Thursday, October 19, 2017
Recent Top Papers (60 days) as of 20 Aug 2017 - 19 Oct 2017
Recent Top Papers (60 days) as of 20 Aug 2017 - 19 Oct 2017
Will They Ever Learn?
Insurance companies have a notorious reputation for failing to uphold contracts with their insureds. Such was the case for Ms. Laura Dziadek when she tried to have the Charter Oak Fire Ins. Co. pay for her medical bills. Dziadek v. Charter Oak Fire Ins. Co., 867 F.3d 1003. After a tragic car accident Ms. Dziadek had significant medical bills. Initially, Ms. Dziadek received $100,000 from her Progressive Insurance policy, but it wasn’t enough to cover her medical expenses. She hired representation and they sought insurance attached to the vehicle in which she was injured. The first attempt to contact Charter Oak yielded no response. The second attempt resulted in a blatant lie that “[the policy] could be over 2000 pages.” Dziadek v. Charter Oak Fire Ins. Co., 867 F.3d 1007. By the time the litigation was hashed out it came about that Ms. Dziadek was not only covered by their policy, but also that the document in question was only 200 pages long. Eventually, a verdict was awarded in favor of Ms. Dziadek for nearly $3 million, including UIM coverage, legal fees, and punitive damages. Charter Oak sought to have all the damages dismissed, but they were ultimately upheld by the 8th Circuit.
I wish that this was a one-time occurrence for insurance companies, that the damages would ultimately cripple them into compliance. However, as we all know insurance companies will continue to make money, and to try and withhold money owed to their clients. The mere fact that ‘deceit’ is an available charge to levy against insurance companies should be a wake-up call to legislatures that laws are to lax, and these insurers are out of control. Until that time lawyers must do their diligence to defend clients from insurance companies, to straighten out the crooked path insurance companies make their customers walk.
October 19, 2017 | Permalink
Monday, October 16, 2017
Take That! Outstanding Contractual Balance, Not Just Profits, Due in Case of Asserted Commercial Impracticability
In Hemlock Semiconductor Operations, LLC v. Solarworld Industries Sachsen GmbH, 867 F.3d 692 (Sixth Cir. 2017), Hemlock contracted to provide Sachsen in Germany set quantities of polysilicon at fixed prices between 2006 and 2019. The market price at the time was well above the price agreed upon between these parties, but plummeted several years later when the Chinese government began subsidizing its national production of polysilicon.
When Sachsen refused to pay the original contractual amount for 2012, Hemlock brought suit for breach of contract. Sachsen defended itself claiming that the Chinese government (1) illegally subsidized its national production of polysilicon and dumped massive quantities of the product onto the market, causing the price of polysilicon to fall; and (2) committed acts of “criminal industrial espionage” against Sachsen's U.S.-based sister company, SWIA. As a result of these illegal actions, the price of polysilicon plummeted, rendering Sachsen's performance impracticable and frustrating the purpose of entering into the contracts with Hemlock.
Hemlock demanded the entire outstanding balance due to Hemlock from 2012 through 2019 – close to $600 million – plus post-judgment interest. Sachsen argued that this would be an unenforceable penalty rather than permissible liquidated damages under the contract. At the most, Sachsen argued, it should pay only for Hemlock’s lost profits since Hemlock did not have to actually produce polysilicon for Sachsen after the breach. This would have saved approximately $200 million for Sachsen.
Both the district and appellate courts found that since even drastic changes in the market are not sufficient to trigger the impracticability defense, Sachsen could not here either, even given the alleged Chinese interference. This, said the district court, was irrelevant because the alleged illegal actions of the Chinese government had “simply caused a market shift in pricing, making it unprofitable for Sachsen to perform as promised.” The appellate court cited to a case where even a $2m a day loss causing a company to go out of business did not warrant the defense. Both courts referred to the standard “floodgates” arguments and not blaming third parties for one’s own contractual misfortunes.
OK, but so what about the lost profit argument? Although such cost savings might factor into an ordinary breach-of-contract claim, the courts concluded that considering cost savings was inappropriate in the context of the particular take-or-pay provision in place between these parties. Hemlock, in other words, was entitled to full payment under the contract even if Sachsen refused delivery of the polysilicon. “Under these circumstances, Hemlock would have had no need to produce the polysilicon, but would still be entitled to be paid in full. The court persuasively reasoned that the [contract] therefore contemplated situations in which Hemlock's cost savings would be irrelevant to the amount of payment that Hemlock was due.”
That argument seems terribly circular to me. Hemlock was entitled to the full contractual amount because Hemlock was entitled to the full contractual amount? Uhm, even if it did not have to do anything and thus did in fact enjoy huge cost savings? I find that erroneous, nonsensical, and actually rather vindictive on the part of the U.S. court system over a foreign entity.
The appellate court also found that “restricting Hemlock's recovery to lost profits without accounting for the fact that Sachsen saved (and Hemlock lost) approximately $509.1 million earlier in the contract term would be inequitable. In light of the fact that Sachsen benefited substantially in the earlier years of the LTAs, the liquidated-damages award is not ‘unconscionable or excessive.’” That does not make sense to me either. The parties took the contractual risks that they did. Granted, Sachsen then breached. But greed then seemed to come into play, for profits were the only thing Hemlock would have gotten out of the situation had there not been a breach. Hemlock was placed in a vastly better situation here than what liquidated damages normally allow for, precisely because they cannot be punitive. They seemed to have been here as they were a simple, yet extreme formula: if breach, pay the rest of the contract no matter what. When the contractually stipulated liquidated amount grossly exceeds actual damages, courts of law usually construe such provision as an unenforceable penalty. Not in this case, not even for a windfall of $200 million.
The case is Hemlock Semiconductor Operations, LLC v. SolarWorld Indus. Sachsen GmbH, 867 F.3d 692, 707 (6th Cir. 2017), reh'g denied (Sept. 19, 2017)
Friday, October 13, 2017
If you're a person who spends time on Twitter, you might be aware that it's been a manic week on the platform (although every week is a manic week on Twitter; it's 2017). As the news broke about Harvey Weinstein's pattern of multiple sexual assaults, Rose McGowan added to the many allegations and tweeted an accusation of rape against him. Later, McGowan's Twitter account was suspended. The reaction to this suspension was swift and furious by many of the platform's users. Twitter later clarified that it suspended her account because she had posted a personal phone number (in violation of Twitter's policies) but for a while the exact reason was unclear, and many users complained that it was more of Twitter's selective enforcement of its policies.
Social media's increasing reliance on algorithms to handle the speech going on on the sites has lots of problems, and as more and more public discourse collides up against more and more opaque policies, it seems like a problem that's only going to get worse. We should think about these issues, and we should especially think about them as we teach our students how to interpret the contracts that govern our lives: we all have an entrenched viewpoint that should be critically examined rather than blithely assume our own neutrality.
In the meantime, I'm going to post this blog and then tweet to tell you all about it, because that's the way we communicate in today's society, and I'm going to have to agree to Twitter's policies to do it, and I'm going to hope these policies let me make the tweet, something that many of us take for granted but that is definitely not guaranteed. Our contracts are never as clear as we hope.
Thursday, October 12, 2017
The Top Ten List returns after an unintended hiatus over the last two weeks. Happy reading!
Recent Top Papers (60 days) as of 13 Aug 2017 - 12 Oct 2017
Recent Top Papers (60 days) as of 13 Aug 2017 - 12 Oct 2017
Monday, October 9, 2017
I am gearing up to teach specific performance soon, so this recent case out of New York, Grunbaum v. Nicole Brittany, Ltd., 2015-10155, caught my eye. The relevant facts of the dispute are fairly simple and straightforward: The parties had a contract regarding property and the closing didn't happen. The plaintiff sued for specific performance. The defendant moved to dismiss the complaint and the plaintiff cross-moved for summary judgment on the complaint. But the plaintiff failed to establish that he was actually able to buy the property in question. He submitted no evidence as to his financial condition, and to receive specific performance that plaintiff had to show "that he was ready, willing, and able to purchase the subject property." Therefore, even though the defendant's motion to dismiss was denied, the court also denied the plaintiff's motion for summary judgment.
Wednesday, October 4, 2017
A slip-and-fall in a cruise ship bathroom, a forum selection clause, a defective filing, an untimely filing...and equitable tolling
A recent case out of the Southern District of Florida, Jordan v. Celebrity Cruises, Inc., Case No. 1:17-cv-20773-WILLIAMS/TORRES (behind paywall), concerned a plaintiff, Jordan, who was allegedly injured when she slipped and fell in the bathroom of her cabin. She attempted to sue the defendant, Celebrity Cruises, in Florida state court. However, her ticket contract with Celebrity Cruises required that any causes of action be filed in the Southern District of Florida. Jordan did eventually file in the Southern District of Florida but it was after the statute of limitations had run.
The main issue in the case revolved around whether the statute of limitations could be equitably tolled, since she had filed in state court prior to the statute of limitations running. Jordan argued that she did not have her ticket contract, nor was she aware that it required suit in the Southern District of Florida--a not-at-all implausible argument on her part, considering that few of us read those terms and conditions or really register them. She claimed that the first time she realized she had a ticket contract with Celebrity Cruises was when Celebrity Cruises attached the ticket contract to its motion to dismiss her state court complaint, and that the case was refiled in the proper contractual forum shortly thereafter.
The court found that equitable tolling could apply. Jordan was diligent in pursuing her cause of action, and Celebrity Cruises did not suffer any adverse consequences, since Jordan had provided timely notice of her injury to Celebrity Cruises. The court did not think Jordan was negligent in her failure to file in the proper forum. Celebrity Cruises seemed to argue that Jordan should have found the ticket contract online to learn where the proper forum to file would be, but there was no evidence in the record showing that the ticket contract was so easy to locate online that Jordan's failure to do so was negligent. Therefore, Jordan's timely filing in the wrong forum entitled her to equitable tolling, considering her diligence in all other respects.
Greetings, ContractsProf Blog readers--today I invoke my rarely-used editor's prerogative to publicize an important announcement from my home institution. Feel free to share the following Dean Search Announcement from Texas A&M University School of Law in Fort Worth, Texas, a place that I can say from firsthand experience is a wonderful place to teach, write, and serve.
Texas A&M University is a tier-one research institution and American Association of Universities member. As the sixth largest university in the United States, Texas A&M University is a public land-grant, sea-grant, and space-grant university dedicated to global impact through scholarship, teaching, and service. The members of its 440,000 strong worldwide Aggie network are dedicated to the University and committed to its core values of excellence, integrity, leadership, loyalty, respect, and selfless service.
Located in Fort Worth, the Texas A&M University School of Law is one of 16 colleges and schools that foster innovative and cross-disciplinary collaboration across more than 140 university institutes and centers and two branch campuses, located in Galveston, Texas and Doha, Qatar. Since joining the A&M family in 2013, the law school has sustained a remarkable upward trajectory by increasing its entering class credentials and financial aid budgets; shrinking the class size; hiring new faculty members, including nationally recognized scholars; and enhancing the student experience. Consistent with its mission, Texas A&M University School of Law integrates cutting edge and multidisciplinary scholarship with first-rate teaching to provide students with the professional skills and knowledge necessary for tomorrow’s lawyers. Texas A&M University School of Law faculty members and students play a vital role by providing their legal expertise to collaborations with other Texas A&M professionals to develop new understandings through research and creativity.
The next Dean of Texas A&M University School of Law should provide dynamic, innovative, and entrepreneurial leadership and vision to shape the school’s continued transformation into a model for future legal education. Candidates should have a Juris Doctorate and a scholarly record appropriate for appointment at the rank of tenured professor. Other candidates who hold distinguished records of professional and intellectual leadership or outstanding service to the community will also be considered. The successful candidate should be:
- committed to the school’s scholarly mission;
- a strong law school advocate who seeks cross-unit collaborations with other university schools and colleges;
- a successful fundraiser who can obtain support for various programs and projects, including the Law School Building Project recently approved by The Texas A&M University System Board of Regents, as well as endowed faculty chairs, professorships, and student scholarships;
- an effective administrator with team-building skills and a collaborative management style appropriate to a complex organization; and
- dedicated to community engagement and public service and experienced at external relations, including outreach to law firms, corporations, and foundations as well as government agencies, non-profit organizations and policy-makers.
The Texas A&M University School of Law is located in the heart of downtown Fort Worth, a city known for a unique confluence of Texas history and renowned arts. Fort Worth enjoys a diverse business community, including energy, defense, international trade, and logistics as well as financial services. Just outside of downtown, Fort Worth has many neighborhoods with recognized schools a short distance from the law school. Fort Worth is known nationally as the home to the Bass Performance Hall, the Kimbell Art Museum, and the Amon Carter Museum of American Art, among others. The Trinity River flows through the city. It features over 40 miles of trails, providing access to the Fort Worth Botanic Garden, the Japanese Garden, the Fort Worth Zoo, and the historic Stockyards. The Fort Worth/Dallas metropolitan area has a total population of more than seven million. It offers a vibrant legal community that supports extensive federal and state court systems, including the Patent and Trademark Office, the Federal Reserve Bank, the National Labor Relations Board, the Environmental Protection Agency, and the Securities and Exchange Commission. Fort Worth/Dallas has one of the world’s largest airports. As one of the most desirable places to live and work in the United States, the metroplex has attracted many multinational corporations.
Applications should include a curriculum vitae, a cover letter including a statement of interest, and a list of three references. Only nominations and applications received by November 17, 2017 are assured consideration. Nominations and applications received after November 17, 2017 may or may not be considered.
Applications and nominations should be submitted electronically in confidence to firstname.lastname@example.org. Applicant information will be kept confidential to the maximum extent allowable by law. Additional information and timeline can be found at http://lawsearch.tamu.edu.
Texas A&M University provides equal opportunity to all employees, students, applicants for employment or admission, and the public, regardless of race, color, sex, religion, national origin, age, disability, genetic information, veteran status, sexual orientation, or gender identity.
The Eight Circuit Court of Appeals has held that conduct tending to show fraud and bad faith in relation to one contract is not an excuse for not performing in a closely related contract.
Dr. Halterman signed a recruitment agreement, an employment contract, and a promissory note in the amount of $50,000 as a “signing advance” – a loan - for his upcoming work as a doctor with the Johnson Regional Medical Center (“JRMC”). The recruitment agreement stipulated that the monthly payments on the signing advance would be forgiven so long as Dr. Halterman’s employment at JRMC “continued.” It did not. Five months into his employment, Dr. Halterman quit, citing to, i.a., JRMC’s fraudulent misrepresentations in negotiating his call-coverage obligations and bad faith in that respect. Dr. Halterman had also suffered a shoulder injury that both parties at one point agreed would result in him not being able to do all the work for JRMC that the parties had originally agreed upon.
JRMC claimed repayment of $37,894 still owed by Dr. Halterman when he resigned without, in the hospital’s opinion, a “legal defense.” Dr. Halterman sought to excuse himself from having to repay the remainder of the loan.
The appellate court agreed with JRMC that Dr. Halterman’s obligations to pay the remaining debt were not excused by his allegations (or eventual proof) of fraud or breach of the duty of good faith in the employment contract. An executory contract procured by fraud is not binding on the party against whom the fraud has been perpetrated. Here, Dr. Halterman sought not to perform under the employment contract, but the court found that the loan agreement was an entirely separate contract that thus still had to be performed.
This situation could have been avoided with more legally apt language, of course. Such language could have included express conditions stating that the loan was not to be repaid under a set of circumstances covering, for example, fraud. However, I find it troublesome that the legal effects of three contracts that clearly were meant to relate to and arguably depend on each other were separated decisively as the court did here. In fact, the parties disagreed on whether the three executed documents should be considered separately or as one single contract. The court analyzed the employment contract as separate from the recruitment agreement and note, which were treated as one. That may or may not make sense. Granted, it may make sense that sophisticated parties such as these could simply, if they had intended one single legally binding contract to arise, have worded their documents accordingly. On the other hand, it does not make much common sense to find that a “recruitment” contract is entirely different from an “employment” contract; the two are clearly connected. If fraud has arisen, is not the result of the above that the party acting fraudulently – the hospital, allegedly – can if not outright recover from a fraud, then at least avoid losses from it? Although I do agree with the outcome here, it seems like it to me that some troublesome aspects of this finding remain, namely that an employer apparently got away with broken employment promises fairly scot-free. That’s not fair.
The case is Johnson Regional Medical Center v. Dr. Robert Halterman, 867 F.3d 1013 (Eighth Cir. Ct. of App. 2017).
Monday, October 2, 2017
The allegations of this recent case out of the Northern District of California, Consumer Opinion LLC v. Frankfort News Corp., Case No. 16-cv-05100-BLF (behind paywall), are fascinating. Basically, Consumer Opinion owned a consumer review website and alleged that Defendants provided "reputation management" services by which Defendants copied the contents of Consumer Opinion's website, back-dated these contents so that it would look like Defendants' site pre-dated the Consumer Opinion website posting, and then asserted that the Consumer Opinion website was infringing their copyright. Such, at least, were the allegations in the complaint. (You can read the complaint here. You can also read the order on Consumer Opinion's TRO motion here and the order on Consumer Opinion's motion for early discovery here.)
The parties had discussed settlement, and in the current motion Consumer Opinion moved to enforce a settlement agreement between it and Defendant Profit Marketing, Inc. The problem? They never reached any such agreement. First Consumer Opinion tried to argue that Profit Marketing agreed to settle for $50,000 but Profit Marketing's lawyer's last communication on the matter read, "Well I can't agree without my clients consent but that sounds fine to me. I'll get their approval when I talk to them today." As I've been teaching my students as we walk through offer and acceptance, this statement betrayed a lack of authority to enter into a present commitment ("I can't agree without my client's consent.").
Consumer Opinion then tried to argue that Profit Marketing agreed to settle for $35,000. However, its proof of this was a general e-mail whereby one of Profit Marketing's other attorneys expressed openness to pursuing settlement, followed by several replies by Consumer Opinion that were never responded to. Eventually, in the face of the continuing silence from Profit Marketing's attorney, Consumer Opinion asserted that if it got no response by 5 pm, it would move to enforce the settlement agreement. It got no response, and this motion followed.
The court refused to read Profit Marketing's attorney's silence as acceptance of Consumer Opinion's settlement offer. Rather, Profit Marketing's lack of response indicated that it never accepted the offer, and so there was no binding settlement agreement between the parties.
A contract worth $11 b. Two such major parties as Yahoo!, Inc. and SCA Promotions, Inc. And still the contract does not specify precisely what the payments due are supposed to be for.
In 2014, Yahoo wanted to sponsor a perfect bracket contest in connection with the 2014 NCAA Men's Basketball Tournament, with a $1 billion prize for any contestant who correctly predicted the winner of all 63 games. SCA provides risk management for marketing and prize promotions. In return for a fee, SCA agreed to pay the $1 billion prize if any contestant won the contest.
Two invoices, dated December 27, 2013, were attached to the Contract with continuous pagination. According to the second invoice, the contract fee was $11 million. Yahoo owed an initial deposit of $1.1 million to SCA “[o]n or before December 31, 2013”; the remaining $9.9 million was due to SCA “[o]n or before February 15, 2014.”
The contract permitted Yahoo to cancel the contract with fees varying depending on when Yahoo cancelled. The relevant provision read as follows:
Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract. In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph … Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor (emphasis added).
Yahoo subsequently cancelled, but argued that it only owed SCA a cancellation fee of $550,000 because “50% of the fee” means 50% of the $1.1 million that Yahoo had already paid to Yahoo as an interim payment. SCA argued that the cancellation fee was $5.5 because “50% of the fee” means 50% of the $11 million total contract fee.
The Fifth Circuit Court of Appeals agreed with SCA: “The district court determined that the Contract's terms do not expressly set an $11 million fee. According to the district court, nowhere does the Contract specify or identify the invoices, when they will be paid, or otherwise provide that the fee is $11 million. But the Contract references invoices several times, and it provides that “this contract, including exhibits and attachments, represents the entire final agreement between Sponsor [Yahoo] and SCA, and supersedes any prior agreement, oral or written.” Although the Contract does not explicitly identify the invoices to which it refers, two invoices are attached to the Contract with pagination continuous with the rest of the Contract … It is clear from the Contract's terms that the invoices are part of the Contract. See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (“Documents incorporated into a contract by reference become part of that contract.”). Accordingly, the district court's conclusion that the Contract does not specify an $11 million fee was in error.”
Once again, students and practitioners: be clear when you draft documents! Unambiguous language and specific references can be worth millions, if not billions, of dollars.
The case is SCA Promotions, Inc., v. Yahoo!, Inc., 868 F.3d 378 (Fifth Cir. 2017).
Sunday, October 1, 2017
Three peer-reviewed studies have each concluded that travelers who pay an additional fee for luggage pay more than they did, on average, when bag costs were included in the airfare. This finding was first reported by the Los Angeles Times.
Airlines started "unbundling" their services such as food, drinks, luggage and now even reserving seats in an alleged effort to give passengers the option of only paying for what they want.
Officially, airfare rates have fallen over the past three consecutive years, but with the added luggage fees, flying is actually more expensive.
Since airlines by and large charge the same prices for things unless, perhaps, you have good frequent flyer credit with them and can book tickets months and months ahead of time, your contractual bargaining power with them will be almost zero. Take it or leave it!
Friday, September 29, 2017
"You can stay here until we come to an agreement!" Watch out for what happens if you never reach an agreement!
One of the thorniest issues I find to teach students is when an agreement is enforceable vs. when it is merely an agreement to agree. A recent case out of Wisconsin, Adrikos Real Estate Holding LLC v. Murphy, Appeal No. 2016AP1313, addresses this very issue. The document in question read,
The seller, Murphy, shall retain the right to occupy the Property for a period of 15 days following the closing date of the agreement . . . . Thereafter, the seller, Murphy, shall retain the right to occupy the Property until such date that parties reach an agreement for the purchase and sale . . . .
The parties never reached an agreement for the purchase and sale. Instead, Adrikos sought to evict Murphy. Murphy, however, argued that the contract gave him the right to stay on the property until they reached agreement for the purchase and sale--which they hadn't.
The lower court found the agreement to be unenforceable as merely an agreement to agree. This court disagreed. The agreement explicitly granted Murphy the right to occupy the property until a purchase and sale agreement was reached. This didn't render the contract an agreement to agree; rather, it made a future agreement a "triggering condition" of the presently enforceable first agreement.
Having found the agreement enforceable, the court then considered if, because it didn't have a particular end date, it was terminable at will and Adrikos could evict Murphy at any time. The court found that the agreement did have an end date, though: the agreement for the purchase and sale. The court found, though, that, depending on the circumstances, this could convert the contract into a perpetual lease, which was disfavored under Wisconsin law, and if so, the court should read in a reasonable duration for the occupancy right. It remanded for further determination on this question.
Wednesday, September 27, 2017
A recent case out of the Southern District of New York, Betty, Inc. v. Pepsico, Inc., No. 16-CV-4215 (KMK) (behind paywall), tackles a fairly common issue: Often people make pitches based on ideas they have. Ideas aren't copyrightable, so often the only protection people have is contract-based. But, also often, they don't actually have a written contract, so they have to rely on an implied-in-fact contract theory. However, as this case reiterates, an implied-in-fact contract is more than just a conclusory allegation that "oh, we had an agreement that they'd pay me something for my pitch."
The case in question involves an advertising agency, Betty, who pitched a commercial to Pepsi for use in the Super Bowl. Pepsi invited Betty to participate in a telephone pitch meeting, during which Pepsi provided the "general outline of what it envisioned for the Super Bowl commercial," followed by a more formal face-to-face presentation. At the presentation, Betty presented eight different ideas and provided Pepsi with a USB drive with some concepts contained on it. Pepsi allegedly reacted favorably and asked for more details about some of the concepts.
About a month later, Pepsi informed Betty that it had decided to go in another direction with the commercial. However, when Betty saw the commercial during the Super Bowl, it thought it was substantially similar to one of the concepts it had pitched to Pepsi. The decision itself is behind a paywall but the lawsuit's filing was reported in some outlets.
This lawsuit followed, alleging copyright claims as well as a variety of contract-based claims. The breach of contract claim faltered, though. In the complaint, it consisted of just three paragraphs of conclusory allegations that didn't appear to rise to the level of an agreement. In the most generous reading, it sounded like an "agreement to agree" that can't be enforced. The complaint contained absolutely no terms of the contract. The fact that the contract was an implied-in-fact contract didn't excuse the plaintiff from having to allege facts sufficient to allow the court to draw an inference that the parties had entered into a contract based on their conduct and the surrounding facts and circumstances. That didn't happen here. Therefore, the court dismissed the breach of contract claims.
The copyright infringement claim, though, survived, and the court granted leave to amend on the breach of contract claim, so the plaintiff does live to fight another day.
(This post has been edited to correct a typo in the previous version. Pepsi provided the "general outline" over the phone, not Betty.)
Thursday, September 21, 2017
Recent Top Papers (60 days) as of 23 Jul 2017 - 21 Sep 2017
Recent Top Papers (60 days) as of 23 Jul 2017 - 21 Sep 2017
Wednesday, September 20, 2017
I have actually seen a bunch of cases lately where people have either sued the wrong company in a complicated corporate structure (understandable) or where they have brought suit on behalf of the wrong company, which seems less understandable to me since you should presumably know your own corporate structure and which companies are bound by which contracts. But, as a recent case out of the District Court for the District of Columbia, Washington Tennis & Education Foundation, Inc. v. Clark Nexsen, Inc., Case No. 15-cv-02254 (APM), shows: not always.
The parties entered into an agreement where Clark Nexsen would design a tennis and education facility. About a year after entering into this agreement, Washington Tennis & Education Foundation, Inc. ("WTEF") assigned "all of [it]s right, title and interest" in the contract to Washington Tennis & Education Foundation East, Inc. ("WTEF East"), a related company that was not a party to this lawsuit. After growing dissatisfied with Clark Nexsen's performance under the agreement, WTEF sued for breach of contract. Clark Nexsen moved for summary judgment that WTEF lacked standing to sue because all of its contractual rights now belonged to WTEF East by virtue of the assignment.
The court agreed with Clark Nexsen. WTEF and WTEF East were two separate and distinct legal entities. It was true that they were related but they had separate boards of directors and separate records, etc. WTEF was not entitled to bring claims on WTEF East's behalf. Once WTEF assigned the contract to WTEF East, it became a "stranger" to the agreement and could not enforce it.
WTEF tried to argue that it and WTEF East were, for all intents and purposes, the same. However, the court pointed out that WTEF created WTEF East in order to put itself in a position to secure extra financing. The court said that WTEF couldn't have its cake and eat it, too: If it wanted to have separate entities when it was advantageous for it to do so, then the court was going to treat them as separate entities even when it became disadvantageous.
WTEF also tried to argue that it was a third-party beneficiary of the contract at issue, but there was nothing about the contract that indicated WTEF should be treated as a third-party beneficiary, and in fact the contract explicitly disclaimed that the contract should be construed to have any third-party beneficiaries. Nor was there anything in the assignment agreement indicating WTEF should now be treated as a third-party beneficiary of the original contract. In fact, the assignment agreement named Clark Nexsen as a third-party beneficiary to it, so it was clear the parties had thought about third-party beneficiary issues and had not given such status to WTEF.
The court ended up dismissing all of WTEF's claims but maintaining jurisdiction over Clark Nexsen's counterclaim moving forward. Not a good outcome for WTEF. Double-check your corporate structure before deciding which entity needs to sue on a contract.
Tuesday, September 19, 2017
The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.
Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale.
Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).
The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).
Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”
So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.
Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”
I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter?
I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.
The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).
Monday, September 18, 2017
If you, like me, just taught about letters of intent and also promissory estoppel, then here's a case with both for you, out of the District of Minnesota, City Center Realty Partners v. Macy's Retail Holdings, Civil No. 17-CV-528 (SRN/TNL). (The decision is behind a paywall, but you can read about the background of the lawsuit here.)
The parties were negotiating a sale of Macy's property in Minneapolis and had executed a Letter of Intent before (predictably, since we're in court) the deal fell apart. City Center brought claims against Macy's, including breach of contract based on the letter of intent. However, Macy's argued that the letter of intent was not binding, and the court agreed. The clauses in the letter of intent referred to a future purchase agreement that was never executed, and so, absent this purchase agreement, the letter of intent only bound the parties in very limited ways.
City Center also brought a claim that Macy's breached the covenant of good faith and fair dealing in delaying the finalizing of the transaction. However, the actions that City Center complained about were not things that Macy's was obligated to do. Macy's fulfilled its obligations under the letter of intent and City Center's other allegations of delay and obstruction on Macy's part were not actionable.
Finally, City Center brought promissory estoppel allegations based on oral statements Macy's made in the context of the parties' negotiations. But the court pointed out that the letter of intent represented the parties' agreements about their negotiations. City Center could not use promissory estoppel to alter the terms of the written contract. And, to the extent that City Center alleged other terms had been agreed upon not written in the letter of intent, the court refused to use promissory estoppel to save the statute of frauds problem (since this was a contract for the sale of land). Under the circumstances here, City Center knew that it and Macy's were engaged in ongoing negotiations that might not pan out. If City Center wanted assurance that Macy's would keep certain promises, it should have had those put in the letter of intent in a binding way. This was not a situation where Macy's had committed some kind of fraud where justice would require the enforcement of Macy's oral statements; it was just a situation where negotiations fell apart in a way that City Center didn't like. That didn't justify the application of promissory estoppel.
Friday, September 15, 2017
A recent case out of California, Pimpo v. Fitness International, LLC, D071140 (behind paywall), finds an arbitration clause in a contract unenforceable due to unconscionability.
In the case, Pimpo worked at one of Fitness International's fitness centers, where another employee sexually harassed her. Pimpo made several reports about the other employee's behavior and ultimately ended up suing over the sexual harassment. Fitness International responded by moving to compel arbitration based on a contract Pimpo electronically signed when she submitted her application for employment with Fitness International. However, the very terms of that agreement said it was only effective for 45 days, so it had expired by the time Pimpo filed suit. Fitness International tried to argue that Pimpo had signed a different arbitration agreement upon accepting employment but the trial court found no evidence of such agreement and the appellate court said that Fitness International's statement that it moved to compel arbitration based on this other agreement for which there was no evidence "border[ed] on a misrepresentation to this court."
So the appellate court already wasn't too happy with Fitness International as it began its unconscionability analysis, which it turned to in the interest of thoroughness. The arbitration clause that Pimpo signed when she applied for employment, the court concluded, was unenforceable due to unconscionability. Because the contract was a contract of adhesion presented to Pimpo on a take-it-of-leave-it basis, the court found that it was "by definition procedurally unconscionable." The court then went on to note, though, that Pimpo was in the usual position of someone applying for a job: She needed money to survive and did not have the resources to hire an attorney to look over the contracts for every application that she submitted.
The court also found substantive unconscionability because the clause was drafted to be breathtakingly broad. It explicitly required Pimpo to give up her right to a jury trial on all claims, "even those unrelated to the application or her employment," against Fitness International and "its officers, directors, employees, agent, affiliates, entities, and successors," forever. The court noted that this language meant that if Pimpo got into a car accident with a Fitness International employee, it was covered by this arbitration clause. Fitness International tried to argue that the clause should be read more narrowly than that but the court noted that that was not how it was drafted (and Fitness International had drafted it). In addition, the discovery procedure that the arbitration clause allowed for placed Pimpo at such a disadvantage that the court agreed that was substantivaly unconscionable, too.
Beware of drafting your clauses too broadly. Such can be the outcome. Even arbitration clauses can have their limits.
On Sept. 12, 2017, Senate Bill 33 was approved by the California Senate and now awaits Governor Brown’s approval before becoming law.
The legislation was designed after the Wells Fargo scandal to block legal the legal tactic of keeping disputes over unauthorized bank accounts out of public court proceedings an favor of private arbitration.
Said the law’s author, Sen. Dodd (D-Napa): “The idea that consumers can be blocked from our public courts when their bank commits fraud and identity theft against them is simply un-American.” It is also clearly unethical and, once again, emphasized how difficult it can be in modern times to strike a fair contractual bargain with a party that has much greater bargaining power than individuals and that uses lengthy and often complex boilerplate contracts with terms few read and understand.