Federal Judge Rules Instant Message Modified Contract
By Andrew Crocker – Edited by Jad Mills
CX Digital Media, Inc. v. Smoking Everywhere, Inc., No. 09-62020-Civ (S.D. Fla. Mar 23, 2011)
Slip opinion hosted by Scribd.com
Last month, the United States District Court for the Southern District of Florida ruled in favor of plaintiff CX Digital Media, Inc. in a contract dispute with Smoking Everywhere, Inc.
The district court found that an instant message conversation between an employee of CX Digital, an online advertising referral provider, and the Vice President of Marketing at Smoking Everywhere, an electronic cigarette manufacturer, constituted a modification of the companies’ contract for CX Digital to provide online advertising referrals for Smoking Everywhere’s promotional sales offer. The verdict resulted in an award of over $1.2 million in damages plus accrued interest and attorney’s fees for CX Digital.
The Technology and Marketing Law Blog provides an overview of the case. Techdirt notes that while it may be surprising that instant messaging can constitute contract negotiation, courts regularly find that informal discussions are binding in this way.
CX Digital offers marketing services in which clients such as Smoking Everywhere pay a per-transaction fee for advertising referrals from CX Digital’s network of affiliates. Initially, the parties contracted for CX Digital to provide a maximum of 200 referrals per day for the month of August 2009 at a cost of $45 for each sale referred. In an instant message exchange on September 2, they discussed modifying the referral URLs as well as the maximum total number of referrals per day. After an hour-plus delay in the chat, Smoking Everywhere’s VP of Marketing responded, “NO LIMIT,” to which CX Digital’s employee replied, “awesome!” Over the next several weeks, CX Digital referred a much higher volume of sales than it had prior to the September 2 chat, far above the previous 200 per day limit. Smoking Everywhere refused to pay CX Digital for these sales, claiming among other things, that the chat did not constitute an enforceable modification of the initial contract.
Applying Delaware law in accordance with the contract’s terms, Judge Cecilia Altonaga held that the instant message conversation constituted an “unsigned writing” reflecting offer and acceptance. In so doing, she also rejected Smoking Everywhere’s argument that the instant message modification was unenforceable for lack of “specificity and directness,” as well as a host of other standard contractual defenses.
As noted by the Technology and Marketing Blog, the case reflects the intersection of widespread business practices — in which company agents discuss high-volume transactions across a variety of informal, electronic media before later issuing written memoranda — and long-established principles of contract law, which often favor informal modification. The result is that even contracts that require written and signed modifications, as was the case between CX Digital and Smoking Everywhere, may be altered in the course of a single instant message exchange.
Andrew Crocker is a 1L at the Harvard Law School.