May 10, 2005
A lot of money for a robot
Arnold Schwarzenegger’s 2001 contract for the film Terminator 3 is one of the most lucrative ever signed by an actor. A columnist at Slate offers an analysis of the 33-page agreement, which shows exactly how much leverage an employee can have over his employer when the employer really, really needs him.
Linkin Park v. Warner
We've previously reported on Linkin Park ("the world's greatest rock band") and its battle with Warner Brothers Music. The New York Times has a full account of the dispute, which of course is "not about money."
Today in history—May 10
1497: Amerigo Vespucci, chief agent of the Seville banking house of Giannetto di Lorenzo Berardo Berardi, sets sail from Cádiz for the New World.
1534: French explorer Jacques Cartier finds Newfoundland, which had already been found by the Portuguese and the Vikings. This time, though, it stays found.
1801: When President Jefferson refuses a $225,000 tribute payment to the Pasha of Tripoli, the Barbary States declare war on the United States.
1818: Industrialist Paul Revere, who made a fortune manufacturing everything from silverware to church bells to copper spikes for naval vessels, dies at Boston, Massachusetts.
1835: The city of Melbourne, Australia, is founded by a group of free settlers.
1837: Banks in New York City suspend payment in specie, triggering the Panic of 1837. It is said that of the nation’s 850 banks, 343 closed as a result.
1869: At Promontory Summit, Utah, President Leland Stanford of the Central Pacific Railroad drives the Golden Spike that finishes the first transcontinental railroad. The event marks the junction of the CPRR with the Union Pacific.
1876: Richard Wagner’s Centennial Inaugural March premieres at the Centennial Exposition in Philadelphia, Pennsylvania. Wagner earns $5,000 for the piece.
1898: Omaha, Nebraska, becomes the first American city to protect its imperiled citizens by regulating vending machines.
1902: Film impresario David Oliver Selznick is born at Pittsburgh, Pennsylvania. In 1930 he will marry Louis B. ("Metro-Goldwyn") Mayer’s daughter, which doesn’t hurt his career any.
1954: Decca Records’ Rock Around the Clock, by Bill Haley and the Comets, becomes the first "rock and roll" record to hit Number 1 on the charts.
1958: Pennsylvania Senator Richard John Santorum (Penn State Law 1986) is born at Winchester, Virginia.
1963: An obscure British band called the Rolling Stones records its first two songs, Come On and I Wanna Be Loved.
1969: The National Football League and the American Football League announce their merger.
May 9, 2005
Oklahoma Enacts Revised Article 1
Governor Brad Henry signed Oklahoma HB 2028 into law May 5, making Oklahoma the 12th state to enact a version of Revised Article 1. Like all eleven of its predecessors, Oklahoma's version of Revised Article 1 rejects uniform R1-301 in favor of a choice of law provision closely resembling pre-revised 1-105. Like six of its predecessors (Arkansas, Delaware, Minnesota, Montana, New Mexico, and Texas), Oklahoma's version of Revised Article 1 adopts uniform R1-201(b)(20). By its terms, HB 2028 will take effect on January 1, 2006.
News in brief
A joint venture by America’s Boeing and Lockheed apparently will not interrupt a billion-dollar contract with the Russian space agency to supply 101 rocket engines to the U.S.
The fired basketball coach at Southern University is suing, claiming breach of contract and asking that University proceeding against him be restrained.
Following a rash of bankruptcies among auto-parts suppliers, execs of the survivors are telling the UAW that it needs to give some labor cost relief to battered General Motors and Ford, whose bond ratings have just been slashed to junk status.
A troubled U.S. company whose hope for salvation was an acquisition by a Canadian company, has sued the Canadians for backing out of the detail, saying unresolved issues were "solvable."
The Virginia Department of Transportation has agreed to allow two contractors more money on their fixed-price contracts based on "the large, unforeseen increases in steel prices."
A 41-year-old California businessman has paid something over $9,000 at a charity auction for a one-day minor-league baseball contract that guarantees him a uniform, an inning in the outfield, and an at-bat.
Myanmar's state-run oil firm has awarded a major exploration contract to India’s Essar Oil.
An Arizona animal-rescue group has lost its county animal control contract because it allowed some of the animals to be used for training veterinary students.
Washington Technology magazine has its regular round-up of major government contract awards for the previous week.
Saying that being the highest-paid player at his position isn’t important to him, New England Patriots quarterback Tom Brady signs a new contract at $10 million a year—about $5 million a year less than he probably could have got elsewhere.
Weekly Top 10
This week’s top 10 has an odd wrinkle—the same paper, posted twice, holds two of the top ten positions. Peter Oh’s piece Tracing manages to come in at both No. 7 and No. 8, apparently because it was re-posted after being accepted for publication by the Tulane Law Review and the older version was not removed. Had all the downloads for both versions of the paper been combined, Oh’s paper would have been in the number 4 slot.
Following are the top 10 downloads from the SSRN’s Journal of Contracts and Commercial Law, for the 60 days ending May 8, 2005.
1 (1) Risky Business: Managing Interagency Acquisition, Steven L. Schooner (George Washington)
2 (3) Putting Identity Theft on Ice: Freezing Credit Reports to Prevent Lending to Impostors, Chris Jay Hoofnagle (EPIC)
3 (2) There Are No Penalty Default Rules in Contract Law, Eric A. Posner (Chicago)
4 (6) Duty and Consequence: A Non-Conflating Theory of Promise and Contract, Jeffrey M. Lipshaw (Indiana-Indianapolis)
• 5 (–) A Normative Theory of Business Bankruptcy, Alan Schwartz (Yale) (left)
6 (7) Institutions, Incentives, and Consumer Bankruptcy Reform, Todd J. Zywicki (George Mason)
7 (8) Tracing, Peter B. Oh (William Mitchell)
8 (8) Tracing, Peter B. Oh (William Mitchell)
9 (–) The New Old Law of Electronic Money, James Steven Rogers (Boston College)
10 (9) On-line Consumer Standard-Form Contracting Practices: A Survey and Discussion of Legal Implications, Robert A. Hillman (Cornell)
Previous week's position in parentheses; • indicates fast-rising paper
Russell to visit at Pace
This fall Irma Russell (Memphis) will exchange Beale Street, blues, and barbecue for—well, we’re not exactly sure what the equivalents are in White Plains. Mayonnaise, maybe? But whatever they are, she'll enjoy them in the suburban greenery when she visits next year at Pace Law School. It will be the first time in a dozen years that she hasn't taught contract law, as she'll focus on her other substantive areas, administrative law, environmental justice, and professional responsibility.
Life is more complicated for small UK businesses
Even the smallest businesses in the U.K. now need to have detailed employee policies and practices in place these days, according to a new client advisory by London’s RadcliffesLeBrasseur. According to the author, Robert O’Donovan, anyone who has even one employee must have the appropriate policies in place at the time of hiring, and failure to do so correctly can lead to fines.
The same firm, in a piece by Sejal Raja, notes that letting employees go for redundancy is also a good deal more complicated for the smallest employers than it used to be.
Today in history—May 9
1092: Lincoln Cathedral is consecrated. It is taller than the Great Pyramid at Giza, and for 200 years will be the world’s tallest building.
1868: The tiny community of Lake’s Crossing, built around a private toll-bridge over the Truckee River, changes its name to Reno, Nevada. It will later become the "Biggest Little City in the World."
1882: Industrialist and real estate impresario Henry J. Kaiser is born at Sprout Brook, New York. His greatest triumph will be the Liberty Ship project, which will launch an average of nearly two 10,000-ton transport ships every day during World War II.
1901: The first Australian Federal Parliament opens at the Royal Exhibition Building in Melbourne.
1914: The "Singing Ranger," Clarence Eugene "Hank" Snow is born at Brooklyn, Nova Scotia. In 1954 he’ll convince the Grand Ole Opry to let a young Elvis Presley serve as his opening act, and will introduce the young man to Col. Tom Parker.
1918: Myron Leon "Mike" Wallace is born at Brookline, Massachusetts. In 1955 he’ll give up radio acting and quiz shows to become a Serious Television Journalist on the Dumont Network.
1942: Missouri Senator and U.S. Attorney General John David Ashcroft (Chicago Law 1967) is born at Chicago.
1960: In Henningsen v. Bloomfield Motors, the New Jersey Supreme Court holds that warranty disclaimers have to be in bigger type.
1960: The U.S. Food and Drug Administration authorizes sale of the birth-control pill.
2003: Russell Billiu Long (LSU Law 1942), dies at Washington, D.C. He is the only U.S. Senator both of whose parents had been U.S. Senators, his father Huey and his mother Rose.
May 8, 2005
A new "model" bond contract?
It is axiomatic that debt and equity investors in a firm have different risk profiles and hence different objectives. Can contract law be used to help bridge those differences? In a new paper, A Contribution to the Theory and Practice of Rational Financial Contracting, Wisconsin business school prof Robert E. Krainer tries to develop a model of an "optimal bond contract" that might help do that. Click on "continue reading" for the abstract.
The objective of this paper is to develop a model of an optimal bond contract that binds differentially risk averse debt and equity investors together in the firm. Towards this end, a nontraditional equilibrium model of a debt and equity financed firm is developed that motivates the need for an up-front bond contract. The equilibrium for this model is characterized by a no arbitrage condition both within the different segments of the capital market (eg., the bond and stock market), and between the capital market and the product/factor market. The model bond contract guides the firm towards this equilibrium by directing managers to make investment decisions that conform to the risk aversion of their shareholders as revealed in equity share prices, and then to make financing decisions that preserve the investment quality of their bonds. This is achieved in a two part covenant: i) linking long-term debt to the firm's investment in net working capital; and ii) conditioning the cash payments to shareholders on the amount of slack in the first part of the covenant. Matched covenants like these are shown to coalesce the intertemporal welfare of bondholders and stock holders.
Wilmarth wins GWU prize
George Washington University has announced that long-time contracts teacher Arthur E. Wilmarth, Jr. (left), has received one of the four university-wide Oscar and Shoshana Trachtenberg Prizes for 2005. Wilmarth, who has been at GW since 1986, also teaches corporations, banking, and legal history. Here’s the description of the award from the press release:
The Trachtenberg Service Award has been presented annually since 1993 to a tenured member of the faculty to recognize exceptional service to the University. Service to be recognized may include active membership in the Faculty Senate, active membership on University committees, and other activities that directly involve institutional governance or the conduct of the University's corporate affairs. Nominations are collected from faculty members. The prize recipient is selected by a committee that includes previous winners, a representative from the Faculty Senate, and individuals nominated by the executive vice president for academic affairs.
In-house blog has helpful stuff
We've just learned about a helpful blog with a transactional bent, InhouseBlog. In addition to news and helpful hints, it collects useful links and other resources, such as form documents and employment provisions, which may be of interest to contracts teachers as well as practitioners.
Today in history—May 8
1541: Hernando de Soto becomes the first European to reach (or at least report the existence of) the Mississippi River, which he names Río de Espíritu Santo.
1794: The father of modern chemistry, Antoine-Laurent de Lavoisier, is guillotined in France because of his day job as an administrator of the Ferme Générale, the private tax collection franchise, and as chair of the forerunner of the Banque de France.
1861: The new Confederate States of America moves its capital to Richmond, Virginia.
1873: British East India Co. executive John Stuart Mill dies at Avignon, France.
1886: Dr. John Stith Pemberton, whose popular "Pemberton's French Wine Coca" is made illegal when Atlanta passes a prohibition law, formulates a "temperance" version which he will call "Coca-Cola."
1898: The Italian Football League plays its first-ever series of games at Turin. Today it has five levels and hundreds of clubs.
1912: William Wadsworth Hodkinson merges 11 small film-rental outfits into a company which, with a certain amount of optimism, he names "Paramount Pictures." Hodkinson’s big innovation is his creation of the first nation-wide distribution system.
1928: Future lawyer Theodore C. Sorenson (Nebraska Law 1951), who will write the Pulitzer Prize-winning book Profiles in Courage, is born at Lincoln, Nebraska.
1947: Henry Gordon Selfridge, the Wisconsin-born retailer who founded the Selfridge’s department store in London, dies at Putney. Having made a fortune as a partner in America’s Marshall Field, he spent £400,000 to open his new store at the unfashionable end of Oxford Street in 1909, but the Depression and a gambling habit will lead him to die in poverty.