“The district court found that 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 

Facts: 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 aged 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. Alfaro showed these materials to Taco Bell’s vice president of brand management as well as to Taco Bell’s outside advertising agency. Alfaro tested the Psycho Chihuahua marketing concept with focus groups. Rinks suggested to Alfaro that instead of using the cartoon version of Psycho Chihuahua in its advertisements, 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 this concept to Taco Bell’s marketing department. One idea presented by Rinks and Shields was a commercial in which a male Chihuahua dog passed by a female Chihuahua dog in order to get to Taco Bell food. Taco Bell did 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. One commercial had a male Chihuahua passing up a female Chihuahua to get to a person seated on a bench eating Taco Bell food. Chiat/Day says that it conceived these ideas by itself. Taco Bell aired its Chihuahua commercials in the United States, and they became an instant success and the basis of its advertising. 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. On this issue, the district court agreed with the plaintiffs. The decision was appealed. 

Issue: Have the plaintiffs Wrench LLC, Rinks, and Shields stated a cause of action for the breach of an implied-in-fact contract? 

Language of the Court: The district court found that appellants produced sufficient evidence to create a genuine issue of material fact regarding whether an implied-in-fact contract existed between the parties. On appeal, Taco Bell argues that this conclusion was erroneous, and asserts that the record contains no evidence of an enforceable contract. We agree with the district court’s finding that appellants presented sufficient evidence to survive summary judgment on the question of whether an implied-in-fact contract existed under Michigan law. 

Decision: The U.S. court of appeals held that the plaintiffs had stated a proper cause of action against defendant Taco Bell for breach of an implied-in-fact contract. The court of appeals remanded the case for trial. 

Note: The U.S. Supreme Court denied review of the decision in this case. In 2003, a federal court jury ordered Taco Bell to pay $30 million to plaintiffs Thomas Rinks and Joseph Shields for stealing their idea for the Psycho Chihuahua commercials. Later, the court awarded an additional $11.8 million in prejudgment interest, bringing the total award to more than $42 million.

Ethics Questions: Did Taco Bell act ethically in this case? Did Chiat/Day act ethically in this case?