ContractsProf Blog

Developer can go to trial on township's promise

A breach of contract action against the township of Pennsauken, New Jersey, over a 600-acre waterfront development will apparently go to trial.  A New Jersey judge Friday said that Vineland Construction, which claims it was given a "clear and definite promise" that it would get the billion-dollar redevelopment job but which had never "finalized" a contract, could proceed with its claims.

Although the township had at one point approved a draft contract with Vineland, it subsequently awarded the project to one of the other bidders.

Trolley Boy, Ltd.

Shopping carts and cars make a bad mixture in a parking lot, and supermarkets in Australia are resorting to a novel tactic to avoid liability.  The stores have begun using independent "contract" workers, instead of employees, as "trolley boys."  The youths, many of whom own few assets, are finding themselves personally liable for the damage caused by the carts.

Because of their status, the young workers also are responsible for their own taxes and insurance and may have to register as "companies."

Chickens, eggs, will both come first

The U.S. Department of Health and Human Services, which did such a fine job this year in ensuring regular supplies of flu virus to Americans, has already started plans for next year.  HHS has issued a $10 million contract with a Pennsylvania producer of chickens and eggs (used in manufacturing the vaccine) to ensure that there will be enough chickens and eggs next year.

Cases—Interpretation—"Sole discretion" clause ambiguous

A "sole discretion" termination clause in an employment agreement was ambiguous under Texas law, says the U.S. Court of Appeals for the Fifth Circuit, and it was error to prevent an employee from introducing parol evidence on what it means.

Sixto Rodriguez, the former managing director of Spanish operations for Dell Computer, was terminated after the company discovered a number of irregularities, including what appeared to be forged contracts granting lavish golden parachutes to friends. The parties negotiated a four page "Separation Agreement" under which Dell agreed to provide certain benefits, and which contained the following clause:

Dell may terminate these Transition Agreements with immediate effect . . . if Dell has determined, in Dell's sole discretion, that your conduct is creating, or has created, a negative impact on Dell or on Dell's reputation in the Spanish market and Dell has provided you with written notice of such negative impact.

Dell subsequently terminated the agreement and sued Rodriguez for breach of contract.  It won a $3.5 million jury verdict.  Rodriguez appealed, arguing (in part) that Dell’s action was based on actions taken while Rodriguez was still an employee. He proffered parol evidence to show that the clause was supposed to refer only to new defalcations that arose after it was signed.

The district court held that "is creating, or has created" unambiguously covered conduct before ("has created") and after ("is creating") the time the agreement was signed:

Rodriguez argues that the Separation Agreement's sole discretion clause only applies to his performance as a consultant and not his previous conduct as a Dell employee.  Unfortunately for Rodriguez, this theory contradicts the plain language of the agreement.  The Separation Agreement covers past behavior when it states that if Rodriguez' conduct "is creating, or has created, a negative impact on Dell," Dell may terminate the agreement and withhold any stock that was going to be released pursuant to the agreement.  Rodriguez attempts to overcome the plain language of the Separation Agreement by offering parol evidence including deposition testimony and email correspondence.  The Court, however, cannot look to parol evidence for the purpose of creating ambiguity. . . .  The Court, therefore, finds that the plain language of the contract allowed Dell to look to Rodriguez' past conduct as a Dell employee in determining whether he had created a negative impact on Dell.

Not so, said Judge Weiner.  The term was ambiguous, and therefore Rodriguez should have had the opportunity to introduce parol evidence.

Dell Computer Corp. v. Rodriguez, 2004 U.S. App. LEXIS 23393 (5th Cir. Nov. 8, 2004)

New Papers: Comparative Responsibility and Standard Forms

Contracts scholarship has seen a good many attempts to reconcile standard form contracts with the idea of "assent."  A new article by Darian Ibrahim, The Case for Extending Comparative Responsibility to Standard Form Contracts, offers a yet another potentially promising approach, suggesting that we import the tort doctrine of "comparative responsibility" into the process.  The abstract:

Commercial realities tell us that there is no "meeting of the minds" between sellers and consumers in today’s standard form contracting. Contract law has unsuccessfully sought to overcome this divergence between theory and practice, and public law alternatives have not taken hold. I contend that tort law's principle of comparative responsibility, which apportions responsibility for a negative result between the parties that created it, provides a viable solution to this problem.

Under a comparative responsibility framework, the enforceability of standard form boilerplate would depend on the relative faults of sellers and consumers for the lack of mutual assent. If the seller is adjudged more responsible (e.g., because it produced an oppressive or incomprehensible form), the boilerplate would be replaced with government-drafted default terms. If, on the other hand, sellers improve their contracting practices and form content, yet consumers continue to sign without reading, the boilerplate would be enforced. In such cases, it can be said that consumers have a meaningful chance to assent to the form, and instead they have assumed the risk of being bound by unfavorable terms.

A standard form principle of comparative responsibility strikes the right balance between maintaining an efficient market and preventing consumer exploitation. It is fairer than current law because it induces sellers to draft and present better forms, and is more efficient because it brings market factors into play by incentivizing consumers to read and shop the improved boilerplate terms.

Cases—Third Party Beneficiaries—Subcontractors are third party beneficiaries of public contract despite clause to the contrary

Subcontractors under a public works contract in Illinois are third-party beneficiaries of the contract and can maintain claims against the issuing village when they are not paid—even though the contract itself specifically provides that the village will not be liable for payment to them.

The Illinois Court of Appeals noted that the contract provided that the village did not "have an obligation to pay or to see to the payment of money to a subcontractor except as may otherwise be required by law" (emphasis added).  It was that last phrase that did the village in.  The village, said the court, had a preexisting legal obligation under the state’s Bond Act to ensure that the contractor posted a proper bond, and that clause was specifically for the benefit of subcontractors.  The village breached its obligation by failing to make sure the contractor posted the bond.

The subs went on to lose, however, because although the claim was for breach of the TPB contract, and not under the Bond Act, the court held that they were subject to the 180-day limitations period under the Bond Act, not the longer contract statute.

Ardon Elec. Co. v. Winterset Construction, Inc., 2004 Ill. App. LEXIS 1313 (1st Dist. Nov. 2, 2004).

Hmm, depends what you mean by "lifetime"

Employers saddled with the skyrocketing medical costs of union retirees are getting aggressive about trying to cut those benefits.  Instead of unilaterally slashing benefits and waiting to be sued, companies like railroad car manufacturer American Car Foundry (see product shot at left) are reportedly taking the offensive, suing workers themselves to get declarations that they can change benefits.  This allows the companies to control the choice of forum—an important consideration in an unsettled area.

One of the more—well, creative arguments by employers relates to the "lifetime" benefits promised to retirees.  Some employers are said to be claiming that "lifetime" does not refer to the life of the worker, but rather to the life of the labor contract.  Since the old contracts have expired, these employers argue that the benefit protections expired with them.

Ex-partners sue Fish & Neave over merger

Two former partners of Fish & Neave have sued the New York IP firm for $2.4 million in the wake of its announced merger with Ropes & Gray.  Edward Bailey (F&N's former managing partner) and Kevin Culligan, who are now partners at King & Spaulding, charge their old firm with breach of contract and breach of fiduciary duty.

The lawsuit, filed Wednesday, claims that that F&N amended its partnership agreement in May to penalize ex-partners and avoid having to return their capital contributions.  Bailey and Culligan are seeking an injunction to prevent certain F&N assets from being turned over to the newly merged firm unless F&N set aside enough assets to cover the claim.

Breaching a contract with the public

Is a politician who signs a written agreement with taxpayers that he will not raise taxes if elected liable for breach of contract when he does?  That issue will come before an Ontario trial court on Monday, according to the Canadian Taxpayers Federation.

The CTF is challenging Ontario's controversial Health Tax, which was passed by premier Dalton McGuinty's Liberal administration and went into effect July 1.  The taxpayers group argues that the tax violates the province's Taxpayer Protection Act, a 1999 law that requires a public vote on tax increases.

The more interesting claim, for contracts teachers, is a breach of contract claim against McGuinty himself.  When running for election, the premier signed the CTF's "Taxpayer Protection Promise," under which he undertook "if . . . elected" to refrain from raising taxes or relying on deficit spending.  McGuinty has said that when he made the promise he was not aware that the province would be facing a $5.5 billion deficit, but the taxpayer group says it has evidence that the Liberals knew of the deficit and that McGuinty, a lawyer, signed the agreement anyway.

Film Clips

[Homer Simpson is at the bank seeking a loan to buy his daughter Lisa a pony]
     Homer: Uh, I need to borrow $5,000.
     Bank Clerk: Sorry, I can’t approve a loan that big myself. I’ll have to get someone with authority.
     [Clerk leaves.  Mr. Burns and Smithers appear]
     Mr. Burns: Hello!
     Homer: Mr. Burns! You do this personally?
     Mr. Burns: Well, it’s sort of a hobby, you know. Now, what’s this? You want to borrow $5,000 to buy a pony?  Smithers, isn’t that wonderful!  He’s joining the horsey clan! [to Homer, lowered voice]  That is it, isn’t it? You’re not going to eat it, are you?
     Homer: No!  I need $5,000 to buy a pony for my daughter because she doesn’t love me any more . . . .
     Smithers: Shut up, Simpson! Do you have any collateral?
     Mr. Burns: Oh, Smithers, let’s not badger the man!  His spirit is my collateral! [to Homer]  By the way, are you familiar with our state’s anti-usury laws?
     Homer: Use-ury?
     Mr. Burns: Oh, silly me! I must have just used a word that doesn’t exist.  Sign here!
     [Homer signs contract. Burns laughs manically, then coughs and laughs sweetly when Homer looks at him]
     Mr. Burns: Sorry, I was just thinking of something funny Smithers said today.
     Smithers: I didn’t say anything funny, sir.
     Mr. Burns: [whispering] Shut up!

Registration deadline for Government Contracts conference

Today is the last day to get the discount registration for the National Contract Management Association's 2004 Government Contract Management Conference.  The fete is scheduled for (where else?) Tyson's Corner, Virginia, December 6-7.

This year's theme is Riding the Wave: The Future of Government Contracting in a Fluid Environment. 

Law and popular culture—without jargon

Michael Asimow (UCLA) has an interesting new course book out, co-authored with film historian (and UCLA law grad) Shannon Mader. Law and Popular Culture—A Course Book is being published this year by Peter Lang.

It’s not Asimow’s first venture into the field; he co-authored the popular Reel Justice: The Courtroom Goes to the Movies in 1996.  The abstract of the new book:

This forthcoming book explores the interface between two subjects of enormous importance to everyone—law and popular culture. It can be used in teaching either undergraduate or graduate courses and raises issues of interest to instructors in film studies, American studies, history, law, and many other disciplines. A teachers' manual is available to assist prospective teachers.

Law and popular culture pervade our lives. Students need to learn a lot more about both of them and how they influence each other. The book bridges the gap between the study of law and popular culture. It will expose students of popular culture to the study of law and law students to the study of popular culture.

Each chapter takes a particular legally themed film or television show, such as Philadelphia or Dead Man Walking, treating it as both a cultural text and a legal text. The book is written in plain English, without theoretical jargon, and it can be taught by anyone who enjoys pop culture and is interested in law.

Ex-coach sues Ohio State

Former Ohio State men's basketball coach Jim O'Brien has sued the university, seeking at at least $3.4 million for breach of his contract.   O'Brien was fired June 8 based on allegations he had given $6,000 to a recruit.  He had five years to run on a contract that paid him $864,000 a year.  O'Brien took the Buckeyes to the Final Four (left) in 1999.

From public reports, it appears that one bone of contention is the language of O'Brien's contract, which apparently allows the University to fire him if he violates NCAA rules.  O'Brien claims that there has been no finding of any NCAA violation.  The University says it "made its decision in the best interest of the university and its athletic program," and has "nothing further to say."

Legally incorrect?

Comedian Bill Maher, best known as the host of the Politically Incorrect television show (and currently host of HBO's Real Time) was hit today with a $9 million breach of contract suit by his "ex-girlfriend," Coco Johnsen. a model and former flight attendant.

Johnsen (with Maher, at left) says that she gave up her 12-year career as a flight attendant at Delta Air Lines after Maher promised to marry her and buy her a home formerly owned by Ben Affleck and Jennifer Lopez.

She began her relationship with Maher in 2003, and says that Maher convinced her to relinquish her career to "devote herself full time to him and his career."  Johnson, who is black, also says that Maher made "insulting, humiliating and degrading racial comments" about her.

Maybe winning isn't everything

Al Davis, the majority owner of the Oakland Raiders football team, is famous for his admonition to "Just win, baby."  But the controversial Davis couldn't follow his own advice today.  He was blitzed by an Alameda County (Calif.) judge who ruled that breach of contract and fraud claims brought against him by the team's minority owners can go forward. 

Superior Court Judge Ronald Sabraw held that the heirs of E. J. McGah, who had owned 31 percent of the team, succeeded as limited partners and can thus pursue their claims against Davis.  They argue that Davis has used his majority position to be—well, piratical in his relations with the minority owners, taking things that belong to them.  Trial date has not yet been set.

Conferences—Institute for Law Teaching

The Institute for Law School Teaching has announced that its spring conference will be held back east this year.  Villanova University School of Law, on the Philadelphia Main Line, will be the site for the conference, scheduled for March 11.  The theme is Teaching the Law School Curriculum, and there will be break-out sessions on substantive areas like contracts and on pedagogical issues like testing and assessment.

Liza Minelli sues former assisant

Entertainer Liza Minelli has filed a breach of contract counterclaim seeking $250,000 against her former chauffeur/assistant, M’hammad Soumayah.  Soumayah had sued Minelli in October, claiming that she had repeatedly beaten him during her frequent drunken rages. Soumayah had worked for the 58-year-old entertainer for ten years before she fired him.

The original lawsuit by Soumayah was filed under seal, but was ordered unsealed Tuesday by a Manhattan judge. Minelli is appealing that order.

Idaho college won't breach Taco Bell contract

Despite faculty concerns, Boise State University will not breach its $4 million dollar contract with Taco Bell, under which the school’s basketball complex is called "Taco Bell Arena."  Faculty had urged the school to re-name the arena in the wake of a nationwide boycott of Taco Bell by a farm workers group.  Similar pressure reportedly caused Notre Dame and UCLA to back out of deals with Taco Bell.

The farm workers do not actually work for Taco Bell, but their representative, the Coalition of Immokalee Workers hopes to pressure the fast food giant into using its clout with tomato farmers in its "produce chain" to get better working conditions for the workers.

For students too young to remember Lee Marvin

Actor Burt Reynolds is facing a palimony suit from his former "companion and homemaker" Pamela Seals. Seals, 49, claims that she and Reynolds had a contract under which "Reynolds promised to share equally any and all income and assets, whether real or personal property acquired during their relationship."

Reynolds had previously sued Seals claiming that she was attempting extortion by threatening to charge him with domestic violence unless he paid her a large sum.

Cases—Interpretation—"faulty workmanship"

An insured homeowner's "all risks" policy did not cover losses caused by "brown rot" in the lumber used in building an addition, or incompetent workmanship by the contractor, according to a federal district court in California.

Back in 1980, the homeowners had an addition put on their house.  During remodeling in 2002 it was discovered that the remodeler’s workmanship had been defective and the wood was rotten.  The owners claimed that they were injured by a failure to warn that the wood might have rot.  The policy, however, excluded "loss caused directly or indirectly by . . . faulty, inadequate, or defective . . . workmanship, repair, construction, renovation, [or] remodeling . . . [or by] materials used in repair, construction, renovation or remodeling."  Thus, said the court, the loss was squarely within the policy exclusion.

Sapiro v. Encompass Insurance., 2004 U.S. Dist. LEXIS 22054 (N.D. Cal. Nov. 2, 2004).