First Data Resources, Inc. v. Omaha Steaks International, Inc.
1981 Neb. LEXIS 918, 307 N.W.2d 790, 209 Neb. 327 (1981)
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Rule of Law:
A party's threat to do what it has a legal right to do, such as terminating a contract according to its terms, does not constitute economic duress. To void a resulting agreement on grounds of economic duress, the party must show not only that pressure was brought to bear, but also that the resulting agreement is unjust, unconscionable, or illegal.
Facts:
- On December 19, 1975, First Data Resources, Inc. (FDR) and Omaha Steaks International, Inc. (OSI) entered into a contract for data processing services.
- The contract allowed either party to terminate the agreement upon ninety days prior written notice.
- On April 18, 1977, FDR, deeming the current pricing unsatisfactory, sent OSI a letter providing ninety days' notice to terminate the agreement, effective July 31, 1977.
- In the same letter and a subsequent one, FDR offered to continue providing services under a new agreement with a higher price per transaction.
- On May 19, 1977, OSI sent a letter accepting the new, higher rate, explicitly stating it was doing so 'under extreme economic duress' because it could not arrange for a replacement service on such short notice.
- On June 8, 1977, the parties executed a formal amendment to their agreement reflecting the new terms.
- In January 1978, OSI terminated the amended agreement and later refused to pay for services rendered under it.
Procedural Posture:
- First Data Resources, Inc. (FDR) sued Omaha Steaks International, Inc. (OSI) in the District Court for Douglas County, Nebraska (a trial court) to recover for services rendered.
- OSI answered, raising the affirmative defense of economic duress and asserting a counterclaim for damages based on FDR's alleged faulty performance.
- At the close of FDR's case at trial, OSI dismissed its counterclaim.
- FDR then demurred ore tenus to OSI's defense and moved for a directed verdict.
- The trial court sustained FDR's demurrer and motion, entering a judgment in favor of FDR.
- OSI, as appellant, appealed the trial court's judgment to the Supreme Court of Nebraska.
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Issue:
Does a party's threat to terminate a contract according to its express terms constitute economic duress sufficient to invalidate a subsequent, amended agreement?
Opinions:
Majority - Hastings, J.
No, a party's threat to terminate a contract according to its terms does not constitute economic duress unless the resulting agreement is unjust, unconscionable, or illegal. The court found that FDR was acting within its contractual rights when it gave notice of termination. Citing 'Carpenter Paper Co. v. Kearney Hub Pub. Co.', the court affirmed the principle that threatening to do what one has a legal right to do is generally not coercion. For a defense of economic duress to succeed, the defendant must plead and prove that the new agreement's terms were unjust, unconscionable, or illegal. OSI failed to make any such allegation in its answer, merely claiming it was pressured. Therefore, OSI's defense of economic duress failed as a matter of law. However, the court found the trial judge erred in directing a verdict for FDR because OSI's answer contained a general denial, which is sufficient to raise the defense of nonperformance. OSI should have been given the opportunity to present evidence that FDR failed to render the services for which it was charging.
Analysis:
This case solidifies the high threshold for establishing economic duress in commercial contract renegotiations. It clarifies that leveraging a pre-existing, legal contractual right, such as a termination clause, to gain a more favorable deal does not, on its own, amount to wrongful coercion. The decision places the focus on the substantive fairness of the resulting agreement, requiring a showing that the new terms are unjust or unconscionable, not merely that one party felt pressured by business exigencies. This precedent provides commercial actors with a degree of certainty that they can enforce renegotiated contracts, even when the renegotiation was prompted by a threat to terminate the prior relationship lawfully.
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