Arbitrator Grants Kramer Levin Client XM’s Motion to Dismiss Contract Claim as a Matter of Law

On August 28, 2009, the arbitrator in the case of Advanced Global Technology, LLC v. XM Satellite Radio Inc. granted the motion of our client, XM (now a subsidiary of Sirius XM), to dismiss as a matter of law a breach of contract claim seeking at least $60 million in lost profits damages. AGT had been given a non-exclusive license to develop and distribute radio receivers capable of receiving the XM broadcast service. The parties’ Master License Agreement contained a limitation of liability provision, the unambiguous language of which covered the lost profits damages sought by AGT. However, AGT invoked a line of New York authority holding that exculpatory clauses cannot protect a party which breaches a contract in “bad faith”; AGT alleged that XM repudiated the agreement in order to favor other distributors entitled to a lower profit margin than was AGT. XM based its motion on an evolving exception to this “bad faith” rule--namely, that a party acting in furtherance of its own “legitimate economic self-interest” will not be found to have acted in bad faith and, in this circumstance, the parties will be bound to their agreed upon LOL provision. The arbitrator agreed with XM’s contention that the statement of claim alleged, at most, legitimate economic self-interest on the part of XM. In granting this motion to dismiss, the arbitrator expressly noted that AGT in a prior federal action had taken 11 depositions upon which it could draw in framing its statement of claim and which (in the words of the decision) had to be weighed “in view of the Arbitrator’s obligation to consider matters of cost and efficiency”; AGT’s prior counsel in the federal action had represented that the agreement permitted the recovery of only extremely narrow damages; and the case law now clearly establishes that a legitimate economic self-interest overcomes allegations of bad faith.

Litigation partner Michael S. Oberman briefed and argued the motion, with the help of Intellectual Property partner Peter A. Abruzzese, Litigation associate Michael Eisenkraft, and with input from Individual Clients counsel Eve Preminger and Litigation special counsel Yehudis Lewis.