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Manhattan Judge Orders Orbitz To Pay 12 Million

Manhattan Judge Orders Orbitz To Pay 12 Million

On August 20, Justice Charles E. Ramos of Manhattan Supreme Court granted summary judgment to Trilegiant Corporation in its breach of contract lawsuit against online travel company Orbitz, LLC. The lawsuit stemmed from a marketing agreement signed by the two companies nine years earlier. That agreement ended in 2007, but a subsequent dispute over Orbitz's obligation to pay ongoing termination fees led to Trilegiant's breach of contract lawsuit.

Orbitz sells discounted hotel rooms, flights and car rentals online. Trilegiant sells its own membership-only package of discounts for travel and other services. The 2005 agreement created a marketing partnership between the two companies known as DataPass. Under DataPass, customers could purchase a membership in Trilegiant through Orbitz's website. Orbitz would then furnish the customer's credit card information to Trilegiant. Orbitz then received a portion of the Trilegiant fee as a commission.

A problem arose from the fact that many DataPass customers did not know they were paying for Trilegiant services. State and federal regulators ultimately determined DataPass and similar programs amounted to unfair deception, and in 2010, Congress banned the practice outright.

However, Orbitz terminated its agreement with Trilegiant back in 2007, three years before the scheduled expiration. Under the agreement, Orbitz owed Trilegiant a series of “termination payments” totaling nearly $18.5 million. Orbitz made these quarterly payments up until 2010, when Trilegiant abandoned its DataPass program under congressional pressure.

Trilegiant sued Orbitz for breach of contract. Orbitz argued that, since the termination payments were designed to compensate Trilegiant for lost DataPass revenues, and the program itself was now abandoned, it was no longer obligated to continue paying Trilegiant.

Orbitz raised a number of affirmative defenses, all of which Justice Ramos of the Supreme Court rejected in granting summary judgment for Trilegiant. The justice specifically addressed three of Orbitz's defenses. First, Orbitz argued that the cancellation of DataPass freed them of their obligation to continue making termination payments. Justice Ramos held those payments were consideration for Trilegiant signing the original agreement with Orbitz back in 2005, and were not conditioned on Trilegiant's subsequent conduct. The agreement contained no language to that effect.

Second, Orbitz argued that even though Trilegiant did not continue DataPass, it still had to show it was capable of doing so to continue collecting termination payments. According to Justice Ramos, the agreement only required Trilegiant not market to Orbitz's customers following termination—it contained no language obliging Trilegiant to continue DataPass in any form.

Finally, Orbitz argued Congress' 2010 decision to ban programs such as DataPass rendered its agreement with Trilegiant unenforceable. The agreement contained a standard warranty provision whereby both sides guaranteed they were not violating any laws. But as Justice Ramos explained, Congress did not render pre-2010 contracts unenforceable, but merely declared them illegal going forward. Further, Congress cannot summarily declare a company's prior conduct as illegal.

Cases like this highlight the importance of working with a qualified New York business attorney before entering into any contract or agreement. Contact the Nisar & Mason, P.C. if you have any questions related to this or any other business contract issue.

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