Arbitron, Inc. v. Tralyn Broadcasting, Inc.
400 F.3d 130 (2005)
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Rule of Law:
Under New York law, a contract clause that grants one party the unilateral right to determine a price upon the occurrence of a specified future event is enforceable and not void for vagueness, provided the contract's language clearly manifests the parties' intent to grant that authority.
Facts:
- In 1997, Arbitron, Inc. entered into a five-year license agreement with Tralyn Broadcasting, Inc. for the use of its radio listener data for a single station, WLUN-FM.
- The agreement contained an 'escalation clause' providing that if Tralyn was purchased by an entity controlling other radio stations in the same or an adjacent market, Arbitron could unilaterally 'redetermine' the license fee.
- The agreement required Tralyn to notify Arbitron of any change in ownership within 30 days.
- On October 31, 1999, JMD, Inc., which controlled at least four other local stations, purchased Tralyn.
- Neither Tralyn nor JMD notified Arbitron of the acquisition, and JMD continued paying the original single-station monthly rate.
- In June 2000, Arbitron discovered the acquisition and exercised its right under the escalation clause, increasing the monthly fee from approximately $1,729 to $5,784.
- JMD refused to pay the increased fee and subsequently stopped making any payments at all.
Procedural Posture:
- Arbitron filed a complaint for breach of contract against Tralyn and JMD in the U.S. District Court for the Southern District of New York.
- JMD moved for summary judgment, arguing the contract's escalation clause was unenforceably vague.
- The district court granted summary judgment to JMD, holding the escalation clause was void for vagueness under New York law.
- Arbitron, as the appellant, appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Second Circuit; JMD was the appellee.
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Issue:
Is a contract's 'escalation clause,' which grants one party the unilateral right to redetermine a license fee if the other party is acquired by an entity owning additional radio stations, unenforceably vague under New York law?
Opinions:
Majority - Calabresi, J.
No. A contract clause that delegates price-setting authority to a single party is not unenforceably vague where the language of the agreement clearly and unambiguously reflects the parties' intent to create such an arrangement. The court reasoned that the escalation clause was not a mere 'agreement to agree,' which would require future negotiations and be unenforceable under New York precedent like Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher. Instead, it was a mechanism for objectively setting a material term without further negotiation, similar to the enforceable contract in Cobble Hill Nursing Home v. Henry & Warren Corp. The language of the contract was manifest that both parties intended to give Arbitron the unilateral power to redetermine the rate upon a change in control, thus providing the necessary definiteness for enforcement.
Analysis:
This decision clarifies that under New York's common law of contracts, definiteness as to a price term can be satisfied by a clause that clearly delegates price-setting authority to one party. It distinguishes such clauses from unenforceable 'agreements to agree,' thereby providing greater flexibility for commercial contracts where future conditions are uncertain. The ruling aligns the common law more closely with the principles of the Uniform Commercial Code (UCC § 2-305), which presumes enforceability even with open price terms, subject to a good faith requirement. Future litigation involving such unilateral price-setting clauses will likely focus on whether the discretion was exercised in good faith, as the court suggested on remand.
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