Tuesday, December 10, 2013
Monday, December 9, 2013
Like others writing or reading this blog, my students are currently toiling away on their final exam. This means the last several days have been filled with questions. Sometimes the questions are so good I think the questioner should be teaching the course and not me. On the other hand, sometimes the questions are so worrisome that I wonder whether or not I have actually been teaching anything at all. One of my favorite sources of questions is 2-205 of the Code. In the context of essay questions I have presented all manner of issues based on 2-205. Are initials sufficient as a signature? (The Comments say yes.) What constitutes an assurance? What is a reasonable time? When I enter "2-205" into westlaw I am surprised at how few cases seem to turn on a 2-205 question.
Most of us have probably asked a question based on something like this. "Please let me know whether you accept within 7 days." Is that an assurance? If not, it's not a firm offer. Or is it? Suppose it is "I will hold the offer open for you. Please led my know your answer within seven days." How long is the offer open? Seven days or even longer if that is reasonable? And what does reasonable depend on? Should the reasonable offeree [btw is there an official correct spelling of offeree?] really expect the offer to be available on day 10.
And there are the questions dealing with a firm offer that is rejected or when there is a counter offer. Does it matter if the offeree has relied on the rejection? After all, the firm offer is a very thin concept and mere limits the rationale for a revocation. Which raises the question what are the other rationales for revocation?
If we fall back to common law answers what we know, or seem to know, is that firm offers can be open for longer than the time stated, although they become "soft" after that time, and if rejected or met with a counteroffer, can end before the time stated.
On the other hand, if the drafters only meant to take the consideration requirement out of option contracts (which the Restatement almost does), are these answers right?
2-205 is like a box of choclates.
By James Sinclair in McSweeneys, titled "Alright, Fine, I'll Add a Disclaimer to My Emails." Here's a taste:
The purpose of this disclaimer, in theory, is to protect the sender from whatever liability may result from the sender’s own failure to communicate clearly or properly send an email, even though the sender, having obtained a formal legal education, is well aware that a generic email disclaimer, even one written with that ominous language of which lawyers are so fond, is unlikely to be enforced against a party lacking a sophisticated understanding of the legal principles surrounding said disclaimer, and that in the case of a party who does understand the legal principles surrounding said disclaimer, the disclaimer merely restates what said party already knows. This disclaimer is a catch-22.
For a little Monday humour, check out the full disclaimer here.
[Meredith R. Miller]
Every once in a while, a student will send me a story about contracts, but when multiple students send me the same story, you know they must be desparate for a study break -- and that there is some rather comical contracts story in the news.
And so it is with this story about a woman who won a $50,000 judgment on her claim that her fiance had breached his promise to marry her. A Georgia appellate court upheld the judgment, which included an award of attorney's fees, on appeal. The court more or less treated the couple as married and upheld an award of roughly half the property acquired during the relationship, which was a house valued at $86,000. The couple had co-habited for ten years and had a child together. The woman had looked after the child, as well as one she had from a previous relationship.
The man had had sexual relationships with other women both before and after he led his live-in partner to believe that he would marry her and gave her a ring worth $10,000. For what it's worth, the woman also had other sexual relationships.
According to media reports, the defendant's argument on appeal was that his alleged promise arose in the context of a meretricious relationship and was therefore unenforceable. Moreover, he denied any intention to marry. He claims he never said "will you marry me" or words to that effect. He just gave her a ring.
The meretriciousness argument is rather confusing, as a defense to the claim that he broke a promise, since the promise was to cleanse the relationship of its meretriciousness. As the appellate court noted, according to FoxNews, “the object of the contract is not illegal or against public policy.” If we still live in a world in which courts think they can pass judgment on people's long-term relationships (and we seem to), then a court is likely to uphold an agreement that will "make an honest woman" of the plaintiff.
The award of damages is also confusing. the effect of the ruling seems to be to treat the couple as married even though they weren't. In effect, the court is recognizing a common law marriage where such marriages do not seem to be recognized. I suppose the court could do so as a mechanism of giving the woman her expectation for the broken promise. The California Supreme Court endorsed such an approach in Marvin v. Marvin, but other courts have rejected marriage by judicial decree where the legislature has expressed its disapproval of recognition of common law marriages.
Sunday, December 8, 2013
My contracts students have their exam tomorrow. I held office hours today, since classes just ended on Thursday, and I had quite a bit of traffic. My students seem primed for the exam -- their knowledge of contracts law is approaching an all-time high.
In case any of my students that I didn't get to see today are looking at the blog, I just want to wish you good luck.
Saturday, December 7, 2013
Tough Mudder hosts extreme 10-mile obstacle course challenges. If you are unfamiliar with the company, this video should give you a sense of the challenges Tough Mudder creates:
Before a participant may enroll in an event and run the course, he/she must agree to an assumption of risk, waiver of liability and indemnity agreement.
Outdoor magazine has a story this month about the tragic death of Avishek Sengupta at a Tough Mudder event in Maryland. He jumped into the deep, muddy pool at the "Walk the Plank" obstacle and did not emerge. His tragic death is recounted in harrowing detail in the Outdoor magazine article, which mentions that Avishek's family has sued Tough Mudder and Amphibious Medics, a subcontractor that was onsite to provide rescue services.
Central in the case will be the enforceability of the waiver of liability. The parties weren't too fortchoming with litigation strategy but the article does provide:
Tough Mudder won't discuss its strategy for the Senguptas' legal action—nor will anyone from Amphibious Medics—but if the suit goes forward, its lawyers will likely stress the fact that Avi signed what Tough Mudder calls a Death Waiver, exculpating the company of liability for certain acts of "ordinary negligence" and "inherent risks," such as "inadequate or negligent first aid and/or emergency measures" and "errors in judgment by personnel working the event."
But the Boston-area firm Gilbert and Renton, representing Avi's estate, will likely argue that such waivers do not relieve Tough Mudder of the legal "duty of care" that exists whenever a business knowingly creates predictable hazards for the public. In the case of Walk the Plank, the predictable hazard—drowning—is clear enough. Hence the presence of a rescue diver and lifeguards at the obstacle on the day Avi drowned.
This will be an important and interesting case for liability waivers. Worth following.
[Meredith R. Miller]
Thursday, December 5, 2013
Eli Bukspan, Trust and the Triangle Expectation Model in Twenty-First Century Contract Law, 11 DePaul Bus. & Com. L.J. 379 (2013)
Veronica J. Finkelstein, Dollars and Horse Sense: Why Prudent Buyers and Sellers Should Account for Article 2 of the Uniform Commercial Code in Their Equine Sales Contracts, 5 Ky. J. Equine, Agri., & Nat. Resources L. 181 (2012-2013)
As we noted last week, on Monday, the U.S. Supreme Court heard arguments in the first investment arbitration case ever to be placed on the Court's docket. That transcript from oral argument can be found here.
Other links related to the case, BG Group PLC v. Republic of Argentina, can be found on SCOTUSblog.
Wednesday, December 4, 2013
Unconscionability and the Contingent Assumptions of Contract Theory, 2013 Mich. St. L. Rev. 211 (2013), by Dr. M. Neil Browne and Lauren Biksacky, argues that basic assumptions of liberal contract theory – for example, that contracts are made by rational and informed parties – don’t hold. Therefore, courts should find more contracts unconscionable.
This short article would be a nice primer for law students on basic liberal contract theory, especially in conjunction with some Judge Posner readings. The authors argue that people often yield to irrational motives. They get in bar fights. They have road rage. They buy books on feng shui. Judge Posner might respond that the human rationality economists speak of is that of pigeons or rats, not angels. Dr. Browne, himself an economist, seems to take exception to that conception of human beings.
The article argues courts can do better than simply making people keep their ratty promises. Courts can allow people to be their best, most-informed selves by invalidating “irrational” promises made under distorting influences like advertising and cognitive biases. Courts can and should step in like adults over wayward children and guide them toward eudaimonia.
Yet the article notes that despite research showing people are often irrational and ill-informed, courts are not finding more contracts unconscionable. Why? The article doesn’t answer, but the reason is probably that to do so seems unworkable. If human irrationality were grounds for invalidating a contract, how many contracts would be secure? The law tends to be a great guardian of the status quo, and apparently some people like books about feng shui.
[Image by Vicky TGAW]
For those who don't want to click on the links, here is our earlier summary of the facts of the case:
Plaintiff, Rabbi, S. Binyomin Ginsberg had been a member of Northwest's frequent flyer program, WorldPerks, since 1999. By 2005, he was such a macher, Northwest granted him Platinum Elite Status (oy, what nachas!). In 2008, Northwest revoked his membership. Ginsberg claims that Northwest took this action because he was a kvetch. . . .
The official reason provided for the termination was that Northwest had discretion "in its sole judgment," to cancel a member's account due to abuse of the program. Apparently, such judgment includes the ability terminate a membership if complaints persist after the "Enough with the complaining already!" warning. Ginsberg sued, asserting four causes of action, but Northwest moved for dismissal, arguing that the Airline Deregulation Act (ADA) preempted all of Ginsberg's claims.
According to the The New York Times' synopsis of oral argument, Justices Ginsburg and Sotomayor expressed concern that the airline's frequent flyer program was either an illusory contract or subject to the airline's "whim and caprice." Justice Breyer, however, seemed inclined to think that claims sounding in breach of contract are preempted by the federal Airline Deregulation Act of 1978, which was supposed to allow airlines to compete based on, among other things, price. Since frequent flyer programs are price discounts, Breyer suggested that such programs are governed by the Deregulation Act and cannot be subject to claims based on state laws aimed at regulating the airlines. However, in 1995, the Court exempted contracts claims from federal preemption in American Airlines v. Wolens.
The distinction between regulating airlines through state law and regulating airlines through breach of contract claims is a subtle one. It seems to turn on whether Rabbi Ginsberg's claim is construed as a breach of contract claim or a claim that the airline breached a duty of good faith and fair dealing. Paul Clement, arguing for the airline (on page 13 of the transcript) claimed that to permit a claim based on the duty of good faith and fear dealing would "enlarge the bargain." Since the contract gave the airline discretion to terminate Rabbi Ginsberg's membership, Clement argued, invoking the implied duty of good faith and fair dealing takes his claim outside of the contract. The claim implicates state policies because in some states the implied duty is not merely a rule of construction but a means of imposing public policy standards of "fairness and decency" on private agreements.
The Solicitor General joined the case as amicus curiae on behalf of the airline and attempted to clarify the federal uniformity concerns implicated in the case. Counsel for the Solicitor General contended that state contracts law is fine to help adjudicate the intent of the parties, but where states impose public policy concerns in areas such as implied covenants and the unconscionability defense, there preemption is necessary.
This is very strange territory, and it was clear that Justices and counsel alike struggled to work out how to put such fine distinctions into place. It is odd for the Court to say in Wolens that contracts claims are not preempted by the Deregulation Act but for the Court to now say that certain types of contracts claims, like breach of the implied covenant of good faith and fair dealing or unconscionability defenses are still preempted.
And what about Federal Arbitration Act (FAA) preemption? One of the few ways that parties can get out of arbitration clauses is by arguing that such clauses are unconscionable, because the FAA does not preempt defenses sounding in common law contracts doctrine. But since unconscionability doctrine varies from state to state, parties seeking to enforce arbitration clauses could argue that the same uniformity concerns that govern preemption in the Deregulation Act context should also apply in the FAA context. If so, good-bye unconscionability challenges to arbitration clauses.
The Times provides this link to the transcript of oral argument.
Tuesday, December 3, 2013
Monday, December 2, 2013
The United Nations Convention on Contracts for the International Sale of Goods (“CISG”) continues to collect state parties. The CISG will enter into force for Brazil on 1 April 2014, and for Bahrain on 1 October 2014. With that, Brazil and Bahrain will become the 79th and 80th States Party to the CISG, respectively.
The delay in entry into force is built into CISG art. 99, and does not suggest any particular caution on the part of either state. What may require some explanation, however, is why it took almost 25 years after Brazil approved the final text of the CISG and signed the Final Act of the Conference, before it finally acceded to the convention on 5 March 2013. According to local commentators, a large part of the delay is due to extraneous political considerations. Legislative inaction on this front was common under a previous authoritarian political system, as the regime was skeptical of – if not outright hostile to – multilateral initiatives to advance private international law. Efforts by Brazilian academics, the Bar Association of Brazil, and business interests progressively pressed for Brazil to engage in such initiatives, and the end result was that Brazil rejoined the Hague Conference on Private International Law in 2001 and began the internal process for accession to the CISG in 2011.
Brazil’s accession is a particularly significant development. Brazil’s economy is the largest among Latin American states, and the second largest in the Western Hemisphere. The existence of a common set of default rules governing trade in goods, irrespective of the significant differences in U.S. and Brazilian legal traditions, creates potential efficiencies for the future of economic relations between the two states. Furthermore, from the perspective of economic development policy, the existence of modern, uniform framework for contracts for the sale of goods involving one of the fastest-growing major economies in the world is a positive feature.
The increasing likelihood that regional contract activity in the Americas may implicate the CISG underscores the need for U.S. academics to ensure that our students at least understand that the convention exists as part of U.S. contract law. This generally applicable source of federal contract law constitutes the default rules that apply to an expanding range of regional contract situations. It has been a commonplace that parties can always make a contractual choice of law that would remove the CISG from the mix. However, what you don’t know can’t be planned against, and who is to say that local law – as opposed to the CISG default rules – is necessarily optimal for a given contracting situation?
Over at the Huffington Post, Sam Fiorella takes note of the egregious terms in Facebook Messenger's Mobile App Terms of Service. These terms include allowing the app to record audio, take pictures and video and make phone calls without your confirmation or intervention. It also allows the app to read your phone call log and your personal profile information. Of course, an app that can do all that is also vulnerable to malicious viruses which can share that information without your knowledge. But, of course, this is allowed only with your "consent."
We are delighted to introduce the latest of our new contributors, Michael P. Malloy (pictured), Distinguished Professor of Law of the University at the Pacific's McGeorge School of Law. Professor Malloy's posts will generally fall into the rubric "Global K" and will concentrate mainly on transnational contract law, including but not limited to CISG developments (e.g., cases, accessions, interpretations, secondary literature).
An internationally recognized expert on bank regulation and on economic sanctions, Michael P. Malloy received his J.D. from the University of Pennsylvania and his Ph.D. from Georgetown University. SEC enforcer, bank regulator, economic sanctions architect, Dr. Malloy has authored or edited over 100 books and book-length supplements. He is the co-author of Global Issues in Contract Law (West 2007), and the author of Anatomy of a Meltdown (Aspen 2010), a study of the current global financial crisis.
A listing of Professor Malloy's representative publications can be found here.
A more detailed biography can be found here.
According to this report from the Courthouse News Service, California Controller John Chiang is suing SAP Public Services (SAP), a company with which the state of California had contracted for payroll services software (MyCalPAYS) that would assist California in managing payments to its 240,000 employees. After three years of development and eight months of trials, California alleges that SAP still has not managed to get the system to work.
The system was projected to cost California taxpayers just over $100 million, but by the time it was cancelled, it had cost $260 million and never worked right, according to the state. The state claims that MyCalPAYS was tried out on a test goup, and the results were disastrous: overpayments, underpayments, failures to report deposits in retirement accounts, childcare payments and medical contributions. Although the state complained before declaring SAP to be in default, SAP contended that the system was working as designed.
As Courthouse News Service reports, California encounered similar problems when it contracted with software developer Deloitte to manage its statewide judicial case management system.
California, Kathleen Sebelius feels your pain.
Friday, November 29, 2013
Craig Crockett's law firm had a billing dispute with LexisNexis (Lexis). but his firm's agreement with Lexis had an arbitration clause. Crockett realized that arbitration of his claim against Lexis as individual claim would be economically unfeasible, so he sougth to create a nationwide class of similarly situated Lexis customers. The arbitration clause itself was silent about the availability of class claims. In 5 Reed Elsevier, Inc. v. Crockett, the Sixth Circuit affirmed the District Court's finding that arbitration clause does not permit class claims.
Crockett's basic claims is that, although his firm was to be charged a monthly fee for unlimited use of certain Lexis databases, and an additional fee for the use of other databases, Lexis charged him for the use of databases that were not identified as extras. He seeks to bring claims for fraud, negligent misrepresentation, breach of contract, negligence, gross negligence, unjust enrichment, and violation of New York's consumer protection laws on behalf of classes consisting of law firms using Lexis services and their clients. On behalf of the two classes, Crockett sought damages in excess of $500 million.
Lexis responded to the claim with a suit in federal District Court seeking a declaration that the arbitration agreement did not allow for class arbitration. The District Court granted the declaratory judgment sought. Crockett objected that the issue of whether or not classwide arbitration was available should have been put to the arbiter. As the Sixth Circuit explained, that issue turns on whether it is a "gateway" or a "subsidiary" question. There is a presumption in favor of courts answering gateway questions, while subsidiary questions should presumptively be reserved to the arbiter.
Alas, the Supreme Court has yet to decisively address whether classwide arbitrability is a gateway or subsidiary question. While a plurality of the Justices found the issue to be susbidiary in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003), the Court more recently acknowledged that it had not yet determined whether or not classwide arbitrability is a gateway question. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 n.2 (2013). But in other recent cases, Stolt-Nielsen and Concepcion, the Supreme Court has characterized the difference between bilateral and class arbitration as "fundamental" and thus has indicated fairly strongly that the issue is a gateway question.
The Sixth Circuit cited various reasons for assigning "gateway" status to the question of classwide arbitration and concluded that "whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved 'for judicial determination unless the parties clearly and unmistakably provide otherwise'" (citing Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (2002)). The Court then reasons that "the principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it." Because the consequences of class arbitration are "momentous," the Sixth Circuit reasoned, an arbitration agreement must include class arbitration in order for a court to find that the parties have agreed to it.
To which I say, where is the contra proferentem canon when a consumer needs it? The agreement is silent on the issue and thus unquestionably ambiguous. The consequences are equally momentous on both sides, since the Sixth Circuit acknowledges that Crockett's claims are not worth bringing as an individual arbitration. It also characterizes the contract as one of adhesion. So it was entirely within Lexis's powers to avoid the ambiguity and completely beyond Crockett's power to remedy it. In such cases, courts should invoke contra proferentem and interpret the agreement in favor of the non-drafting party.
Crockett also argued that the arbitration clause is unconscionable, and the Sixth Circuit seemed to agree that, substantively, it's a lousy agreement. However, elements of procedural unconscionability are lacking, and Crockett had the option of using Westlaw (which apparently has no arbitration clause -- for now). This is likely a correct application of the law but it also illuminates a central tension in unconscionability doctrine. In order to show that substantive unconscionability exists, one has to show that the terms are outrageously lopsided in favor of the drafting party "by the business standards and mores of the time and place." But if one can make such a showing, then one loses on the procedural unconscionability prong because one then could have chosen to go with a competing business. And if all of the businesses in the market have equally one-sided terms, then one cannot meet the standard for substantive unconscionability.
Thursday, November 28, 2013
Theodoros Chiou, On Royalties and Transfers without (Monetary) Consideration -- Looking for the "Magic Formula" for Assessing the Validity of Renumeration Clauses of Copyright Transfers under French Copyright Law. 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 585 (2013)
Louise Longdin & Phen Hoon Lim, Inexhaustible Distribution Rights for Copyright Owners and the Foreclosure of Secondary Markets for Used Software, 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 541 (2013)
Michael Pressman, The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate, 7 Va. L. & Bus. Rev. 651 (2013)
Thomas J. Lilly, Jr. Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a unified Theory. 92 Neb. L. Rev. 86 (2013)
Andrea M. Matwyshyn, The Law of the Zebra. 28 Berkeley Tech. L.J. 155-225 (2013)
Debra Pogrund Stark, Jessica M. Choplin & Eileen Linnabery, Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis. 46 Ind. L. Rev. 797-847 (2013) [and check out Kenneth Ching's review of this article here]
George G. Triantis, Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design. 18 Stan. J.L. Bus. & Fin. 177 (2013)
William Wood, It Wasn't an Accident: The Tribal Sovereign Immunity Story, 62 Am. U. L. Rev. 1587 (2013)
Wednesday, November 27, 2013
Today’s mini-review is of Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis, 46 Ind. L. Rev. 797 (2013), by Debra Pogrund Stark, Dr. Jessica M. Choplin, and Eileen Linnabery.
Apparently, many real estate contracts limit buyers’ remedies to return of earnest money, and many courts enforce such limitations. The problem is that if a buyer’s only remedy for breach of contract is the return of earnest money, then the seller hasn’t really bound himself to anything. If the seller doesn’t want to perform, all he has to do is return the earnest money. This encourages the kind of strategic behavior that contracts are supposed to prevent. For example, a seller may agree to sell real estate, but if the property's market value increases, the seller can breach the contract, return the earnest money, and sell the property to a second buyer at a higher price. The seller essentially gets to speculate on the buyer's dime.
Further, many buyers don’t understand the meaning of these limitation of remedy clauses, even if they read them. The authors conducted a study which suggests more than a third of people who read a limitation of remedies clause fail to comprehend that their remedies have been limited. The authors use this finding to challenge some courts’ reasoning that buyers knowingly consent to the limitation of their remedies.
The authors offer several reforms, and two are particularly interesting: (1) enacting legislation that prohibits limiting buyers’ remedies to the return of earnest money, and (2) replacing the exacting standards of unconscionability with a "reasonable limitation of remedy” test similar to that used in evaluating liquidated damages.
This article is state-of-the-art in its use of empirical research to aid legal analysis. It not only provides interesting data, but it also marshals that data against flimsy intuitive arguments still common wherever people talk about contracts.
[Image by thinkpanama]
Tuesday, November 26, 2013