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The Edge in College Preparation, LLC v. Peterson's Nelnet, LLC

United States District Court, D. Nebraska

August 8, 2019

THE EDGE IN COLLEGE PREPARATION, LLC, a New York limited liability company, Plaintiff and Counterclaim Defendant,
v.
PETERSON'S NELNET, LLC, a Nebraska limited liability company, Defendant and Counterclaimant. The Edge's Manuscript Nelnet's ACT Prep Guide

          MEMORANDUM AND ORDER

          JOHN M. GERRARD CHIEF UNITED STATES DISTRICT JUDGE.

         The parties in this lawsuit are generally in the business of test preparation for college entrance exams. Filing 100 at 1. The plaintiff, the Edge in College Preparation, agreed to write an ACT test preparation manuscript for the defendant, Peterson's Nelnet. Filing 111-9 at 23; see also filing 111-9 at 1-25. But at some point, Nelnet decided it no longer wanted to work with the Edge. Now, the Edge is suing Nelnet for allegedly breaching its contractual obligations and infringing on the Edge's copyrighted work. Filing 76 at 3-8. Nelnet has filed a counterclaim arguing that the Edge, too, breached the parties' agreement. Filing 77 at 9-10.

         This matter is before the Court on the parties' cross-motions for summary judgment (filing 93 and filing 99). For the reasons set forth below, the Court will grant the Edge's motion for partial summary judgment (filing 93) in part and deny it in part. The Court will also deny Nelnet's motion for summary judgment (filing 99) in its entirety.

         BACKGROUND

         Jessica Davidoff is the sole member of the Edge in College Preparations, a New York limited liability company. The Edge specializes in providing one-on-one tutoring for high school students taking college entrance exams such as the ACT or SAT. Filing 101 at 1. Peterson's Nelnet is generally in the business of creating test guides and study materials for students taking those same college entrance exams. Filing 101 at 1-2.

         After a series of negotiations, the Edge and Nelnet entered into a Publishing Agreement. Filing 111-2 at 12-14; filing 111-9 at 1. Under that agreement, the Edge promised to write the manuscript for Nelnet's 2016 ACT Preparation Guide, in several batches. Those batches were deliverable to Nelnet on a periodic basis from July 2015 to December 2015. Specifically, the Edge agreed to submit the following portions of work "in a form ready for review": (1) Introductory Material (2) English, (3) Math, (4) Reading, (5) Science, and (6) Essay Samples. Filing 111-9 at 5; filing 112-3; filing 112-8 at 1-2. In return, Nelnet agreed to pay the Edge $60, 000 within ten days of the execution of the agreement, another $60, 000 on September 1, 2015, and a final $60, 000 upon final written acceptance of the Edge's work. Filing 95-18 at 5.

         But as soon as the Edge submitted its first "batch" of the manuscript- introductory material-a dispute arose. Filing 101 at 13. According to Nelnet, the manuscript was not the quality of work Nelnet anticipated or expected. Filing 101 at 13. Specifically, Nelnet claims that the Edge omitted material required under the parties' agreement, and the work that was submitted was woefully inadequate. Filing 101 at 13. Nelnet expressed its concern with the quality of the manuscript and gave the Edge the opportunity to revise its work and submit a second draft. Filing 101 at 14. The Edge agreed to do so, and submitted a revised version of the introductory material on July 22, 2015. Around the same time, the Edge turned in its next batch of the manuscript-- English. Filing 101 at 14.

         But after receiving the Edge's revised "batch one" submission and the second batch of the manuscript, Nelnet decided to exercise its right to terminate the parties' agreement. Filing 112-13 at 2. That intention was orally communicated to the Edge and further confirmed through a series of emails on August 10, 2015. Filing 95-3 at 44-45; filing 112-13 at 2; see also filing 111-3 at 47. Specifically, in one email communication, Nelnet told the Edge that it would be "working on the official Termination Notice with [its] legal counsel," but that the Edge should "consider this response confirmation to our conversation and termination." Filing 95-3 at 41.

         A few days later, but before sending the Edge an "official" termination notice, Nelnet initiated discussions with a different author, Red Letter Content. Filing 111-4 at 12. Specifically, on August 13, 2015, Nelnet's managing editor sent Red Letter Content an email that attached both batches of the Edge's manuscript. Filing 95-3 at 49. In this email, Nelnet asked Red Letter Content to "take a look [at the Edge's manuscript] and give [Nelnet] an evaluation on what you think you could repurpose from these sections and use in the book you are currently writing for us." Filing 95-3 at 50. After reviewing the Edge's manuscript, Red Letter Content agreed to write the manuscript for Nelnet's 2016 ACT Preparation Guide. Filing 95-2 at 44.

         On August 17, 2015--the same day that Nelnet finalized its new agreement to work with Red Letter Content, see filing 95-2 at 44--Nelnet also sent the Edge a letter that, at least in Nelnet's view, purported to amend the parties' Publishing Agreement. Filing 112-15 at 3. That letter gave the Edge two options: it could either "pay to [Nelnet] the sum of $51, 000" or

enter into (and execute and deliver) a separate agreement mutually acceptable to both [the Edge] and [Nelnet] pursuant to which [the Edge] will commit to develop and deliver to [Nelnet] a manuscript for a derivative work entitled "Countdown to the ACT" (or a similar title), the necessary effort and work with respect to which will be commensurate with a work for which [Nelnet] would be willing to pay the sum of approximately $60, 000.

         Filing 112-15 at 3.

         The Edge rejected both proposed amendments in an August 18 response letter. Filing 112-16. There, the Edge acknowledged Nelnet's right "pursuant to Section 8 of the Agreement . . . to exercise its discretion to terminate" the agreement. Filing 112-16 at 13. But the Edge also noted that Nelnet had terminated the parties' agreement on August 10, 2017 when it provided the Edge with confirmation of termination. Filing 112-16 at 13. Based on its understanding of the August 10 conversation, the Edge explained its position that although Nelnet would not be required to pay the Edge any additional payments, the Edge would retain the $60, 000 it already received from Nelnet for its work on the first two batches of the manuscript. Filing 112-16 at 13.

         Once Nelnet and the Edge officially parted ways, this litigation ensued. According to the Edge, much of its allegedly unworkable content actually ended up in Nelnet's final preparation guide. See filing 76 at 6. Based on the substantial similarities between the two works, the Edge sued Nelnet for copyright infringement. The Edge also claims that Nelnet breached the parties' Publishing Agreement by terminating the contract without "affording [the Edge] the reasonable opportunity to improve or correct" the manuscript. Filing 76 at 6. Nelnet filed its own breach of contract counterclaim, alleging that the Edge breached the terms of the parties' original Publishing Agreement by not providing Nelnet with quality work. Filing 77 at 7.

         STANDARD OF REVIEW

         Summary judgment is proper if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). The movant bears the initial responsibility of informing the Court of the basis for the motion, and must identify those portions of the record which the movant believes demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant does so, the nonmovant must respond by submitting evidentiary materials that set out specific facts showing that there is a genuine issue for trial. Id.

         On a motion for summary judgment, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts. Id. Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the evidence are jury functions, not those of a judge. Id. But the nonmovant must do more than simply show that there is some metaphysical doubt as to the material facts. Id. In order to show that disputed facts are material, the party opposing summary judgment must cite to the relevant substantive law in identifying facts that might affect the outcome of the suit. Quinn v. St. Louis County, 653 F.3d 745, 751 (8th Cir. 2011). The mere existence of a scintilla of evidence in support of the nonmovant's position will be insufficient; there must be evidence on which the jury could conceivably find for the nonmovant. Barber v. C1 Truck Driver Training, LLC, 656 F.3d 782, 791-92 (8th Cir. 2011). Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Torgerson, 643 F.3d at 1042.

         DISCUSSION

         I. BREACH OF CONTRACT

         The parties have moved for summary judgment on various contractual allegations concerning the parties' Publishing Agreement. Filing 93; filing 99. Under Nebraska law, to recover in an action for breach of contract, the plaintiff must prove the existence of a promise, its breach, damage, and compliance with any conditions precedent that activate the defendant's duty. Solar Motors v. First Nat. Bank of Chadron, 545 N.W.2d 714 (Neb. 1996).

         Neither party disputes the validity of the agreement, but the parties do generally dispute whether the terms of that agreement were breached. See filing 93; filing 99. More specifically, Nelnet argues that because the Edge failed to submit a complete, quality work product, the Edge necessarily breached the terms of its agreement. And the Edge, for its part, claims that Nelnet breached the agreement when it terminated the parties' obligations without giving the Edge the opportunity to revise its manuscript. The Court will consider each of those arguments in turn below.

         (a) The Edge's Breach of Contract Claim

         Nelnet claims that it is entitled to summary judgment on the Edge's breach of contract claim for at least two reasons. First, Nelnet contends that the Edge, rather than Nelnet, actually terminated that agreement, warranting dismissal of the Edge's breach of contract claim. See filing 101 at 21. Alternatively, Nelnet argues that even if it did terminate the Publishing Agreement, that termination cannot, as a matter of law, amount to a breach of the agreement because Nelnet could terminate the parties' obligations at its sole discretion. Filing 101 at 7.

         Nelnet's former contention is easily disposed of. According to Nelnet, it did not breach the terms of the Publishing Agreement. Filing 112-15 at 1. That is true, Nelnet contends, because its August 17, 2015 letter is not a termination, but rather, a modification of the parties' agreement.[1] Filing 112-15 at 1. In support of that argument, Nelnet points out that it gave the Edge two options for modification: the Edge could either execute a separate agreement agreeable to both parties, or pay back a portion of the funds it already received under the initial Publishing Agreement. Filing 112-15 at 3. So, Nelnet concludes, the Edge actually terminated the Publishing Agreement by rejecting those modifications.

         The problem with that argument, though, is that either option necessarily requires the termination of the original Publishing Agreement: that is, the Edge could either (1) execute a separate agreement for a smaller manuscript (i.e., terminating the initial Publishing Agreement), or (2) the Edge could pay back the funds it received from Nelnet for its promise to deliver a satisfactory manuscript under the initial agreement (i.e., terminating the parties' obligation under the Publishing Agreement). And that construction of Nelnet's August 17 letter makes sense when considering the letter in its entirety. See generally Eastep v. Nw. Nat. Life Ins. Co., 208 N.W. 632, 634 (Neb. 1926). Indeed, an earlier paragraph of that letter makes it clear that the Edge "shall not be obligated to furnish any more services or deliver any further or additional portions of the Work to [Nelnet] under the Agreement," and Nelnet "shall not be obligated to furnish any more services or pay any further or additional amounts of money to [the Edge] under the Agreement." Filing 112-15 at 3.

         In other words, the August 17 letter does not modify the terms of the Publishing Agreement: instead, it makes clear that the parties' obligations under the original agreement are terminated.[2] So, to the extent that Nelnet's motion for summary judgment rests on a construction of its August 17 letter as a "modification," that motion will be denied. Solar Motors, 545 N.W.2d at 721.

         Nelnet's alternative argument, that it cannot be liable under the Edge's contract theory because the contract permitted Nelnet to part ways with the Edge, fares somewhat better, but still ultimately fails at this point of the proceeding. To support why, in its view, it did not breach the terms of the parties' ...


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