Ethics Implied-in-Fact Contract Prevents Unjust Result

Ethics Implied-in-Fact Contract Prevents Unjust Result

The appellants produced sufficient evidence to create a genuine issue of material fact regarding whether an implied-in-fact contract existed between the parties.”

—Graham, Circuit Judge

Thomas Rinks and Joseph Shields created the Psycho Chihuahua cartoon character, which they promote, market, and license through their company, Wrench LLC. Psycho Chihuahua is a clever, feisty cartoon character dog with an attitude, a self-confident, edgy, cool dog who knows what he wants and will not back down. Rinks and Shields attended a licensing trade show in New York City, where they were approached by two Taco Bell employees, Rudy Pollak, a vice president, and Ed Alfaro, a creative services manager. Taco Bell owns and operates a nationwide chain of fast-food Mexican restaurants. Pollak and Alfaro expressed interest in the Psycho Chihuahua character for Taco Bell advertisements because they thought his character would appeal to Taco Bell’s core consumers, males ages 18 to 24. Pollak and Alfaro obtained some Psycho Chihuahua materials to take back with them to Taco Bell’s headquarters.

Later, Alfaro contacted Rinks and asked him to create art boards combining Psycho Chihuahua with the Taco Bell name and image. Rinks and Shields prepared art boards and sent them to Alfaro, along with Psycho Chihuahua T-shirts, hats, and stickers. Rinks suggested to Alfaro that Taco Bell should use a live Chihuahua dog manipulated by computer graphic imaging that had the personality of Psycho Chihuahua and a love for Taco Bell food. Rinks and Shields gave a formal presentation of their concept of using an animated dog to Taco Bell’s marketing department. Taco Bell would not enter into an express contract with Wrench LLC, Rinks, or Shields.

Just after Rinks and Shields’s presentation, Taco Bell hired a new outside advertising agency, Chiat/Day. Taco Bell gave Chiat/Day materials received from Rinks and Shields regarding Psycho Chihuahua. Three months later, Chiat/Day proposed using a Chihuahua in Taco Bell commercials. Taco Bell aired its Chihuahua commercials in the United States, and they became an instant success and the basis of its advertising. Chiat/Day says that it conceived the advertising idea by itself. Taco Bell paid nothing to Wrench LLC or to Rinks and Shields. Plaintiffs Wrench LLC, Rinks, and Shields sued defendant Taco Bell to recover damages for breach of an implied-in-fact contract.

A federal court jury found that an implied-in-fact contract existed and that Taco Bell stole the plaintiffs’ idea for the commercial. The jury ordered Taco Bell to pay $42 million in damages to the plaintiffs. Wrench LLC v. Taco Bell Corporation, 256 F.3d 446, 2001 U.S. App. Lexis 15097 (United States Court of Appeals for the Sixth Circuit, 2001)

Ethics Questions

1. Did Taco Bell act ethically in this case? Did Chiat/Day act ethically in this case?

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