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Monday, July 16, 2012

NO LIMIT: Contract Modification By Instant Message

Safesmokes
Via @thecontractsguy (aka Brian Rogers, if you don’t already, you should follow him on Twitter) retweeting @yanger_law, I learned of a recent federal district court case from Florida that held that an instant messaging (“IM”) conversation constituted a contract modification.

Smoking Everywhere, Inc., is a seller of e-cigarettes (hey, can I bum an e-smoke?) Smoking Everywhere contracted with CX Digital Media, Inc., to help with online marketing of a free e-cigarette promotion. CX Digital would place the ad with its affiliates to generate web traffic. I am oversimplifying the technology and metrics here, but basically the deal was that Smoking Everywhere would pay CX Digital around $45 for every completed sale that came via a customer clicking on and ad placed with one of CX Digital’s affiliates. The contract limited the deal to 200 sales per day.

After re-coding some pages for Smoking Everywhere, CX Digital believed it could drive more traffic and increase the sales it was sending CX Digital. The following exchange, part of a longer IM chat, occurred between “pedramcx” (Soltani) from CX Digital and “nicktouris” (Touris) from Smoking Everywhere:

pedramcx (2:49:45 PM): A few of our big guys are really excited about the new page and they’re ready to run it

pedramcx (2:50:08 PM): We can do 2000 orders/day by Friday if I have your blessing

pedramcx (2:50:39 PM): You also have to find some way to get the Sub IDs working

pedramcx (2:52:13 PM): those 2000 leads are going to be generated by our best affiliate and he’s legit

nicktouris is available (3:42:42 PM): I am away from my computer right now.

pedramcx (4:07:57 PM): And I want the AOR when we make your offer #1 on the network

nicktouris (4:43:09 PM): NO LIMIT

pedramcx (4:43:21 PM): awesome!

And, awesome!, indeed. CX Digital went from sending around 60-something sales a day to an average of over 1200 sales per day (with a peak of over 2800 sales in one day). Accordingly, CX Digital sent Smoking Everywhere an invoice for two months in 2009 that totaled over $1.3 million. And Smoking Everywhere refused to pay.

Among other issues, the question arose whether the IM conversation modified the existing contract. The district court held that it did:

The Court agrees a contract was formed but clarifies that Touris’s response acted as a rejection and counter-offer that Soltani accepted by then replying “awesome!” “In order to constitute an ‘acceptance,’ a response to an offer must be on identical terms as the offer and must be unconditional.” “A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.” “The words and conduct of the response are to be interpreted in light of all the circumstances.”

Here, Touris’s response of “NO LIMIT” varies from the two specific terms Soltani offered and so acts as a counter-offer. Soltani proposed CX Digital provide 2,000 Sales per day and that CX Digital be the AOR or agent of record, a term of art meaning the exclusive provider of affiliate advertising on the advertising campaign. Touris makes a simple counter-offer that there be no limit on the number of Sales per day that CX Digital’s affiliates may generate and makes no mention of the AOR term. Soltani enthusiastically accepts the counter-offer by writing, “awesome!” and by beginning to perform immediately by increasing the volume of Sales.

Touris testified he could have been responding to something other than Soltani’s offer of 2,000 Sales per day when he said “NO LIMIT.” Touris acknowledged that he had engaged in contract negotiations about “changing the number of leads, changing URLs, deposits, that type of thing,” although he added, “we mainly spoke on the phone. A little bit of email but I had trouble receiving his emails so I mean we used Instant Messaging but you know there was a lot more than what was presented here, last court appearance.” The implication of this testimony was that Touris could have been responding to something else he and Soltani had discussed by phone. But when pressed on just what else he could have been referring to when he said “NO LIMIT,” Touris’s memory failed him. In particular, he denied that “NO LIMIT” was some kind of personal motto.

Indeed, neither Touris nor Taieb ever suggested any plausible alternative interpretation for why Touris wrote “NO LIMIT” to Soltani, nor did they explain the content of the alleged additional negotiations that took place outside of the September 2, 2009 instant messages or what effect those would have had on the apparent agreement the parties reached on September 2nd. Considering Touris’s admission that he was engaged in instant-message negotiations with Soltani about changing the number of leads along with the September 2nd instant-message transcript, directs the conclusion that those negotiations, wherever and however they occurred, culminated with a modification of the [original contract] when Touris and Soltani agreed to “NO LIMIT.”

Smoking Everywhere also observes that a significant amount of time — almost two hours— passed between Soltani’s offer of 2,000 Sales per day and Touris’s counter-offer of “NO LIMIT,” which it suggests adds uncertainty to the meaning of the conversation. However, more than an hour passes before Soltani added that he would like CX Digital to be the AOR; yet this is clearly part of Soltani’s offer. It is then only thirty-four minutes later that Touris responds “NO LIMIT.” Given that Touris testified he would not have approved such an increase without first discussing it with Taieb, one explanation for the time delay, if one is needed, is that Touris was doing just that — asking Taieb for approval.

(citations omitted).  There was some ambiguity here and IM is pretty informal, but given the context, it seems like the court made the right call.

I don’t IM because I don’t understand it.  Given the expectation of instantaneous communication, rather than IM, I prefer the telephone.  [Notable exception: when you are in a space where you can't gossip aloud about colleagues].  But this case suggests, if you do IM, be careful what you type! It could lead to Smoking Guns Everywhere.... 

CX Digital Media, Inc. v. Smoking Everywhere, Inc. (S.D. Fl. Mar. 23, 2011) (Altonaga, J.).

[Meredith R. Miller]

http://lawprofessors.typepad.com/contractsprof_blog/2012/07/no-limit-contract-modification-by-instant-message.html

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