, P.C., supra, 197 F.3d at
1194; see Restatement, supra, sec. 352,
comment a.
This is not to suggest that damages for
lost earnings on intellectual property
can never be recovered; that
"entertainment damages" are not
recoverable in breach of contract cases.
That would just be a variant of the
discredited "new business" rule. What is
important is that Blackwell had no track
record when he created "Clever Endeavor."
He could not point to other games that he
had invented and that had sold well. He
was not in the position of the
bestselling author who can prove from his
past success that his new book, which the
defendant failed to promote, would have
been likely--not certain, of course--to
have enjoyed a success comparable to that
of the average of his previous books if
only it had been promoted as promised.
That would be like a case of a new
business launched by an entrepreneur with
a proven track record.
In the precontract sales period and the
first year of the contract a total of
195,000 copies of "Clever Endeavor" were
sold; then sales fizzled. The public is
fickle. It is possible that if Western
had marketed the game more vigorously,
more would have been sold, but an equally
if not more plausible possibility is that
the reason that Western didn’t market the
game more vigorously was that it
correctly sensed that demand had dried
up.
Even if that alternative is rejected, we
do not see how the number of copies that
would have been sold but for the alleged
breach could be determined given the
evidence presented in the summary
judgment proceedings (a potentially
important qualification, of course); and
so MindGames’ proof of damages is indeed
excessively speculative. See, e.g.,
Gentry v. Little Rock Road Machinery Co.,
339 S.W.2d 101, 104 (Ark. 1960); Hillside
Enterprises v. Carlisle Corp., 69 F.3d
1410, 1414 (8th Cir. 1995); K & R, Inc.
v. Crete Storage Corp., 231 N.W.2d 110,
115 (Neb. 1975); see also AGF, Inc. v.
Great Lakes Heat Treating Co., supra, 555
N.E.2d at 640. Those proceedings were
completed with no evidence having been
presented from which a rational trier of
fact could conclude on this record that
some specific quantity, or for that
matter some broad but bounded range of
alternative estimates, of copies of
"Clever Endeavor" would have been sold
had Western honored the contract.
MindGames obtained $600,000 in royalties
on sales of 165,000 copies of the game,
implying that Western would have had to
sell more than 10 million copies to
generate the $40 million in lost
royalties that MindGames seeks to
recover. Cf. Boxhorn’s Big Muskego Gun
Club, Inc. v. Electrical Workers Local
494, 798 F.2d 1016, 1023 (7th Cir. 1986).
When the breach occurred, MindGames
should have terminated the contract and
sought distribution by other means. See
Farnsworth, supra, sec. 12.12, pp. 806-
08. The fact that it did not do so--that
so far as appears it has made no effort
to market "Clever Endeavor" since the
market for the game collapsed in 1991--is
telling evidence of a lack of commercial
promise unrelated to Western’s conduct.
Although Western in its brief in this
court spent most of its time misguidedly
defending the "new business" rule,
clinging to Marvell for dear life (a case
seemingly on point, however vulnerable,
is a security blanket that no lawyer
feels comfortable without), it did argue
that in any event MindGames’ claim for
lost royalties was too speculative to
ground an award of damages for that loss.
The argument was brief but not so brief
as to fail to put MindGames on notice of
a possible alternative ground for
upholding the district court’s judgment;
we may of course affirm an award of
summary judgment on any ground that has
not been forfeited or waived in the
district court. United States v. Jackson,
207 F.3d 910, 917 (7th Cir. 2000).
MindGames did not respond to the argument
in its reply brief. It pointed to no
evidence from which lost royalties could
be calculated to even a rough
approximation. We find its silence
eloquent and Western’s argument
compelling, and so the judgment in favor
of Western is
Affirmed.
Fairchild, Circuit Judge, dissenting in
part. I agree that (1) MindGames’ claim
for a renewal fee for the year following
the initial term of the Licensing
Agreement was properly dismissed, and (2)
we are not bound by Marvell Light & Ice
Co. v. General Electric Co., 259 S.W. 741
(Ark. 1924) to affirm the dismissal of
MindGames’ claim for loss of royalties
caused by breach of contract. I do,
however, respectfully disagree with the
conclusion that, as a matter of law, that
claim is too speculative to support an
award of damages.
This was never a claim in which
MindGames sought to recover lost profits
from the operation of a business. The
damages sought would be measured by the
royalties which Western would have been
obliged to pay on sales which did not
occur because of Western’s alleged
failure to perform its contract.
Western’s obligation to pay royalties
arose from the sales of games
manufactured, promoted and sold by it,
and whether MindGames showed a profit, as
well as MindGames’ lack of history, was
wholly irrelevant. The ultimate questions
would be whether there was a breach by
Western and whether the breach caused a
loss of sales.
Sales did not meet expectations. In the
period from March 30, 1990 to January
31,1991, 165,000 games were sold; in the
year ending January 31, 1992, 58,113; in
the year ending January 31, 1993, 26,394;
and in the year after the initial term,
7,438. The sales in the initial term
totaled approximately $4,000,000 and
royalties $600,000. Soon after January
31, 1993, Western was sufficiently
interested in continuing as licensee to
agree to pay a minimum royalty of $27,500
for the coming year. MindGames’ complaint
alleged that a substantial number of
games produced by Western failed to meet
quality standards; Western failed to
promote and make reasonable efforts to
sell; and its efforts did not meet
standards under the agreement or those
recognized in the industry. It is
MindGames’ position that these failures
caused loss of sales.
Western’s motion for partial summary
judgment was premised on the new business
rule which Western perceived as announced
in Marvell, and the district court
granted the motion on that basis. If, as
we all agree, Marvell does not control
this case, then the applicable Arkansas
doctrine is that MindGames is entitled to
recover any royalties on sales which
MindGames can prove to a reasonable
certainty would have been made had
Western carried out the contract. The
rule that damages which are uncertain
cannot be recovered does not apply to
uncertainty as to the value of the
benefits to be derived, but to
uncertainty as to whether any benefit
would be derived at all. Jim Halsey Co.,
Inc. v. Bonar, 284 Ark. 461, 467-68 (Ark.
1985); Crow v. Russell, 226 Ark. 121, 123
(Ark. 1956).
In my opinion we cannot say on this
record, as a matter of law, that
MindGames can not prove to a reasonable
certainty that Western’s failures to
perform, if proved, caused a loss of
sales.
I would not hold that MindGames has
waived or forfeited its opportunity to
produce evidence of damages. It is true
that in responding to Western’s motion
for partial summary judgment MindGames
did not provide evidentiary material
tending to show the breaches by Western
nor that such breaches caused a loss of
sales. This should not be deemed a waiver
or forfeiture of an opportunity to do so
because of Western’s complete reliance in
its motion on the new business rule and
Marvell, which, if applied, would prevent
proof of breach and causation of loss.
Western’s motion did not reach the issue
of breach, and establishing damages would
require MindGames to prove that the
breach occurred and caused loss of sales.
Although Western, in its memorandum in
support of its motion did include a
section making the point that the success
of a new product in the entertainment
industry is especially difficult to
predict, it used that point to support an
argument that the new business rule was
particularly appropriate in this case,
and that the Arkansas Supreme Court would
be unlikely to retreat from the new
business rule under circumstances like
these. Western did not squarely assert,
as an alternative ground, that MindGames
could not prove to a reasonable certainty
that any breach by Western caused loss of
sales. Rather, Western urged that the
district court should strictly apply the
new business rule.
In this court, Western again relied on
Marvell and the new business rule, also
arguing, as it had in the district court,
that this type of case, involving a new
product in the entertainment industry, is
not one where the Arkansas Supreme Court
would retreat from its application of the
new business rule. Although at pages 30-
32 of its brief it asserted the
inherently speculative nature of a claim
for lost profits in the entertainment
industry, and cited cases, it failed
squarely to assert, as an alternative
ground, that its alleged failures to
perform, if proved, could not have been
proved to a reasonable certainty to have
caused lost sales. On page 5 of its reply
brief, MindGames referred to pages 29-32
of Western’s brief, and challenged as
contrary to Arkansas law "non-Arkansas
cases [cited by Western] in arguing that
businesses in the entertainment industry
are barred per se from claiming lost
profits." Again I do not think it is
appropriate to rely on waiver or
forfeiture.
I would remand for further proceedings
on this part of MindGames’ complaint.