ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, May 6, 2016

Facebook Has to Face Illinois's Biometric Information Privacy Act

 Facebook in Laptop

Facebook was sued recently by a number of Illinois residents for its "Tag Suggestions" program. The complaint alleges that Facebook's facial recognition technology, employed to suggest to its users who they should be tagging in their uploaded photos, collected users' biometric data derived from their faces, secretly and without procuring informed consent, in violation of Illinois's Biometric Information Privacy Act ("BIPA"). Facebook moved to dismiss the complaint, in part on the fact that its Terms of Use require disputes with users to be governed by California law and therefore Illinois' BIPA was not applicable. But the recent decision by the Northern District of California in In re Facebook Biometric Information Privacy Litigation, Case No. 15-cv-03747-JD (behind paywall), found that Facebook has to contend with Illinois's BIPA. 

The court performed an analysis of whether or not Facebook's Terms of Use was a binding contract on the user plaintiffs. Before registration, each of the users was required to click a box or a button that clearly indicated that by doing so, they were stating that they had read and agreed to the Terms of Use. Therefore, the court found that the Terms of Use were binding on the users. In addition, every time Facebook updated its Terms of Use, it sent each user an e-mail informing them of modifications, as well as placed a "jewel notification" on their Facebook feeds. Therefore, there was no real dispute that each user had agreed to the current Terms of Use. There was also no dispute that the Terms of Use contained a California choice-of-law provision. 

Nevertheless, the court refused to enforce the provision. The court noted that part of the test in evaluating whether to enforce a choice-of-law provision is to consider whether California's law would be contrary to the "fundamental policy" of Illinois's law and, if so, whether Illinois would therefore have a "materially greater interest" than California in the case at issue. Here, Illinois is one of only a few states with a statute concerning biometrics; California has no such statute. The court found that Illinois's BIPA represented a fundamental policy of Illinois to protect its residents from unauthorized use of their biometrics, and that applying California law here instead of Illinois law would interfere with Illinois's policy. In fact, the court noted, enforcing the choice-of-law provision would effectively eliminate any effectiveness of BIPA whatsoever, because there would be no ability for Illinois residents to protect themselves against national corporations like Facebook. Therefore, the court found, Facebook has to deal with Illinois's BIPA, regardless of Facebook's attempts to limit the relevant laws of its service to only California's laws. 

This all leaves for another day whether the Tag Suggestions program actually does violate BIPA. 

May 6, 2016 in Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, May 5, 2016

Weekly Top Ten SSRN Contracts Downloads (May 5, 2016)

Top-10

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 414 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 150 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project 
3 146 How Do LLC Owners Contract Around Default Statutory Protections?
Peter Molk
Willamette University - College of Law 
4 142 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
5 137 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
6 125 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
7 116 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
8 114 Contract as Empowerment
Robin Bradley Kar
University of Illinois College of Law
9 113 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
10 98 The Culture of Private Law
Amnon Lehavi
Interdisciplinary Center Herzliyah - Radzyner School of Law

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 412 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 147 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 136 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 125 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
5 115 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
6 114 Contract as Empowerment
Robin Bradley Kar
University of Illinois College of Law
7 111 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
8 89 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck
9 76 Farewell to Unjustified Enrichment?
Nils Jansen
University of Muenster
10 75 The Common Law of Contract and the Default Rule Project
Alan Schwartz and Robert E. Scott
Yale Law School and Columbia University - Law School

May 5, 2016 in Recent Scholarship | Permalink | Comments (0)

What Health Insurance Companies Write Binds Even In Spite of Interpretation Difficulties

An Eighth Circuit Court of Appeals case demonstrates the importance - even to health care services providers – of carefully scrutinizing contractual provisions in contracts with health insurance companies. In spite of some contractual interpretation difficulties, the Eighth Circuit has found that the contractual language binds. It favored the insurance companies, even on a motion for summary judgment. The case is 32nd Street Surgery Center (“32nd Street”) v. Right Choice Managed Care (“insurer”), No. 15-1727. https://www.courtlistener.com/opinion/3197844/32nd-street-surgery-center-v-right-choice-managed-care/

In this case, the health care provider 32nd Street contracted with the insurer to become a network provider, which ensures increased patient volume as well as marketing and promotion by the insurer. In exchange for these benefits, a network provider generally agrees to receive discounted reimbursement rates. The disputed contract stipulated that a network provider is one “designated to participate in one or more [of insurer’s] Networks.” Another contractual stipulation stated, in much legalese, that if 32nd Street’s participation was limited to a certain plan, which it was, it would only receive the discounted in-network reimbursement rates for services in relation to other plans of which it was not a member. In other words, even though 32nd Street had contracted for only one certain “stick” in the insurance provider’s overall bundle, the entire lower insurance bundle pricing applied to 32nd Street.

This is boiled down from many gobbledygook contractual stipulations that, to me, seemed to indicate at least some reasonable factual doubt and thus at a minimum not to be suitable for summary judgment. But the court found the contract provisions sufficiently clear for that standard. Claims of unjust enrichment and quantum meruit were also rejected because they sound in quasi-contract whereas Missouri law does not allow such remedies when an express contract exists.

In today’s health insurance company apparent strong-arming tactics and power grabs, this case again demonstrates the importance of making sure that one has read and truly understands all the contractual provisions in the health care context. However, that is, as this case and others demonstrate, difficult enough to do for corporations with, presumably, sufficient assistance of counsel. But where does such law and precedent leave private individuals encountering similar problems? Not in a good place. This area is ripe for abuse by the stronger contractual party, which in this context always seems to be the health care insurance company. Arguments of good faith and fair dealing are, as this case demonstrates, largely or entirely ignored. The court did in this case. Good luck to future patients encountering problems of this nature. Further regulations truly seem to be in order in the health care field.

May 5, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 4, 2016

Oops! Will That Typo Cost You?

According to a recent Eleventh Circuit case, Patterson v. CitiMortgage, Inc., No. 14-14636, the answer is no. 

Toby Breedlove (an additional plaintiff in the suit) had bought a house with a CitiMortgage loan. After falling behind in his payments and hoping to avoid a foreclosure, Breedlove sought to sell the house to Patterson in a short sale. Patterson and CitiMortgage negotiated over a price. Patterson offered $371,000, which was rejected; then $412,000, which was rejected; then $444,000. It is the response to the offer of $444,000 that is at issue here. 

CitiMortgage sent Patterson a letter that stated that it wished to receive a payoff of $113,968.45. This was not what CitiMortgage meant to communicate. That amount is clearly much lower than the amounts which the parties had been discussing. Nevertheless, Patterson received the letter and immediately agreed to go forward with the deal. Patterson did not confirm the amount of the deal; neither did CitiMortgage. On the date of closing, CitiMortgage received the payment of $113,968.45 and at that point realized its mistake. It contacted the closing attorney's assistant and stated that it was rejecting the funds and would be returning them. CitiMortgage then contacted Patterson and informed him that it had meant to accept the $444,000 offer, with a few tweaks. Patterson, however, demanded that CitiMortgage accept the $113,968.45 for the house, since that had been the amount stated in CitiMortgage's letter. 

For reasons that are never made clear, two years went by before CitiMortgage took any further action, moving to foreclose on Breedlove's house. That resulted in this lawsuit seeking to enforce the sale of the house for $113,968.45. 

The question in this case was whether CitiMortgage's unilateral clerical error in the letter to Patterson prevented the parties from forming a valid contract. Georgia courts (the law that applied) often do not save contracting parties from their own mistakes if due diligence would have prevented the error. However, Georgia courts also refuse to allow parties to take advantage of obvious mistakes made by the other side. When the other party should have known that there was a mistake involved, then that can be grounds for rescinding the contract. And here, CitiMortgage's mistake should have been obvious to Patterson. They had been discussing numbers in the $400,000s; he should have realized that a number in the $100,000s had to be a typo. Therefore, there was no contract between the parties. 

May 4, 2016 in Recent Cases, True Contracts | Permalink | Comments (2)

Tuesday, May 3, 2016

Announcement: Martin J. Katz and Phoenix Cai to Give Keynote Address at Emory Law’s Fifth Biennial Conference on Teaching Transactional Law and Skills (June 10-11)

At Emory University Law School’s upcoming June conference focused on the art and science of teaching transactional law and skills, the dynamic duo of Martin J. Katz and Phoenix Cai will deliver a keynote address entitled – “Encouraging this Particular Form of (Very Fun) Madness – Roles for Deans and Faculty Members.”

Marty Katz is Dean and Professor of Law at the University of Denver, Sturm College of Law. Under his leadership, Denver Law developed and implemented a major strategic plan that included initiatives in experiential learning and specialization. He is a founding board member of Educating Tomorrow’s Lawyers, a national consortium of law schools that serve as leaders in the experiential education movement. Dean Katz’s recent publications include “Facilitating Better Law Teaching – Now” (Emory Law Journal) and “Understanding the Costs of Experiential Legal Education” (Journal of Experiential Learning).    

Phoenix Cai is the founding director of the Roche International Business LLM Program and Associate Professor of Law at the University of Denver, Sturm College of Law. The Roche LLM in International Business Transactions is an intensive and experiential graduate program designed to train both U.S. and foreign lawyers in private transactional law. Prior to joining Denver Law, Professor Cai was a corporate lawyer specializing in both domestic and international mergers and acquisitions, banking, finance, and securities law.

Don’t miss this opportunity to hear Dean Katz and Professor Cai share their thoughts about how deans and faculty members can promote excellence in transactional law and skills education.

For more information about the Conference, including a list of the many other esteemed presenters and the topics they will cover, go to our conference website. If you would like to register for the Conference, please go here.

May 3, 2016 | Permalink

Arbitration Clauses in Legal Fee Agreements

We all know about arbitration clauses but a recent case out of California, East Coast Foods v. Kelly, Lowry & Kelley, LLP, No. B262679, had something to say about arbitration specifically in the case of legal fee disputes. Is the arbitration clause in an engagement agreement between lawyer and client enforceable? In this case, yes. 

East Coast Foods is perhaps best known through one of its businesses, Roscoe's House of Chicken 'N Waffles. There was a copyright dispute raised by ASCAP over allegedly unlicensed public performance of music. After being sued by ASCAP, East Coast Foods sought to retain counsel. After discussions, Kelly sent East Coast's general counsel a fee agreement. The fee agreement was three pages long and had eleven paragraphs. Paragraph 7 was an arbitration clause. Although there was disagreement over exactly when East Coast's president Herbert Hudson signed the fee agreement, it was undisputed that he did sign and return it to Kelly. 

Kelly represented East Coast throughout the course of the copyright litigation, which lasted three years and included an appeal to the Ninth Circuit. At the end of the litigation, which ended in a judgment for ASCAP, East Coast stopped paying Kelly for the legal fees incurred, even though Kelly alleged that East Coast still owed over $81,000. 

A few months after the end of the litigation, East Coast sued Kelly for malpractice. Kelly answered the complaint by asserting that the fee dispute was subject to mandatory binding arbitration pursuant to the terms of the fee agreement. East Coast, however, argued that the arbitration clause was unenforceable because it had not been adequately disclosed or explained to East Coast. 

While it's true that an attorney-client relationship is full of fiduciary obligations and ethical responsibilities, the court here found that that relationship does not relieve a party of its responsibility to read a contract before signing it. The fee agreement represents a negotiation of employment, basically, which a lawyer is allowed to treat as an arm's-length negotiation. Here, the arbitration provision was clear and conspicuous. The agreement was not a long one, and the provision was not buried in legalese. Indeed, the fee agreement was initially sent to East Coast's general counsel to review, so it wasn't as if East Coast didn't have an opportunity to have the agreement reviewed by an attorney. There was no indication that East Coast couldn't have asked questions or even attempted to negotiate the fee agreement's terms. The circumstances here raised no red flags of fraud or unconscionability. 

Therefore, this appellate court found, the trial court was correct in compelling arbitration and in confirming the arbitrator's award, which found in favor of Kelly to the tune of over $400,000. 

May 3, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Monday, May 2, 2016

You Might Think City Buses Don't Have a System, But They Totally Do! (it just might be copyright infringing)

  MTA bus Nashville TN 2013-12-27 002

Entities and people come together, do business, have disagreements, go their separate ways. It happens all the time. But nowadays, since so many things have embedded software, these break-ups of business relationships have copyright implications. If you don't have a license to continue using the embedded software, when you break up with another business, that means you have to stop using whatever contains the software, too. Theoretically. 

A recent case out of the Middle District of Tennessee, ACS Transport Solutions, Inc. v. Nashville Metropolitan Transit Authority, 3:13-CV-01137, dealt with this issue. The Nashville Metropolitan Transit Authority ("MTA") had contracted with ACS to develop a system for MTA to manage its buses. The system ACS created contained copyrighted software that ACS expressly licensed to MTA. A few years after the development of the system, MTA discontinued its relationship with ACS, but it continued to use the system that contained the embedded software. ACS contacted MTA and told it that it was using the software without a license and infringing ACS's copyright. Nevertheless, MTA continued to use the system with the embedded software, and so ACS eventually brought this lawsuit. 

MTA argued that, when it terminated its relationship with ACS, it did not terminate the license to use the software, and so it was still properly licensed. However, MTA's relationship with ACS was governed by a contract, within which was the software license. Terminating the relationship set forth by that contract, the court found, necessarily terminated the software license also found in that contract. 

MTA additionally argued that it had paid for the system and that therefore it should be entitled to use the software within the system indefinitely. ACS did agree that MTA had paid for the system and would not have owed ACS any further payments...if ACS and MTA had fulfilled the rest of their contractual obligations. Instead, ACS argued, MTA breached its obligations. Therefore, ACS rescinded MTA's license to use the software. 

There was some slim hope for MTA. MTA argued that it had an implied license to use the software for a "reasonable" period of time while it transitioned to the new software of the company it hired to replace ACS. The court seemed skeptical that the length of time MTA had used ACS's software after terminating ACS (it ended up using the software for more than two years after terminating ACS) was reasonable; the court implied that, even if MTA had had an implied license to use the software while it transitioned, MTA's use had exceeded that implied license's scope. However, the court found this to be a material fact in dispute and so inappropriate to resolve at the summary judgment stage. 

Under the terms of its contract with ACS, MTA received only a non-exclusive, revocable license for the software. If MTA had wanted more protection, MTA should have negotiated better license terms. ACS, of course, might never have been amenable to granting better license terms. But let this case be a lesson: Many things are going to come with embedded software these days, and that software is copyrighted. You're going to need to dot your copyright i's and cross your copyright t's regarding this software; don't lose sight of that by focusing instead on the larger product you're buying. MTA may have thought of itself as buying a system, but it really needed to think of itself as buying the software within the system. 

May 2, 2016 in Commentary, Government Contracting, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0)

Has Bitcoin Creator "Satoshi Nakamoto" Revealed Himself?

The answer is a definite... maybe.

Bitcoin_logo1Bitcoin, of course, is the original--and many would say at this point, most successful--effort to create a "cryptocurrency," a digital store of value that can be traded electronically without the necessity of a bank intermediary yet can also avoid the problem of double-spending (i.e., digital counterfeiting) that would destroy an electronic currency's value. For purposes of contract law, Bitcoin is most notable because the aforementioned double-spending problem was solved by the creation and implementation of blockchain technology. Blockchain programming allows, among other things, for the maintenance of transactional records in a ledger distributed among numerous and otherwise unrelated computers across the internet rather than in a central location. Contract lawyers have particular reason to care about the blockchain because it raises the looming possibility of "smart contracts," contracts with the technical capability of enforcing themselves.

An enduring mystery of Bitcoin has been the identity of its 2008 creator, who to date has been identified only by the pseudonym "Satoshi Nakamoto." Efforts to identify Nakamoto have been largely unsuccessful, with the most notable misstep being Newsweek's debunked 2014 claim that Satoshi was Japanese-American physicist Dorian Nakamoto.

Craig-wright-inventor-satoshi-nakamotoThis rather enduring tech mystery may have been solved, though skeptics remain unconvinced. In an interview with the BBC and other media organizations, Australian tech entrepreneur Craig Wright claims to be the real Satoshi Nakamoto, and other prominent members of the Bitcoin community are backing his claim. The fact that Wright's claim arose on the eve of the digital currency and technology conference Consensus 2016 has allowed for the intriguing circumstance of people in the know reacting and the entire story being live blogged.

So is Craig Wright actually Satoshi Nakamoto? Opinion certainly may shift over the next several days and weeks, but at this point a majority seem to be accepting his claim or profess to be open to accepting it. All in all, an intriguing turn of events out on the periphery of contracts and commercial law. 

 

May 2, 2016 in Current Affairs, E-commerce, Web/Tech | Permalink | Comments (0)

Watering Down Your Iced Coffee Drinks

A class action lawsuit has been filed against Starbucks for negligent misrepresentation, fraud and unjust enrichment in the company’s sale of cold drinks.

The company makes a good deal of its money on cold coffee and tea drinks prepared in-store. In 2014, shaken iced tea drinks were the most profitable menu addition of the year, according the lawsuit. Unknown

The company offers three sizes of drinks — Tall, Grande, Venti and Trenta — which correspond to 12, 16, 24 and 30 fluid ounces, respectively. These fluid ounce measurements are advertised in the store. However, because of the large amounts of ice added to the drinks, customers actually receive much less (at a high price, as is well known).

The complaint claims that "[a] Starbucks customer who orders a Venti cold drink receives only 14 fluid ounces of that drink — just over half the advertised amount, and just over half the amount for which they are paying … In the iced coffee example, a Starbucks customer who orders and pays for a Venti iced coffee, expecting to receive 24 fluid ounces of iced coffee based on Starbucks' advertisement and marketing, will instead receive only about 14 fluid ounces of iced coffee."

A Starbucks spokesperson states that “[o]ur customers understand and expect that ice is an essential component of any ‘iced’ beverage,” adding that the company would remake any beverage if a customer is unsatisfied.

Maybe it would be a better idea to get a beer or a wine. They can’t water those down (I think...). Five Starbucks locations in the D.C. area have started serving booze and tapas as part of a nationwide effort to keep some of its stores open after typical coffee shop hours.

Going to a coffee shop for… tapas and alcohol in order to … what, stay loyal to an already huge brand? Avoid trying a local bar? If you think “only in America,” think again: Starbucks is also enjoying huge success in Europe, home of exquisite coffee shops with excellent pastries and snack. Talk about selling sand to Sahara…

May 2, 2016 in Current Affairs, Food and Drink, In the News, True Contracts | Permalink | Comments (0)

Thursday, April 28, 2016

No Contractual Duty of Good Faith in Texas

In spite of most jurisdictions reading a duty of good faith and fair dealing into all contracts, a Fifth Circuit Court of Appeals has held that it is unlikely that the Texas Supreme Court would find such a duty to exist in Texas. Wow. Additionally, the court found that no fiduciary relationship between a university student and his/her university faculty and other representatives.

Section 205 of the Restatement (Second) of Contracts states that “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.” See also Farnsworth, “Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code,” 30 U.Chi.L.Rev. 666, 670 (1963).

The seminal case in this area is Market Street Associates v. Frey, 941 F.2d 599 (7th Cir. 1991). In that case, Judge Posner held that in spite of the somewhat “moralistic overtones of good faith,” not every contract signatory is expected to be his “brother’s keeper.” Nonetheless, “the essentials of the modern doctrine [are] well established in nineteenth-century cases.” “This duty is … halfway between a fiduciary duty (the duty of utmost good faith) and the duty merely to refrain from active fraud. Despite its moralistic overtones it is no more the injection of moral principles into contract law than the fiduciary concept itself is.” “The office of the doctrine of good faith is to forbid the kinds of opportunistic behavior that a mutually dependent, cooperative relationship might enable in the absence of rule. “

In the new Texas case involving a student at SMU who got fired from his part-time job as a Community Adviser for misconduct toward students and faculty, the circuit court held that “Texas law does not impose a generalized duty of good faith and fair dealing and, in fact, rejects it” in all circumstances apart from when 1) a formal fiduciary relationships exists or 2) a “special or confidential relationship” exists. Examples of the former are attorney-clients, trustee-beneficiary, and principal-agents. In Texas, the latter apparently only includes the relationship between an insurer and an insured. That’s it! Texas courts have, found this panel, refused to impose the duty on, for example, employer-employees (not too surprising), lender-borrowers, medical provider-patients (double wow!), mortgagor-mortgagees, and franchisor-franchisees. The court in the described case also said that an “ordinary student-professor relationship is no different;” in other words, there is no fiduciary or even “confidential” or “special” relationship between students and faculty in Texas.

The case does not show how the student’s allegation that a duty of good faith existed between SMU and the student would really have helped the student on the merits. SMU seemed to have a very good case for firing the student from his job. Nonetheless, it is surprising that the court would so categorically reject that such a duty even exists apart from in traditional fiduciary relationships. While it may make sense that “a purely unilateral, subjective” sense of trust in one’s contractual counterpart and that the other party will have one’s interests at heart is not enough to create a fiduciary relationship, there is a vast difference between that and reading out the duty of good faith and fair dealings from most contracts law in general in Texas. Of course, as contracts law is state law, it is true that it is the Texas courts who must change this line of thinking, but doing so seems to be highly warranted given how courts in other parts of the nation rule on the issue.

The case discussed is Hux v. Southern Methodist University, 2016 WL 1621720 (no free online copy available yet).

April 28, 2016 in Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Weekly Top Ten SSRN Contracts Downloads (April 28, 2016)

  Top Ten Logo 2

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 410 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 143 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 137 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
4 134 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
5 122 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
6 111 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
7 109 How Do LLC Owners Contract Around Default Statutory Protections?
Peter Molk
Willamette University - College of Law
8 105 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
9 102 Contract as Empowerment: The Basic Theory
Robin Bradley Kar
University of Illinois College of Law
10 96 Realizing Rationality: An Empirical Assessment of International Commercial Mediation
S.I. Strong
University of Missouri School of Law

 

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 410 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 143 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 134 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 122 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
5 111 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
6 105 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
7 102 Contract as Empowerment: The Basic Theory
Robin Bradley Kar
University of Illinois College of Law
2016
8 86 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck
9 76 Farewell to Unjustified Enrichment?
Nils Jansen
University of Muenster
10 74 Immorality of Contracts in Europe
Chantal Mak
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)

April 28, 2016 in Recent Scholarship | Permalink

Wednesday, April 27, 2016

More on Prince and Bowie; the Masters of Badness

I echo Nancy’s tribute below to Prince. Not only was “His Royal Badness” an amazing musician, singer and dancer, he was also able to legally wrestle with and ultimately prevail over some of the really “big boys” in the entertainment industry on issues of contract law.

But even after his death, some companies sought to take financial advantage of him. For example, Cheerios tweeted “Rest in peace” on a simple purple background, but with the “i” replaced with a single Cheerio. After fans expressed their disappointment of this, the tweet was removed just a few hours later with the company acknowledging that their note m 635969504949601835-Captureay not have been appropriate. I would agree with that: In such a moment, who’d really think about promoting and buying cereal, of all things?!  A lengthier tweet by Hamburger Helper was also removed. Smart: folks, the guy was a vegan! Give the man a little respect.

In contrast, Chevrolet is applauded for a much more tasteful tribute simply stating, on a black background, “Baby That Was Much Too Fast, 1958-2016” and at the very bottom featuring an image of a classic red Corvette, a brand that the singer himself chose to immortalize with his big 1982 hit.

Why would companies so quickly resort to using a famous person’s death to make money? Apart from the Chevrolet ad (which the Chevrolet simply would have to post, it seems, given the song lyrics) Corporate America is rumored to have felt that they did not “bank sufficiently” on the death of another music icon: David Bowie. With Prince’s death, they felt they got a great second chance. (I can no longer find the link to the reputable business magazine where I read this, which shouldn’t matter as no official statement was, of course, made from any company stating this).

With this, let’s remember two great music and business talents who both understood the importance of the Internet on contractual issues (Prince once declaring it dead, Bowie taking the opposite stance and considering it the future of interaction between musicians and their fans). David Bowie even created his own Internet service, BowieNet, to be able to reach out to fans in ways he himself could control.

As law professors, I think we can sympathize with these music icons as we also know how relatively easily big corporations can cash in on the creative works of others. Just think of how little, I have heard, authors of legal casebooks earn on each book sold; not unlike the situation in the musical world.

Rest in peace, Prince and David Bowie

April 27, 2016 in Commentary | Permalink | Comments (0)

R.I.P. Prince

Prince’s fans are mourning Prince’s death last week and there have been many tributes to his life and career, including these two covers of Purple Rain – one from the New Yorker and the other from Bruce Springsteen.  As a Prince fan myself, I would like to pay tribute by writing this post about how Prince raised the issue of bargaining power on behalf of all artists.  

As blog readers of a certain age will remember, Prince changed his name to a symbol and became the artist formerly known as Prince (my keyboard won’t allow me to type the symbol) in protest over his contract with Warner Bros. which gave the company the rights to his master recordings.  (He ended up fulfilling his contract but let’s just say, it wasn’t his best work).  About a couple of years ago, Prince signed another contract with Warner Bros. which gave him the rights to his master recordings. Of course, a lot had changed during the two decades long interim but perhaps nothing changed things more than the Internet.  Large record companies no longer had the lock on distribution that they once did.  High profile clashes between artists and their distributors, like the one Prince had with Warner Bros, made younger musicians who otherwise might have been willing to sign it all away, think twice about what they were getting out of a record deal.

Prince, of course, had his own views about how the Internet benefited – and hurt – musicians.  As with his music, his views about the Internet and online distribution were ahead of their time.

 

 

April 27, 2016 | Permalink | Comments (0)

Tuesday, April 26, 2016

Making an Option Irrevocable: The Mere Performance of Due Diligence Isn't Enough

A recent case out of California, Clever Hospitality, Inc. v. Patel, B264921, sheds light on the limits of due diligence to serve as consideration when it comes to making an offered option irrevocable. In that case, the Patels, the owner of a hotel, gave Clever, a prospective buyer, a 60-day option to buy the hotel. During that time, Clever indicated it was going to conduct due diligence. If, at the conclusion of its due diligence, Clever was interested in buying the hotel, it was supposed to exercise the option by depositing $150,000 into escrow. Clever used the 60-day period to perform significant amounts of due diligence, so much that Clever asked for an extension of the 60-day period. The Patels eventually refused the request and indicated to Clever once the 60-day period was over that, because Clever never deposited $150,000, the option had lapsed. However, the Patels and Clever continued to have contact regarding the hotel, although the Patels also told Clever that they were speaking to other potential buyers as well. Eventually, a few months later, the Patels sold the hotel to another buyer. Clever then sued the Patels for breach of contract. 

Clever's main argument was that its time, effort, and money invested in its due diligence acted as consideration to render the Patels' option irrevocable. The court, however, noted that the necessary consideration here had to be money or services that the Patels had bargained for. In this case, Clever's due diligence only benefited Clever, not the Patels. After all, the Patels would have been quite content if Clever had performed no due diligence at all and instead just bought the hotel. 

Clever then argued that promissory estoppel should save it and render the option irrevocable. However, the court could find no evidence that the Patels ever made any promise to Clever that it would keep the option open. In fact, the evidence seemed to show that the Patels had indicated the opposite to Clever: that the option had expired and that they were talking to other buyers. Therefore, there was no promise for Clever to reasonably rely upon and promissory estoppel was inappropriate. 

Clever never at any time placed any money in escrow the way it was supposed to under the terms of the option. It seems as if Clever assumed that the Patels had no other serious buyers and that maybe there would be plenty of time for Clever and the Patels to work out a deal, and so the lapsing of the option didn't seem to concern Clever all that much...until a sale to someone else had been consummated. This case serves as a warning: Due diligence alone might not be enough to save you from losing out on the object of that due diligence. 

April 26, 2016 in Recent Cases, True Contracts | Permalink | Comments (1)

Monday, April 25, 2016

Love It, List It, or Sue Over It

Love It or List It

(Source: hgtv.com)

My love for HGTV is real and enduring. It started as a House Hunters addiction when I was a practicing lawyer looking for something mindless to watch when I got home at night and it has seriously spiraled out of control. I find something soothing about the formulaic nature of the shows; their familiarity is like a security blanket to me. And I've also realized that I've actually learned a lot about my taste. For what it's worth, I do feel like HGTV has made me think more about how I decorate my house, even if I can't afford a professional decorator. 

So I gobbled up with interest every single article I could find on the recent "Love It or List It" lawsuit. If you don't know the show, it's one of my favorites for the snark between the competing real estate agent and designer. One half of a home-owning couple wants to renovate their existing home; the other half wants to give up and move away. Enter the "Love It or List It" team, showing the couple houses they could buy while simultaneously renovating their home. The theory is that the couple can then decide to love it, or list it. 

I entertain no illusions about the "realness" of reality television (really, mostly I've learned from reality television that apparently an enormous number of people are tremendously good actors - while others are decidedly not), but this recent lawsuit attacks not just the "realness" of reality television but practically the *definition* of it: "Love It or List It," the homeowners accuse, were much more interested in making a television show than they were in renovating this couple's home. On at least some level, this lawsuit seems to be a challenge to what "Love It or List It" is: a television show or a general contractor. 

As a general contractor, the homeowners weren't too happy with the show's performance. They allege shoddy work on their house, including low-quality product, windows that were painted shut, and holes big enough for vermin to fit through. (They also allege their floor was "irreparably damaged," although I think they can't possibly mean that in the true legal sense of "irreparably," because surely the floor can be repaired?)

It seems to me this is going to come down to the contract between the parties. What did "Love It or List It"'s production company promise? I would love to see what the contract said about the work that was to be performed, how that work was to be performed, and what the financial arrangements were (since part of the couples' allegations is that a large portion of their money was diverted away from the renovations). However, for some reason, I have had an incredibly difficult time locating a copy of the complaint (never mind the contract). None of the stories I've found linked to it, and I have had zero luck finding it through Bloomberg Law's docket search. 

April 25, 2016 in Commentary, Current Affairs, In the News, Recent Cases, Television, True Contracts | Permalink

Saturday, April 23, 2016

Airbnb Update

Airbnb Update

The City of Los Angeles is proposing rules for legalizing Airbnb. The rules would be less draconian than those in Santa Monica, which has entirely banned renting out full units for less than 30 days and which allows home-sharing (in which an occupant rents just a room or a couch) only if the occupant registers and pays taxes on the unit.

In Los Angeles, homeowners would be able to rent out their entire homes for up to ninety days a year. Home-sharing landlords would have to register with the City and, in that connection, submit information about “all hosting platforms to be used and the portion of the unit to be used for Home-Sharing.” Only rooms in one’s main house or guest houses could be rented out, and thus not tents, yurts, backyard RVs, garage spaces and the like.

This is good news for a lovely, modernizing, yet expensive city where many people struggle to make ends meet. With the minimum salary increasing to $15 an hour in 2020, things are improving slightly for the middle and lower classes... but will that be enough to set off rapidly increasing prices in other areas of life? I personally doubt it, but time will tell. At least the above is an improvement of people’s individual property and contracting rights.

April 23, 2016 in Commentary | Permalink | Comments (0)

Friday, April 22, 2016

Weekly (Usually) Top Ten SSRN Contracts Downloads (April 22, 2016)

Top Ten Logo 1

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 395 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 139 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 132 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 130 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
5 117 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
6 107 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
7 98 Contract as Empowerment: The Basic Theory
Robin Bradley Kar
University of Illinois College of Law
8 96 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
9 94 Realizing Rationality: An Empirical Assessment of International Commercial Mediation
S.I. Strong
University of Missouri School of Law
10 92 The Culture of Private Law
Amnon Lehavi
Interdisciplinary Center Herzliyah - Radzyner School of Law

 

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 395 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 139 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 132 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 117 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
5 107 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
6 98 Contract as Empowerment: The Basic Theory
Robin Bradley Kar
University of Illinois College of Law
7 96 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
8 85 The Rules of the Game and the Morality of Efficient Breach
Gregory Klass
Georgetown University Law Center
9 83 Revisiting the Penalty Rule
John Eldridge
University of Adelaide, School of Law, Students
10 76 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabrück

April 22, 2016 in Recent Scholarship | Permalink | Comments (0)

Contracts for Health Benefits: Entire or Divisible?

To determine when the statute of limitations has run in relation to benefits contracts, the classification of the contract as “entire” or “divisible” may turn out to be crucial. If the contract is entire, the statute may start running on, for example, a certain date when the employer made a single contractually binding promise to provide health care for its employees, typically once a year. If the contracts is divisible, the contract may extend further into the future and run from, for example, ongoing times when the employee makes monthly premium payments under the plan.

The Eleventh Circuit Court of Appeals notes that in Georgia, a contract is entire if “the whole quantity, service, or thing, all as a whole, is of the essence of the contract, [] if it appears that the contract was to take the whole or none,” and if the contract “involves a single sum certain.” In contrast, a divisible contract is one that involves “successive performances” and is “for an indefinite total amount which is payable in installments over an uncertain period.” (See Wood v. Unified Government of Athens – Clarke County, Ga. 2016 WL 1376443. ).

In the dispute before the court, the panel found that although the employer had made a single contractual promise for retirement healthcare benefits, the contract was divisible because the employer could only perform its promise by successive performances throughout the uncertain span of each retiree’s life. This was furthermore the case because of the unpredictable fluctuations in each retiree’s healthcare costs, the contract requiring the payment of many successive payments, and because the employees had no immediate claim for the entirety of the contract if the contract were entire. Thus, the statute of limitations ran separately as to each premium payment when it became due.

April 22, 2016 in Labor Contracts, True Contracts | Permalink | Comments (0)

Tuesday, April 19, 2016

SAVE THE DATE: Central States Law Schools Scholarship Conference

The Central States Law Schools Association 2016 Scholarship Conference will be held on Friday, September 23 and Saturday, September 24 at the University of North Dakota School of Law in Grand Forks, ND.  
CSLSA is an organization of law schools dedicated to providing a forum for conversation and collaboration among law school academics. The CSLSA Annual Conference is an opportunity for legal scholars, especially more junior scholars, to present working papers or finished articles on any law-related topic in a relaxed and supportive setting where junior and senior scholars from various disciplines are available to comment. More mature scholars have an opportunity to test new ideas in a less formal setting than is generally available for their work. Scholars from member and nonmember schools are invited to attend.
Registration will formally open in July. Hotel rooms are already available, and more information about the CSLSA conference can be found on our website at www.cslsa.us.​

April 19, 2016 | Permalink

Monday, April 18, 2016

The Perils of A Duty to Negotiate in Good Faith

I’ve recently finished writing a textbook on contract clauses which takes a different approach to teaching contracts.  The book, to be published in September, uses contract clauses and case excerpts to introduce doctrinal concepts and to teach students how to problem solve.  (I always thought it unfortunate that a typical 1L learns contract law without knowing what common contract clauses mean or how they relate to what they’ve been learning). One of the cases mentioned in my book is SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A. 3d 330 (Del. 2013).  I’ve been meaning to blog about this case for some time now because it’s an important one for readers of this blog and corporate lawyers everywhere and illustrates the importance of using the right words in a contract. 

SIGA and PharmAthene signed a term sheet for an eventual license agreement and partnership to further develop and commercialize an anti-viral drug for the treatment of small pox.  The term sheet was not signed and contained a footer on each page that stated “Non Binding Terms.”  Subsequently, the parties drafted a merger term sheet that contained the following provision:

“SIGA and PharmAthene will negotiate the terms of a definitive License Agreement in accordance with the terms set forth in the Term Sheet…attached on Schedule 1 hereto.  The License Agreement will be executed simultaneously with the Definitive [Merger] Agreement and will become effective only upon the termination of the Definitive Merger Agreement.”

 The license agreement term sheet was attached as an exhibit to the merger term sheet.  On March 10, 2006, the parties signed a merger letter of intent and attached the merger term sheet and the license agreement term sheet. 

On March 20, 2006, the parties entered into a Bridge Loan Agreement where PharmAthene loaned SIGA $3million for expenses relating to the merger and for costs related to developing ST-246.  It stated the following in Section 2.3:

“Upon any termination of the Merger Term Sheet….termination of the Definitive Agreement relating to the Merger, or if a Definitive Agreement is not executed…., SIGA and PharmAthene will negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the License Agreement Term Sheet …and [SIGA] agrees for a period of 90 days during which the definitive license agreement is under negotiation, it shall not, directly or indirectly, initiate discussions or engage in negotiations with any corporations, partnership, person or other entity or group concerning any Competing Transaction without the prior written consent of the other party or notice from the other party that it desires to terminate discussions hereunder.”

On June 8, 2006, the parties signed the Merger Agreement which contained a provision nearly identical to section 2.3 of the Bridge Loan Agreement and provided that if the merger was terminated, the parties agreed to negotiate in good faith to enter into a license agreement with the terms of the License Agreement term sheet.  The Merger Agreement also stated that the parties must use their “best efforts to take such actions as may be necessary or reasonably requested by the other parties hereto to carry out and consummate the transactions contemplated by this Agreement.”

Shortly thereafter, SIGA terminated the Merger Agreement and announced that it had received a $16.5million NIH grant.  SIGA also proposed different licensing terms from those contained in the term sheet and argued that the license agreement term sheet was not binding because of the “Non-Binding” footer.  PharmAthene sued -- and won.  SIGA appealed and the Supreme Court of Delaware found that the “express contractual language” obligated the parties to “negotiate in good faith with the intention of executing a definitive License Agreement” with terms “substantially similar” to the terms in the license agreement term sheet. 

The damages to PharmAthene ended up being around $200million– in other words, expectation damages.   In order to stop PharmAthene from enforcing the judgment while undergoing the appeals process, Siga filed for Chapter 11 bankruptcy.   Siga subsequently lost its second appeal to the Delaware Supreme Court, which upheld the award of expectation damages.

Last week, the U.S. Bankruptcy Court for the Southern District of New York approved a reorganization plan that sets the stage for SIGA to exit from bankruptcy.  The judgment is expected to be satisfied by October 20, 2016.

A long and expensive road for SIGA which could have been avoided by paying more attention to the language used in the contract.

April 18, 2016 in In the News, Miscellaneous, Recent Cases | Permalink | Comments (0)