Opinion ID: 3054389
Heading Depth: 3
Heading Rank: 1

Heading: Wrench Verdict

Text: The first issue we consider is whether the Wrench jury findings are proof of TBWA’s fault, obligating it to indemnify Taco Bell for the liability Taco Bell incurred. A verdict sheet that was provided to the Wrench jury reflects what that jury found: Question Number 1: Did Wrench prove by a pre- ponderance of the evidence that Wrench and Taco Bell had a mutual understanding that if Taco Bell used the Psycho Chihuahua character in its advertising and on products, Taco Bell would pay Wrench for this use? Question Number 2: Did Wrench prove by a pre- 1 Taco Bell argues that Paragraphs 7.1 and 7.2 of the Agency Agreement provide for proportional cross-indemnification in the event that both parties are at fault. The district court did not address this argument because it found that TBWA was not at all at fault under the given facts, making the argument irrelevant. For the same reason, we will not address the argument here. TACO BELL CORP. v. TBWA CHIAT/DAY 851 ponderance of the evidence that Taco Bell used the Psy- cho Chihuahua character in its advertising from 1997 to 2000 and that the character used by Taco Bell was not independently created by [TWBA]? Question Number 3: Did Wrench prove by a pre- ponderance of the evidence that it suffered damages because Taco Bell did not pay for its use of the Psycho Chihuahua character? The Wrench jury answered all three questions affirmatively. According to Taco Bell, these findings are proof of TBWA’s fault. Because TBWA was involved in the creation of the TBWA Chihuahua character and TBWA had possession of the Psycho Chihuahua materials, Taco Bell argues the jury’s findings that Psycho Chihuahua was used by Taco Bell and the character used was not independently created by TBWA confirms wrongdoing by TBWA. Taco Bell relies heavily on the second question in the verdict sheet submitted to the Wrench jury, but as to that question, the court in the Wrench trial instructed the jury: Let me give you some things to consider in deter- mining whether the Taco Bell Chihuahua is the same character as the Psycho Chihuahua character . . . . If you find that the Taco Bell Chihuahua is the same character as the Psycho Chihuahua character, then you must still consider whether, on the one hand, Taco Bell used Wrench’s creation of the Psycho Chihuahua character or, on the other hand, whether Taco 852 TACO BELL CORP. v. TBWA CHIAT/DAY Bell and [TBWA] created the Taco Bell Chihuahua on an independent creative, but parallel path. In answering this question, in addition to considering the differences and similarities—differences between and similarities of the two dogs, as I pointed out in the preceding paragraph, you should consider . . . the access or lack thereof to the Psycho Chihuahua character by people at Taco Bell and [TBWA]. [1] Considering these instructions to the Wrench jury, no inference of fault by TBWA can be drawn from the jury’s verdict. The instructions leave unclear what the Wrench jury determined on the issue of independent creation of the Chihuahua character. The jury was told to consider “whether Taco Bell and [TBWA] created the Taco Bell Chihuahua on an independent creative, but parallel path.” The court also asked the jury to consider “the access or lack thereof to the Psycho Chihuahua character by people at Taco Bell and [TBWA].” The Wrench jury was never instructed to differentiate between Taco Bell and TBWA or determine which party was at fault for the liability to Wrench. [2] The undisputed facts do not support a finding of fault or negligence on the part of TBWA. TBWA was not a party to the implied contract between Taco Bell and Wrench and was unaware of its existence. TBWA had no knowledge of Psycho Chihuahua nor Taco Bell’s contact with Wrench before proposing a Chihuahua character for Taco Bell advertising on June 2, 1997. The facts that Taco Bell did not have input on TBWA’s creation of its advertising character and that a box of Psycho Chihuahua materials was sent to TBWA are of no consequence not only because TBWA created its own Chihuahua character before it received the Psycho Chihuahua materials, but also because Taco Bell was found liable for the use of Psycho Chihuahua without compensating Wrench, not copyright infringement. Taco Bell’s arguments TACO BELL CORP. v. TBWA CHIAT/DAY 853 speak to copyright issues not pertinent to this case because those claims were disposed of before trial. [3] The Agency Agreement’s indemnification provisions require TBWA to indemnify Taco Bell for liability incurred as a result of “(i) any materials created, produced, and/or furnished by [TBWA] for [Taco Bell] . . . (ii) [TBWA’s] fault or negligence in the performance of its obligations hereunder; or (iii) [TBWA’s] breach of its obligations under this Agreement.” Even if liability arose from “materials created, produced, and/or furnished by [TBWA] for [Taco Bell],” Paragraph 7.1 includes an exception for claims covered by Paragraph 7.2, claims resulting from Taco Bell’s fault. Although Taco Bell argues the Wrench jury finding warrants an inference that TBWA misappropriated Wrench’s material, neither the verdict nor the undisputed facts allow a finding of TBWA’s fault, but only Taco Bell’s breach of a contract. The district court properly determined no obligation for TBWA to indemnify Taco Bell under the Agency Agreement arose from the verdict. [4] Furthermore, as properly decided by the district court, TBWA cannot be held at fault under the Agency Agreement which allows it to rely on the approval of Taco Bell. Taco Bell approved the Chihuahua character proposed by TBWA and continued to approve the Chihuahua advertisements for broadcasting after the Wrench lawsuit was initiated, despite the existence of its implied contractual commitment to Wrench. [5] Taco Bell argues that its approval of advertising created by TBWA was only an approval of costs as provided for in Paragraph 4.12 of the Agency Agreement. This argument con- 2 4. Approvals and Billing Procedures. 4.1 Approvals. [TBWA] will obtain [Taco Bell’s] prior approval for all work [TBWA] does on [Taco Bell’s] 854 TACO BELL CORP. v. TBWA CHIAT/DAY tradicts the statement of Taco Bell’s counsel at oral argument of the summary judgment motions in the district court: So I would dispute strongly that there was an approval of the ads in the form of agreeing that they go forward and shifting the risk. I wouldn’t dispute that there was approval in the sense of, Yes, let’s run them. I think we’ll sell some more tacos. That, I think there was an approval of. In addition to the fact that the commercials were broadcast, the admission of Taco Bell’s counsel confirmed that Taco Bell approved the Chihuahua commercials for airing. The district court correctly considered Taco Bell’s approval to broadcast the Chihuahua commercials after Wrench filed its lawsuit a dispositive factor in Taco Bell’s fault-based indemnification claim against TBWA. The admission confirmed that there was approval pursuant to the Agency Agreement’s authorization section. Paragraph 6.4 of the Agency Agreement states: 6.4 Authorization. [TBWA] will be entitled to rely and act upon any instruction, approval or authorization given by [Taco Bell] or by any of [Taco Bell’s] representatives. Under this paragraph, TBWA was permitted to rely on Taco Bell’s approval of advertising TBWA created.3 The district behalf. If [TBWA] believes actual costs for production projects, subject to an estimate, will vary by more than 10%, [TBWA] will send [Taco Bell] a revised estimate for [Taco Bell’s] approval. Variances under 10% will be deemed approved by [Taco Bell]. After a project is completed, [TBWA] will reconcile actual costs against the estimates and an appropriate adjustment will be made. 3 Taco Bell argues that Subparagraph 7.2 (iii) of the Agency Agreement governs approvals and it provides that even if Taco Bell gives approval, TACO BELL CORP. v. TBWA CHIAT/DAY 855 court properly relied on the fact that Taco Bell approved for airing the Chihuahua commercials between January 1998 and June 2000 while denying the existence of its contractual obligation to Wrench. Under the Agency Agreement, TBWA cannot be found at fault for liability arising from advertisements approved by Taco Bell.