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Adtrav Corp. v. Duluth Travel Inc.

United States District Court, N.D. Alabama, Southern Division

January 17, 2018

ADTRAV CORPORATION, Plaintiff/Counterclaim-Defendant,
v.
DULUTH TRAVEL, INC., Defendant/Counterclaimant.

          MEMORANDUM OPINION [1]

          T. MICHAEL PUTNAM UNITED STATES MAGISTRATE JUDGE

         This is a breach of contract action between two travel agencies involved in providing travel-related services to the Veterans Administration. After initially joining forces to win and execute a contract with the VA, disputes between them resulted in a breach in their contractual relationship and ultimately to this action. The court conducted a non-jury bench trial on March 20-22, 2017, allowing the parties to file post-trial briefs by May 18, 2017. Based on the testimony, evidence, and arguments of counsel, the court reaches the following findings of fact and conclusions of law.

         I. Findings of Fact

         1. Plaintiff ADTRAV Corporation is a commercial travel management company located in Birmingham, Alabama, specializing in providing travel services to corporate and governmental clients. The sole owner and CEO of ADTRAV is Roger Hale. Since 2000, ADTRAV has operated as a national travel agency for various governmental entities, with about 40% of ADTRAV's business being government travel management.[2]

         2. Defendant Duluth Travel, Inc., is a smaller travel agency headquartered in Duluth, Georgia, near Atlanta. Its owner and principal is Arthur Salus. The VA regarded Duluth as being a “Service Disabled Veteran-Owned Small Business, ” eligible to compete for a set-aside contract for travel services for VA employees and beneficiaries.

         3. In the mid-1980s ADTRAV gained approval from the General Services Administration (“GSA”) to provide travel services for government agencies. This required setting up a dedicated telephone line which government employees could call to arrange official travel. Under its government contracts, ADTRAV was required to make periodic reports related to the costs, fees, and charges incurred for official government travel.

         4. In 2004, Hale met Salus and Ed Arias, an employee of Duluth, at a travel trade conference and they began discussing how they could work together to obtain a travel-services contract from the VA. Duluth had the proper designation as a “Service Disabled Veteran-Owned Small Business” and ADTRAV had the experience and resources to run a government contract.

         5. In December 2005, ADTRAV and Duluth entered into the first of a series of agreements[3] to jointly solicit and carry out a contract with the VA. That agreement was soon superseded by another agreement on January 12, 2006, then by an amended agreement later in January 2006, which became the operative contract between Duluth and ADTRAV for the next several years.

         6. Under the 2006 agreement, the parties agreed to divide the VA work between them, “striving” to reach the goal that Duluth would perform 51% of the work and ADTRAV 49%. The parties set up a dedicated telephone line for VA clients to call for travel-related services. The telephone was programmed to divide incoming calls between the agencies on the basis of 51% of calls to Duluth and 49% of calls to ADTRAV. It was always understood, however, that “whoever did the work, got the money.”

         7. Ed Arias, Vice President of Operations at Duluth, was tasked with monitoring the division to work between the parties to strive to the goal of a 51% to 49% division of the work.

         8. The arrangement was understood as a division of work, not necessarily income. The 2006 contract did not require a strict arithmetic division of income on a 51% to 49% basis. Rather, the agreement divided the work between the parties with a goal of achieving a 51% to %49 division of income.

         9. The parties recognized that the division of income in any particular timeframe would not necessarily reach the 51% to 49% goal. Because ADTRAV was performing the “back office” accounting, it sent weekly and monthly reports to Duluth, detailing the income and expenditures related VA travel. Arias was responsible for receiving and reviewing the reports for Duluth and making any adjustments in workload between Duluth and ADTRAV to try to achieve the goal. The parties clarified this understanding in a modification to their joint operating agreement, dated October 23, 2007, which stated:

Distribution of Worldspan Segment Fees and Vendor Commissions and Overrides: Worldspan segment fees will be distributed to Duluth and ADTRAV based on a monthly transaction percentage. The monthly transaction percentage shall be equal to the total number of airline transactions handled by each partner divided by the total number of transaction processed for the month. Both partners understand that the intent is for this distribution to be made on a 51%/49% (Duluth/ADTRAV) basis. If the actual percentage for any month varies from this amount by more than 5%, both partners agree to develop a plan to modify the business practices in order to achieve the 51%/49% distribution. [Italics added].

(Pl.'s Ex. 5, Doc. 134-6).[4] This modification made clearer that the 51% to 49% distribution was based on the division of work, not a strict division of the revenue.

         10. The joint operating agreement between the parties also included a license from ADTRAV for Duluth to use proprietary software and “scripts” developed by ADTRAV, including “with respect to the all Worldspan scripting (‘Scripts') developed by ADTRAV, specifically the ‘ticketing script', ‘WOW script['] and any other scripts that ADTRAV may develop for use by Licensee on the Department of Veteran's Affairs (VA) account; and any of the ‘RezSuite' software including but not limited to RezProfiler, RezTracker, RezProfiler [sic], RezCritique, RezViewer, RezOptions, RezRequest and RezReporter and is effective October 3, 2007 (the ‘Effective Date').” (Pl.'s Ex. 6, Doc. 134-6). In return for that license, Duluth was to pay ADTRAV $0.50 for each reservation made by Duluth pursuant to the VA contract.

         11. Under the 2006 (and later) agreement, revenue for travel services to the VA came from distinct streams. First, the VA would pay a “transaction fee” (sometimes referred to as an “air service fee”) for every reservation or booking made by Duluth or ADTRAV under the VA contract. Second, segment fees were paid by Worldspan, an airline reservation service, [5] for every “segment” of an airline flight booked by Duluth or ADTRAV through the Worldspan system. Segment fees were in the nature of a commission, collected from the airline and paid to the travel agent making the booking. These fees were collected from the airlines by Worldspan and reported and paid to Duluth or ADTRAV using an “ARC” (Airline Report of Commission) number. (See Tr. at 565). For purposes of the VA contract, both Duluth and ADTRAV used Duluth's ARC number to make airline reservations. Third, Worldspan paid a $230, 000 “signing bonus” for entering into a five-year contract with it. Fourth, hotels paid commissions for reservations, usually equal to ten percent of the total room charge for the reservation. In most instances, commissions were collected from hotels and paid to travel agents through “consolidators” such as Pegasus, TACS, and Paymode, although some hotels paid commissions directly to travel agents by mailing them a check. Frequently such a check would represent commissions from multiple reservations with little information concerning the amount of each separate booking and commission. Finally, rental car companies also paid commissions, but this was a relatively small part of the VA-contract business.

         12. To administer the revenue from the VA contract, Duluth and ADTRAV opened a joint banking account in 2007, into which all VA-related revenue was to be deposited. That account was replaced by another joint bank account in February 2011.

         13. The majority of income flowing into the joint bank account came from the transaction fees paid by the VA for each travel-related transaction (airline booking, hotel reservation, etc.) performed by Duluth or ADTRAV under the contract. Approximately seventy-five percent of the revenue attributable the VA travel business came from these transaction fees paid by the VA.[6]

         14. Worldspan provided a “double MIR” reporting system that electronically populated ADTRAV's TRAMS accounting system with ARC data related to airline bookings, passenger information, fees, and charges. Because this was a “double MIR, ” Duluth also received an electronic copy of the Worldspan reports directly from Worldspan. Arias used these reports to check the accuracy of the net weekly and net monthly reports submitted to Duluth by ADTRAV.

         15. From 2007 to 2009, Duluth made no complaints to ADTRAV about the accuracy or completeness of the financial reports it submitted.

         16. In 2009, a controversy developed between Duluth and ADTRAV over bidding on a travel contract for the Commonwealth of Pennsylvania. Duluth first identified the business opportunity and brought it to ADTRAV's attention. Initially ADTRAV believed that it could partner with Duluth to bid on the Pennsylvania “small business” contract, but soon discovered that the “small business” had to be a Pennsylvania business. ADTRAV then pursued the Pennsylvania contract without Duluth, which Duluth believed was unethical since it was Duluth who brought the potential business to ADTRAV in the beginning.

         17. To settle the dispute, the parties renegotiated the VA joint operating agreement to increase Duluth's share of the work (and corresponding income) to 60% in return for elimination of the provision in the 2006 agreement requiring the parties to share future business opportunities unrelated to the VA contract.

         18. By 2010, the parties became aware that the VA planned to rebid its travel-management contract. In anticipation of participating in the rebidding, the parties entered into a new joint operating agreement, dated December 16, 2010, [7](referred to hereafter as the “2010 Agreement”). Parts of the agreement became effective immediately, while other parts became effective only if and when the parties successfully won the VA travel-contract rebid.[8] The division of work (and corresponding revenue) was changed to 75% for Duluth and 25% for ADTRAV, effective upon successfully obtaining the VA travel contract anticipated to be let in October 2011.

         19. Beginning in 2010, pursuant to the 2010 Agreement, all Worldspan revenue was shifted to the Duluth ARC number and reported to Duluth.[9] Duluth caused the revenue to be deposited into its exclusive bank account, rather than the joint account set up by the parties. ADTRAV protested the fact that the ARC revenue was not going into the joint bank account, but Duluth continued to have the deposit made to its account.

         20. In March 2011, Duluth also deposited all of a $230, 000.00 incentive bonus paid by Worldspan, although this was unknown to ADTRAV at the time and was discovered only later. When discovered later, Duluth and ADTRAV reached agreement on June 19, 2012, that Duluth would pay ADTRAV its share of the incentive bonus in three installments, of which $34, 500 was due in April 2013. (Plaintiff's Ex. 53, Doc. 134-15). The April 2013 installment was never paid.

         21. It was not until August 8, 2011, that the VA issued its solicitation for bids on the new travel-services contract, to be effective October 1, 2011. However, the VA awarded the new contract to Alamo, not Duluth. Duluth and ADTRAV jointly protested the award, and the VA awarded Duluth a “bridge” contract while the protest was underway. Ultimately, the VA upheld the protest and awarded the new travel contract to Duluth, effective April 1, 2012. (Plaintiff's Ex. 44, Doc. 134-14).

         22. By 2012, however, Arthur Salus had determined that he no longer wanted Duluth to partner with ADTRAV for VA business and he was seeking a way to end the relationship. On December 31, 2012, Duluth refused to extend Arias's employment contract and he ceased working for Duluth.

         23. Beginning in January 2013, Duluth stopped paying ADTRAV its share of Worldspan segment fees, hotel and car rental commissions, and Duluth's share of airline “debit memos.”[10] Duluth also stopped paying technology fees for the use of ADTRAV's “scripts, ” although it continued to use the “WOW” script for some time. Duluth stopped paying accounting fees to ADTRAV.

         24. Unknown to ADTRAV and in apparent anticipation of the bidding of a new VA travel contract in the fall of 2013, Duluth entered into an agreement on May 1, 2013, for another company, Travel Incorporated, to provide the “back office” accounting ADTRAV had been providing under the 2010 Agreement.

         25. On June 11, 2013, Duluth received notice of a new VA solicitation for bids for travel services. Three days later, on Friday, June 14, 2013, Duluth notified ADTRAV by email letter that it would no longer need ADTRAV to perform “back office” accounting and reporting for the VA contract. (Plaintiff's Ex. 62, Doc. 134-21). Duluth shut off ADTRAV's access to the Duluth ARC number and Worldspan, depriving ADTRAV of the ability to make VA-related airline reservations. Importantly, although the June 14 letter states that Duluth was undertaking the action because ADTRAV “failed to honor the terms of the Agreement” and “committed acts that would amount to material breach, ” Duluth explicitly stated that it “is not our intent… even to terminate the Agreement.” (Plaintiff's Ex. 62, Doc. 134-21). Rather, Duluth asserted that the 2010 Agreement would expire at the end of September 2013, upon the expiration of the then-ongoing VA travel contract.

         26. ADTRAV responded to the email notice, demanding that Duluth “reinstate our full access to the VA portions of both the Worldspan and TRAMS systems by Monday to correct this egregious breach of our operating agreement.” (Plaintiff's Ex. 63, Doc. 134-22). Access was restored by Duluth on Monday, June 17, 2013.

         27. On June 24, 2013, ADTRAV mailed a letter to Duluth, responding to the assertions made in the June 14 letter. ADTRAV's letter outline eight ways in which it believed Duluth was in violation of the 2010 Agreement and the corrections needed to remedy the violations. The letter also demanded four payments ADTRAV claimed were due under the 2010 Agreement:

1. ADTRAV's portion of the January 2013 to May 2013 VA revenue in the amount of $40, 018.29 as shown on [an] attached reconciliation.
2. ADTRAV's final payment of the Worldspan “signing bonus” in the amount of $34, 500 that was due in April 2013.
3. ADTRAV's portion of the Worldspan revenue in the amount of $30, 378.84 that was withheld during Duluth's negotiation with Worldspan (Travelport) for the waiver of the shortfall penalty[.]
4. ADTRAV to distribute $6, 560.72 to ADTRAV and $13, 416.15 to Duluth representing the hotel and car commission collected during the January to May, 2013 period. This money [was then] in the joint bank account.

         (Plaintiff's Ex. 64, Doc. 134-23). Duluth made none of the payments demanded.

         28. Also unknown to ADTRAV, Duluth bid on the new VA contract without the participation of ADTRAV, and was awarded a new VA accommodated contract on October 1, 2013, lasting for one year to October 1, 2014.

         29. In November and December 2013, the parties met several times to negotiate a resolution of their disputes. It appears, however, that ADTRAV continued to actively partner with Duluth to provide travel-related services to the VA during this period. See Plaintiff's Exs. 331-335, Docs. 134-254 through 134-258. Using the “Partner Splits” documents from October 2012 to September 2013 (Plaintiff's Exs. 319-330. Docs. 134-242 through 134-253) as a measure of VA-business activity during those months, Duluth had average monthly net revenue of approximately $9, 644, compared to ADTRAV's average net revenue of $6, 362.[11]Together, Duluth and ADTRAV issued a monthly average of 9, 387 tickets for all airlines through Worldspan and Sabre. By comparison, in the months of October 2013 through January 2014 (see Plaintiff's Exs. 331-334, Docs. 134-254 through 134-257), Duluth's monthly average revenue was approximately $5, 252 and ADTRAV's was $2, 624. In October 2013 through December 2013, they issued an average of 5, 781 tickets in each month through Worldspan and Sabre.[12]

         30. Ultimately, on January 10, 2014, ADTRAV mailed the following letter to Duluth:

This letter is to notify Duluth Travel, Inc. (“Duluth”) that because of Duluth's nonpayment of amounts owed to ADTRAV, Inc. (“ADTRAV”), ADTRAV will cease providing services to Duluth on January 17, 2014. Duluth should make appropriate arrangements prior to that date.
Duluth owes ADTRAV over $200, 000.00, some of it for services rendered over a year ago. ADTRAV has been extremely patient with Duluth and has been trying since June to get paid for services rendered. It is undisputed that Duluth owes ADTRAV $86, 751.32 through November 2013 for work performed on the VA account. In spite of the fact that this undisputed amount is owed, Duluth has refused to pay it to ADTRAV. In addition, Duluth owes ADTRAV $143, 646.13 as ADTRAV's portion of World Span revenue earned and payable under the contracts.
On November 21, 2013, ADTRAV advised Duluth that ADTRAV would cease providing services if ADTRAV did not receive payment. In spite of not being paid, ADTRAV continued to work in hopes that Duluth would do the right thing and pay ADTRAV the amounts due. On December 13, 2013, ADTRAV again advised Duluth that it would cease providing services if it was not paid for the services previously rendered. Notwithstanding ADTRAV's reasonable request that it be paid for services rendered, Duluth has refused to do so. Duluth continues to withhold payment and try and use these withheld funds to force ADTRAV to make concessions to Duluth. ADTRAV is not willing to modify its agreement or release amounts owed to it in order to obtain money clearly due it. Furthermore, ADTRAV is not willing to continue working without compensation. Accordingly, ADTRAV will cease to provide services to Duluth on January 17, 2014, and, effective on that date, Duluth will no longer be authorized to utilize any of ADTRAV's technology or software. Upon receipt of payment in full along with appropriate assurances of timely future payments, ADTRAV will discuss resuming services.
This termination of services will not apply to Duluth's access to and use of the VA pseudo city numbers with SABRE that are currently assigned to ADTRAV. Likewise, ADTRAV expects Duluth to continue providing the same access to the Worldspan pseudo city numbers currently assigned to Duluth for the provision of services used by ADTRAV.
In light of Duluth's conduct, ADTRAV is not interested in pursuing with Duluth the contract for VA embedded travel services. Since the embedded travel services are not included in the contract, each party is free to pursue those services separately or in conjunction with another party.
We regret that Duluth chose to continue to refuse to pay ADTRAV for services rendered. In light of Duluth's unjustified refusal to make payment and after months of trying to obtain payment, ADTRAV has no choice but to immediately commence litigation to recover these past due amounts, as well as its damages from Duluth's breach of the contract.

(Plaintiff's Ex. 73, Doc. 134-25). ADTRAV filed the instant complaint that day, January 10, 2014.

         31. Despite this letter, ADTRAV stated in an email exchange on January 16, that it would continue to make two agents available to take VA-travel calls, but Duluth declined to utilize ADTRAV's agents, believing that ADTRAV was “trying to back up on [its] notice that they were cutting all services.” (Plaintiff's Ex. 125, Doc. 134-29).

         32. Despite the January 10 letter, Duluth continued to use ADTRAV's “WOW” script without paying a technology fee of $0.50 per transaction. On January 30, 2014, ADTRAV's attorneys emailed and mailed a letter to Duluth's counsel, saying:

ADTRAV Travel Management, Inc. (“ADTRAV”) has reason to believe that Duluth Travel Inc. (“Duluth”) is currently using technology and software owned by ADTRAV without ADTRAV's permission and without compensating ADTRAV for its use. In fact, it appears that Duluth actively reinstalled an earlier version of the software without authorization, in order to enable Duluth to obtain unauthorized access to ADTRAV's software and technology in conscious violation of the proprietary rights of ADTRAV. As previously stated, Duluth is not authorized to use ADTRAV's technology and software and must immediately cease using it and remove all such technology and software from its computers and systems. Please confirm in writing when this has been done.
If Duluth does not immediately cease using ADTRAV's software and technology in violation of ADTRAV's proprietary rights, then ADTRAV will seek assistance from the Court to address this willful conversion of ADTRAV's proprietary rights.

(Plaintiff's Ex. 74, Doc. 134-26). Plaintiff's Ex. 414 (Docs. 134-334 through 352) shows the use of the “WOW” script from at least January 1 through May 31, 2014. After May 31, Duluth cut off ADTRAV's access to Duluth's Worldspan reports.

         33. Duluth received total revenue of $1, 743, 656.84 under its VA accommodated contract from October 1, 2013, to September 30, 2014, when it expired.

         II. Conclusions of Law

         This is a breach of contract action in which both parties allege that the other substantially breached the material terms of their 2010 Agreement for managing travel-related services for the Veterans' Administration. Plaintiff ADTRAV initiated the action by filing the complaint in 2014, to which Duluth answered and counterclaimed.

         A. Choice of Laws

         The first question the court must confront-one that neither party briefed- is whether to apply the substantive contract law of the State of Alabama or the State of Georgia to the issues raised in this matter. The 2010 Agreement itself is ambiguous, containing the following provision:

This Agreement and all obligations of the parties hereunder shall be interpreted, construed, and enforced in accordance with the laws of the State of Georgia and Alabama; provided, however, that if Georgia's conflict or choice of law rules, statutes or constitutional provisions would choose the law of another state, each party waives such rules, statutes or constitutional provisions and agrees that Georgia substantive, procedural and constitutional law shall nonetheless govern.

(Plaintiff's Ex. 22, Doc. 134-10, ¶ 25). While the first clause of the provision seems to indicate that the contract be construed simultaneously under both Alabama and Georgia law, the latter clause seems to point to application of Georgia law, even if Georgia's own choice of law rules dictate the use of the law of another state.

         In its earlier Memorandum Opinion granting partial summary judgment (Docs. 92), the court clearly relied on Alabama law to interpret and apply the provisions of the 2010 Agreement, and neither party has raised any issue with the court having done so. Indeed, to the extent any state-law authority is cited in either party's post-trial briefs, it is almost exclusively Alabama law.[13] See, e.g., Duluth's Post-Trial Brief, Doc. 146, at pp. 11, 18, 24; ADTRAV's Post-Trial Brief, Doc. 145, at pp. 8, 20, 21, 22. The parties seem to agree that Alabama law should control, as no one has argued otherwise, even after the court expressly used Alabama law to resolve summary judgment motions. By and large, moreover, there appears to be little material difference between Alabama law and Georgia law on the substantive contractual issues discussed here. For these reasons, the court will rely on Alabama law, noting any significant differences that may exist in Georgia law.

         B. Breach of Contract

         The parties do not dispute the existence of a contractual agreement between them or that it was based on sufficient consideration. The question presented here is whether either party breached the 2010 Agreement by failing to substantially perform under it.

         The elements of a breach-of-contract claim are “(1) a valid contract binding on the parties; (2) the plaintiff's performance under the contract; (3) the defendant's nonperformance; and (4) resulting damages. ECR Properties, LLC v. Camden County Dev., LLC, 998 F.Supp.2d 1295, 1303 (M.D. Ala. 2014) (citing Barrett v. Radjabi-Mougadam, 39 So.3d 95, 98 (Ala.2009)). Both parties allege, either in the complaint or the defendant's counterclaim, that the other failed to perform the substantial obligations of the Agreement.

         To state and prove a claim for breach of contract, Alabama law requires a plaintiff to prove its own substantial performance[14] of its obligations under the contract. For example:

In order to prevail on a breach-of-contract claim, a plaintiff must prove, among other things, “[its] own performance under the contract.” State Farm Fire & Cas. Co. v. Williams, 926 So.2d 1008, 1013 (Ala. 2005). In order to satisfy that element, the plaintiff must prove that it substantially performed its obligations under the contract. See Mac Pon Co. v. Vinsant Painting & Decorating Co., 423 So.2d 216, 218 (Ala.1982). “Substantial performance of a contract does not contemplate exact performance of every detail but performance of all important parts.” Id. “Whether a party has substantially performed a promise under a contract is a question of fact to be determined from the circumstances of each case.” Cobbs v. Fred Burgos Constr. Co., 477 So.2d 335, 338 (Ala.1985).

Superior Wall & Paver, LLC v. Gacek, 73 So.3d 714, 721 (Ala. Civ. App. 2011); see also Sweetwater Investors, LLC v. Sweetwater Apartments Loan LLC, 810 F.Supp.2d 1288, 1295 (M.D. Ala. 2011). “If a plaintiff substantially performs, ‘immaterial deviations will not prevent recovery of the contract price, less the amount required to indemnify for injuries sustained by such deviations.'” ECR Properties, LLC v. Camden County Dev., LLC, 998 F.Supp.2d 1295, 1304 (M.D. Ala. 2014) (quoting Huffman-East Dev. Corp. v. Summers Elec. Supply Co., 288 Ala. 579, 263 So.2d 677, 680 (1972)).[15] Furthermore, “[a] material breach of a contract ‘is one that touches the fundamental purposes of the contract and defeats the object of the parties in making the contract.'” Bentley Systems, Inc. v. Intergraph Corp., 922 So.2d 61, 93 (Ala. 2005) (quoting Sokol v. Bruno's, Inc., 527 So.2d 1245, 1248 (Ala.1988)). “‘Substantial performance is the antithesis of material breach. If a breach is material, it follows that substantial performance has not been rendered.'” Harrison v. Family Home Builders, LLC, 84 So.3d 879, 889 (Ala. Civ. App. 2011) (quoting John D. Calamari & Joseph M. Perillo, The Law of Contracts § 11.18(b) (4th ed. 1998)). “‘“Breach” consists of the failure without legal excuse to perform any promise forming the whole or part of the contract.'” Hanuman, LLC v. Summit Hotel OP, LP, No. 2:13-CV-02234-HNJ, 2017 WL 4508158, at *4 (N.D. Ala. Oct. 2, 2017) (quoting McGinney v. Jackson, 575 So.2d 1070, 1071 (Ala. 1991)).

         Likewise, the plaintiff must prove that the defendant's non-performance is material, not merely trivial or insignificant. The non-performance must be “one that touches the fundamental purposes of the contract and defeats the object of the parties in making the contract.'” Bentley Systems, Inc. v. Intergraph Corp., 922 So.2d 61, 93 (Ala. 2005) (quoting Sokol v. Bruno's, Inc., 527 So.2d 1245, 1248 (Ala.1988)); see also Hanuman, LLC v. Summit Hotel OP, LP, No. 2:13-CV-02234-HNJ, 2017 WL 4508158, at *4 note 5 (N.D. Ala. Oct. 2, 2017); Nationwide Mut. Ins. Co. v. Clay, 525 So.2d 1339, 1343 (Ala. 1987) (“Under general principles of contract law, a substantial breach by one party excuses further performance by the other.”) (emphasis added); Birmingham News Co. v. Fitzgerald, 133 So. 31, 32 (Ala. 1931) (“Every breach of a contract is, of course, inconsistent with the contract; but every breach by one party does not authorize the other to renounce it in toto”) (citation omitted).

         Before a party to a contract may terminate the contract based on the alleged failure of the other party to substantially perform, the first party must be able to show that second party's failure of performance was so serious that it constitutes a defense to any action by the second party due to the termination of the contract by the first party. As the Alabama Court of Civil Appeals has explained:

“‘[N]ot every partial failure to comply with the terms of a contract by one party... will entitle the other party to abandon the contract at once.'” Birmingham News Co. v. Fitzgerald, 222 Ala. 386, 388, 133 So. 31, 32 (1931) (quoting 6 R.C.L. p. 926). In the case now before us, in order for the [plaintiffs] to establish that they had the right to unilaterally terminate the contract…, they bore the burden of proving that [defendant] had committed a breach of the contract that was “‘of so material and substantial a nature as would constitute a defense to an action brought by [defendant] for [plaintiffs'] refusal to proceed with the contract.'” Id. (quoting 3 Williston on Contracts § 1467). “Whether or not a given breach is so material or essential may ...

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