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Covering the Details



A recent lawsuit in the 10th Circuit Court of Appeals[1] shows that a company can wind up feeling frustrated if it tries to enforce its interpretation of a contract by painting another party’s contractual obligations with too broad a brush.

The case involved two business, Mid-Atlantic Sports Network (MASN) and Media Audits International (MAI).  MASN provided programming of Baltimore Orioles and Washington Nationals games to various distributors using two different channels, MASN1 and MASN2.  The distributors, in turn, were supposed to make the MASN content available to subscribers via both channels and were supposed to pay MASN a monthly fee for each subscription.

In order to ensure that their distributors were paying the full amounts called for in their contracts, MASN contracted with MAI to audit and verify the monthly subscriber counts provided by the distributors.  To fulfill its obligation, MAI audited MASN1 because it saw no reason to audit both channels given that all subscribers to MASN1 were also supposed to be receiving MASN2 and that all subscribers to MASN2 were also supposed to be receiving MASN1.  This approach worked well enough until MASN discovered that some of their distributors were allowing subscribers to receive only MASN2.  At this point, MASN took issue with MAI’s decision to focus all of its efforts on MASN1 and filed suit against MAI in an attempt to hold MAI liable for failing to detect that MASN had not received all of the subscriber fees they were entitled to.

In the suit, MAI argued that they had no reason to audit both channels since all subscribers to MASN2 were supposed to be receiving MASN1 and since the contract did not expressly require MAI to audit both channels.  The courts agreed with MAI and dismissed the suit.

The lesson for Utah business owners?  Make sure that your contracts expressly cover everything that you need them to and do not look to the courts to rewrite your contracts for you after they have been signed.  Yes, this could mean that you will spend more time and money on the front end.  However, it can also help you to save a lot of time and money on the back end.

[1] Case No. 16-1143

© 2017 Kevin R. Worthy. All rights reserved.

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