July 11, 2005
News in Brief
The family of a private school student expelled for distributing nude photos of an under-age classmate has settled its contract lawsuit against the school, netting $200,000 and getting his disciplinary records destroyed.
Federal Express "contract drivers" are suing, demanding that they be classified as "employees" instead of independent contractors.
Philadelphia Eagles receiver Terrell Owens, trying to force renegotiation of the seven-year deal he signed last year, has skipped a "mandatory" minicamp and there are no signs of progress.
Microsoft has announced new "simplified" processes to license its technology and and provide financing for customers.
New labor regulations in the Northern Mariana Islands are costing some foreign workers their jobs.
Sears Holdings and shoemaker Footstar have settled their contract dispute over footwear sales at Sears's KMart stores, where 95 percent of Footstar's products are sold.
Telenet is being accused of breach of contract in Belgium, where it has held cable television prices steady, as promised, but cut 34 channels from the basic price service and turned them into premium channels.
West Indian cricket authorities have turned a "cold shoulder" to an offer by the International Cricket Council to get involved in the contract disputes that have thrown Windies cricket into chaos.
Workers at Chile's Zaldivar copper mine have voted to accept Placer Dome management's latest offer and go back to work.
Weekly Top 10
No less than five new papers debut this week on the Weekly Top 10. Following are the ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending July 10, 2005).
1 (1) Commentary on the Acquisition Workforce, Steven L. Schooner & Christopher R. Yukins (Geo. Washington)
2 (2) Toward a Better Understanding of Anti-dilution Provisions in Convertible Securities, Michael Woronoff (Proskauer Rose LLP) & Jonathan Rosen (Shelter Capital Partners)
• 3 (8) Whither Commodification? , Carol M. Rose (Yale)
4 (7) The Political Economy of International Sales Law, Clayton P. Gillette (NYU) & Robert E. Scott (Virginia)
• 5 (9) Contracts and the Division of Labor, Daron Acemoglu (MIT Econ), Pol Antras (Harvard Econ) & Elhanan Helpman (Tel Aviv Econ)
• 6 (-) Trust as 'Uncorporation': A Research Agenda, Robert H. Sitkoff (Northwestern)
• 7 (-) Juries, Judges, and Punitive Damages: Empirical Analyses using the Civil Justice Survey of State Courts 1992, 1996, and 2001 Data, Theodore Eisenberg (Cornell), Michael Heise (Cornell), Martin T. Wells (Cornell Stats), Paula Hannaford-Agor (National Center for State Courts), Neil LaFountain (NCSC), G. Thomas Munsterman (NCSC), & Brian Ostrom (NCSC)
8 (-)Harnessing Litigation by Contract Design, Robert E. Scott & George G. Triantis (Virginia)
9 (-) Private Contractual Alternatives to Malpractice Liability, Jennifer Arlen (NYU)
10 (-) The Comparative Law and Economics of Pure Economic Loss, Francesco Parisi (Geo. Mason), Vernon V. Palmer (Tulane) & Mauro Bussani (Trieste)
Last week's ranking in parentheses; • indicates fastest-rising papers.
Lender's "material adverse change" clause struck down
The "material adverse change" clause in a mortgage, designed to protect the lender when the mortgagor's financial situation deteriorates, has turned around to bite the mortgage administrator in a recent California decision. General Motors Acceptance Corp. was hit with a $40 million judgment (including $33 million in punitives) after it invoked the clause to claim breach of the agreement, even though the payments were not in default.
In the case, GMAC was acting as the administrator of about $1 billion in mortgages that were the securities backing a bond issue. When the only tenant of a Silicon Valley building vacated after the dot-com bubble burst, GMAC -- whose job was to represent the interests of the bond holders -- refused to release the tenant's early-termination fee to the mortgagors, the building's owners, claiming that since the building was now empty the loan was at risk.
A state court trial judge ruled that the standard clause was so vague as to be meaningless, and therefore held that it simply could not be invoked in any situation where the mortgage payments were current. He enjoined GMAC from invoking the clause under any of the mortgages included in the mortgage pool that includes the plaintiffs' loan. GMAC will appeal.
Today in History: July 11
969: St. Olga (known as Olga Prekrasa, or "the Beautiful"), the peasant-born queen of Kiev whose conversion marked the turning point for whether Russia would be Christian or Muslim, dies.
1533: English King Henry VIII is formally excommunicated by Pope Clement VII.
1754: Dr. Thomas Bowdler, whose 10-volume Family Shakespeare will run through four editions during his life and give the word "bowdlerize" to the language, is born near Bath, in Somerset.
1767: Boston lawyer and diplomat John Quincy Adams is born at Braintree (now Quincy), Massachusetts. One of his habits as President will be taking early morning nude swims in the Potomac River.
1804: U.S. Vice President Aaron Burr kills Treasury Secretary Alexander Hamilton in a duel at Weehauken, New Jersey, after Hamilton refuses to apologize for impugning Burr's integrity.
1893: After five years of labor and repeated approaches to bankruptcy, Kokichi Mikimoto produces the first cultured pearl. It will take him another 12 years to develop spherical pearls indistinguishable from the natural article.
1916: Barrister Edward Gough Whitlaw (Sydney Law 1946), who will become Australia's 21st prime minister, is born at Kew, Victoria.
1921: Former President William Howard Taft is sworn in as the 10th Chief Justice of the United States.
1955: The phrase "In God We Trust" is added to all U.S. currency.
1962: The first transatlantic television signal is transmitted by satellite, over AT&T's Telstar satellite.
July 10, 2005
Film clips: Batman and fitness for a particular purpose
[Bruce Wayne, preparing to become the Bat-Man, has ordered 10,000 special-order Bat-cowls from China. Alfred is showing a prototype to Bruce. Alfred takes one and hits it with a sledge hammer. It smashes.]
Alfred: There's a problem with the carbon alloy. They promise that the next batch will be perfect.
Bruce Wayne: At least they're giving us a discount.
Alfred: In the meantime, may I recommend not landing on your head.
From: Batman Begins (2005)
Alliances in the biotech biz
The line between transactions within the firm and those outside the firm gets more blurred every year. Where once it might have been a fairly simple question whether to do something in-house or buy from someone else, the modern trend is toward more and more interdependence. In a new paper, The Exit Structure of Strategic Alliances (forthcoming in the Illinois Law Review) Gordon Smith (left) examines strategic alliances in the biotech field, where a great deal of innovation is under way. Here's the abstract:
Today, many biotechnology firms use strategic alliances to contract with other companies. This article contends that the governance structure of these alliances - specifically, the “contractual board” - provides an integrated restraint on opportunism. While an alliance agreement’s exit structure could provide a check on opportunism by allowing the parties to exit at will, such exit provisions also can be used opportunistically. Most alliance agreements, therefore, provide for contractual “lock in” of the alliance partners, with only limited means of exit. Lock in, of course, raises its own concerns, and the contractual board - which typically is composed of representatives from each alliance partner, each wielding equal power - addresses these concerns about opportunism via the potential for deadlock.
For those of you who also do Business Associations along with your Contracts courses, note that Gordon is one of the lead bloggers on the excellent Conglomerate blog.
Today in History: July 10
1509: John Calvin (Jean Chauvin) is born, the son of a lawyer, in Noyon, France. He'll go on to become perhaps the first major Christian leader to endorse the lending of money at interest.
1584: Law student Balthasar Gérard, in response to a 25,000-crown contract put out by Emperor Philip II, assassinates Dutch rebel leader William "the Silent" of Orange. He's caught and tortured to death, but Philip grants three large estates to his family and raises them to the peerage.
1832: President Jackson vetoes a bill for re-chartering the Second Bank of the United States, a step that will ultimately lead to inflated state-bank currency and the Panic of 1837.
1871: Valentin-Louis-Georges-Eugène-Marcel Proust is born at Auteuil, near Paris. He'll invent a new literary genre: the seven-volume novel in which which hardly anything happens.
1913: Death Valley, California, suffers the hottest temperature ever recorded in the United States: 134° F, or 56.7° C.
1962: AT&T's privately owned Telstar is launched; it's the world's first communications satellite. It's built by the company's Bell Labs, and NASA is paid $3 million to launch it.
1985: Reeling from attacks by outraged brand loyalists, Coca-Cola announces it will, in fact, continue to sell its original formula under the name "Coca-Cola Classic."
2002: Peter Paul Rubens's "The Massacre of the Innocents" is sold at Sotheby's in London for £49.5million ($76.2 million).