8th Circ. Affirms Breached Billing Contract
By Jacob Fischler
Editing by Emily Kokoll.
All Content © 2003-2017, Portfolio Media, Inc.
Law360, Washington (July 17, 2015, 7:57 PM EDT) — The Eighth Circuit ruled Friday that an Iowa federal judge was correct to find that two cellphone service providers owed $260,000 in damages to a former billing contractor, saying the sides’ contract penalized the providers’ early termination.
The lower court judge rightly handed billing contractor Paramount Software Associates Inc. summary judgment against cellular-service companies RSA 1 LP and Iowa RSA 2 LP after the companies switched to another billing company because the providers did not give proper notice as required in the contract, a three-judge appellate panel said.
The provision in the contract that required the awarding of liquidated damages in the event of an early termination was enforceable, the court also ruled, and therefore the district court’s awarding Paramount damages of $260,000 was correct.
The RSAs had argued that because the contract — with a three-year initial period and automatic two-year extensions unless terminated with six-months notice — did not include an exclusivity clause or a minimum payment amount, the providers could use only other billers and pay nothing to Paramount during any particular month. But the circuit court held that a provision penalizing a party for voiding the contract early clearly negated the RSAs’ argument.
“If the RSAs had no obligation to use Paramount’s services, this clause had no purpose,” the panel said. “The RSAs never would have needed to terminate an agreement that did not obligate them to do anything.”
The RSAs also challenged whether the contract’s liquidated damages clause was enforceable. The court, which applied Texas law to the case, said under Texas Supreme Court precedent, the contract’s liquidated damages clause was enforceable. The RSAs had also said the liquidated damages clause was only applicable during the first three-year period of the contract, and not to subsequent two-year extensions. But the panel disagreed on that point as well.
Paramount attorney Elizabeth Chermel said she was happy with the ruling.
“I think it was correct and I’m pleased that the Eighth Circuit analyzed the case law as we did,” she said in a phone interview with Law360.
The parties’ contract dates back to March 2009, when the RSAs each agreed to pay Paramount $1.05 per customer per month to provide billing services. In 2011, the RSAs wrote Paramount to say they were switching billing companies, but did not specify a date the switch would occur and asked Paramount to assist in the transition, according to Friday’s order. The parties allowed the automatic two-year extension to vest, and the transition continued until January 2013.
With more than a year remaining on the extension, the RSAs had stopped using Paramount entirely. The biller argued that constituted a termination of the contract without the six-month notice, and the district judge and appellate panel eventually agreed.
Representatives for the RSAs did not respond to messages seeking comment Friday.
The RSAs are represented by Steven Lowell Nelson of Davis Brown Koehn Shors & Roberts PC.
Paramount is represented by Elizabeth Chermel and John G. Turner III of Mullin Hoard & Brown LLP.
Circuit judges Roger Leland Wollman and Raymond W. Gruender and U.S. District Judge David S. Doty sat on the panel.
The case is RSA 1 Limited Partnership and Iowa RSA 2 Limited Partnership v. Paramount Software Associates, Inc., case number 14-2947, in the U.S. Court of Appeals for the Eighth Circuit.