By Gerald L. Maatman, Jr., Justin R. Donoho, and George Schaller
Duane Morris Takeaways: On February 10, 2025, Judge Aleta A. Trauger of the U.S. District Court for the Middle District of Tennessee denied class certification in a case involving breach of contract and a disputed element of mutual assent a/k/a meeting of the minds, in Hall v. Warner Music Group Corp., No. 22-CV-0047 (M.D. Tenn. Feb. 10, 2025). The ruling is significant as it shows that plaintiffs who file class action complaints alleging breach of contract cannot satisfy Rule 23’s commonality requirement where the issue of whether the parties agreed to a material term of contract requires individualized inquiry into the parties’ minds and whether they met.
Background
This case involving lack of mutual assent is one of the many since the famous case of Raffles v. Wichelhaus, 159 Eng.Rep 375 (1864), in which the defendant agreed to purchase cotton arriving in a ship named “Peerless” arriving while cotton prices were low, whereas the plaintiff seller had in mind a different ship by the same name arriving while cotton prices were high. (And where the English High Court found no binding contract).
In Hall, the plaintiffs, two musical artists, sued for breach of implied contract against a record label. The parties had entered into a written recording agreement providing for the payment of 8% royalties at a time before the invention of digital streaming and not expressly covering distribution through digital streaming. Hall, slip op. at 2. In 2005, when the label started streaming plaintiffs’ music digitally both domestically and internationally, it began to pay the plaintiffs at the higher rate appearing on their royalty statements of 50%. Id. at 3, 14. For foreign digital streaming, the 50% rate was applied after the deduction of a payment to the foreign distributor. Id. at 12-13. It was common in the industry and a consistent course of dealing of the defendant to apply royalty rates to digital streaming revenues received only after payment to the foreign distributor. Id. The plaintiffs accepted these digital streaming royalty payments for years without viewing the royalty statements or “attempting to identify the revenue base against which a royalty rate for foreign streaming was applied . . . until [one of the plaintiff’s] first discussion with one of his attorneys in this case.” Id. at 15.
The plaintiffs moved for class certification under Rule 23. The plaintiffs maintained that they met the commonality requirement because they and other artists with legacy contracts received royalty payments for foreign streaming sales with statements indicating an unqualified 50% royalty. Id. at 10-11. In contrast, the record label maintained that a claim for breach of implied contract requires the plaintiffs to prove that a valid and enforceable contract was formed between the label and “each class member, which will require an individualized inquiry into the knowledge, understanding, and intent of the artists, including whether the artist even looked at the royalty statements, whether the artists construed them to offer an implied amendment, what exactly the artist believed those implied terms to be, whether the artist had a good-faith belief about a possible rescission claim, whether the artist would have rescinded unless paid at the source, whether the artist intended to forbear, and when (if ever) these events occurred.” Id. at 11 (emphasis in original). In other words, according to the record label, the common question, “was an implied contract formed?” could not be answered by a simple yes or no without such an individualized inquiry. Id.
The Court’s Decision
The Court agreed with defendants and held that plaintiffs did not carry their burden of showing commonality.
Central to Court’s holding was the “problematic question of mutual assent.” Id. at 18. As the Court explained, “even if the court presumes that other putative class members’ royalty statements look like the plaintiffs’ and that there are common questions regarding the defendants’ conduct that may yield common answers (i.e., that the royalty statements do not expressly reflect that the royalties are calculated based [after paying the foreign distributor]), it is clear that the threshold question of whether an implied contract between [the label] and each putative class member was formed does not yield a common answer but, instead, will depend entirely on the particularized circumstances of each artist whose contract, like the plaintiffs’, does not expressly provide for royalties on foreign digital streaming.” Id.
In short, the Court reasoned that “the named plaintiffs’ particularized circumstances show that they simply never thought about whether an implied contract had been formed or its terms until approached by lawyers. Other artists may have paid closer attention to their business arrangements.” Id.
In conclusion, the Court noted that, “to the extent there are questions of fact or law common to the plaintiffs and all putative class members, the relative importance of these common questions pales in comparison to the importance of those that do not yield a common answer — primarily the question of whether implied contracts were formed at all.” Id. at 23.
Implications For Companies
The Hall decison is a win for defendants of breach of contract class actions involving the issue of whether the parties had a meeting of the minds on a material term of contract. In such cases, the Hall decision can be cited as useful precedent for showing that the commonality requirement is not met because individualized inquiries predominate when it comes to analyzing evidence regarding a meeting of the minds.
The Court’s reasoning in Hall applies not only in cases involving: (1) commercial form contracts, like in Hall, but also (2) alleged employment contracts, see Cutler v. Wal-Mart Stores, Inc., 927 A.2d 1 (Md. Ct. App. 2007) (affirming denial of motion for class certification, stating, “Any determination concerning a ‘meeting of the minds’ necessarily requires an individual inquiry into what each class member, as well as the [employer’s] employee who allegedly made the offer, said and did”); In re Wal-Mart Wage & Hour Emp. Pracs. Litig., 2008 WL 3179315, at *19 (D. Nev. June 20, 2008) (denying motion for class certification, stating, “Plaintiffs’ breach of contract claims would involve particularized inquiry into contract formation, including such issues as meeting of the minds”); (3) form real estate contracts, see Haines v. Fid. Nat’l Title of Fla., Inc., 2022 WL 1095961, at *17 (M.D. Fla. Feb. 17, 2022) (denying motion for class certification, stating, “If a buyer and seller interpreted [the agreement] the way [seller] interprets the provision, their meeting of the minds would have a significant impact upon any potential liability for [seller]. In that regard, the buyer’s and seller’s state of mind for each transaction are relevant . . . individualized discovery and factfinding regarding each buyer’s and seller’s intent and understanding would be required”); and (4) alleged contracts regarding the use of AI, see Lokken v. UnitedHealth Group, Inc., 2025 WL 491148, at *8 (D. Minn. Feb. 13, 2025) (finding insureds’ claim against health insurer for breach of contract regarding insurer’s use of AI-based automated decision making technologies not preempted by the Medicare Act and therefore allowed to proceed to discovery, raising the question of whether parties’ minds met via the insurer’s explicit descriptions of its “claim decisions as being made by ‘clinical services staff’ and ‘physicians,’ without mention of any artificial intelligence”).