Friday, May 24, 2013
Dollar Rent a Car and the Borat Problem
Given all the excitement over boilerplate on this blog, I thought it would be a good time to remind readers of problems that might arise that don't exactly involve (just) boilerplate, It's not just the words in the contract -- the way the contract is presented can create problems, too. I've been meaning for a while to discuss this NYT article about a lawsuit against Dollar Rent a Car. According to the article and the complaint, the plaintiffs were customers who specifically declined the insurance coverage that car rental companies are always pushing (and which is often covered by customers’ personal auto insurance policy and/or credit card). They were then handed a tablet and asked to sign electronically. When they returned the car, they were surprised with a much larger-than-expected bill that included a “loss damage waiver” which, like insurance, “waives” the customer’s liability for loss or damage to the car.
I planned to blog about this last month, but just as I was about to, I received a reprint of Russell Korobkin’s article, recently published in the California Law Review. The title, The Borat Problem in Negotiation: Fraud, Assent and the Behavioral Law and Economics of Standard Form Contracts, sounded intriguing and as I started to read it, I realized that the article addressed a lot of the issues raised by the car rental form contract/electronic signature situation. I thought it might be fun (er, contracts prof style-fun) to view the Dollar Rent a Car problem through the lens of Korobkin’s proposed Borat solution.
According to the article, the Dollar-Rent-A-Car plaintiffs explicitly told the car rental agent that they were declining insurance coverage yet unknowingly signed for it on an electronic tablet. This illustrates one way that contracting form matters –I suspect it was easier for customers to be misled by the “loss damage waiver” language because they didn’t have an easy way to read the surrounding language. While paper consumer contracts are generally adhesive, customers do have the option of declining insurance coverage. While many customers may still have overlooked the meaning of the language, others may have scanned the few sentences immediately before the signature line (this seems particularly true of the plaintiffs, who one of whom is an insurance lawyer).
Sales agents are typically paid a commission to upsell the insurance coverage and each of the plaintiffs paid a hundred to several hundred dollars more than they expected to pay.
I tried to get a copy of Dollar’s rental agreement off their website. While their general policies are posted, which references their rental agreement, the agreement itself is not available. That’s already a strike against them in my book – why not post the rental agreement on your website since you’re going to have your customer sign it anyway? I think it’s because the company doesn’t really expect anyone to read the agreement. Most people don’t read, but that doesn’t mean they wouldn’t if the company made more of an effort to make the agreement accessible and readable.
Without a copy of Dollar’s actual rental agreement, I can only make assumptions about what it contains but my guess is that it contains an integration clause and a no-oral modification or “NOM” clause. The latter may not be enforced but the former brings the contract into the grip of the parol evidence rule. The PER rule won’t effectively block a fraud claim, but fraud claims may be difficult to prove in this context. The other avenue for redress is under a consumer protection statute claiming unfair or deceptive trade practices. But what about contract law – can it do anything here to help the consumers?
Korobkin’s article doesn’t specifically address consumer actions, but he tackles the “Borat Problem” which often occurs in consumer contracting situations. According to Korobkin, the Borat Problem occurs when two parties “reach an oral agreement. The first then presents a standard form contract, which the second signs without reading or without reading carefully. When the second party later objects that the first did not perform according to the oral representations, the first party points out that the signed document includes different terms or disclaims prior representations and promises.”
As readers of this blog are well aware, contractsprofs went through a slight obsessive period with the Borat contract when it first arose. To quickly summarize, several people who were in the 2006 movie, Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan sued the producer, Twentieth Century Fox, claiming that they were misled into appearing in it. Korobkin states that these plaintiffs claimed that the studio obtained their consent using a two part strategy, “false representations followed by standard form contracts that included language designed to contradict or disclaim those representations.”
Sound similar to the Dollar situation? Although the Dollar agent didn’t expressly make false representations, they allegedly acted in a way that misled the plaintiffs into believing they were acting consistent with their wishes, and that the contract they were signing reflected their understanding. Korobkin discusses existing legal remedies to the Borat problem and concludes they are not so satisfying for various reasons. He then discusses the risk of “bilateral opportunism,” meaning that a “pure duty to read” rule leaves nondrafting parties vulnerable to exploitation by drafters and a “no-exploitation rule” leaves drafters vulnerable to opportunistic behavior (i.e. bad faith claims) by nondrafters. He discusses the different ways that each party might take advantage of the other under either rule and throws in a good amount of behavioral economics to back up his arguments – for example, “confirmation bias” makes it difficult for even sophisticated nondrafters to notice when a contract term contradicts a prior representation made by the drafter. Korobkin also discusses the role of trust, specifically that reading a contract may signal that the nondrafter doesn’t trust the drafter. I think trust plays a role (even if small) in the Dollar scenario – afterall, nobody wants to be that jerk in line who challenges the smiling service rep. There's also social pressure in that nobody want to be that jerk holding up the line of foot tapping customers by asking questions about fine print (believe me, I know).
Korobkin’s “Borat Solution” would require specific assent to written terms that are inconsistent with prior representations. This effectively puts the burden on drafters to include a “clear statement” that the particular provision takes precedence over prior representations and “realistic notice” which would generally mean that the parties actively negotiated the term. I like this proposal (and have proposed something very similar to it in the context of online agreements) because it recognizes that drafters have the power to make terms more salient. The notion of blanket assent puts too much of a burden on the nondrafting party instead of the party that has the power to actually communicate the terms more effectively.
So would the Borat solution have changed anything in the Dollar scenario? I think so, but for a different reason than the actual Borat scenario. A clear statement and realistic notice would preclude having customers sign on an electronic tablet without also making immediately visible the relevant provision. In other words, the customer wouldn't be asked to sign without being able to read the waiver provision. Although it's not expressly stated, it seems implied from the NYT article that the contract provision was not viewable on the tablet. If that's the case, that provision would not be enforceable.
So, for those of you planning to research the consumer contracts conundrum this summer, in addition to Margaret Jane Radin’s book, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law and Oren Bar-Gill’s book, Seduction by Contract, I recommend that you add Korobkin’s article to your summer reading list.
Atlantis Blue v. Atlantic Blue: Substantial Impairment?
A (presumably U.S.) buyer (identified on the web only as "b-thumper") ordered a BMW M3 in "Atlantis Blue with Blue deviated stitching and the Individual Piano trim" and paid for European delivery. "European delivery" allows the buyer to pick up the car at the BMW Museum in Germany and take it for a lap around the Nürburgring.
As recounted over at Jalopnik, the Internets displayed divided sympathy for b-thumper, who, upon arriving in Germany, discovered that the car BMW delivered was Atlantic blue and not Atlantis blue. Seller offered to repaint but buyer wanted a substitute car in Atlantis blue with the customized interior.
Sorry b-thumper, but these are the type of fun facts contracts profs dream about! Assuming we are applying the UCC, does the Atlantis shade of blue substantially impair the value of the BMW? My colleague Jack Graves reminds me that the CISG doesn't apply unless the buyer was purchasing the car for a business purpose. What remedy would German law provide the buyer?
[Meredith R. Miller h/t Shawn Crincoli]
New In Print (Bonus Edition)
In keeping with our Boilerplate theme, it seemed timely to notify our readers of this recent publication:
Here is the author's summary:
The article’s main contribution is an empirical study of the total number and volume of boilerplate contracts to which a consumer becomes bound in the course of purchasing a computer from a major vendor. The answer: an average of twenty-five different contracts, comprising almost as many words as a Harry Potter novel. (And nine out of every ten of those boilerplate terms arrived late in the transaction, long after the seller had been paid.) I situate these figures within the scholarly literature on consumer contracts and information costs, and I conclude with some suggestions about how to address those costs in the boilerplate context.
In addition, NYU Law's Clayton Gillette was good enough to alert us of this symposium issue of the NYU Law Review, chock full of articles that our readers will find of interest. Contributions include:
Thursday, May 23, 2013
Boilerplate Symposium X B: Professor Radin Responds to Week II
This is the second part of the tenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
In today's posts, our author, Margeret Jane Radin, responds to her reviewers. In the first half, she responded to the reviewers from last week. In this second half, she responds to this week's reviewers.
But don't think that this is the end. We have more reviews rolling in, and they will go up next week, so stay tuned.
Response to Brian Bix:
Thanks for your careful reading of my book, always a great pleasure for an author.
Your caveat on democratic degradation is related to federal law, and specifically to the Court's super-hyper-expansion of the FAA, and (no doubt) the failure of Congress to amend the FAA to rein this in. At the federal level there are other examples to describe as democratic degradation: when an enacted rights regime (such as user rights under copyright law) is not undermined by legislative activity (or failure to act) but rather can be summarily overruled by the expedient of dropping boilerplate on recipients.
But contract is primarily a creature of state law, and so is tort. Democratic degradation is happening at the state level. States should be able to void contracts that are unilaterally infinitely modifiable. States should be able to use democratic processes to protect their consumers via class actions, etc. (What has become of federalism?)
It seems to me that what you call "the lesser side of American political life" --the fact that Congress is owned by special interest money--is indeed also a form of democratic degradation; for example, we now have 90% of the populace supporting legislation that one lucrative industry, though surrogates, can block. This is a point where public choice theory describes the situation, and, as I said in chapter 3, public choice theory seems to be itself a form of democratic degradation. I should have written more about this--and probably will.
Response to Oren-Bar-Gill:
I do think that the oversimplified Chicago approach is still dominant, especially as taught to 1L's by lay economists. Why else is it still so widely asserted that firms that deploy rights deletions must be passing on savings to consumers (rather than pocketing the money), that consumers must be or should rationally be choosing to have the money rather than the rights (rather than having no idea what the
rights are, etc) so there is an efficient price/rights trade off?
Economists who are sophisticated as you suggest must know this depends on several empirical assumptions that cannot be true for all markets, as well as (I hope they would also know) the contestable normative assumptions that all rights are tradeable in nature and that property rules can be turned into liability rules by firms at will. FWIW, I have argued this out primarily in chapter 6, and of course would be delighted if a more sophisticated economist such as yourself would elaborate and refine this argument. (I do wish my friend Prof. Ben-Shahar in his review had chosen to mention said chapter when choosing to restate this blanket argument.) The empirical assumptions have to do with (in each market) the level of competition and the level of information asymmetry as well as whether the firm must charge the same price to all consumers and whether there is at least a well-informed subgroup that can establish demand for all. (Note, for example, that the firm is not charging the same price to all consumers in situations where some consumers can call up and get a better deal after the fact--such as reversal of bank charges-- while others are not in a position to be able to do that.)
So yes, I am sympathetic to a more nuanced economic analysis and empirical approach, including availability/access to information online through sources other than the fine print itself. (See chapter 10 which could provide some rudimentary ideas.) I wish I had written more about open ended unilateral modification, too. At least, I hope this particular 100,000 words has laid some groundwork for further research and thought.
Response to Daniel Schwarcz:
I agree with most of what you say. I am very much concerned with erasure of (certain) legal rights, because of impact on democratic ordering, the rule of law, and equality before the law. The hyper-expansion of the FAA is a special (though very important) case, and maybe Congress will amend the FAA to rein it in (though I am not holding my breath). See my similar comments in reply to Brian Bix.
If you develop a products liability approach to boilerplate which can avoid the pitfalls that worried me in chapter 11, I am sure I will endorse it. It has the virtue of picking up on the economists' insistence that the fine print is part of the product.
I appreciated your comments on democratic degradation, which I cited in chapter 3. Contract is part of the legal infrastructure necessary for markets, and I do support markets. You may have more faith than I do that these particular markets are not plagued by severe information asymmetry which nullifies assumptions of efficient processes. Faith is what it is, since this is an empirical question for each market, and we don't have data to support the faith.
The "take-it-or-leave-it nature of boilerplate" DOES sometimes "harm consumers as a group," even if they have individually "agreed" to rights deletion, if the rights are market-inalienable (see chapter 9); and if consent looks dubious then we might prefer to risk error on the side of market-inalienability if we are unsure, especially in the presence of mass-market deployment.
The ubiquitous overreaching liability waiver poses the question whether individuals, one by one, can waive background rights that are constitutive for civil society, but not salient for individuals. Yes, in the absence of some New Zealand-like solution, I place a high regard on the tort system. (So no, I don't argue for "a substantive regulation," at least not exclusively.) If we are all free to harm each other, and everybody must take care to avoid being harmed by everybody else, we are back in the state of nature. The firm is almost always best cost avoider, and should be the risk-bearer. Firms shouldn't be able to shunt their risk to recipients, and insurers should not be able to force firms to do so.
If you want to say that this will necessarily increase the price of goods and services, then you are making blanket empirical assumptions about competition and information, so please see above.
[Posted, on Margaret Jane Radin's behalf, by JT]
Boilerplate Symposium X A: Professor Radin Responds to Week I
This is the first part of the tenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
But don't think that this is the end. We have more reviews rolling in, and they will go up next week, so stay tuned.
In today's posts, our author, Margeret Jane Radin, responds to her reviewers. In this first half, she responds to the reviewers from last week. In the second half of this post, she responds to this week's reviewers.
Here are her responses to the first week's posts:
Response to Theresa Amato:
Response to Andrew Gold:
Thank you for recognizing the ambiguity in "expectation," and the mischief it causes.
Contract theory supposes exchange of promises, or agreement, Consent is already a conceptual step away from either of these alternative core conceptualizations, because it does not foreground the reciprocity inherent in contract theory. Barnett's consent theory is more radical than he lets on, because it erases this basis of reciprocity.
Coming to "consent" to unknown terms, Barnett argues that the acceptance scenario represented by the sealed envelope hypo is conceptually possible, but he admits that that has little bearing on whether people who click "I agree" are actually doing that. Thank you for saying more clearly that what we mean by clicking "I agree" is not known, and unlikely to have a general answer.
Contract theory is important because it is the justification for the state to enforce certain agreements by forcibly divesting one party of an entitlement and vesting it in someone else. On a deeper level, contract theory is important because, in the standard liberal story justifying the state, the state is necessary in order to implement and maintain a system of contract to enhance freedom of persons by means of making private ordering possible ( i.e., freedom of contract). So, I am actually a conservative about freedom of contract.
a deep question, in my view, regarding how far a practice can deviate from the assumed parameters of its justificatory theory before we must consider it unjustified. I am working in this question, which is a question of "fit" between ideal theory and nonideal practice. Meanwhile, we know that fully informed consent (itself an idealization, not something that happens in real life) fits the contract theory justification, whereas sheer ignorance (at least you and I agree) does not. The contested terrain is between these poles. How far can an allegedly "contractual" practice deviate from the consent/exchange of promises/agreement concepts undergirding the theory before such practice must be held unjustified, that is to use that theory as the basis to divest entitlements through state coercion must be held unjustified?
I am not sure that question can be classified as conceptual, and I don't think it can be classified as empirical, but I'm sure it's the question we need to answer when it comes to money-now-terms-later, or, indeed, clicking "I agree" (or signing something) when the recipient has no viable opportunity to do otherwise, when the recipient does not understand the terms, when the deleted rights should not be subject to relinquishment by individuals, etc. (See also reply [in the next post] to Kim Krawiec.)
Response to David Horton:
Elegantly put, and thank you.
Response to Ethan Leib:
Thank you for the list of ideas I offer. This is just what a review should do (in addition to raising questions and suggesting avenues for further research, of course).
Since consent is the core value concept of contract theory--or at least derived closely from the core concepts of exchange (promises or agreement), I don't think consent can be "fetishized." (Focusing on feet might be "fetish" if we believe the core value is partnership as a whole, but then partnerships as a whole can't be "fetishized." "Commodity fetishism'" for example, was supposed to suggest that overvaluing commodities and turning too many aspects of life into commodities is a distortion of what is valuable in humanity, but if we then insist in valuing humanity, that is not "fetishizing" humanity.)
The problem I think you allude to, however, is a real one: To what extent does a justification for a practice have to fit (accurately describe) instances of the practice? Or to put the question the other way, To what extent may a practice allegedly justified by a theory deviate from the theory before we should regard it as unjustified? (See my reply to Andrew Gold.) I don't have a general theory to address this problem of "fit." There might be many practices that are imperfectly related to the theory (firm-to-firm negotiated deals that are incompletely specified, for example) that on balance are still justifiable under contract theory. I think that mass-market boilerplate of certain varieties is outside the purview of the purported justification under contract. I'll try to say more in later work about the grey area that imperfectly fits the ideal but nevertheless can be considered "close enough," but meanwhile, I think we can say that certain kinds of boilerplate are not "close enough" without dragging the entire practice of contracting into question.
[Posted, on Margaret Jane Radin's behalf, by JT]
Wednesday, May 22, 2013
Breaking: Bieber Requires NDA of Guests in His Home
We interrrupt the highbrow discussion of boilerplate and SCOTUS cases to bring you this breaking news from news.com.au that falls right within the utterly sweet spot of contracts and pop culture:
YOU party at Justin Bieber's house? You tell no one - or it'll cost you $5 million.
After a string of bad press in recent months, the 19-year-old has taken the extreme measure of asking guests to sign a confidentiality agreement before they enter his property.
TMZ claims to have obtained a document that everyone must sign before entering his property for one of the infamous get-togethers.
Entitled a Liability Waiver and Release, the website says the paper states that guests must not make comments or post anything on social media about what happened inside the house.
This reportedly includes the "physical health, or the philosophical, spiritual or other views or characteristics" of Justin and other partygoers.
Anyone in breach of the waiver can be sued for an enormous amount of money.
You blog? $5 million. You tweet? $5 million. You Instagram? $5 million.
While no one knows exactly what goes on inside these parties, the document also warns the get-togethers may include activities that are "potentially hazardous and you should not participate unless you are medically able and properly trained".
The risks involved apparently include "minor injuries to catastrophic injuries, including death".
Justin may be eager to change public perception after hitting headlines for a number of controversial reasons lately.
As well as turning up late for a UK gig and being accused of assaulting a neighbour, the star has now come under fire for "abandoning" his pet monkey.
Here's a copy of the document that TMZ claims is the NDA.
Where exactly was this news story when I needed an exam question? And is this liquidated damages clause a penalty?
[Meredith R. Miller]
News Flash: SCOTUS Takes a Contracts Case
blogged about this case before. Since that time, a panel of the Ninth Circuit issued a new opinion that is available here.
The Court agreed to decide whether airline passengers who are removed from a “frequent flyer” entitlement list have a right under state law to sue the airline for alleged violation of a promise that they could continue to enjoy the benefits. The case of Northwest, Inc., v. Ginsberg (12-462) tests whether such legal claims are preempted by federal law governing regulation of commercial air service.
SCOTUSblog also provides this statement of the issue in the case:
Issue: Whether the court of appeals erred in holding, in contrast with the decisions of other circuits, that respondent’s implied covenant of good faith and fair dealing was not preempted under the Airline Deregulation Act because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent-flyer program (the precise context of American Airlines, Inc. v. Wolens ) and manifestly enlarged the terms of the parties’ undertakings, which allowed termination in Northwest’s sole discretion.
We are looking forward to the Supreme Court's ruling (although the tea leaves seem pretty clear), and we hope that they cite to our earlier post as (some kind of) authoirty.
New in Print
Papers from the American Bar Foundation - The Labor Law Group Conference on The Proposed Restatement of Employment Law
The Proposed Restatement of Employment Law at Midpoint
The Restatement's Supersized Duty of Loyalty Pension
Contingent Loyalty and Restricted Exit: Commentary on the Restatement of Employment Law
Catherine Fisk & Adam Barry
An Excursion Through Strange Terrain: Chapter 6 (Defamation) And 7 (Privacy and Autonomy)
Matthew W. Finkin
What Should The Proposed Restatement of Employment Law Say About Remedies?
Remedies Doctrines in Employment Law: Ready to be Restated, or in Need of Remedial Remedies?
Papers from the Associations of the American Law Schools 2012 Annual Meeting Section of Labor Relations and Employment Law
Introduction: Guaranteeing the Rights of Public Employees
Ann C. McGinley & Kenneth G. Dau-Schmidt
Five Dead in Ohio: Ohio Citizens Overwhelmingly Support Public Employee Collective Bargaining (61 Percent to 39 Percent) in a November 2011 State Referendum Blocking the Implementation of Senate Bill 5
Jeffrey H. Keefe
"Before Wisconsin and Ohio": The Quiet Success of Card-Check Organizing in the Public Sector
Timothy D. Chandler & Rafael Gely
Boilerplate Symposium IX B: Kim Krawiec on Contracts as Disclosure, Part II
This is the second part of the ninth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
As I stated in my last post, I want to use the example of the travel company liability waiver at left to illustrate the boilerplate phenomenon. And here is where my analysis would differ from Peggy’s, perhaps in important ways. She argues, for example, that many consumers cannot understand the complicated legalese in boilerplate. That may be true with some boilerplate, but these terms are quite simple. Plus, in my experience, the consumers of this kind of adventure travel tend to be fairly sophisticated in terms of their ability to read and understand the kind of document I’ve posted above. Certainly many if not all of these purchasers can understand that the tour company is saying that it is not responsible even if you die through the negligence of its employees.
Peggy also argues that many consumers do not bother to read the boilerplate. That is often true, but my experience suggests that it is not accurate with respect to my fellow adventure travelers. The liability waiver, which the company hounds you to sign prior to departure, is a regular lamentation/good laugh over the group dinners. Finally, Peggy argues that consumers miscalculate the cost of such waivers because we are bad at assessing risk, which she appears to equate with underestimating risk. Again, this is sometimes true, but people are prone to risk overestimation, as well as underestimation, depending on the circumstances. Finally, and this is the lesson from the disclosure literature, famously advanced by Alan Schwartz in the boilerplate context, not everyone needs to read, understand, and act on her preferences in order to effect a change in boilerplate terms. By voting with their feet, consumers (like investors) can, at least in theory, force down the price of products and services accompanied by onerous boilerplate, thus opening up an opportunity for boilerplate entrepreneurs to intervene with terms more palatable to consumers. Yet that has not happened in the adventure travel context. Why not?
Let me offer a few possibilities. One possibility, of course, is that consumers are not actually willing to pay for the ability to hold tour companies liable – they prefer lower prices instead. I’ll return to that possibility in a moment. However, it is also possible that consumers have not fully impounded the information regarding liability waiver into product price. This is not because such consumers are unsophisticated, or don’t read, or are helpless against big bad travel companies, but because the purchase of an adventure travel package is a complex decision, requiring the trade-off of numerous factors affecting the quality and price of the product/service + boilerplate package. And most of us just aren’t very good at that. Consumers are not just weighing the costs and benefits of various liability waivers against price, but a multitude of factors, including the reputation of the company for both fun and safety, the type of travel and activities offered, and even other elements of the contract, such as the cancellation policy and the availability of travel insurance to cover the type of travel and activities in question.
This analysis, if true, is both good and bad for Peggy’s purposes. On the plus side, it supports her fears of market failure, even when consumers are relatively sophisticated and informed. But at the same time, it cautions against the possible efficacy or easy application of her solution. If calculating the optimal trade-offs among price and the numerous other elements of the product/service + boilerplate adventure tour package is decisionally complex for experienced consumers of travel services, then it is difficult for courts and lawmakers as well. Perhaps the legislature was right in crafting a default rule placing liability for negligence on the tour operator, in the hopes of creating incentives for such tour operators to exercise care before putting their clients at risk. And perhaps consumers are mistaken in signing away those rights, thus “deleting” rights thoughtfully granted by the legislature. Peggy places a high value on democratically-generated rules such as these, and demonstrates more faith in such democratic processes than in market ones.
Perhaps she is right. But, perhaps, the legislature simply got this one wrong. Perhaps consumers believe that there are cheaper and more effective mechanisms for differentiating trustworthy and careful adventure tour operators from untrustworthy and negligent ones. Perhaps consumers have quite rationally concluded that firm reputation; their own repeated positive experiences with a particular operator; the prior impressions of friends, neighbors, and other experienced travelers; and third parties, such as travel insurance companies, all have helped them to choose a tour operator whose risk of negligent operation is – if not fully controllable – at least tolerable, given the price paid.
With Boilerplate, Peggy Radin has hit another home run. As with her work on contested commodities, she has forced me to reconsider my priors, and has poked some holes in my assumptions. But in both cases a basic ideological difference -- the extent to which we trust private ordering as compared to public -- prevents a full meeting of the minds.
[Posted, on Kim Krawiec's behalf, by JT]
Boilerplate Symposium IX A: Kim Krawiec on Contracts as Disclosure, Part I
This is the first part of the ninth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Kimberly D. Krawiec is the Kathrine Robinson Everett Professor of Law at the Duke University School of Law.
Thanks to Jeremy for inviting me to review Peggy Radin’s new book, Boilerplate. Peggy’s work on contested commodities has hugely influenced my thinking about taboo trades, and I suspect that her work on boilerplate will prove similarly influential, so I’m grateful for this opportunity for early engagement.
First, as Peggy defines boilerplate, we are talking about take it or leave it contracts. There is no dickering over terms, no negotiation: if the consumer doesn’t like the offered contract, then the only remedy is to refuse to purchase the packaged product that includes some good or service, along with the accompanying boilerplate. This “take it or leave it” nature of boilerplate does not necessarily harm consumers as a group, however, provided that they have agreed to give up those rights in exchange for a lower purchase price.
This leads to the second relevant insight from the disclosure comparison: there is a large literature regarding the extent to which disclosure can protect (and harm) even consumers who are ignorant of the disclosure, by impacting price. Third, and relatedly, there is a large literature regarding the conditions under which we cannot expect market prices to accurately reflect all of the available information about a product. Fourth, and finally, Peggy does not propose more or better disclosure as the solution to boilerplate, but instead proposes a substantive regulation of contract terms – what is often referred to within securities law as “merit regulation.” Merit regulation forms the basis of many state blue-sky laws, in contrast to federal securities law, which is historically disclosure based. Thus, at least some of the debates between boilerplate “autonomists” and “apologists,” to borrow Omri Ben-Shahar's phrasing, have also been addressed in the numerous debates, dating back at least to the 1930’s, on merit-based versus disclosure-based securities regulation.
Peggy’s contention (to oversimplify, as is so frequently necessary in Blog World) is that we cannot infer from the widespread persistence of a particular boilerplate term that consumers have chosen it through their willingness to buy the product/service + boilerplate bundle at a given price. Instead, we must treat it as a case of potential market failure. So, what might lead to this market failure? I want to illustrate one possibility – and highlight some unanswered questions that I think Peggy and other boilerplate autonomists need to address – using the example of a fairly common exculpation clause used by tour group operators.
If you’ve taken almost any type of organized tour or active vacation and bothered to read the liability waiver that you were almost certainly asked to sign, then you’ve seen an agreement similar to the one I’ve included at right limiting the tour company’s liability for their negligence involving pretty much everything from a bad hotel room to your death from falling into an active volcano. Such waivers are ubiquitous, varying only slightly in their particulars.
And I have signed one every year for over a decade. Why? Well, the simple answer is that I have no choice, given that I want to participate in organized adventure travel and all tour companies have a similar waiver. But that’s too easy. The real question, as Peggy acknowledges, is why, if this is a term that consumers value, a competing adventure tour company has not arisen to offer a similar tour experience without the offending boilerplate language, potentially at higher cost? I’ll venture an answer in my next post.
[Posted, on Kim Krawiec's behalf, by JT]
Tuesday, May 21, 2013
Weekly Top Tens from the Social Science Research Council
Boilerplate Symposium VIII: Daniel Schwarcz on a Tort-Based Approach to Standard Form Contracts
This is the eighth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Daniel Schwarcz is an Associate Professor of Law at the University of Minnesota School of Law.
One of the most provocative arguments in Margaret Jane Radin’s bold and compelling book, Boilerplate, is that legal evaluation of contracts of adhesion should employ tort principles rather than contract principles. As Radin acknowledges, this is an idea that I have explored in the specific context of insurance policies. In this guest post, I hope to discuss some of the similarities and differences between Radin’s proposed approach and my own.
In some important ways, Radin and I make similar arguments for moving to a tort-based approach to standard form contracts. For instance, we both argue that the lack of meaningful assent to boilerplate means that standard contract law doctrines are often an awkward fit for evaluating boilerplate. Thus, people who “consent” to contracts of adhesion do not generally have any expectations at all regarding the specific terms to which they adhere. Many rules designed to police unreasonable terms in standard form contracts, such as the reasonable expectations doctrine, consequently become analytically confusing. Similarly, the familiar (and insurance-super-charged) doctrine that ambiguities are interpreted against the drafter is an odd fit for contracts of adhesion, given that (i) the rule is principally meant to encourage clearer drafting, and (ii) less ambiguous drafting does not actually promote better understanding among most consumers, who do not read or understand boilerplate in the first place.
From this starting point, though, Radin and I develop quite different ideas for how tort law could help police standard form contracts. Radin ultimately endorses a new tort of “intentional deprivation of legal rights” that would focus on the extent to which boilerplate deprived individuals of “market-inalienable” rights. Radin says that she prefers this approach to one employing products liability law because the nature of the consumer harm caused by boilerplate is not physical. But an intentional torts approach also allows Radin to directly target her primary complaint with boilerplate: that it often undermines various democratically-granted political and individual rights. Because these “market inalienable” rights are relatively specific and limited – encompassing, for instance, the right to a jury trial or legal redress for an injury – they can easily be protected by declaring their deprivation through boilerplate to constitute an intentional tort. By contrast, Radin tellingly admits that her approach would have little to say about insurance policies, for instance, presumably because they tend not to contain arbitration provisions, forum selection clauses, or other terms that implicate political or individual rights.
By contrast, I embrace a products liability approach to boilerplate because I am much less concerned than Radin about “the deprivation of legal rights,” and much more concerned about the potential inefficiencies of boilerplate. To be sure, Radin fairly lays out the standard law-and-economics analysis of boilerplate, which emphasizes that it is really just a product feature that is subject to market forces. Whether these forces are sufficient to deter exploitive terms depends on market-specific factors, such as the information known to consumers, the heuristics and biases consumers face, and the ability of firms to segment sophisticated and unsophisticated consumers. As such, the strength of efficiency-based defenses of boilerplate “will vary from market to market.”
Although Radin lays out all of these points eloquently, she uses them sparingly to inform her proposed tort-based approach to boilerplate. By contrast, I embrace a products liability approach to boilerplate because products liability law is focused on the very same issues that determine the efficiency of boilerplate: that consumers are ignorant of product safety problems, systematically misperceive the likelihood of these problems, and can be substantially injured by them. A products liability frame for evaluating boilerplate thus focuses courts (and regulators) on the right questions, in my view: whether particular terms are likely to (i) be subject to inadequate market pressures and (ii) cause substantial consumer harm. From this perspective, insurance policies are actually prime candidates for judicial (and regulatory) scrutiny: insurance policy terms are actively hidden from consumers, consumers generally must purchase coverage as a pre-requisite for some other transaction, consumers as a group are likely to be over-optimistic about their risk of suffering a loss, and the terms of insurance policies are particularly important because they are the only product that a consumer actually purchases.
On the other hand, the deprivation of legal rights caused by boilerplate is much less troubling for me than it is for Radin. As Radin acknowledges, legislatures are perfectly free to limit the capacity of parties to contract around particular rights, as they do, for instance, in the case of the implied warranty of habitability. When legislatures do allow for the contractual modification of rights, the democratic process seems to me to be perfectly respected. This, for instance, seems to me to be a fair description of the right to a jury trial and the Federal Arbitration Act. Of course, it may be that courts misinterpret certain laws to allow for greater contractual modification of rights than the legislature intended. But this type of risk is less about boilerplate generally than specific contract terms, and therefore seems to be of limited use in crafting a generalizable tort-based approach to standard form contracts.
[Posted, on Daniel Schwarcz's behalf, by JT]
Boilerplate Symposium VII: Oren Bar-Gill on Consent Without Reading
This is the seventh in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Oren Bar-Gill is a Professor of Law and Co-Director of the Center for Law, Economics and Organization, New York University School of Law
Professor Radin’s book is an eloquent and powerful critique of the fine-term, boilerplate contracts that pervade modern life. Its breadth – in terms of the range of theoretical perspectives that it considers and the different legal policy responses that it discusses – is impressive. In this comment, I focus on the economic analysis of boilerplate. I suggest that Radin’s treatment of this particular perspective, while clearly very useful, is, in some respects, incomplete.
In her discussion of the economic analysis of boilerplate, Radin focuses on, and criticizes, a Chicago-school approach that minimizes any concern about boilerplate. But this is only one strand in the economic analysis of form contracts. There is another, perhaps more influential strand that readily acknowledges the challenges that boilerplate presents for market efficiency and for welfare maximization.
Radin emphasizes the importance of consent. Economists don't care about consent as such; they care only about the functional role that consent plays in achieving Pareto efficiency. But this functional role is key for the economist. And economists recognize that, for most consumers, reading the fine print is simply irrational. Meaningful consent that comes out of such reading is, therefore, a myth.
But perhaps there could be meaningful consent without reading. Perhaps consumers can learn about the important features of boilerplate through other means. This is where economists have been focusing their recent efforts. Reputation, as bolstered by ratings and reviews (that are becoming increasingly important with the expansion of the Internet and the rise of social networks), plays a key role here. We see more and more examples where sellers compete over fine-print terms – where the terms rise from the fine print to the billboards. Consider automobile warranties or, more recently, early-termination fees in cellphone contracts and late fees and currency conversion fees in credit card contracts.
Consent, even meaningful consent, without reading is possible. We cannot always count on it, however. The challenge is to identify those cases where consent, including consent without reading, is absent. That is where we should focus our regulatory efforts.
Along these lines, I note two aspects of consumer contracts that deserve, perhaps, more attention than Radin gives them. First is the increasingly prevalent problem of unilateral modification, by sellers, of consumer contracts (with or without a specific unilateral modification clause in the initial contract). When a pro-consumer contract or term can so easily be changed, the forces that can generate consent-without-reading are substantially weakened.
Second, Radin focuses, in large part, on legal terms. But non-legal terms, specifically prices and fees can be similarly hidden and misunderstood by consumers. Such terms can be as harmful to consumers as the right-divesting terms that attract most of Radin’s critical attention.
Radin’s book is a great achievement. Among its many contributions is a critical account of the economic analysis of boilerplate. While I agree with much of this criticism, I have tried, in this brief comment, to sketch a richer picture of the economic approach to consumer contracts. I suspect that Radin would be quite sympathetic to this more nuanced approach.[Posted, on Oren Bar-Gill's behalf, by JT]
Monday, May 20, 2013
Boilerplate Symposium VI: Brian Bix on Democratic Degradation
This is the sixth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Brian Bix is the Frederick W. Thomas Professor for the Interdisciplinary Study of Law and Language at the University of Minnesota Law School
(The following is adapted from a much longer review that will appear in the Tulsa Law Review.)
In her important, timely, and provocative book, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law, Margaret Jane Radin offers some scathing observations regarding the motivation and effects of the terms placed in consumer and employee contracts. She argues that the current contracting practices make a mockery of consent, and undermine the rule of law. Radin is clearly correct in her essential claim, that for many contracting parties freedom of contract is less an ideal than a sham, and that boilerplate provisions are being used by companies to circumvent substantive rights and remedies consumers, employees, and other contracting parties would otherwise have.
There is one issue, however, on which I might want to offer a qualified dissent, or at least suggest a slight modification. In Boilerplate, Radin expresses concerns about the “democratic degradation,” by which she means the way in which important legislatively created rights can be (enforceably) diminished or waived through contractual agreement. (pp. 33-51) Her argument is that businesses should not be able to undo through simple contractual provisions (especially provisions that are hidden, hard to understand, and hard to avoid) what has been passed through the popular, democratic law-making process.
The difficulty with this argument is that the ability to modify or waive these rights is itself also the direct or indirect product of legislation. The most obvious example is the Federal Arbitration Act (FAA), Pub. L. No. 68-401, 43 Stat. 883 (1925), codified as amended at 9 U.S.C. §§ 1-14, which has been the ground for enforcing the arbitration agreements Radin complains about that waive consumers’ and employees’ rights to litigate claims in court and to bring class action claims. The ability of vendors to remove consumer’s rights has been enhanced substantially by the United States Supreme Court’s robust reading in recent years of the Federal Arbitration Act. See, e.g., AT&T v. Concepcion, 131 S. Ct. 1740 (2011); Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). (Of course, one might disagree with the reading of the FAA that the majority of the Supreme Court has given, but that is a separate issue.)
Similarly, Congress and state legislatures certainly have the ability to make the right to litigate certain claims or to bring class actions non-waivable, and have occasionally done so. For example, Congress has forbidden mandatory arbitration provisions in consumer credit agreements with members of the United States military. (See John Warner National Defense Authorization Act of 2007, Pub. L. No. 109-364, § 670(a), 120 Stat. 2083, codified at 10 U.S.C. §§ 987(e)(3), (f)(4).) One can also find state laws that expressly restrict the ability of parties to waive procedural rights, at least for certain categories of transactions. One example is the Illinois Franchise Act, where Section 4 states: “Any provision in a franchise agreement that designates jurisdiction or venue in a forum outside of this State is void, provided that a franchise agreement may provide for arbitration in a forum outside of this State.” 815 ILCS 705/4.
Someone might object that the argument here is putting too much argumentative weight on the fact that federal or state legislatures have not acted to restrict the effect of contractual boilerplate, and that one should not make too much of legislative inaction. However, the fact that state and federal legislatures have shown the ability and willingness to restrict the use of certain kinds of boilerplate means that the failure to do so in other circumstances is at least noteworthy. Additionally, Congress has sometimes offered express permission to have certain types of claims resolved by arbitration or other forms of alternative dispute resolution. For example, the Civil Rights Act of 1991 includes the following language: “Where appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including . . . arbitration, is encouraged to resolve disputes arising under [Title VII].” Pub. L. No. 102-166, § 118, 105 Stat. at 1081.)
It is not democratic degradation, but the lesser side of American political life – the power of business interests, business lobbying, corporate money after Citizens United, etc. – that contributes significantly to the current contract law world in which rights disappear through boilerplate. One need only watch the way that the Congress continues to hobble the Federal Consumer Finance Agency (there had once been talk of that agency acting against mandatory arbitration in consumer and employment agreements, but that now seems highly unlikely).[Posted, on Brian Bix's behafl, by JT]
Boilerplate Symposium, Week 2
For those who missed it, last week we posted five responses to Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
We heard from:
- Peter Alces on consent;
- Theresa Amato on proposed solutions to the problems posed by Boilerplate;
- Andrew Gold on the question of whether boilerplate is contractual;
- David Horton on mass arbitration and democratic degradation; and
- Ethan Leib on the fetishization of consent
This week, we will feature posts from the following contracts scholars:
Oren Bar-Gill is a Professor of Law and Co-Director of the Center for Law, Economics and Organization, New York University School of Law, where he has taught since 2005. Professor Bar-Gill’s scholarship focuses on the law and economics of contracts and contracting. Before joining the faculty at NYU, he was at Harvard University, where he was a Fellow at the Society of Fellows, as well as an Olin Fellow at Harvard Law School. Professor Bar-Gill holds a B.A. (economics), LL.B., M.A. (law & economics) and Ph.D. (economics) from Tel-Aviv University, as well as an LL.M. and S.J.D. from Harvard Law School. Bar-Gill served in the Israeli JAG, from 1997-1999, where he participated in criminal, administrative and constitutional proceedings before various courts including the Israeli Supreme Court and the IDF Court of Appeals. A list of his publications can be found here. A link to our recent symposium on his book, Seduction by Contract, can be found here.
Brian Bix is the Frederick W. Thomas Professor for the Interdisciplinary Study of Law and Language at the University of Minnesota Law School, where he has taught since 2001. He teaches in the areas of jurisprudence, family law, and contract law. He holds a joint appointment with the Department of Philosophy.received his B.A., summa cum laude, Phi Beta Kappa, from Washington University in St. Louis in 1983; his J.D., magna cum laude, from Harvard Law School in 1986; and his D.Phil. in Law from Balliol College, Oxford University, in 1991. Professor Bix taught at Quinnipiac University School of Law, as Associate Professor (1995-1997) and Professor (1998-2001). He was a Visiting Professor of Law at Georgetown University Law Center during the spring semester of 2000 and at George Washington University Law School in the fall of 1999. Professor Bix was the Lecturer in Jurisprudence and Legal Reasoning at King's College, University of London, from 1991 to 1993; he taught at St. Edmund Hall, Oxford University, from 1989 to 1990. He was a law clerk for Justice Benjamin Kaplan at the Massachusetts Appeals Court (1993-95, while on leave from the King's College), and he also clerked for Judge Stephen Reinhardt, Ninth Circuit Court of Appeals (1987-1988), and Justice Alan Handler, New Jersey Supreme Court (1986-1987). He is a member of the American Law Institute. A list of his publications can be found here.
Kimberly D. Krawiec is the Kathrine Robinson Everett Professor of Law at the Duke University School of Law. She is an expert on corporate law and teaches courses on securities, corporate, and derivatives law. Her research interests span a variety of fields, including the empirical analysis of contract disputes; the choice of organizational form by professional service firms, including law firms; forbidden or taboo markets; corporate compliance systems; insider trading; derivatives hedging practices; and “rogue” trading. Prior to joining academia, Professor Krawiec was a member of the Commodity & Derivatives Group at the New York office of Sullivan & Cromwell. She has served as a commentator for the Central European and Eurasian Law Initiative (CEELI) of the American Bar Association and on the faculty of the National Association of Securities Dealers Institute for Professional Development at the Wharton School of Business. She holds a juris doctorate from Georgetown University and a bachelor’s degree from North Carolina State University. A visiting professor at Duke Law during the 2008-09 academic year, Krawiec also has taught law at the University of Virginia, the University of North Carolina, Harvard, and Northwestern, where she received the 1999-2000 Robert Childres Award for Teaching Excellence. A list of her publications can be found here.
Daniel Schwarcz received his A.B. magna cum laude from Amherst College and his J.D. magna cum laude from Harvard Law School. After law school, Schwarcz clerked for Judge Sandra Lynch of the U.S. Court of Appeals for the First Circuit (2003-2004), and later was an associate at Ropes & Gray in Boston, MA (2004-2005). He served for two years as a Climenko Fellow at Harvard Law School (2005-2007) before being appointed Associate Professor of Law at the University of Minnesota School of Law in 2007. He visited at UCLA School of Law for the Spring, 2013 semester. Professor Schwarcz teaches insurance law, health care regulation and finance, contract law, and commercial law. His research primarily focuses on consumer protection and regulation in property/casualty and health insurance markets. In 2011, his article, "Reevaluating Standardized Insurance Policies," 77 University of Chicago Law Review (2011), received the Liberty Mutual Prize for an exceptional article on insurance law and regulation. He has also published articles in The Virginia Law Review, Minnesota Law Review, North Carolina Law Review, William and Mary Law Review, and Tulane Law Review. A full list of his publications can be found here.
We look forward to another lively week of contributions by our guest bloggers.
Thursday, May 16, 2013
New in Print
Sean M. Collins and R. Mark Isaac, Holdout: Existence, Information, and Contingent Contracting. 55 J.L. & Econ. 793 (2012)
Christine Spinella Davis,et al., Recent Developments in Business Litigation, 48 Tort Trial & Ins. Prac. L.J. 115 (2012)
Robert W. Emerson and Uri Benoliel, Are Franchisees Well-Informed? Revisiting the Debate over Franchise Relationship Laws. 76 Alb. L. Rev. 193-216 (2012/2013)
Orit Gan, Contractual Duress and Relations of Power, 36 Harv. J. L. & Gender 171 (2013)
Orit Gan, Promissory Estoppel: A Call for a More Inclusive Contract Law, 16 J. Gender, Race & Justice 47 (2013)
David Hricik, Dear Lawyer: If You Decide It's Not Economical to Represent Me, You Can Fire Me As Your Contingent Fee Client, but I Agree I Will Still Owe You a Fee, 64 Mercer L. Rev. 363 (2013)
Arthur J. Park, What to Reasonably Expect in the Coming Years from the Reasonable Expectations of the Insured Doctrine, 49 Willamette L. Rev. 165 (2012)
Wednesday, May 15, 2013
Boilerplate Symposium V: Ethan Leib on the Fetishization of Consent
This is the fifth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Ethan Leib s Professor of Law at Fordham Law School and is the author of What is the Relational Theory of Consumer Form Contract?, in Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical 259 (Jean Braucher, John Kidwell & William Whitford eds., Hart Publishing 2013)
People tend to begin with praise. In this case, it isn’t just throat-clearing. Although one could be forgiven for thinking that the subject of consumer form contracts has been mined to death, much impresses in Peggy Radin’s Boilerplate. Although I don’t agree with all of them, here are just a few of the book’s productive interventions:
- Radin invites us to consider whether tort law rather than contract law would make better sense of the consumer form contract gone wrong in which someone is harmed, “out of the blue, by the unexpected actions of another” (23);
- Radin invites us to think about how complicity with certain types of boilerplate that divests important procedural and substantive rights has had the systematic effect of converting property rules to liability rules, unilaterally priced by form drafters (75);
- Radin questions whether we should be allowing contract to undermine the value of “fair use” of intellectual property or the value of free expression, since some seemingly enforceable boilerplate purports to limit consumers’ permission to use or criticize the products they buy (172-76);
- Radin reminds us that when consumers’ reasonable expectations are that they will be exploited by boilerplate, the judicial doctrine allowing enforcement of only consumers’ “reasonable expectations” will prove inadequate in addressing the problems with boilerplate (highlighting the ambiguity in the doctrine between positive and normative expectations) (85);
- Radin provokes us by characterizing consumer form contracts as “sturdy indefensibles:” we might need to use them even though they don’t fit the “‘grammar’ of the legal infrastructure of contract law” (143); and
- Radin argues that boilerplate should be judged based on the nature of the right involved, the quality of consent provided by those bound, and the dissemination of the right that is purportedly infringed (155).
But I had one quite basic problem with the book, which cuts to the very core of Radin’s approach.
Most importantly, she really tries to train the reader not to consider boilerplate instruments as actually contractual. Indeed, if her editor had allowed it, she might very well have used scare quotes throughout the whole book (rather than just the beginning) to highlight that consumer form contracts with boilerplate are not really contracts. The reason for their exclusion from the world of contract: because of the routine absence of consent in transactions using boilerplate. It is the lack of consent (or the severely attenuated consent) in consumer form contracting which underwrites her claim that boilerplate contributes to “normative [and] democratic degradation,” a central trope that recurs throughout the book.
Admittedly, it seems intuitive to root contract in consent. The liberal theory of autonomy to which many versions of contract theory owe their genesis promotes consent as a principal virtue. So it is no surprise that Radin seeks to maintain the liberal theory of autonomy and contract with it.
But there is a whiff of fetishizing of consent in Radin’s rendering. Absence and attenuation of consent is everywhere in the transactional world of contract: in employment, long-term corporate relationships, in franchises, in marriage. Contract is a multifarious enterprise that ultimately governs many modalities of exchange. Radin surely attempts to explore the fine line between the consensual and non-consensual. But excluding a huge portion of voluntary exchange from the domain of contract seems unlikely to be true to the rich practice that has, from time immemorial, been a method of channeling and regulating complex relationships in which transactions occur. I fear a “purer” contract – one without boilerplate and one which squeezes out all attenuated consent – will ultimately leave us with a more ideological product, one that undergirds, reinforces, and grows out of a libertarian rather than a liberal theory of autonomy. And that may lead to more substantial normative degradation than would fighting bad contracts with some contract law.
[Posted, on behalf of Ethan Leib, by JT]
Boilerplate Symposium IV: David Horton on Mass Arbitration and Democratic Degradation
This is the fourth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
David Horton is Acting Professor of Law at the UC Davis School of Law.
One of Boilerplate’s most provocative claims is that mass contracting causes “democratic degradation.” To be sure, this idea is not entirely new. In 1931, Karl Llewellyn called standard forms “the exercise of unofficial government”; forty years later, W. David Slawson analogized to administrative law and argued that adhesive terms, like rules promulgated by unelected bureaucrats, suffer from a democracy deficit. However, with the rise of public choice theory—which blurs the line between public and private lawmaking by conceptualizing statutes as “deals” between politicians and interest groups—these critiques have all but vanished. Professor Radin seeks to reinvigorate them. She contends that boilerplate replaces “the law of the state with the ‘law’ of the firm” and therefore undermines our commitment to representative democracy (p. 16).
I’m particularly interested in how Professor Radin’s democratic degradation thesis plays out in the field of consumer and employment arbitration. (For whatever it’s worth, I’ve explored similar issues here and here, and in my forthcoming review of Boilerplate). Of course, unlike other controversial fine print terms, arbitration clauses can claim to have a democratic pedigree: Congress passed the Federal Arbitration Act in 1925 to encourage the use of private dispute resolution. Nevertheless, it is widely accepted—even among the Justices—that the FAA’s current musculature is “an edifice of [the Court’s] own creation.” In addition, the saturation of mandatory pre-dispute arbitration clauses—at least among major companies in certain industries—rivals traditional lawmaking in its scale. For instance, the class arbitration waiver in AT&T’s wireless service contract binds more customers than the combined populations of California, Texas, New York, and Florida. Thus, to borrow from Professor Slawson, if by making “law” we mean creating or altering enforceable rights or duties, then companies make more law in a day by projecting arbitration across the economy than Congress makes in a year.
Is this spectacular display of private power legitimate? Professor Radin suggests that it’s not. She notes that “most people don’t know what arbitration is” and that arbitrators “are widely believed to be more favorable to businesses” (p. 4). Yet a skeptical reader might push back. What if, as the Court has repeatedly declared, the bare decision to resolve a dispute in the arbitral forum does not affect its outcome? Arguably, then mass arbitration is an elegant shortcut to the meandering path of litigation. Moreover, there are safeguards against drafter overreaching. Courts can invalidate one-sided arbitration clauses under the contract defense of unconscionability. Likewise, the vindication of rights doctrine entitles plaintiffs to a judicial forum if they prove that they can’t effectively vindicate federal statutory claims in arbitration. Before we condemn mass arbitration as do-it-yourself law reform, shouldn’t we insist on evidence that it deprives consumers and employees of substantive rights?The rejoinder to this rejoinder can be found in the Court’s recent jurisprudence. In AT&T Mobility LLC v. Concepcion, the Court held that class arbitration waivers must be enforced even if small-value consumer protection claims will “slip through the legal system.” Thus, in perhaps the most fraught context in all civil litigation—the class action—the Court has disavowed the principle that the switch to an arbitral forum is outcome-neutral. It has allowed drafters to engage in aggregate contracting—a practice that Professor Radin persuasively argues is not “contracting” at all—while denying adherents the ability to aggregate claims. And in the pending case of American Express Co. v. Italian Colors Restaurant, the Court is expected to extend Concepcion and mandate bilateral arbitration of federal antitrust claims even though the cost of expert fees alone greatly exceeds any individual plaintiff’s potential recovery. Just as Professor Radin contends, the casualties of this quiet revolution will be “rights that are granted through democratic processes” (pg. 16).
[Posted, on David Horton's behalf, by JT]
Tuesday, May 14, 2013
Weekly Top Tens from the Social Science Research Network
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TOP 10 Papers for Journal of Contracts & Commercial Law eJournal
March 9, 2013 to May 8, 2013
Boilerplate Symposium III: Andrew Gold, Is Boilerplate Contractual?
This is the third in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Andrew Gold is a Professor of Law at the DePaul University College of Law.
Margaret Jane Radin’s new book, Boilerplate, is an outstanding contribution to the literature on contract theory and policy. In this review, I will focus on her analysis of consent, and in particular what it means to have consent for purposes of contract theory. For the most part, my concern will be conceptual, and not normative. This conceptual focus has normative implications, however. Radin argues that tort law is an appropriate means to regulate mass market boilerplate, in part because she believes that boilerplate is not properly conceptualized in contract terms. As she concludes: “it would be better to stop referring to boilerplate as contractual, because of its lack of fit with contract theory and with the basic principles of the legal system regarding what a contract is and what a contract is for.” (Radin, Boilerplate, at 242) This claim appears to be grounded in the vital role consent plays in contract theory. I share the view that consent is vital to contracts, but I am less sure that boilerplate should be seen as non-contractual.
As Radin indicates, boilerplate involves a spectrum of cases. At one end of the spectrum are the “sheer ignorance” cases. In these circumstances, the hapless consumer discovers after the fact that he or she is supposed to have entered a contract. Yet the consumer has no idea that this was happening at the time the contract was supposedly entered into. (Id. at 21-23) A good example is a purported agreement which states, at the bottom of the page, “‘Upon reading this page, you agree to be bound by these terms and conditions.’” (Id. at 13) There is no ready way to square these cases with standard views of consent, and I entirely agree with Radin that they are problematic. It is questionable whether they should properly be called contracts. With that in mind, let’s bracket the sheer ignorance cases.
Suppose, instead, that we consider another case – the online consumer who has been presented with detailed terms and clicked “I agree,” thus purportedly entering into a boilerplate contract. Very often, the consumer has not read the terms when clicking “I agree,” and would not fully understand them if they had been read. This is apparently not a sheer ignorance case as Radin defines that category. Can these cases be understood in terms of contractual consent? Maybe not, if consent means informed consent. At times, Radin seems to mean informed consent, as when she suggests that information asymmetry would render it problematic to assimilate clicking “I agree” to what she calls “the ordinary conception of consent”. (Id. at 25) Yet it is highly debatable whether consent means informed consent, outside of those limited areas in which the law goes out of its way to insist on informed consent (e.g., the provision of medical services). And there is no indication that contract theory relies on the idea of informed consent as it is usually applied.
Assuming informed consent is not the standard, there are a variety of fact patterns which suggest that clicking “I agree” can implicate consent. Randy Barnett has offered a compelling example of this type. He describes a promise based on a sealed envelope:
Suppose I say to my dearest friend, “Whatever it is you want me to do, write it down and put it into a sealed envelope, and I will do it for you.” Is it categorically impossible to make such a promise? Is there something incoherent about committing oneself to perform an act the nature of which one does not know and will only learn later?
(Randy E. Barnett, Consenting to Form Contracts, 71 Fordham L. Rev. 627, 636 (2002).) This is a quite plausible case of consent – full-fledged consent – and this would be so even if consent is understood in subjective terms. It also has important implications for the present inquiry. It suggests that not knowing precisely what one has consented to is not a per se bar to consent.
Barnett recognizes an important limit on the envelope example. There are cases where a promisor could reasonably say: “‘while I did agree to be bound by terms I did not read, I did not agree to that.’” (Id. at 637) Radically unexpected terms would not have been consented to in a case like the envelope case. A similar limit seems to apply in the case of clicking “I agree” with respect to unread boilerplate.
Radin raises several concerns with a focus on expectations. She suggests that expectation-based approaches will not make for a predictable jurisprudence. (Radin, supra, at 85) That may be right, although this is an empirical question. But the possibility that courts are not institutionally well-situated to assess the unexpectedness of contract terms is not an argument that addresses the conceptual question at issue. It does not tell us whether we have consent for contract theory purposes. Instead, it is an institutional argument regarding good legal policy.
Another response draws our attention to the distinction between empirical expectations and a separate category, normative expectations. The argument here is that we have an ambiguity between expectations as they may exist among contracting parties (the empirical kind), and expectations in the sense of “the just practices that a citizen has a right to expect” (the normative kind). (Id.) There are notable and interesting differences between the two types of expectations, and the book offers important insights by drawing our attention to this issue. In fact, I’m sympathetic to Radin’s concern that empirical and normative expectations can be mixed together in contracts jurisprudence. Courts may look to either sense of expectations, and the jurisprudence may become unpredictable. But again, this concern does not tell us whether we have consent for contract theory purposes. This too is an argument regarding good legal policy.
Radin also offers a further argument concerning the different views on contractual consent. She suggests that the meaning of clicking “I agree” is “more analogous to a contested concept.” (Id. at 90) This could raise doubts as to which terms parties have consented to. It could also raise doubts that any consent exists at all. The two situations need not coincide. While the scope of consent could be very uncertain as a matter of objective meaning, this may not mean that people who click on “I agree” have no idea they are agreeing to anything at all. Whether there is any recognized objective meaning to clicking “I agree” is again an empirical question, and it may vary by community. Depending on context, I suspect that if you ask online consumers whether they have agreed to anything after clicking “I agree” when confronted by a list of terms, many would think they had agreed to something. (Of course, it might be something far less than the content which the firm would hope to cover with their contract!)
None of this is to say that Radin is wrong in her policy prescriptions. My concern, as noted at the outset, is conceptual. Once we bracket sheer ignorance cases, it is far from clear that mass-market boilerplate falls outside of the consent requirement that underpins much contract theory. Radin has many other reasons to suggest changes to our legal regime, and I am hopeful that her work will trigger further discussion of the concerns she raises. Yet it is one thing to say that boilerplate should be regulated in various ways, and another thing altogether to say that it is not contractual. With that caveat, this book draws our attention to a variety of important consent-related problems. Boilerplate is a very important contribution to existing debates, and it should be read by anyone interested in understanding the current state of contract law and its potential for reform.[Posted, on Andrew Gold's behalf, by JT]