Saturday, April 21, 2007

Holland v. Psychological Assessment Resources, Inc. (Maryland U.S.D.C.) (Approved for Publication)

Signed April 30, 2007--Memorandum and Order by Judge Christine C. Blake.

Dr. John Holland ("Holland") contracted with PAR in 1986 and again in 1989 to publish his career guide ("SDS"). Under the terms of the agreement, Holland transferred his rights in SDS to PAR, subject to those expressly reserved, in exchange for royalty payments based on PAR's sales of the SDS and related products. PAR created an internet version of the SDS between 1997 and 1998 and launched it on-line in September 1998 without Holland's consent. Despite Holland's continued objections to the internet version of SDS ("internet version"), PAR has maintained it on-line and attached Holland's name and biographical information to it.

Holland's intitial 1999 complaint alleged the agreement had been breached due to PAR's failure to obtain Holland's consent and to pay him proper royalties for the internet version. Holland's subsequent amendments resulted with the following claims: breach of contract (count II); breach of the covenant of good faith and fair dealing (count III); false light (invasion of privacy) (count IV); unfair and deceptive trade practices (count V); violation of the Lanham Act (count VI); and unjust enrichment/restitution (count VII). Holland further requested the court to render a declaratory judgment under the Maryland Uniform Declaratory Judgments Act regarding the breach of contract issue (count I) and the parties' rights and obligations under the contract (count VIII).

The core conflict in this case is the result of a contract that was entered into before the rise of the internet; specifically, differences between pre- and post-internet contracts and, in this case, the effect on post-internet SDS. The standard for summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The Supreme Court has clarified that this does not mean that any factual dispute will defeat the motion. The party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial. The court must view the evidence in the light most favorable to the nonmovant and draw all reasonable inferences in his favor without weighing the evidence or assessing the witness' credibility. However, the court also must abide by the affirmative obligation to prevent factually unsupported claims and defenses from proceeding to trial.

Under Maryland law, contracts are interpreted objectively. A court generally interprets the terms of a written contract as a matter of law; a determination that terms are ambiguous is likewise a matter of law. Ambiguity arises when, to the perception of a reasonably prudent person in the position of the parties, the terms are susceptible to more than one meaning. To resolve ambiguity and determine the intent of the parties, a court will look to evidence from extrinsic sources. At the heart of this case is a conflict over whether Holland's consent was required prior to PAR's release of the internet version. The consent requirement only arose when PAR sought to publish and print a revised edition of the original works. "When PAR seeks to publish all test materials which incoroprate the original works, Holland must be afforded an opportunity to review and comment on the materials but his consent is not required." The court reasoned that, despite the contract's ommission of revised editions of original works, logic would dictate that PAR would wish to incorporate the most up to date material possible - revisions - into its new products, implying the existence of a category of materials other than original works - again, revisions - which PAR might seek to incorporate, thereby giving rise to a category of products incorporating revisions which is not specifically defined by the terms of the contract.

This Court was presented with two key ambiguities which required resolution in order to establish the parties' rights and responsibilities under the contract. First, the definition of "revised edition" under the contract is unclear. Second, once this definition has been established, is whether the internet version is a revised edition, in which case the consent provision of the contract is triggered. The Court accepted the parties' agreement that a revised edition is one in which the content has been substantively changed from previous editions. "Substantive" was defined as "belonging to the essence or intrinsic nature of the substance." The Court adopted "substantive change" as the basis of the understanding of "revised edition." In this instance, changes from print to internet were a substantive change because millions of people may be exposed to an abbreviated version of the test where the truncation is not offset by the presence of a counselor.

In addition to the breach of contract claim, Holland requested the Court to construe the contract and declare the parties' rights under it (count VIII). As one of the contract's central ambiguities could not be resolved, this request was denied. With respect to the breach of contract claim , Holland based his claim on an express contractual provision stating that "the parties hereto shall deal with one another fairly and in good faith." This claim should have been characterized as another ground for breach of contract rather than as a separate cause of action, which is not available. The allegations of breach of the covenant of good faith and fair dealing were thus subsumed within the breach of contract claim (count I) and did not proceed as an independent cause of action. Presenting an individual "before the public in a false light" (count III) is one variation of the more general tort of invasion of privacy. For liability to attach for a false light claim in Maryland, "(a) the false light in which the other person was placed would be highly offensive to a reasonable person, and (b) the actor had knowledge of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the other person would be placed." If the statements on which the claim for false light is based are true, however, the "defendant in a false light case is entitled to judgment as a matter of law." In the instant case, PAR would nonetheless be entitled to summary judgment because it is not disputed that the statements on which Holland's claim is based are true. The parties agreed that Holland could not bring suit for unfair or deceptive trade practices under the Maryland Consumer Protection Act because Holland is not a consumer of the internet version but the creator of the materials on which it is based (consumer defined as "an actual or prospective purchaser, lessee, or recipient of consumer goods, consumer servces, consumer realty, or consumer credit"). The general rule is that no quasi-contractual claim (such as unjust enrichment) (count VII) can arise when a contract exists between the parties concerning the same subject matter on which the quasi-contractual claim rests. This rule is closely adhered to, and exceptions have been granted only when there is evidence of fraud or bad faith, there has been a breach of contract or mutual recission of the contract, when recission is warranted, or when the express contract does not fully address a subject matter. Holland's attempt here failed because both the agreement between the parties addressed marketing and promotion and because Holland, himself, revealed in his complaint that this claim was concerned with revenue PAR received from the internet version rather than on redressing promotional and marketing violations. Whether PAR was entitled to market the internet version depended wholly on an interpretation of the express contract between the parties. PAR was thus entitled to summary judgment on Holland's unjust enrichment claim. The Lanham Act (count VI) generally has been construed to protect against trademark, service mark or trade infrginement even though the mark or name has not been federally registered. Holland's claim does not arise in the typical context of a Lanham violation as he and PAR are not marketplace rivals but parties to a contract, the terms of which are undisputed. Holland sought to proceed under a "false endorsement" theory under which courts have found " (a) injury where the plaintiff's voices, uniforms, likenesses, published works or names were used in such a way as to deceive the public into believing that they endorsed, sponsored or approved of the defendant's product." To succeed using a false endorsement theory, the plaintiff must prove the likelihood of consumer confusion as to the origin, approval or endorsement of the project making summary judgment for the defendant appropriate where the plaintiff cannot possibly show confusion as to the source or sponsorship. As both parties acknowledge Holland's standing within the field of career testing, Holland's value of his persona seems undisputed. However, Holland's claim hinges in part on the outcome of the underlying breach of contract dispute. If Holland's consent was not required for the publication of the internet version because it was not a revised edition, his endorsement or approval of the product is contractually established and, although he may not like hte internet version, he has no legal claim that his endorsement or approval has been falsely implied. The Lanham Act turns in part on the answer as to whether there was a substantive change between the internet and print versions of SDS resulting in a revised edition and requiring consent. This answer must be presented for a jury for resolution.

The full opinion is available in PDF.

No comments: