December 11, 2004
Grasso compensation trial will be in state court
The "excessive compensation" trial of former New York Stock Exchange chair Richard Grasso is headed back to state court. Grasso was sued in state court by the New York attorney general, on a claim that the NYSE violated the state’s not-for-profit corporation law by paying Grasso too much in a severenace package—$187.5 million, to be exact.
Grasso tried to remove the case to federal court, since the NYSE is a federally regulated institution, but District Judge Gerald Lynch held that the claim is for state law violations.
Today in history—December 11
1620: A group of "pilgrims" who sailed from England on the Mayflower land at Plymouth Rock, just in time for a Massachusetts winter that will decimate them.
1816: Indiana becomes the 19th U.S. state.
1838: Industrialist Emil Rathenau is born in Berlin. He will found a company to license Thomas Edison’s patents in Germany, which will later become known as Allgemeine-Elektrizitäts-Gesellschaft, or AEG.
1888: The first French Panama Canal Company fails and goes into liquidation.
1902: Matthias Hohner is born. A clockmaker by training, at age 24 he founded a company to manufacture harmonicas. Among early enthusiasts were Abraham Lincoln, Wyatt Earp, and Billy the Kid. The Hohner company today makes 70 different models..
1904: Future bookmaker Joe Coral is born. His betting empire continues under the name Coral Eurobet.
1919: The citizens of Enterprise, Alabama, dedicate a monument (left) to the boll weevil, the insect that destroyed the region’s cotton industry and thus forced farmers to engage in diversified agriculture—ultimately bringing much new prosperity to the region.
1931: Japan abandons the gold standard for its currency.
1934: Baseball’s National League votes to permit games to be played at night.
1946: Singer/songwriter Hiram King "Hank" Williams begins his recording career with Sterling Records.
1967: The Beatle’s Apple Records label signs its second group, a band called Grapefruit.
1970: Art makes a major advance as John Lennon releases an album whose songs include the word "fuck."
1985: General Electric Corp. acquires RCA and its broadcast subsidiary, NBC.
1995: Thomas Hicks pays $84 million to buy the Dallas Stars of the National Hockey League.
Cases—Notice—Insured fails to notify insurer on time, loses coverage
An insured who thought that a claim against it would be resolved within the policy’s self-insurance limits and therefore did not notify the carrier could not later claim reimbursement, according to a federal district court in Texas.
A trucking company had a policy with an insurance carrier under which the company was self-insured for the first $1 million and entitled to excess coverage beyond that. When a plaintiff sued the insured for $1 million, the insured did not notify the insurer. At trial, a jury awarded $1.1 million. At this point the trucking company notified the insurer.
Too late, wrote Judge Paul D. Stickney. The trucking company argued that it had no obligation to notify the insurer because (1) it had no duty to settle within the self-insurance limits, and (2) the insurer was not entitled to notice until claims exceeded the self-insurance. The court held that the policy required notice of all claims.
Hey, nobody messes with Corporate America
Philadelphia Eagles wide receiver Terrell ("T.O.") Owens and his agent, David Joseph, have been sued by a company called Formulated Sciences, Inc., which makes "sports and nutritional supplements" like the "fat burner" Düzoxin (pictured). The slightly bizarre press release short on details but long on rhetoric:
"You [Owens] may be able to mock your teammates and disrespect your coaches on national television," said Paul Edalat, President and Founder of FS. "But when it comes to a partnership with corporate America these acts will not be tolerated."
FS will now look to the courts for justice. . . .
"A partnership or endorsement has responsibilities just like a marriage," said Edalat. "Your acts on and off the football field may cause millions of dollars in damages to your corporate sponsors and partners including putting many innocent employees jobs at risk."
. . .
"T.O. always has claimed of wanting to go Hollywood, so here he will have one of his most important roles to date, defending himself in the court of law." said Edalat.
December 10, 2004
Today in history—December 10
1672: Francis Lovelace, the second royal governor of New York colony, announces the inauguration of a monthly mail service between New York and Boston. The New York-Boston post road is now U.S. Highway 1.
1690: Massachusetts scores a first, becoming the first colonial government to borrow money.
1799: France introduces the metric system. Experts immediately predict that the United States will inevitably be left behind by foreign competitors if it does not adopt the new system.
1813: Zachariah Chandler (left), a self-made merchant who supports the Underground Railway and goes on to serve four terms in the U.S. Senate from Michigan, is born at Bedford, New Hampshire. In opposing the Dred Scott decision, he says, "I will support the constitution as its Fathers had made it, not as the Supreme Court has altered it."
1817: Mississippi is admitted as the 21st state.
1830: Simón Bolívar, the man for whom the Venezuelan national currency is named, dies of tuberculosis.
1851: Melville Louis Kossuth ("Melvil") Dewey, the Patron Saint of Librarians, is born in upstate New York. He will publish his "Dewey Decimal System" at age 25.
1869: The Wyoming Territory becomes the first U.S. jurisdiction to grant women the right to vote.
1896: Industrialist Alfred Nobel dies. "I can forgive Alfred Nobel for having invented dynamite," George Bernard Shaw will later write, "but only a fiend in human form could have invented the Nobel Prize."
1954: The Philadelphia Phillies purchase the old Shibe Park (left) for a reported $2 million and rename it Connie Mack Stadium. Shibe had been built in 1909 for $300,000; the Philies will play in it until 1970, when the city builds a $25 million replacement, Veterans Stadium.
1958: The University of Pittsburgh agrees to buy Forbes Field from the Pittsburgh Pirates. Forbes had been built the same year as Shibe, and to the same plan; it also sells for $2 million. The Pirates continue to play there until the city builds them a new stadium in 1970. It is now the site of the University of Pittsburgh library.
1964: The American music industry trembles at the onslaught of the British Invasion—an unprecedented 14 songs on the Billboard Top 100 are by British acts.
1971: The U.S. Senate confirms William Hubbs Rehnquist to a seat on the U.S. Supreme Court.
1985: Congress passes a bill to balance the federal budget. For some reason it doesn't work.
1991: Architect I.M. Pei is paid $5 million for the design of the Rock and Roll Hall of Fame in Cleveland. It is cleverly camouflaged to look like a Dallas shopping mall.
Cases—Arbitration—Wrong answer isn’t “manifest disregard”
An arbitration panel’s failure to take mitigation into effect was not a "manifest disregard of the law" which would render the panel’s decision reversible, according to a federal district court in New York, applying federal arbitration statutes.
An Italian shipowner claimed damages against coal shippers who had breached its contract. The parties had agreed to arbitration under a clause which provided that the arbitrators would be "shipping men"; each party would appoint one and the two selected would appoint the third. The panel ultimately ruled 2-1 in favor of the shipowner, giving it damages of $860,000. The shipowner sued to enforce the arbitral award; the coal companies asked the court to set the decision aside.
The coal companies argued, in part, that the tribunal erred in failing to take into account the monies that the shipowner earned in mitigation. The tribunal, after full briefing, had rejected the claim and distinguished the authorities on which the coal companies relied. The question is not whether the arbitrators got the answer wrong, said Judge Richard Conway Casey, it is whether they manifestly disregarded a rule they knew to be applicable. This was a "heavy burden" that the coal companies failed to meet. Deiulemar Compagnia Di Navigazione, S.p.A. v. Transocean Coal Co., Inc., 2004 U.S. Dist. LEXIS 23948 (S.D.N.Y. Nov. 29, 2004).
Food is a serious matter
Comedian Carrot Top’s performance contract has detailed provisions for the dinner he and his entourage are to be served at performances. Monday is pork chops, Tuesday is glazed ham, Wednesday is spaghetti, and so on. Each meal is also supposed to be served with dessert, but the contract specifically provides:
PLEASE NO CARROT CAKE—IT’S STILL NOT FUNNY!
December 9, 2004
Cases—Interpretation—“Tennessee” is not ambiguous enough to include “Kentucky”
A clause in a workers’ compensation policy that said benefits would only be paid in Tennessee was not ambiguous and therefore the policy did not extend to a Kentucky worker injured in Kentucky, according to the Tennessee Court of Appeals.
The insured trucking company was based in Tennessee, but its trucks went through Kentucky, and it employed some workers who lived in Kentucky. Nevertheless, when it took out its workers’ comp policy, the policy listed only Tennessee as a state in which coverage was provided. The trial court found this term ambiguous and construed it against the insurer, apparently holding that "Tennessee" included "Kentucky."
This was error, said the Knoxville court. The term was not ambiguous and therefore there was no coverage for the Kentucky worker. Fred Simmons Trucking, Inc. v. United States Fidelity & Guaranty Co., 2004 Tenn. App. LEXIS 798 (Nov. 29, 2004).
Today in history—December 9
1425: Pope Martin V founds the Catholic University of Leuven (left), now the oldest university in the Netherlands.
1842: French economist Pierre Paul Leroy-Beaulieu, who argued against both collectivisim and protectionism, is born at Saumur.
1869: The Noble Order of the Knights of Labor is founded in Philadelphia. It is the first labor union to try to organize women, and is open to all working people except bankers, lawyers, stockbrokers, physicians, and liquor manufacturers.
1878: Joseph Pulitzer, an immigrant from Budapest, buys the St. Louis Dispatch for $2,700; he will combine it with the Post, acquired six years earlier, and will go on to invent Yellow Journalism—awards for which, called "Pulitzer Prizes," are still given out today.
1886: "The Father of Frozen Food," Clarence Birdseye, is born. Birdseye’s contribution was the discovery that quick-freezing at very low temperatures make food much tastier than than traditional slow-freezing.
1907: The first Christmas Seals are sold in Wilmington, Delaware.
1965: The Cincinnati Reds trade future Hall of Famer Frank Robinson to the Baltimore Orioles.
1974: Stocks hit bottom in the great bear market of the early 1970s, as the Dow Jones average sinks to 570.01. As usual, nobody accurately calls the bottom.
1975: President Ford authorizes $2.3 billion in loans for financially troubled New York City; this after an October speech in which he blamed the city’s bankers for its problems.
1983: Attorney General Edwin Meese invokes Econ 101, explaining that people go to eat at soup kitchens because the food is free.
1988: The New York Yankees baseball team signs a 12-year $500 million television contract with MSG Television.
1992: The New Jersey Devils hockey team announces that it will change its team colors from red, green, and white to red, black, and white, perhaps in an attempt to emulate the success of the NFL’s Atlanta Falcons.
Don't mention "muscular dystrophy"
Comedian Jerry Lewis is famous for his annual Muscular Dystrophy telethon, but he wants to keep it completely distinct from his other work. His performance contract contains the following notice:
PLEASE READ CAREFULLY. THANK YOU
This is to inform all venues and concert contractors that there is to be absolutely no connection between Jerry Lewis’ concert or personal appearances and the Muscular Dystrophy Association or the Jerry Lewis Telethon.
There is to be no reference to the Muscular Dystrophy Association or the Jerry Lewis Telethon for publicity, promotion, or word of mouth advertising.
Jerry Lewis is a professional performer separate and apart from the work he does for the Muscular Dystrophy Association.
Reference to Jerry Lewis and the Muscular Dystrophy Association to promote a concert or personal appearance will result in the cancellation of he agreement between that particular venue and Jerry Lewis.
Local MDA staff and local MDA supporters may approach you meaning well, hoping to do good—please show them this disclaimer.
The contract also provides, for some reason, that in all advertising his name must be shown as JERRY LEWIS, all on one line—not
"Axes" to grind
In one sense, law is about conflicts of interest. Every legal problem involves the conflict between the interests of at least two parties. In a new article, Frameworks of Cooperation: Competing, Conflicting, and Joined Interests in Contract and Its Surroundings, Roy Kreitner (Tel Aviv), explores that theme in relation to the law of contracts. He looks at contract law along three "axes": "the remedial axis; the axis of positive duties to avoid conflicts; and the axis of the transition from independence to loyalty." Click on the link below for the abstract.
Private law and regulation are constantly involved in the evaluation of conflicts of interest, judging some of them salutary, with others requiring adjustment. Focusing on the question of conflicts of interest allows us to clarify our vision of when such adjustment is appropriate and, more specifically, when the law should supply an infrastructure for cooperative behavior. Thus, the prism of conflicts of interest provides a lens through which to view basic legal problems that turn on whether individual actors will be deemed responsible to some joint interest or whether they will be at liberty to pursue their individual interests despite the adverse effects of such activity on others.
This article proposes a conflicts of interest perspective for examining contract law and its immediate surroundings. It suggests a map of conflicts of interest along three axes: the remedial axis; the axis of positive duties to avoid conflicts; and the axis of the transition from independence to loyalty. Applying the map to contract doctrine, the article examines a number of contract doctrines including: remedies for breach of contract; modification; conditions; good faith in performance; and formation. The article goes on to apply the map of conflicts to two complex fact situations: corporate acquisitions and corporate bankruptcies. The analysis underscores the fact that conflicts of interest rules do not simply protect existing interests, but rather also contribute to the very constitution of those interests. Recognizing the constitutive role of legal rules raises questions about our ability to determine interests ex ante and thus calls for a more nuanced approach to gauging the incentive effects of a legal regime.
December 8, 2004
Cases—Arbitration—Broad arbitration clause should be viewed broadly
In the case, a buyer and a seller of a $260,000 grinding machine got into a dispute. A clause in the contract provided:
Manufacturer and Distributor both agree and acknowledge that this Agreement involves an interstate sale of the equipment purchased hereunder, with a substantial effect upon interstate commerce, and that the Federal Arbitration Act applies to and governs disputes between the parties relating in any way to the subject of this Agreement. In the event of any dispute or controversy of any kind between Manufacturer and Distributor concerning this Agreement, or the equipment sold pursuant hereto, or any warranties or representations or performance failures relating in any way to the equipment or condition or performance of the equipment, or damages of any kind involving said equipment, the parties agree that the same shall be resolved by binding arbitration in Birmingham, Alabama by a panel of three arbitrators under the rules and procedures of the American Arbitration Association.
When the deal went sour, the seller seized the equipment. The buyer brought an action alleging (1) tortious interference with business; (2) unlawful seizure; (3) unlawful Uniform Commercial Code filing; and (4) default on the underlying promissory note.
All of these claims, however, "implicate the parties’ respective rights and obligations under the agreement," wrote Acting Chief Judge Ann L. Ellington, and therefore were within the scope of the "broad" arbitration clause provided in the contract. Precision Husky Corp. v. Mountain Equipment, Inc., 2004 Wash. App. LEXIS 2860 (Nov. 29, 2004).
Friendlier courts mean more lawsuits in Japan
The Japanese used to be famous for the way they avoided litigation. Many observers explained that fact by references to specific aspects of Japanese culture. But the recent increase in litigation in Japan is causing some re-thinking. (Left: Japan Supreme Court.)
A new paper by Tom Ginsburg and Glenn Patrick Hoetker, The Unreluctant Litigant? An Empirical Analysis of Japan's Turn to Litigation, finds that the increase is due in large part to reforms in the judicial system that reduce barriers to litigation, and to the downturn in the economy since the Japan bubble burst in the early 1990s. Click on the link for the abstract
This paper describes and analyzes the rapid increase in civil litigation in Japan during the 1990s in light of existing theories of Japanese litigiousness. Using a unique dataset of prefecture-level data, it demonstrates that the 1990s increase in litigation is best attributed to two main factors: the expansion in institutional capacity for litigation traced to procedural reforms and an expansion in the formerly minuscule bar; and structural changes in the Japanese economy related to the post-bubble slowdown in growth. The paper contributes to three literatures. First, it builds on earlier institutionally oriented research on civil litigation in Japan by Haley and Ramseyer by providing new data and detail about the institutional barriers to litigation. Second, it contributes to the literature on the relationship between economic change and litigation more generally. Finally, it contributes to the empirical and comparative literature on litigation rates by providing evidence about the determinants of litigation in one country
Today in history—December 8
1643: John Pym, the Parliamentary leader whose opposition to King Charles I was first sparked by the Ship Money tax on his Providence Island Company, dies of cancer shortly after negotiating the Solemn League and Covenant with the Scots Presbyterians.
1765: Inventor and entrepreneur Eli Whitney is born in Westboro, Massachusetts. At age 28 he will invent the cotton gin, the machine that will make Southern cotton a viable industry, but he will make on money off that invention. He will instead get rich after inventing a new manufacturing method for muskets, using interchangeable parts.
1861: Industrialist William Crapo Durant is born. He will make a fortune by inventing a new kind of horse-drawn carriage, but will see the writing on the wall; after meeting a young engineer named David Buick, he decides to bankroll the upstart Buick Company in 1905. A few years later he will launch a bigger enterprise, which he calls General Motors.
1886: Twenty-six independent craft unions unite to form the American Federation of Labor; Samuel Gompers is elected the first AFL president
1898: Young Katie learns that she will get the money after all; the Nebraska Supreme Court decides Ricketts v. Scothorn.
1903: Herbert Spencer, the philosopher and sociologist whose Social Statics were not enacted by the 14th amendment of the U.S. Constitution, dies two years before Justice Holmes can sneer at him in Lochner v. New York.
1923: The German government at Weimar institutes a salary and price freeze.
1936: The NAACP files suit to challenge differential pay scales for black and white school teachers.
1962: A newspaper strike begins in New York City. It will run for 114 days but will unfortunately end.
1967: The struggling California Seals of the National Hockey League change their name to "Oakland Seals." It doesn’t help.
Whistleblower sues after turning down “promotion”
Can a promotion be "retaliation" against an alleged whistleblower and therefore a breach of contract? A jury in Rupert, Idaho, is dealing with that question this week in a lawsuit brought by former elementary school principal Nancy Kunau against the Minidoka School District.
Kunau’s contract apparently permitted the district to assign her at its discretion, but she had been told she would be principal of Heyburn Elementary. After she reported allegedly abusive behavior by a district employee, she was reassigned as vice-principal at Minico High School (left), a job that carried a $4,000 salary increase. Kunau resigned in protest.
The claim seems to be that the reassignment was in bad faith and therefore a breach of the school district’s duty under the contract.
Dumped by Microsoft, Nvidia teams up with rival Sony
After losing out on a bid to be a supplier to Microsoft for its next-generation Xbox video game console, chipmaker Nvidia has landed a contract with Sony to make graphics chips for the coming upgrade of the rival PlayStation
Nvidia now makes the graphics chips for the Xbox, but Microsoft decided to give the contract for the next generation product—scheduled for release next year—to Nvidia’s competitor, ATI Technologies. The Sony contract keeps Nvidia in the game business. Terms of the deal were not announced, but analysts say it might bring in $5 per chip to Nvidia, or perhaps $100 million.
Cases—Statute of frauds—Finance lease not enforceable unless in writing
Lessee Style Master wanted to lease five machines manufactured by Engel Machinery. It struck a deal with Wells Fargo Equipment Finance under which Wells Fargo would buy the machines and then lease them to Style Master. Wells Fargo had specified that its commitment expired December 28. Engel delivered the machines to Style Master before that time but installation took some time and the machines were not accepted by Style Master until January. At this point Wells Fargo said that it would not pay for the machines, claiming its commitment had expired before the machines were installed. After Style Master went bankrupt, Engel sued Wells Fargo.
Engel alleged both breach of contract and promissory estoppel, but Judge Matthew Kennely held that under the Illinois Credit Agreement Act both causes of action failed. Although this appeared to be a simple purchase by Wells Fargo from Engel, the court held that it was part of a larger credit transaction. The ICAA provides that credit transactions are not enforceable unless they are in writing and signed by the party to be charged. Since Wells Fargo never signed the lease, it never became bound.
Nor, said the court, could Engel use promissory estoppel to get around the specific requirements of the ICAA. Engel Machinery, Inc. v. Wells Fargo Equipment. Finance, Inc., 2004 U.S. Dist. LEXIS 23895 (N.D. Ill. Nov. 29, 2004)
December 7, 2004
Eight soldiers sue Army over enlistment extension
Eight soldiers have sued the U.S. Army, claiming that the Army's invocation of regulations to extend their enlistments is a breach of contract. All but one, David Qualls (left, at press conference) filed as "John Doe" to protect their anonymity. The regulations, known as the "stop loss" policy, was previously used during the first Iraq war.
The Army argues that its contracts specifically incorporate the provision. An Army spokesperson described the agreement:
It [the contract] says that soldiers may be required to serve on active duty for the entire period of the war or emergency and for six months after its end, The whole contract is quite explanatory in that if the military needs you during a period of service, war, that you as a volunteer soldier have an obligation to serve.
The lawyer for the plaintiffs is apparently arguing that the soldiers did not have notice of the "full commitment" that might be required.
U.S. bankruptcy filings are down this year. According to the Adminstrative Office of the U.S. Courts, bankruptcy filings dropped for both individuals and businesses. Individual bankruptcies declined 2.6 percent over the period October 1, 2003 to September 30, 2004, while business bankruptcies dropped 3.8 percent.
It’s the second consecutive year that business bankruptcies have gone down. The 34,817 reported this year is the smallest figure since before 2000.
High court hears wine appeal
The U.S. Supreme Court heard the appeal today in the case involving state regulation of direct-to-consumer interstate alcohol sales. The AP story is here.