Wednesday, March 1, 2017
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
Not from guile, but from entitlement: Lawful opportunism haunts the cracks in contracts
Gastón de los Reyes and Kirsten Martin (George Washington University School of Business)
Abstract (KCON Presentation by Gastón de los Reyes)
Opportunistic acts are not all cut from the same cloth. While the blatant opportunism that results from “self-interest seeking with guile” is widely acknowledged, the lawful opportunism that Williamson paints as the bane of hybrid governance remains obscure and little understood. We examine the construct of lawful opportunism and empirically explore its connection to the known and studied contracting behaviors of blatant opportunism and cooperation. Using a series of contracting vignette surveys, we demonstrate that lawful opportunism is a theoretically distinct intended behavior across a variety of contracting scenarios. A contractor’s sense of entitlement, we find, is the primary driver of intended lawful opportunism. In contrast, and perhaps surprisingly, the more a contractor views the exchange in economic terms, the less likely they are to act with blatant opportunism. The study has implications for the study of contracting and hybrid governance across disciplines and for prescription to contracting parties.
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
BITCREDIT: MARKETPLACE LENDING AND CONSUMER PROTECTION
Christopher K. Odinet
The digital economy is changing everything, including how we borrow money. In the wake of the 2008 crisis, banks pulled back in their lending and, as a result, many consumers and small businesses found themselves unable to access credit. In the space left vacant by these traditional financial institutions have come a wave of online firms called marketplace lenders. These platforms are fast making antiques out of many mainstream lending practices, such as face-to-face interviews with loan officers and long paper applications. Instead, through underwriting by automation—utilizing big data (including social media data)—loan processing that once took weeks can now be done overnight. The result of these technological advances has been quicker access to capital, more economic efficiencies, and even greater prospects for access to credit for theunbanked and underbanked. “Click here” is the new “sign on the dotted line.”
But there is a lot still to learn about the online lending marketplace. How do these marketplace lenders work and what kinds of products do they offer? Moreover, what role will they play in the future of American debt and credit markets? This Article explores these questions and assesses current government responses to the nascent industry. It also surveys the currentregulatory landscape for marketplacelenders and analyzes a multi-year dataset of complaints submitted to the CFPB relative to consumer loans offered by these firms.The Article concludes by offering some broad policy considerations for how investors, small businesses, and consumers could be protected in this new world of BitCredit.
Tuesday, February 28, 2017
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
Online and As Is
Colin P. Marks (St. Mary's University School of Law)
Online retail is a multi-billion-dollar industry in the United States. Consumers enjoy the ease with which they can browse, click, and order goods from the comfort of their own homes. Though it may come as no surprise to most lawyers, retailers are taking advantage of online transactions by attaching additional terms and conditions that one would not normally find in-store. Some of these conditions are logical limitations on the use of the retailers’ websites, but others go much further, limiting consumers’ rights in a way that would surprise many shoppers. In particular, many online retailers are using these terms to limit implied warranties, selling the goods “as is,” and limiting remedies, as well as adding a host of other limitations. This article does not discuss the effects of online terms and conditions, but rather starts with exploring a very basic question: How prevalent are certain terms and conditions? While these terms and conditions may seem to be ever-present in online transactions, there have been few attempts thus far to empirically record the frequency of their use in retail transactions involving goods. This article remedies the situation by exploring the mode by which consumers assent, the prevalence of warranty and liability limitation clauses, and the prevalence of other common clauses used by the largest retailers in the United States.
U.S. Unconscionability and Article 1171 of the New French Civil Code: Achieving Balance in Statutory Regulation and Judicial Intervention
(forthcoming in Georgia Journal of International and Comparative Law)
Professor Charles R. Calleros,
Sandra Day O’Connor College of Law, Arizona State University
Perhaps the most notable development in commercial law in 2016 is the revision of contract law in the French Civil Code, the first comprehensive revision since the adoption of the 1804 Napoleonic Code. Perhaps the most notable innovation in that revision is article 1171, which empowers a judge to strike down an ancillary provision of an adhesion contract if it would otherwise create a significant imbalance between the parties.
Compared to the U.S. unconscionability doctrine, article 1171 adds to existing French legislation in a cautious manner and should not spark serious concerns about interference with freedom of contract. Instead, the more interesting questions are (1) whether the French judiciary will sufficiently embrace and exercise the authority afforded it under article 1171 to achieve its limited goals, and (2) whether lawmakers in the United States can overcome the American resistance to legislative and executive intervention sufficiently to emulate French and European control of abusive terms through a combination of legislative, administrative, and judicial regulation.
Sunday, February 26, 2017
We have blogged about arbitration clauses in contracts lots of times before, including in the Internet context, and including in the diet pill context. Now a recent case out of Florida, Vitacost.com, Inc. v. McCants, No. 4D16-3384, adds to the pile, in the Internet diet pill context. In this case, McCants sued Vitacost, from which he purchased dietary supplements that he alleged seriously damaged his liver. In response, Vitacost sought to compel arbitration based on the arbitration clause in the terms and conditions on its website. In Florida, the enforceability of Vitacost's "browsewrap" terms and conditions was a matter of first impression.
Vitacost claimed that the hyperlink to its terms and conditions was located at the bottom of every page of its website and that that was sufficient to put McCants on notice of them. However, the court noted that the constant positioning of the hyperlink at the bottom of the page required every user to have to scroll to the bottom of the page to notice the terms and conditions. Even upon buying something and "checking out," the hyperlink remained positioned toward the bottom of the page. McCants alleged that he had not seen the terms and conditions, and the court found that the hyperlink's location was not conspicuous enough to put McCants on notice.
Just when you think the political debacle in this country cannot get anymore grotesque, here's a recent proposal by Iowa State Senator March Chelgren: to counter the liberal slant at Iowa's three public universities, the job candidates' political affiliations would have had to be considered. Why? To ensure "balanced speech" and avoid the "liberal slant" in public universities these days.
Under SF 288, the universities would use voter registration information when considering job applicants, and could not make any hire that would cause declared Democrats or Republicans on the faculty to outnumber the other party by more than 10%.
Demonstrating the very deep and logical (not!) argument, check this line of thinking: Chelgren said professors who want to be hired could simply change their party affiliation to be considered for the position. "We have an awful lot of taxpayer dollars that go to support these fine universities," he said. "(Students) should be able to go to their professors, ask opinions, and they should know publicly whether that professor is a Republican or Democrat or no-party affiliation, and therefore they can expect their answers to be given in as honest a way possible. But they should have the ability to ask questions of professors of different political ideologies."
Saturday, February 25, 2017
From left: Rachel Arnow-Richman, Keith Rowley (Moderator), Eric Zacks, Thomas Joo, and Allen Kamp.
This after-lunch panel deals with a variety of contract law issues in specific settings--hence "reality." Summaries follow, with the usual caveats about the possibility of scribal error.
Rachel Arnow-Richman (Denver): "Noncompetition, Good Faith, and the Bilateral Employment Contract." As a body of law, noncompetition agreements follow a well-established framework for analysis, but courts are in fact dealing with particular fact patterns by analysis that occasionally explicitly--but often implicitly--utilizes a duty of good faith. Other times, the courts will use good faith language while not using the concept in its better known forms, as in the Restatement and the UCC. New Hampshire, for example, will not enforce an employment contract modification to add a noncompete agreement in an employment at will situation, not because it lacks consideration, but the modification is not in good faith. In other situations two otherwise enforceable terms will be seen as bad faith when enforced together even though the separate provisions could be enforceable. Explicit use of an implied duty of good faith in covenant not to compete cases would be a preferable approach for policing this public policy issue, both for employees and as a matter of coherence in contract doctrine.
Allen Kamp (John Marshall): "Wellness Programs and Consent." The U.S. spends twice as much as other industrial countries on healthcare but do not get appreciably better results. Statistics show that Americans are frequently more out of shape than their international counterparts. The Affordable Care Act of 2009 introduced the concept of employer "Wellness Programs" to incentivize better healthy behavior, but these can be intrusive and reveal personal health information. One of Fitbit's features, incidentally, is a tie-in to an employer wellness program. The ACA requires that a wellness program be "voluntary," raising the concern of employers coercing employees into these programs by financial incentives, some of which could be quite large. The ACA itself does not define "voluntary," thus raising the concepts of contract-law consent, duress, good faith, unconscionability, and other doctrines. These doctrines however, are as vague as the term that they are seeking to supplement. The employer wants the benefit of reducing its health insurance premiums, so there are very real incentives for employers to pressure their employees. Going forward, if the ACA is repealed, the Americans with Disabilities Act will be the controlling law.
Thomas Joo (UC-Davis): "The Law in the High Castle: Breach of Contract and Alternative History." Professor Joo noted that his paper is actually contract law meeting unreality rather than reality. In seeking expectation damages, contract law seeks to construct an alternative version of history where the contract was performed, and that is the place where plaintiff's damages are based. The discipline of history deals in counterfactuals, though these technically don't qualify as history. Quantum physics does allow for alternate realities as a concept--one that actually can exist. Viewed in this light, benefit of the bargain from an alternative future is a more normatively defensible concept. In effect, the litigating parties are fighting over the properties of the quantum wave function. The court enforcing contract law makes an alternative world come into existence.
Eric Zacks (Wayne State): "The Statute of Limitations and Acceleration Clauses in Mortgage Foreclosure Cases." This paper considers the effect of certain provisions in home mortgages. Acceleration and foreclosure can be wielded as a threat again and again because the means by which the statute of limitation operates from individual payments. Acceleration provisions are routine, as they both protect the lenders' interests and serve to motivate the borrower to pay in an in terrorem sense. How should res judicata apply here? Subsequent claims could be barred based on the same earlier breaches of the contract. If a lender accelerates and loses the case, it arguably loses the right to sue on an acceleration again because the obligation is a single indivisible obligation for preclusion purposes. This approach encourages lenders to be judicious in enforcing acceleration clauses. Some courts and jurisdiction have chipped away at the "two dismissals" rule, finding that a voluntary dismissal works a constructive "de-acceleration" of the loan, despite the fact that deceleration clauses actually are not in the loan documents. The issue becomes one of framing and equity--deadbeat borrowers versus oppressive lenders, but lenders have frequently gotten the upperhand in story telling. Regular contract law and doctrine--if applied--would actually benefit the borrowers in these sloppy mortgage litigation cases. But the lenders are not treated like "regular" plaintiffs and extending equity to those lenders but not the borrowers.
This Is a Case About Trade Secrets But in Other News: Google Has a Project Called "Project Loon" Involving Balloons in Earth's Stratosphere
Here's a case that's out of this world, lolololol, I'm ashamed of myself.
But a recent case out of the Northern District of California, Space Data Corp. v. X, Case No. 16-cv-03260-BLF, deals with weather balloons and a failed negotiation between Space Data and Google regarding becoming partners. Like many corporations who have valuable trade secrets that need to stay protected during negotiations but also need to be revealed so they can be evaluated and discussed, the parties entered into an NDA. This lawsuit resulted from Google's subsequent development of "Project Loon," which involves using high-altitude balloons to provide wireless services, and which Space Data alleges uses information Google gained from Space Data during the failed negotiations.
Space Data's challenge, of course, is that it knows very little about Google's Project Loon, and so all of its allegations regarding trade secret misappropriation and breach of the NDA are vague and conclusory. Space Data was unable to point to any confidential information Google used that violated the NDA, and therefore those counts were dismissed. Space Data tried to argue that it didn't know yet what information Google was using but that it had provided enough information for the court to infer that Google must be using some misappropriated confidential information. The court, however, found there was not enough in the complaint for these causes to survive into discovery.
A guiding tale for anyone writing up a trade secret complaint right now.
Space Data's patent infringement claims against Google still exist. The complaint is available here.
Saturday morning at KCON also included a session on empirical scholarship, summarized below. As always, errors in the notetaking are those of the taker--whom happened to be the moderator--and not the presenters.
From left: Gaston De Los Reyes, Colin Marks, Chris Odinet, and Mark Burge (Moderator)
Gaston De Los Reyes (George Washington University - School of Business): "Not From Guile But From Entitlement: Lawful Opportunism Haunts the Cracks in Contracts. Professor De Los Reyes dealt with opportunism based on a transaction cost perspective in contract law. Opportunism includes strategic manipulation of information or disclosure of intentions. Hybrid governance in deals has a timebomb built into it of "literal enforcement"--this is the longstanding contract law problem of Paradine v. Jane, where the parties didn't bargain for the situation that actually happened, but that is a fully honest dealing by the parties (naivete rather than opportunism). Lawful opportunism would pursue these cracks with literal enforcement even when the outcome would be punitive. This isn't lying or cheating in a deal, which would be blatant and unlawful. Can or should we adapt contract law to deal with the problem of lawful opportunism. Behavioral studies in contracting identified some variables (e.g., sense of entitlement) that could impact when parties defect from the spirit of the contract to enforce the letter. A strong sense of entitlement rather than a relational sense will contribute to the tendency to push literal enforcement. A study with about 1,300 participants tested the potential variables to see the tendency to be cooperative rather than opportunistic. Participants were not inclined to be blatantly opportunistic, lawful opportunism was more likely, and cooperative behavior was most likely. People with strong sense of entitlement were more likely to use lawful opportunism, as were people with a strong sense of economic exchange, but the latter were less likely to be blatantly opportunistic.
Colin Marks (St. Mary's University): "On-Line and As Is." Professor Marks studied online transactions where it is well established that parties dis not read the terms and conditions. For example, Wal-Mart terms online effectively create an "as-is" transaction through disclaimers where such disclaimers are not necessarily present in an in-store transaction. Are customers aware of these terms? Are they enforced and enforceable? Data came largely from the top 100 retailers in the National Retail Federation who have both online and in-store sales. Eleven different terms in contracts that could impact consumers were compared. One difference is between browsewrap and clickwrap, with the former being much more passive in nature. Terms and conditions are fairly hidden in some websites. Clickwrap at least involves an active consent. Pizza Hut, for example, works hard at obtaining consent, but the actual deal is fairly user friendly. A newer innovation is "sign-in wrap" where continuing on a site (like Amazon creation of an account) is where the binding terms occur. Another variant is "scrollwrap" which requires scrolling to the end of the terms before clicking "I Accept." Surprisingly, 72.5% of the retailers still use browsewrap. Clickwrap and scrollwrap are seldom used by large retailers. The retailers seem to be more concerned with reducing transaction friction rather than creating enforceability. Some disclaimers are only arguable in their enforceability. 85% of terms use some form of "as is" clause to disclaim the implied warranty of merchantability. 35% of retailers have arbitration clauses. None of the 110 retailers use conspicuous disclaimers in a brick-and-mortar store where they had the opportunity to do so. Most retailers (outside of food-sellers) have return policies despite the fact of an otherwise "as is" deal. Overall, browsewrap, as-is clauses, and return policies are prevalent.
Chris Odinet (Southern University Law Center): "Bitcredit: Marketplace Lenders and Consumer Protection." Professor Odinet studied marketplace lending, which bypasses traditional financial institutions and puts borrowers and lenders together directly (e.g., Kabbage, Avant, Prosper, Lending Club). Information from an application is put into an algorithm that evaluates the potential borrower, including (allegedly) the borrower's social media activity. Many of these lenders use the direct funding model with investors, but the bank-partnership model is becoming more prevalent, where the bank is the loan-maker, but the platform lender purchases the loan with funds put up by investors. How does this differ from traditional borrowing? Technology reduces the transactional cost of traditional lending through automation. Mainstream banks like these companies because someone else handles the FinTech, while the affiliate banks take on their traditional role albeit in a less-costly transaction. Marketplace lending arose following the 2008 financial crisis when many types of credit lending dried up as traditional banks became more cautious and shut down their non-core lending activities. The types of lending are diverse ranging from consumer to small business to refinancing. State banking regulators in some states have approached these firms, as have the CFPB and FTC, but the regulation is far less developed than what is occurring with traditional banks. Professor Odinet conducted an empirical study of these marketplace lenders based on data from the CFPB complaint portal to determine the nature of consumer problems with this type of lending. Study focused on 228 complaints over a five year period all based on consumer loans. CFPB complaints tend to be disproportionately filed by higher income consumers and some racial minorities. California is disproportionately represented in the CFPB database, as is Florida. The narratives submitted by consumers are a rich source of information as well as to what is motivating filing consumers. Many complained about their credit score being pulled before they actually applied for the loan. Borrowers seem to be having some substantial misunderstandings with these websites. Marketplace lending does not have a concerned prudential regulator at this point.
Mindy Chen-Wishart (Oxford University): In a plenary session, Professor Chen-Wishart described the massive multi-volume project, Studies in the Contract Laws of Asia, of which she is co-editor, to create an English-language resource on modern contract law in Asian jurisdictions. As countries seek to harmonize contract law internationally, Asian law is often left out of the discussion due to its inaccessibility. Major Asian jurisdictions, however, due to the colonial era, have legal systems that share a great deal with European contract law, both continental civil law and English common law. China is a particularly interesting hybrid system that was codified in 1999 with an eye toward international harmonization. The most recent codification of Asian law is in Cambodia, which draws heavily from Japanese legal experts. Indonesia is the most diverse and complex jurisdiction, drawing from tribal law, Islamic law, and Dutch law--which is still in Dutch and has never been translated into local language, despite the fact that most judges don't speak judge. Such a massive comparative law project has raised many interesting (and conflicting) theoretical issues about the nature of legal-system transplantation. Asia is an amazing laboratory for learning the process of legal transplant, and the transplanted law morphs when transplanted into new soil.
A particular challenge arises from editing authors whose native language is not English, and translation issues were particularly problematic when using legal technical terms. Differing cultural norms caused problems in the editing process, working with authors who were used to high deference in their local cultures. On the substance, comparing jurisdictions has required ferreting out real differences and similarities from actual differences. Both civil and common law seek to put the non-breaching party is the same position as performance, but civil law places a great focus on cure and performance. Exceptions and concepts like good faith mitigate some of the surface differences. Authors would reach similar results on the same hypotheticals, despite the fact that the reasoning to get to that result differed. Objective approaches have been subjectified (and vice-versa) across jurisdictions. Human communication is actually "inter-subjective" and putting together this project exemplified this truth.
Legal transplant has led to divergences as well as convergences: In Singapore cases purporting to apply the exact same English law on undue influence reached different results, with the Singapore courts far less likely to find uindue influence due to Confucianist culture. In the East, a rigid hierarchy of titles, gender, and other positions creates legal soil in which the same doctrine will play out. "Person" and "roles" play different roles, with Western cultures focused on the person while Eastern cultures focused on roles--where respect, obligation, and duties are owed based on roles. Power is understood as more derivative--roles are inherently correct and not to be challenged. Individualism and collectivism play different parts--Asian cultures and law focus on identity as part of community and family, not as individuality. Eastern culture tends to control by shame where Western culture tends to control by guilt. Finding undue influence in a family setting would be counter-cultural. omparison with and among Asian legal jurisdictions shows that law on the books is not the same as law in action. Application of the law will differ based on the soil where a legal system is transplanted.
Volume 1 has just been published by Oxford University Press, entitled Remedies for Breach of Contract covering the law of contract remedies in China, India, Japan, Korea, Taiwan, Singapore, Malaysia, Hong Kong, and Thailand.
Tan Zhong Xing (Moderator, National University of Singapore)
Friday, February 24, 2017
Tonight's Casablanca Nights Moroccan dinner will be highlighted by the presentation of the KCON Lifetime Achievement Award to Deborah Post, but first is a panel tribute and presentation. Meredith Miller read Professor Post's moving personal narrative on Williams v. Walker-Thomas Furniture Co. Professor Post's coauthors Deborah Zalesne and Nancy Ota presented a humorous tribute and partial roast in an appropriately ContractProf form: The Restatement of Deborah Post, complete with chapters, sections, and defined terms.
Seated in red at left: Deborah Post. At the front panel from left: Meredith Miller (standing), Deborah Zalesne, and Nancy Ota
Through the years.
Sample from "The Restatement of Deborah Post."
Last doctrinal panel session of the afternoon involved a variety of empirical studies on the actual contracting process. Fascinating stuff. As always, beware of the roughness of the notes, as they could contain errors.
Eyal Zamir (Hebrew University of Jerusalem) "Marketing Techniques, Pricing Methods, and the Law of Consumer Contracts." Numerous studies show that price framing impacts consumer choices in significant disproportion to the actual money involved. Describing a price differentiation as a "discount" rather than a "surcharge" substantially impacts customer perception, as do pricing methods such as charging $1.99 rather than $2.00 because of disproportionate reliance on the left digit. Another effective strategy is the use of a "regular price" term coupled with a discount price. A high regular price suggests higher quality and perception of a bargain on an item sold at a discount. In the U.S. the FTC can use 16 CFR 233.1(b) to police a deceptive regular price, but the prohibition is convoluted and multifactor, leading to little FTC enforcement of the provision. Interesting, studies show consumers don't believe the "regular price" but know that they are influenced by it. These kind of pricing practices present a quandary for consumer protection, as do some uses of rebates and gifts. Humorous moment: How many economists does it take to change a lightbulb? Answer: None, because the market will take care of it.
Russell Korobkin (UCLA) "Bargaining with the CEO: The Case for 'Negotiate First, Choose Second.'" A longstanding debate exists over CEO compensation. How much are they worth relative to what they are paid? Advocates suggest too much or too little based on their perspective from where the CEO value is derived. Better question to act, according to Korobkin, is whether CEOs are overpaid versus what firms could be paying them. The problem is the process: choose first, negotiate second. Better approach would be to reverse this, and negotiate the salary with a few select finalists. At this point, the firm has more bargaining power, but both sides in the negotiation get more information on which to make a rational choice. The firm avoids commitment and consistency bias in inflating CEO compensation. Korobkin and co-author Michael Dorff did a study using 206 law students placed in roles of a hiring "Director" and three "Candidates." Both sides were given incentive to maximize their relative cost position. Candidates are told to assume that the other two are "well qualified," as are they. Directors are told that outside consultant rated all the finalists as equal. Tested three conditions: (1) choose first, negotiate second (C1N2), (2) negotiate first will all three candidates individually before hiring a candidate (N1C2), (3) candidates pre-submit their minimum salary requirements (N1C2 also). Control group (1) averaged $8.62 MM, (2) averaged $6.56MM, and (3) averaged $7.58 MM. So why don't firms adopt N1C2? Possible answers are (a) director self-interest--but that isn't universal enough, (b) higher transaction costs--but these costs are not proportionately higher, or (c) firms rate candidates as having widely different value--but how would most candidates know this. Better hypothesis: Firms are concerned about losing candidates by adopting a N1C2 process and it may be perceived as unfair. But study didn't support this hypothesis either.
Dave Hoffman (Penn) and Tess Wilkinson-Ryan (Penn): "The Psychology of Consumer Contracts." Why do layperson intuitions about contracts matter as a substantive? Some answers: Rules have to comport on some level to ensure legitimacy of the rules; parties use intuitions as their basis for taking precautions against overreach; and simple majoritarian doctrine. The authors worked on a study of the role of formalities in the perceptions of formation: When do parties think a contract is formed when given a hypothetical with several arguable points of formation? Signing the paperwork was actually the vast majority understanding (62%). The layperson understanding is that a document titled a "contract" is most significant. When told that a "contract period" didn't begin for three days, subjects said they felt more free to shop around. What about contracts as having a "moral meaning" in a world of standard forms that simply can't actually be read? When provided various scenarios for ways an obnoxious term could be provided to a consumer, consumers don't distinguish between a set contract and a rolling contract in connection with their respect for the enforceability of the term. When the offending policy was online rather than in the document, parties were less sanguine about the policy and its enforceability. Study also inquired as to what parties think the law actually is. Judge's declaration only mattered when it was an invalidation of the contract. Another study showed that Millennials are three times more likely to think that an oral contract is not legitimate as compared to a "written" internet contract. Laypersons shown the cross-collateralization provision from Williams v. Walker-Thomas Furniture were far less empathetic to the plaintiff if they were. But once told that a doctrine of unconscionability exists, Millennials are more likely to think it applies that the doctrine would apply in real life.
From left: Dave Hoffman, Tess Wilkinson-Ryan, Eyal Zamir, and Russell Korobkin (not pictured Deborah Post (Moderator))
Friday afternoon at KCON XII included an excellent panel on corporate contract law issues, including the new Benefit Corporation business entity form and exploring the problem of data privacy. The notes are rough and may contain scribal errors, but they hopefully provide you the flavor of the proceedings.
From left: Michael Dorff, Pamela Edwards, and Mark Gergen (not pictured--Summer Kim (Moderator))
Michael Dorff (Southwestern): "Benefit Corporations--Assessing the Assessment: B Lab's Effort to Measure Companies' Benevolence." Only about 3,000 Benefit Corporations ("B Corps") exist in 31 states as a relatively new form of business entity. B Corps are required to consider community interests and social benefits rather than principally profits. What does this different structure add? Officers include Benefit Directors and Benefit Officers and allow a special kind of derivative suit. Ultimately the force toward social benefits seems to be toothless. The B Corp only works if you believe in it. What makes this system work is the B Lab Certification Process. Thus, the certification contract matters more than the state statute. B Lab has the BIA, "the B Impact Assessment." Assessment tools need simplicity, reliability, validity, transparency, credibility, and efficiency. It must measure what people care about or no one will pay attention to the assessment. Professor's Dorff's paper assesses the viability and value of the B Lab assessment. Companies must want to engage in this process and it has to be doable. The BIA is heavily customized for company size, industry sector, etc. and to date 72 versions of the BIA exist. Companies must score 80 out of 200 to be certified. The BIA is ultimately simple, but comparing across categories is difficult. Questionnaire is long and complicated, which makes it hard for companies. Fault is that BIA measures virtue (good intentions) rather than actual impact. Negative behavior does not deduct from the score. Points are not readily translatable--how does helping the homeless compare against preventing pollution. BIA is a good first cut at the problem, but more needs to be done.
Pamela Edwards (CUNY): "Have Public Benefit Corporations Benefitted the Public?" B Corps are valuable as an attempt to account for constituencies other than shareholders and their profit. This has been a problem since 1919 in corporate law. Moving away from that premise is valuable in changing what the premise is of a corporation. Notably, regular corporations seek to promote their actions as beneficial. Are B Corps actually helping anyone? Too early to tell--but it may be too optimistic to expect corporations to be agents of change due to the B Corp entity form. Agrees with Professor Dorff that comparisons of different companies are difficult to make. The greater ability to challenge a corporation's decisions beyond the standard business judgment rule is a significant feature. Notably, that was one of the purposes of B Lab's founders who had seen his corporate vision and culture destroyed after selling his business. Business entities are able to move in and out of being in the formal B Corp form. While that flexibility can be useful, it lessens the ultimate impact of the business form.
Mark Gergen (UC-Berkeley): "Privacy, Privity, and Collective Private Ordering." U.S. privacy law is in limited silos--FTC, HIPPA, etc., unlike the more comprehensive approach in Europe and elsewhere. Can breach of contract litigation fill the gap? Probably not--courts have been very hostile to privacy claims, frequently by misstating or ignoring established contract law, such as claims for disgorgement and restitution. Just because compensatory damages are not available does not mean that breach of contract claims are note available, yet that is where the privacy decisions are heading. Google and Facebook actually aren't the problems here, not because of damages but because of market forces. The real problem is THIRD PARTIES--data brokers, against whom you can't bring a breach of contract action because you have no privity of contract. Europe and HIPPA (as a U.S. example) require that a contract exist containing consent. That won't work with gateway data harvesters. The real way to solve this problem is to recognize a property right in personal privacy--but that's unlikely in the current political climate. Another possible solution: data firms must give a warranty that your data won't be acquired. If a 3rd party acquires the data, then it is liable for tortious interference with contract. The Yelp (review for hire vs. restaurant) case illustrates the viability of a tortious interference claim. Only way to get out of liability would be for the gateway firms to get a standard license. Here, private ordering doesn't require the creation of a property right. Ultimately, the tortious interference route may be our best hope for protecting personal data privacy.
So far in the future, they're on Mars.
I've been doing a ton of traveling over the past few weeks, which is why my blogging has been so sporadic. One of the things I've been doing, therefore, is listening to lots of podcasts. So many podcasts that I've run out of many of my more news- or education-oriented ones, and so I started delving into a podcast called "Penumbra," which a friend recommended. Specifically the Juno Steel series of stories. "It's about an emotionally damaged, sardonic character," she said, "that sounds like your thing." Such is my reputation.
But yeah, totally my thing. Juno Steel is a private investigator on Mars many centuries from now. The podcast plays around with the film noir genre, complete with hard-boiled narration. But the reason why I'm rambling about it on this blog is because the first episode, Juno Steel and the Case of the Murderous Mask, happens, delightfully, to revolve around contracts. The most powerful family in Hyperion City on Mars requires everyone who is allowed in their house to sign an intensely detailed contract. One of the characters remarks that they've seen novels shorter than the contract and would need a month to read the whole thing. They end up signing the contract without reading it, mostly because they'd already had to agree to a shortened version of it before receiving the long version. And the contract, of course, required them to reveal nothing about the family in question. So apparently, in the future, the powerful will still be surrounding themselves with NDAs! (Interestingly, the "liquidated damages," should you breach the contract, appeared to be that the wealthy family would broadcast all of your secrets. Mutually assured privacy destruction, I suppose!)
Part of the plot also involves an oral agreement that isn't properly captured by the subsequent written agreement, as well as forged signatures. I don't want to spoil it, but if you're looking for something somewhat more fun than the latest cases (although what is more fun than the latest cases???), you can give it a listen and still feel like you're Thinking About the Law.
More KCON presentation summaries from this morning, this time from a panel on Contracts teaching. Once again, apologies in advance for any inaccuracy in the notetaking.
Sean Scott (Loyola Los Angeles): "The Parol Evidence Rule--Video Presentation and Simulated Interviewing." The Parol Evidence Rule is one of those subjects where, even in a generally Socratically-taught class, an innovative approach can be especially beneficial in getting the material across to the students. Professor Scott showed a video showing a flipped-classroom approach to teaching the PER, first describing the rule and then applying the rule to a filled-out form contract. The videos are assigned for viewing before class. The pre-class videos get the students into depth of the issue much more quickly, raising issues of the extent to which the parties' agreement is integrated. A second technique in the same PER unit involves bringing in an actor for a client interview where the topic turns to the initial discussions between the parties. The interview exercise drives home the application of the rule in a problematic area. Video units are subject to repeated viewing and students can listen to the material without being focused on notetaking. Video units provide variety in teaching methods. Interviewing-and-interactive learning (applying the rule) is better for long-term learning an retention.
David Epstein (Richmond): "Teaching Conditions." Conditions is one of the most difficult concepts for law students to grasp, and that seems to be true with students across the country. We won't get to answers here, but we can at least zero in on the difficulties. How can we address this area? Some possibilities are the Contract Drafting/Tina Stark approach, which involves looking at contract documents. We may want to walk students through easily comprehended transactions--a home purchase contract and an insurance contract. Do cases really help here? If so, how much and what do they illustrate? Strict compliance? That courts disfavor conditions? That law abhors a forfeiture? Is it worth spending lots of classtime here to get across all of these concepts by a case? Problems may be much more effective. Students need to see the connection among these doctrines and rules. Where do conditions fit in relative to material breach? Where do conditions fit in connection with the excuse doctrines of impossibility and impracticability? These are related concepts where the parties do and don’t consider the circumstance. Students do not seem to benefit from extended class time spent on the question of constructive conditions.
Bob Brain (Loyola Los Angeles): "Policy, Structure, and Exercises Teaching the Parol Evidence Rule." Cases are problematic for teaching the PER because the students already know who "won" and then give up on understanding why. Another difficulty is that students have a moral rooting interest against the "liar" in a PER problem and decide that a liar-loses case is the right result for all cases. Professor Brain does not start with a case, but instead tries to explore the issue through problems that enable students to perceive the underlying tension in the PER and its exceptions. The problems bring the students around to the legal question better than starting with a case. Thinking transactionally, students come to realize that there are risks that arise from both allowing and not allowing parol evidence into the dispute. Students need to realize that no matter what the rule is, sometimes the "bad guy" in the deal will win. Students have an easier time starting out with UCC 2-203 as the rule rather than the Restatement version, which is spread out over many sections. Built the concepts on a chart, beginning with the level of integration and then evaluate the treatment of different types of terms. In sum, the approach is to illustrate policy, built the structure, and then drive home the meaning through exercises.
Carol Chomsky (Minnesota): "Rule Assembly for Misrepresentation" and "What I've Learned About Learning." (1) Misrepresentation is a difficult area to teach because the exceptions and categories are so diverse. The R2K sections better lend themselves to being taught broken out line by line--cutting the provisions apart. She gives the students only the global misrepresentation rule at first, and then students must assemble the special-case rules, even including the "and" and the "or" terms. Students grasp what the logic is behind the Restatement rules because they assemble the rules themselves. (2) Active learning is important--students need to interact and even move around the room. To stay engaged. Example--stand on a continuum of how much uncertainty the law should allow in enforceable contracts, and then quiz each other on why the students stand where they are standing. Spaced learning is important--revisit topics. Students actually grapple with a problem best before they know the answer. Even when students get the problems wrong, they learn better for having gone through the effort. Students need a structure--a framework in which to put the information that they learn. We should not give the students everything, but we do need to give the students something in which to assemble the material they learn. Students also need multiple opportunities to do what we test them on. Tell students why you are doing certain activities in the classroom--the "doing" exercises have a learning purpose, and students need to know. Professor Chomsky especially recommended the books Make It Stick, and Small Teaching for further reading.
Ben Templin (Thomas Jefferson): "Modern Case Method." Collectively, we've identified the problems of (1) time constraints, (2) building competency, (3) student engagement, (4) experiential learning and outcome assessment. Modern case method accounts for Bloom's taxonomy and other understanding about learning (e.g., cognitive load theory) in use of cases in legal education. Beyond Bloom's, a focus on skills of meta-cognition skills has emerged--self evaluation and improvement. The main benefit of Langdell's traditional case method is its ability to build inductive reasoning. Cognitive load theory is concerned with how one acquires long-term memory. Information learned must work through sensory memory, into working memory, and finally into long-term memory by a schema--structures that enable the reduction of cognitive load in taking in information. Millennial learning experience is particularly ill-suited to the traditional case method. The modern case method intends to reduce cognitive load by establishing prior knowledge and schema. Use of pre-testing and other assessment to improve accountability.
Here are some notes from this morning's stimulating panel on contract remedies. Due apologies to the presenters for any notetaking errors, as those are entirely the fault of this writer.
Pictured from left: Dov Waisman, Moshe Gelbard, Jean Powers, and Shawn Bayern
Shawn Bayern (Florida State): "The Limitation of the Expectation Interest in Contract Law." The justification for expectation damages frequently does not work out given real situations and goals of contracting parties. Reliance damages are frequently the more just means to compensate the parties, particularly where the breaching party did not "intend" to contract. Expectancy is unduly harsh as compared to the moral fault of the breaching party. Courts will do reach this result sometimes, by recognizing a mistaken contract as reversible. Unilateral mistake is the least controversial situation in which to prefer reliance damages over expectancy. A second scenario is in cases of apparent agency. A harder case for this argument is interpretive mistake--such as when the offer-and-acceptance communication is worded inartfully, causing confusion but objective contract formation occurs. Pure expectancy would disproportionately harm the breaching party as compared to the moral harm arising from breaching a promissory obligation. Where there has been little reliance, expectation does not tend to be fair. One of the great fairness benefits of expectation damages is dealing with the price changes in rapidly moving prices, but many parties don't enter a contract for the purpose of fixing a price. They have other interests in mind, and there is less of an economic justification for the expectancy damages. The problem with any generalized rule in contract law is that it does not fit the wide variety of things that parties actually are doing when they enter into a contract. That said, reliance seems to be the better fit for protecting the parties in more cases. Expectancy damages may just be a happy coincidence in protecting the parties as a remedy. Better approach would be a generalized reliance remedy along with a limited disgorgement add-on. ("Reliance plus disgorgement."). We many not need a forward-looking remedy to protect contracting parties. Contract law would benefit from tort-law like remedies, including moving reliance damages to the front of the line in contract remedies.
Jean Powers (South Texas): "Paying for What You Get--Restitution for Breach of Contract." The Restatement (Third) of Restitution and Unjust Enrichment (R3UR) speaks with a forked tongue and may be causing more confusion than benefit in the field of contract remedies. It tends to reject the view of "restitution for breach" based on unjust enrichment, though elsewhere (e.g., section 36) it addresses the idea of restitution for a party not in default. Restitution tends to be the least desirable remedy in contract law, a last fallback position where nothing else is adequate. Contract law also dislikes the idea that party could get better recovery in restitution than if the contract had been performed. Section 38 of R3UR deals entirely with contract damages, which is odd, given the subject of this restatement. The R3UR tends to add confusion to remedies questions by adding new terminology and inconsistent use of contract principles. Ultimately the principles of restitution and of contract law are not incompatible, but they have complicated the question of remedies. Section 38 may undercompensate, but section 39 (opportunistic breach) may overcompensate. Section 39 seems to want to bring back the failed experiment with the tort of "bad faith breach of contract."
Dov Waisman (Southwestern): "The Hadley Rule and After-Arising Risks." Contract liability is narrower than tort liability based on the rule requiring foreseeability at the time of contracting (rather than the tort concept of proximate cause at the time of the tort). The rule has been justifies in many ways, including due to its fairness component in that a foreseeability standard best empowers both parties with the ability to protect themselves. The Hadley v. Baxendale rule should, however, be relaxed in the case of willful breach (intentional or recklessness in the breach). The general rationale for this modification for an after-arising risk is that the parties did not have an opportunity to protect themselves. The defendant's fairness objection is far weaker than that of the plaintiff given a circumstance that what was unforeseeable to both at the time of the initial contracting. Extra liability would attach only if the defendant was willful in its breach and the plaintiff did not disclose the added damage risk because it had no reason to do so at the time of contracting. An example of this corrective rule is the 1992 Connecticut case of Savaroso v. Aetna--employee Savaroso was wrongfully terminated and that termination caused her greater damages because of her mental state, but her psychiatric situation was neither known nor foreseeable at the time of contracting (1982), through it was known at the time of the willful breach (1985) when Aetna wrongfully terminated Savaroso. Here, the traditional Hadley rule--and its information forcing rationale--does not work to justly compensate the parties.
Moshe Gelbard (Netanya Academic College): Panel Moderator.
Greetings from the Omni Los Angeles at California Plaza! Looks like a fantastic first day for the 12th International Conference on Contracts.
I would be remiss if I didn't post the official unofficial KCON meme:
Two panels feature first this morning: Reconsidering Remedies with Shawn Bayern (Florida State), Jean Powers (South Texas), and Dov Waisman (Southwestern), moderated by Moshe Gelbard (Netanya); and Taking a Second Look with Sid DeLong (Seattle), Hila Keren (Southwestern), Meredith Miller (Touro), and Guy Rub (Ohio State), moderated by Keith Rowley (UNLV).
Thursday, February 23, 2017
Thanks to a ContractsProf Blog exclusive news leak, we can reveal here and now the theme for Friday evening's festivities. But, since I don't feel up to the task of so monumental an announcement, let's turn it over to Bogie:
Or more to the point, prepare to walk into Casablanca Nights! The KCON XII organizers have already outdone themselves with an excellent contract-law focused substantive program, and we can now add an extravagantly-themed Moroccan feast to the festivities.
So, as we kickoff the Twelfth International Conference on Contracts at Southwestern Law School, prepare for some excellent quality time with kindred-spirit colleagues. As Bogart would undoubtedly say about this year's KCON:
I look forward to seeing colleagues and friends Friday morning.
The National Music Museum (“NMM”), located in South Dakota, brought suit against Larry Moss and Robert Johnson asking the court to declare it the legal owner of a Martin D-35 guitar formerly owned by Elvis Presley.
Moss and Johnson, both interested in collectibles, have been friends for thirty-five years. In 2007, Johnson contacted Moss stating that he may be interested in acquiring three guitars previously owned by Elvis, which included the D-35. Johnson originally was going to negotiate a deal for Moss to buy all three guitars for $95,000 from a third-party seller. In 2007, a two-part contract for $120,000 was finally drafted stating that (1) Moss would pay Johnson $70,000 and take immediate possession of two of the guitars, and (2) that Johnson would deliver two remaining guitars – including the D-35 – in exchange for the remaining $50,000.
At trial, Moss testified about the 2007 interaction and said, “Well, we never had a deal. I never gave him the money. He never gave me any guitars. There was no deal.” Moss’s actions in 2007 and from 2008-2010 are consistent. Moss never asserted title of the Martin D-35 during either time period because Moss did not believe he had title to the guitar. Moss knew he would not own the Martin D-35 until Johnson delivered it and Moss paid him for it. Because delivery never occurred, Moss never acquired title to the Martin D-35.
Nonetheless, in 2013, Moss contacted a friend of Johnson's inquiring about the status of the D-35. Moss then contacted the NMM where the guitar was on display claiming that he owned the D-35. A lawsuit was filed and removed to federal court seeking declaratory judgment on who was the rightful owner of the guitar.
Under Article 2 of the Uniform Commercial Code, which is the governing law for Tennessee and South Dakota, “[u]nless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes performance with reference to the physical delivery of the goods . . . .” Tenn. Code Ann. § 47-2-401(2) (2008); SDCL 57A-2-401(2). Here, Johnson never physically delivered the Martin D-35 to Moss. Moss never had physical possession of the Martin D-35. Because Johnson never delivered the guitar and Moss never had possession of it, Moss never acquired title to the Martin D-35.
Furthermore, in spite of Moss's attempt to seek specific performance under a breach of contract theory, the court did not find this persuasive because the contract specifically stated that Moss would not pay the $50,000 balance until there had been delivery of the guitar. Based on the plain text of the contract, delivery was set to be a future date. Additionally, Moss and Johnson exchanged emails for five years, but Moss never asked Johnson to deliver the guitar, nor did he claim to the owner of the guitar. As a result, the court found Johnson had the title to the D-35 guitar, and transferred it to the NMM. Thus, the NMM is the rightful owner of the guitar.
RECENT TOP PAPERS for all papers first announced in the last 60 days
25 Dec 2016 through 23 Feb 2017
RECENT TOP PAPERS for all papers first announced in the last 60 days
25 Dec 2016 through 23 Feb 2017