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Lativafter Liquidating Trust v. Clear Channel Communications

November 26, 2007

LATIVAFTER LIQUIDATING TRUST, PLAINTIFF,
v.
CLEAR CHANNEL COMMUNICATIONS, INC., DEFENDANT.



The opinion of the court was delivered by: Thomas W. Phillips United States District Judge

(Phillips/Guyton)

MEMORANDUM AND ORDER

Plaintiff Eon Streams, Inc.,*fn1 has brought this action against defendant Clear Channel Communications, Inc., for breach of contract, promissory estoppel and negligent misrepresentation. Clear Channel has brought a counterclaim against Eon alleging breach of contract and intentional interference with existing or prospective business relationships. The parties have filed cross-motions for summary judgment. Because material issues of fact exist as to all claims asserted in this case, the parties' motions for summary judgment will be denied.

Factual Background

Plaintiff Eon is a Tennessee corporation whose business is to provide streaming services. Streaming is a process by which sound or pictures are made available on the Internet by transmitting them over fiber optic cables, similar to the transmission of electricity over wire lines. Defendant Clear Channel is a Texas corporation which operates a network of about 1200 radio broadcast stations.

In January 2004, Eon entered into a Services Agreement with Clear Channel, whereby Eon became a streaming services provider for Clear Channel. The Services Agreement was a one-year automatically renewable contract whereby Eon provided streaming and related services to Clear Channel in exchange for a price determined solely by the amount of data transferred over Eon's bandwidth. Eon's President Stephen Newman and Brian Parsons, Clear Channel's Vice President of Technology, discussed a relationship whereby Eon would sell online advertising for Clear Channel, based in part on Newman's contacts in the media industry. Eon learned that Clear Channel had no satisfactory way to insert advertisements into the streamed audio from its radio stations, so Newman canvassed the industry for a satisfactory ad insertion solution and found none. Newman and Parsons then discussed using Eon's technical expertise to develop ad insertion technology. Eon's proposed development would include software to deliver and insert ads.

Eon sent Clear Channel a draft Letter of Agreement on October 12, 2004 to renegotiate its existing Services Agreement. Parsons sent an October 19, 2004 email to Newman, Eon's Emma Woods and Kim Johnson, a Clear Channel Vice President, in which he verified the deal points. On October 19, 2004, by email, Johnson confirmed the commission terms as payment of a 15% commission on advertising secured by Eon to be exhibited through FastAim (ad insertion software). Parsons then sent a final version of the Letter of Agreement to Eon on October 22, 2004. The Letter of Agreement provided that Eon would develop FastAim, that Eon would be Clear Channel's preferred streaming partner, that Eon would receive a 15% commission on sales it made, and that the parties would enter into a new three-year Services Agreement for streaming. Parsons assured Newman that everyone at Clear Channel had approved this Letter of Agreement, that it was "in legal" and Jeff Littlejohn, Parsons' superior, also confirmed to Newman that Clear Channel and Eon "absolutely" had an agreement.

Parsons joined the Eon board of directors to assist in the development of FastAim, a position in which he could receive stock options from Eon. At the April 27, 2005 meeting of the board of directors of Eon, Parsons informed the board that Clear Channel was committed to executing the written contract. Eon hired developers and customer support personnel and developed the FastAim ad insertion technology and began to implement it on Clear Channel stations.

In November 2005, Clear Channel terminated its relationship with Eon and issued a directive forbidding Eon from selling advertising on Clear Channel's radio stations.

Eon has brought this action against Clear Channel asserting claims for breach of contract, promissory estoppel and negligent misrepresentation. Eon alleges it was damaged by Clear Channel's actions, which caused a loss of profits, and further resulted in a depressed price when Eon sold its assets. Clear Channel contends it is entitled to summary judgment on Eon's claims because Clear Channel fully performed the executed Services Agreement with Eon, made no other contract with Eon, and made no misrepresentation of any existing facts or promise upon which Eon reasonably relied.

Clear Channel asserts counter-claims for breach of contract and intentional interference with existing or prospective business relationships. Clear Channel alleges that Eon failed to make every effort to keep its service up and running causing outages and failures in Eon's provision of bandwidth. The Services Agreement provides that Eon Streams, Inc., make every effort to keep its service up and running. However, Eon Streams, Inc., cannot and will not guarantee 100% uptime of its service.

Clear Channel alleges that Eon failed to provide bandwidth streaming services to Clear Channel as required by the Services Agreement. Eon failed to keep its service up and running, creating significant outages of its bandwidth streaming services. Eon failed to provide related reporting services and technology to Clear Channel as required by the Services Agreement. Thus, Clear Channel alleges that Eon breached its obligations to Clear Channel under the Services Agreement.

Clear Channel has identified at least 166 days during 2005 in which Clear Channel experienced outages and problems with Eon's streaming services. Clear Channel calculated Eon's downtime in 2005 to be in excess of 63 hours. Clear Channel also experienced reporting problems with Eon. "Reporting," a streaming related service, refers to the data and numbers reflecting how many people are viewing a particular on-line stream. The reporting services are important for salespeople to be able to accurately represent to advertisers or prospective advertisers, the number of people who are viewing the stream where their ad would be placed. Under the Services Agreement, Eon was required to provide reporting so that at any given time Clear Channel would know how many people were streaming. While streaming with Eon, Clear Channel's stations experienced problems arising from Eon's service failures including (1) buffering and dropping streams, (2) interrupted streams, (3) streaming outages, (4) inability for new listeners to connect to a stream, (5) routing and encoder issues and problems, (6) players not loading, (7) reporting problems, such as inaccurate reporting due to Eon's reporting systems being disabled and discrepancies between Eon's two different reporting systems, (8) delayed and incomplete reports needed by the local markets, and (9) local markets' advertisements not running.

In addition, Eon represented itself as the exclusive selling agent for Clear Channel radio interactive to national advertisers with whom Clear Channel had existing or prospective business relationships. Eon was instructed not to communicate with any of Clear Channel's local market radio stations. Clear Channel avers that Eon violated those instructions creating problems, confusion and misrepresentations within Clear Channel's local markets. These improper communications and interferences by ...


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