USCA Fourth Circuit, April 11, 2011 (unpublished)

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  • Fourth Circuit upholds jury verdict in Flip This House contract case, holding that evidence could support the jury’s finding that parties formed an oral contract over distribution of revenue.

Plaintiff Richard Davis and his company filed suit against A&E Television Networks and other entertainment entities, alleging defendants breached an oral contract to split revenues from the reality television series Flip This House, which airs on A&E. In the district court, a jury found for the plaintiffs and awarded them $4 million (representing roughly half of the net revenues of the show from its first season).

The defendants appealed, arguing, among other things, that the evidence could not have supported the jury’s finding that an oral contract to split revenues had been reached. In a 2-1 opinion, the U.S. Court of Appeals for the Fourth Circuit upheld the jury’s verdict, finding that the evidentiary record could support the jury’s finding that Davis and A&E formed an oral contract under New York law.

Davis, a South Carolina real estate broker, conceived of a show centered on buying real estate properties at bargain prices, and then quickly renovating and selling them for a profit (a process known as “flipping”). Davis developed a pilot episode for the show and pitched it to several television networks, including A&E. A deal was struck, although nothing was reduced to writing, and the show was produced and aired on A&E. The relationship between the parties ended in 2006, over compensation issues.

Davis claimed that the oral contract was formed in June 2004 during a telephone conversation with an A&E executive. Davis asserted that during the conversation, he and the executive discussed the terms under which Davis would agree to partner with A&E, including Davis’ non-negotiable demand that he and A&E split the revenues. He claimed that the executive agreed to the terms by saying “Okay, okay I get it,” with the only caveat being that A&E’s board of directors needed to approve the development of the television series. The board eventually approved the show, and the parties began filming the first season, without ever having executed a written agreement.

Under New York law, which the district court applied to the dispute, the appellate court said that the jury needed to find that (1) Davis genuinely thought that the executive’s statement constituted acceptance, and (2) that Davis’ belief was reasonable. Viewing the record in the light most favorable to the plaintiffs, the court found evidence sufficient to support the jury’s verdict. Specifically, the court credited Davis’ testimony that his June 2004 phone call with the A&E executive involved a lengthy negotiation over such terms as production costs, production crew, production credits, the allocation of risk and splitting revenue. The court further found that the revenue-splitting term was a deal-breaker for Davis, and that the A&E executive never objected to it, conditioning acceptance only on board approval, which eventually occurred. According to the court, a reasonable jury could have found that a reasonable person could have viewed the executive’s statement – “Okay, okay I get it” – as a manifestation of acceptance. The court further held that even though other evidence supported the defendants’ position that the parties never reached an oral agreement, the jury was entitled to ignore that evidence.

The court rejected defendants’ argument that key terms of the claimed oral agreement, including the revenue-splitting terms, were unenforceable because they were indefinite. Drawing mostly on Davis’ testimony, the court found evidence sufficient to support findings of definiteness on material terms, including revenue-splitting.

The court also rejected defendants’ challenges to several of the district court’s evidentiary rulings and jury instructions. Among other rulings, the appeals court held that the district court had the discretion to exclude testimony by A&E executives to the effect that reality television stars never receive revenue-sharing contracts. The district court granted plaintiffs’ objection to this testimony, on the ground that the executives were not designated as expert witnesses prior to the trial and could not testify to industry practice. The appeals court affirmed the district court under an abuse-of-discretion standard, finding that while the executives could have testified to A&E’s practices, they should have been disclosed as expert witnesses if they were to testify to industry-wide practices.

In a brief dissenting opinion, Judge Duncan wrote that while Davis deserved to be compensated, the record did not support a finding that an oral contract had been reached. Specifically, Judge Duncan said that a reasonable person would not interpret “Okay, okay, I get it” as a manifestation of assent. Rather, he said, “Okay, okay I get it” connotes “I understand what you are saying.”