CHICAGO (CN) – The 7th Circuit affirmed dismissal of a $12 million complaint by a consultant that claimed it was shut out of a deal to turn New York City trashcans into revenue-generating “street furniture.”
Bus stop shelters and public trash cans, once a drain on municipal funds, are now a moneymaker for many U.S. cities with the advent of street furniture. Private companies pay cities for the opportunity to construct and maintain these structures and finance them through advertising.
Corporación Europea de Mobiliario Urbano is one such firm, based in Spain. Seeking to break into the U.S. market, the company established a subsidiary called Cemusa that, in turn, hired Uruguayan firm White Pearl for help bidding on contracts.
In a 2003 letter agreement Cemusa offered to pay White Pearl $240,000 in exchange for consulting services relating to the street-furniture market. The master agreement specified that the companies would negotiate a city-specific plan before the city kicked off the street-furniture bidding process with a request for proposals.
White Pearl would receive 3.7 percent of the net advertising revenue after a successful bid unless otherwise specified. The contract could be terminated prior to the request for proposals with 30 days’ notice.
Cemusa terminated the agreement before New York City requested proposals, however, hoping to negotiate a lower commission. At 3.7 percent, White Pearl’s commission on all five boroughs would be worth $12 million.
The companies negotiated toward a substitute that would have paid White Pearl $2 million but never signed an agreement.
After Cemusa won the contract for all five boroughs, it refused to pay White Pearl more than $240,000, prompting the Uruguayan firm to file suit in Illinois federal court, citing diversity jurisdiction.
After establishing jurisdiction over the case, the 7th Circuit ruled in favor of Cemusa. White Pearl’s contention that it had spent $440,000 is irrelevant to the contract terms, which had been honored, the three-judge panel found.
“If Cemusa did not treat White Pearl well, it will pay a penalty in the market; other consultants … will demand a premium price to deal with a business known to take advantage of others,” Chief Judge Frank Easterbrook wrote. “Still, a firm is not legally obliged to recompense another for volunteered work, let alone to ensure that its trading partners don’t lose money.”
White Pearl may file suit under Illinois’ quantum meruit rubric for when a business terminates a contract after most of the work has been done, but the 7th Circuit said this would be a stretch.
“White Pearl is not in the position of a real estate agent fired after locating a buyer ready, willing, and able to pay,” Easterbook wrote.
“What White Pearl did, translated to the world of real estate sales, is more like visiting a property, taking pictures, writing a good description, and giving the client valuable advice about what price to ask and what strategy to adopt,” he added. “If such an agent is fired before the house goes on the market … the agent gets only the agreed fee for preparatory services.”