Paris Hilton was in the news again last week–this time because she is being sued by Hairtech International for not fulfilling her endorsement contract. As such a high-profile breach of contract situation, I thought I would use this opportunity to explore contract breaches, whether damages are appropriate, and what the result might be.
Here’s the basic background: Paris Hilton was paid around $3,500,000 (paid as royalties for expected profits over 3 years) to endorse and wear hair extensions by Hairtech. Among other things, they claim that she wore hair extensions by another company, failed to show up at a major industry function due to her being in jail at the time, and violated implied warranties in the contracts not to engage in the use of alcohol, drugs, or illegal activity.
(Download the Hairtech v Paris Hilton Complaint (PDF – 1.8 MB).)
Contract Breaches
As I have noted previously, a breach occurs when one party to a contract does not fulfill one or more material obligations of the agreement. Hairtech’s main claims regarding breach of the contracts involve the allegation that Hilton failed to wear its hair extensions per the agreement, and instead wore hair extensions by one of Hairtech’s competitors. (See pages 7 and 8 of the Complaint.) If the contracts were for exclusive use of Hairtech’s extensions by Hilton for the period of the contract, and that was the main thrust of Hairtech’s deal with Hilton, then that would very likely constitute a material breach. Basic breaches can be determined by deciding whether the spirit of the agreement was followed by a party. If not, then there may be a breach.
In this case, a cursory examination of the contracts shows that the main thrust of the agreement was for Paris Hilton to endorse the extensions through appearances in television commercials, printed advertising materials, and photo shoots, and more generally to associate Paris Hilton with Hairtech’s DreamCatchers line of hair extensions (as noted in the first contract’s Preamble, on page 14 of the Complaint). The contract does state (on page 17 of the Complaint) that Hilton would be unable to endorse products by direct competitors, but that does not seem to be at issue here.
Unfortunately, according to the first contract, Hairtech does not seem to have done anything requiring Paris Hilton to wear the extensions–just to endorse them and allow her face, name, and signature to be associated with them. (Their claims regarding her failure to show up at the launch party does seem substantiated, though, and Hairtech claimed $6.6 million of damages for that breach.)
Appropriateness of Damages
Generally, damages in contract law are thought of as compensation for a party that has been actually injured by another party’s failure to perform their contractual duties. So if you order a book from Amazon.com and send them the money for it and the book never arrives, Amazon has failed to perform its side of the contract, and you have been damaged by not having anything to show for your payment. If Amazon does not return the money, you have been damaged by them for the amount of the book.
The same principles apply in larger contract cases like this, but in this particular case, Hairtech is requesting punitive damages (i.e., punishment) and speculative damages. If we just analyzed it like the Amazon.com example above, then Hairtech could argue that they are owed the $3,500,000 they paid Paris Hilton for the endorsement because she didn’t do her job. Hairtech’s main argument, however, is that it expected to make $35,000,000 from the Paris Hilton endorsement, and they have not made that money due to the alleged breaches. This is a harder argument to make, though, because Hairtech will need to be able to show (1) why they expected to make $35,000,000 in three years, (2) that $35,000,000 of income in three years was a reasonable expectation, and (3) that their failure to achieve that amount was due directly to Paris Hilton’s failure to perform her duties according to the contract.
Even if we assume that Hairtech can prove the first two items, it will still be extremely difficult to show that the failure to make $35,000,000 was due entirely to the acts or omissions of Paris Hilton, and that as assessment that large is reasonable given what she was actually paid. Since the damages resulting from a breach are meant mostly to ensure that the non-breaching party is made whole, Hairtech can really only expect to retrieve the $3.5 million in addition to any sales they can prove are the actual fault of Hilton’s actions. I believe a request for $35 million in this situation is ludicrous and that if any verdict or settlement is reached, it will be for an amount far less than that.
A Possible Conclusion
Given the facts, the allegations, and the contracts, I do not expect that Hairtech will come out of this situation with much of a damages award. The contracts are very clearly for the use of Paris Hilton’s likeness, not for the demand that she continually wear specific hair extensions for two years. Additionally, the claims that her use of drugs and alcohol damaged Hairtech’s sales is silly. First, if they did any sort of investigation before the agreement was made, they would know that she was already known for that sort of behavior. And second, the claim that there is an implied statement in the contracts banning her from those behaviors is ungrounded; there is no reason to think that a person’s use of alcohol or drugs would impact these contracts, especially when Hairtech knew about Hilton’s tendencies already.
I expect that if Hairtech can show that Hilton breached part of the contract by failing to appear for the launch party, then the most they can expect to recover will be a percentage of the $3.5 million she was paid for those services, along with any money Hairtech can prove was lost due to her absence at that single event. Even if they get everything they ask for on that count, it would be only $6.63 million–far short of the $35 million requested.
About Graham Martin
Graham Martin is a solo practitioner focusing on Contract law (including drafting, review, and litigation). He operates Martin Legal Services, LLC in the Minneapolis-St. Paul area.
