Taco Bell, Not Ad Agency, Is Liable for $42M

(CN) - The 9th Circuit ruled Friday that Taco Bell is solely liable for a $42 million breach-of-contract judgment for the creators of Taco Bell's Chihuahua mascot. The fast-food giant had attempted to pass some of the liability onto its advertising firm.

Taco Bell considered using the "Psycho Chihuahua" character in 1996 and 1997. Without reaching an agreement with the characters' creators, a Michigan firm called Wrench LLC, Taco Bell chose a Chihuahua-themed advertising campaign from 30 proposals from its advertising agency, TBWA Chiat/Day Inc.

Taco Bell went ahead with 40 Chihuahua ads from January 1998 to June 2000. Wrench LLC sued for breach of implied contract and won a judgment for $42 million.

Taco Bell then sued TBWA for indemnification, and the ad agency responded in kind. Judge Thompson of the federal appeals court in San Francisco agreed with the district court's decision in favor of TBWA.

"TBWA was not a party to the implied contract between Taco Bell and Wrench and was unaware of its existence," Thompson wrote. "TBWA had no knowledge of Psycho Chihuahua nor Taco Bell's contact with Wrench before proposing a Chihuahua character for Taco Bell advertising."

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