Wednesday, November 18, 2015
Last week in class we discussed the famous case Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (1962). The case involved a contract wherein the Peevyhouses allowed Garland to strip-mine on their farm property. In lieu of the standard $3,000 up-front payment for surface damages, the Peevyhouses negotiated a clause requiring Garland to perform certain "restorative and remedial work" on the property after completing their mining operations. Garland mined the property and extracted their profits, then breached the restoration provision. The Peevyhouses sued for breach of contract. The evidence at trial apparently provided the cost to perform the work would be $29,000 -- but that the diminution in property value resulting from the breach was only $300. The jury split the difference, sort of, by awarding the Peevyhouses $5,000, an amount the Oklahoma Supreme Court declared to be "more than the total value of the farm even after the remedial work is done."
The Oklahoma Supreme Court modified the judgment for the Peevyhouses, awarding $300 -- the value lost. To say the least, the decision remains a controversial one. In 2008, at PrawfsBlawg, Eric E. Johnson (North Dakota) conducted a survey to name "The Most Screwed Victims in Case-Law History." Willie and Lucille Peevyhouse won that competition in a landslide. Twenty years ago, Judith Maute published a comprehensive article on the case, Peevyhouse v. Garland Coal & Mining Co. Revisited: The Ballad of Willie and Lucille in the Northwestern Univ. Law Review. Maute's article is fascinating for many reasons, not the least of which is the section on the Oklahoma Supreme Court bribery scandal that followed the case. Whether that scandal contributed to the Peevyhouse result remains, it seems, an open question.
Peevyhouse exemplifies the "economic waste doctrine" -- a contract law doctrine memorialized in the Restatement. The doctrine finds its origins in Jacob & Youngs, Inc. v. Kent, 129 N.E. 889 (9121). There, a homeowner sued the home builder for using Cohoes plumbing pipe when the contract required Reading brand pipe. Reversing the trial court's decision to exclude diminution of value evidence, the Court held that cost to complete is the proper damages measure unless, "the cost of completion is grossly and unfairly out of proportion to the good to be attained.” The defendant in Jacobs & Young appear to have the better of the argument -- in Peevyhouse, not so much (hence perhaps the result in Johnson's poll, above). Scholars have written to distinguish the two cases and better define the economic waste doctrine's contours. A good starting point is Carol Chomksy, "Of Spoil Pits and Swimming Pools: Reconsidering the Measure of Damages for Construction Contracts," 75 Minn. L. Rev. 1445 (1991) (download link).
More recently, the Oregon Supreme Court discussed its economic waste doctrine at some length in Montara Owners Assoc. v. La Noue Development, Inc., 353 P.3d 563 (Or. 2015) in a case ultimately decided on harmless error grounds. For its own part, the Oklahoma Supreme Court affirmed the Peevyhouse holding on certified question in Schneberger v. Apache Corp., 890 P.2d 847 (1994).
 Restatement (Second) Contracts, sec. 348, cmt. c (1981).
Wednesday, April 8, 2015
Einer Elhauge (Harvard) has posted "Contrived Threats v. Uncontrived Warnings: A General Solution to the Puzzles of Contractual Duress, Unconstitutional Conditions, and Blackmail" on SSRN. The article is forthcoming in University of Chicago Law Review. This is the abstract:
Contractual duress, unconstitutional conditions, and blackmail have long been puzzling. The puzzle is why these doctrines sometimes condemn threatening lawful action to induce agreements, but sometimes do not. This article provides a general solution to this puzzle. Such threats are unlawfully coercive only when they are contrived, meaning the threatened action would not have occurred if no threat could be made. I show that such contrived threats can be credible because making the threat strongly influences whether the threatened action occurs. When such threats are uncontrived warnings, meaning the threatened action would have occurred even if no threat could be made, they are not coercive and can only benefit the agreeing parties. However, sometimes (as with blackmail) agreements produced by uncontrived warnings are also unlawful on the different grounds that they harm third parties. The contrived-threat test explains why the Medicaid defunding threat in Obamacare was unconstitutional and why (in the pending Supreme Court case) interpreting Obamacare as threatening to withhold tax credits from States that do not create insurance exchanges should either be rejected under the canon of avoidance or result in constitutional invalidation of that threat.
Tuesday, May 21, 2013
Morris Nichols recently published an interesting piece on the enforceability of contracts to extend the time period for the application of a statute of limitations. http://www.mnat.com/assets/htmldocuments/MorrisNichols_HeringDiVincenzo_May2013.pdf
Friday, May 17, 2013
ContractsProf Blog (A Member of the Law Professor Blogs Network) has been hosting a series of short reviews of Margaret Radin's new book Boilerplate: The Fine Print, Vanishing Rights and Rule of Law. Contributions so far have been by Ethan Leib (Fordham), David Horton (UC Davis), Andrew Gold (DePaul), Theresa Amato (Citizen Works), and Peter Alces (William & Mary). It looks like there may be more to come.
Hat Tip: Kim Krawiec at The Faculty Lounge
Thursday, May 9, 2013
A recent decision by the Massachusetts Supreme Judicial court holds that a forum selection and limitation of liability clause is not enforceable under Massachusetts law in a browsewrap agreement. This is an interesting opinion because it touches on a number contract law issues and estate law issues (not covered in this post) as applied to cyberspace.
The case involves the interpretation of Yahoo!'s Terms of Service (TOS) relating to its free email service. The case was brought by the administrators of the estate of a Yahoo email user to get court approval for access to the account and the content of the emails. Because the Yahoo! TOS had a forum selection clause requiring that all disputes be brought in California, the Court had the opportunity to interpret the enforceability under Massachusetts law of such clauses in online agreements. After noting that the SJC has not previously considered the enforceability of forum selection and limitation of liability clauses in online agreements, it looked to the case law on such issues in traditional paper contracts. In those cases, courts have enforced such provisions as long as they have been reasonably communicated and accepted and if, considering all the circumstances, it is reasonable to enforce the provision at issue. The burden on the first prong fall on the issuer of the TOS. On the second prong (that the TOS themselves were reasonable), in the forum selection case, the burden falls on the plaintiffs, and no such burden applies in case of a limitations provision.
The Court also held that Yahoo! failed in showing that the TOS were accepted. Past cases have enforced such provisions only in click-wrap agreements (where "terms of the agreement were displayed, at least in part, on the user's computer screen and the user was required to signify his or her assent by clicking 'I accept.'"), but not in browsewrap agreements (where "website terms and conditions of use are posted on the website typically as a hyperlink at the bottom of the screen."). On that basis, the Court refused to extend the enforceability to browsewrap agreements and held that the record did not show "the terms of any agreement were reasonably communicated or that they were accepted."
The Court also held that the TOS would not be enforceable against the estate adminstrators because they were not third party beneficiaries of this contract. The Court looked to precedent from other jurisdictions on this issue, where courts have held nonsignatory third parties could be bound where the nonparty is "sufficiently closely related to a signatory that it is foreseeable that the nonsignatory will be bound."
Finally, the Court also found the forum selection clause itself to be unreasonably broad. The clause provided: "You and Yahoo agree to submit to the personal and exclusive jurisdiction of the courts located within the county of Santa Clara, California." The Court held that as written this provision would require a suit of any nature to be brought in California, even if it had nothing to do with the email account or the online terms. It reasoned that this provision should not be enforced "articularly since it was contained in a consumer contract drafted unilaterally."
Adjunct Law Professor of Corporate Mergers and Acquisitions
New England School of Law
Thursday, May 2, 2013
Recent Massachusetts Supreme Judicial Court Decision Interprets a Landlord’s Indemnification Rights under a Commercial Lease
A recent decision by the Massachusetts SJC provides a short master class on indemnification provisions in a commercial lease. (For those interested, a link to the oral argument can also be found here.) While I do not focus on real estate in my practice or teaching, a lease is a contract like any other, so it seemed worthwhile to review this decision.
The case involved a long term commercial lease in downtown Boston. The lease started in 2006, and two years later (2008 was not exactly a great real estate market) the tenant suspended its business operations and stopped paying rent, causing the landlord to declare a default, terminate the lease and seek to re-let the premises. The landlord ultimately filled the space almost two years later, albeit at a lower overall rent, but for a new lease term that went beyond the term of the terminated lease. The landlord then sought to recover its lost rent for this period (including the period following the original lease term) from the original tenant (and its guarantor).
The lease contained a general indemnification clause requiring the tenant to indemnify the landlord against “all loss of rent and other payments which Landlord may incur by reason of such termination during the remainder of the term." The lease did not grant the landlord a liquidated damages remedy or any other remedy apart from indemnification.
In a colorful opinion, citing Oliver Wendell-Holmes (citing Lord Coke), the Court ruled that Massachusetts law does not permit the landlord, absent an express lease provision, to recover lost rent for time periods outside of the original lease term. Distinguishing this case from a 1905 decision cited by a lower court in this proceeding, the SJC held that a landlord cannot recover for post-termination damages under an indemnification clause in a lease until the end of the period specified in the lease, when the amount of indemnification is uncertain, unless the indemnification clause specifically provides that damages may be recovered earlier. The Court sympathized with landlord’s argument that being required to wait until the end of the lease term to enforce an indemnity could be prejudicial in various ways, including that the tenant may be long gone by that point and any adjudged amount may prove uncollectible. However, the Court refused to adopt an exception to this common law rule, reasoning that landlords are in the best position to assess this type of risk and therefore should be required to state so in their leases. The Court stated that “a landlord left without an adequate remedy following breach … has only itself to blame for entering into a lease that fails to provide such a remedy.”
The Court also rejected the landlord’s argument that it was entitled to recover "benefit of the bargain" damages in the event of termination of the lease following a breach. The Court followed the long-standing common law that once a landlord terminates a lease, the tenant is no longer obligated to pay the rent, and, unless the lease provides otherwise, the landlord is not entitled to post-termination damages.
This case emphasizes the importance of carefully drafted remedy provisions in any commercial documents. Parties should not place their faith on courts to help them recover damages for which they did not negotiate, and would be well-advised to review their lease forms in light of this decision.
Adjunct Law Professor of Corporate Mergers and Acquisitions
New England School of Law
Thursday, April 25, 2013
Jan Wolfe, The AmLaw Litigation Daily, reports that U.S. District Judge Otis Wright II, issued a summary judgment order last week bringing to a close litigation initiated a decade ago by the heirs to Superman's co-creator, Jerry Siegel, to reclaim copyright to the iconic (and lucrative) character.
Apprarently, in 1938, Seigel and his co-creator, Joe Schuster, sold the Superman character to Detective Comics for $130. Over the years, the buyer's successors have paid pension and compensation under different agreements, however, in this particular litigation, Siegel's heirs sought to reclaim the copyright under the so-called "termination rights" provision of the Copyright Act. Judge Wright's order brings this effort to a close it appears.
The case is Laura Seigel Larson v. Warner Bros. Entertainment, Inc., Case No. 2:04-cv-08776-ODW(RZx), in the United States District Court for the Central District of California.
Wednesday, April 24, 2013
Often complex business deals are built upon multiple contract which taken together lead to a single business transaction. When and to what extent may a prevailing party in an American Rule jurisdiction collect attorney's fees from the breaching party when that single business transaction goes wrong and some but not all contracts contributing to the transaction include a provision for recovering attorney's fees? The Supreme Court of Connectucut, in a case of first impression, tackled that very question Tuesday in Total Recycling Services of Conn., Inc. v. Connecticut Oil Recycling Services, LLC., No. 18823, 2013 WL 1500840 (Conn. April 23, 2013).
Total Recycling originates from the sale of an oil recycling business expressed by the parties in three contracts - an equipment contract, a goodwill contract and a noncompete contract. The goodwill and noncompete contracts included a provision entitling the defendant to attorney's fees if the plaintiff breached the agreement -- the equipment contract did not.
Disputes arose between the parties with the plaintiff and defendant filing claims and counterclaims against one another. The plaintiff prevailed on its unjust enrichment claim only while the defendant prevailed on claims that plaintiff breached the contracts, though damages were assessed only as to the equipment contract. The trial court denied defendant's claim for attorney's fees because the contract upon which defendant recovered damages did not include an attorneys fees recovery provision, a reasoning later rejected by the intermediate appellate court.
On remand, the trial court denied the attorney's fees claim because the defendant failed to apportion attorneys fees among the three contracts. The intermediate appellate court affirmed the denial on those grounds. The Supreme Court certified this question: "Did the Appellate Court improperly affirm the judgment of the trial court denying the defendant's motion for contractual attorney's fees?" The Supreme Court answered this question affirmatively and remanded for further proceedings.
The Supreme Court held, "when certain claims provide for a party's recovery of contractual attorney's fees but others do not, a party is nevertheless entitled to a full recovery of reasonable attorney's fees if an apportionment is impractical because the claims arise from a common factual nucleus and are intertwined." The court concluded that defendant should not be required to apportion attorney's fees between the goodwill and noncompete contract claim, for which attorney's fees were recoverable, and the equipment contract, for which attorney's fees were not recoverable, because the claims involved the same transaction, the same parties, the same conduct and the same time frame. Under these circumstances, the court concluded apportioning attorneys fees among and between the contracts was not practicable.
Tuesday, February 23, 2010
The program includes grouping papers within major topics. Refer to the conference program for the complete presentation listing -- these are the major topics:
Friday, February 26th
**The Contract Law System and Power - Past, Present and Future
**Incomplete Information and Contract Law
**Arbitration and Unconscionability in Rent-a-Center West v. Jackson and Elsewhere
**Forming Contracts and Similar Relationships
**Vive la Difference!: Comparative Contract Theory
Saturday, February 27th
**Insurance and Contracts
**Morality and Contract Law
**Contract at the Systemic Level
**Catch and Release: When Should Contract Law Let a Party Off the Hook and When Should It Reel Them In?
**Failures of Statutory and Regulartory Regimes: Can Contract Law Help?
**Can I Get a Remedy?
**Contracts "Teach In" Redux (Part Two)
Monday, January 4, 2010
From the Associated Press:
The University of Hawaii has decided to unilaterally slash faculty salaries by 6.7 percent beginning this week to cope with state budget cuts, the school announced.
University President M.R.C. Greenwood on Monday said in a letter to faculty that the cuts would take effect Friday and would be reflected in paychecks issued Jan. 15. Faculty will be informed of details in a payroll notification that the school plans to distribute early next month.
The school must act because it's been unable to reach a settlement with the faculty union on a new collective bargaining agreement during 15 months of negotiations, Greenwood said.
Monday, October 12, 2009
On August 21, 2009 Adjunct Prof reported on the important case coming out of a Maryland federal court which held that employee furloughs violated the Contract Clause. A copy of that posting as well as the decision is available here. On August 31, 2009, the National Law Journal recognized the significance of this decision, here. The article notes that decision was actually the 2d important decision this summer. As the article states:
A pair of recent court rulings are giving unions new and potentially potent ammunition against furloughs of public employees.
On Aug. 18, a federal judge struck down a furlough plan in Prince George's County, Md., holding that the plan violated the U.S. Constitution by unilaterally cutting wages guaranteed through collective bargaining. On July 29, a state judge in Hawaii issued a similar ruling, saying a furlough violated the state constitution and criticizing officials for ordering unpaid leave without first negotiating with public employee unions.
The Hawaii case was based upon state law grounds. Nevertheless, it may prove significant. The article also highlights pending similar state and federal litigation throughout the country.
Mitchell H. Rubinstein
Thursday, August 20, 2009
In Fraternal Order of Police v. Prince George's County, No. AW--08-2455 (S.D. Maryland August 18, 2009), Judge Alexander Williams in a 45 page well written decision held that and Employee Furlough Program (EFP) violated the Contract Clause of the U.S. Constitution because the EFP substantially impaired the County's existing collective bargaining agreements with its unions. A copy of that decision is available here.
Download Furlough decision The Washington Post ran a story about this case on August 19, 2009, here.
The Contract Clause provides: "No State shall . . .pass any. . .Law impairing the Obligation of Contracts." Its intent was to prevent state governments from altering existing contractual obligations. A Contract Clause analysis involves 3 questions; First, is there an impairment, second, is it substantial and third is it nevertheless permissible as a legitimate exercise of the governments powers.
The court found it significant that the employer stated that if the employees gave up their COLA adjustment, we would not be here today. The court had questions as it how the County determined how much of the short fall the unions should absorb and whether the fiscal crisis was the primary reasons for the EFP. The county also presented the union with its fiscal crisis on the eve of the new fiscal year.
The decision is very lengthly and it cannot be fully analyzed on a blog post.
There is relatively little case law on this important part of our constitution. Law review commentary on this issue would be welcome.
Mitchell H. Rubinstein
Friday, July 11, 2008
A client hires an attorney to represent him in a case. The client signs an engagement letter to pay the attorney $200.00 per hour and further agrees to rates applying to the attorney's staff. The attorney and client negotiate a $10,000 retainer, later reduced by agreement to $5,000. At the case's conclusion, attorney bills client for $35,304 after crediting the client the $5,000 retainer paid. Client pays only $5,000 on the outstanding balance.
After failing to collect, attorney sues client for nonpayment. The client argues that because the written contract did not explicitly state whether the parties had agreed to an open account or a flat, maximum fee, the contract was ambiguous and therefore, a fact issue existed regarding the contract terms. The trial court disagreed and granted summary judgment for the attorney, but a Texas Court of Appeals held that the parol evidence could be admitted to raise a fact issue and reversed the trial court's decision.
Today, the Supreme Court of Texas in a per curiam decision reversed the appellate court and reinstated the trial court's judgment. Here is the critical passage in the court's opinion:
The plain language of the engagement letter demonstrates that Haden agreed to pay Sacks an hourly fee, and that no cap on fees was set. Haden argues that a fee agreement must specifically state that hourly fees will accrue without limit in order for the agreement to be unambiguous and enforceable. But the lack of such explicit language is irrelevant if the agreement can be reasonably interpreted only one way. We have never held that an open-ended hourly fee agreement will be enforced only if it expressly states there is no cap on fees, and we decline to do so now. If a contract is unambiguous, the parol evidence rule precludes consideration of evidence of prior or contemporaneous agreements unless an exception to the parol evidence rule applies.
The case is Sacks v. Haden ___ S.W.3d ___ (Tex. July 11, 2008).