October 15, 2005
W. C. Fields on Getting the Benefit of the Bargain
Late one night on the set of Francis Martin's Tillie and Gus, W. C. Fields found himself shooting a scene in a diver's costume. According to the script something had gone wrong and Fields was to be hauled up in a diver's bell, half dead, and then gasp, "is there a doctor in the house?" Instead of uttering the scripted line, however, Fields pointed at his gigantic diving footwear and exclaimed: "[Boxer] Primo Carnera's carpet slippers!" Fields was promptly reprimanded for changing the line. "Why? That's funny," he replied. "Everybody knows about Carnera's big feet." Nonetheless, with the hour approaching midnight, it was agreed that the scene should be reshot.
Coming up a second time, Fields pointed to his feet again and quipped: "Charlie Frobisher's bedroom slippers!" Again, he was scolded for changing the line. "What's the matter with you?" Fields cried. "Don't you know the name 'Charlie Frobisher' always gets a laugh? People will howl at it!" The director, astonished by Fields's terrible judgement, began to wonder whether he was losing his mind. As the clock struck midnight, Fields was sent into the tank again. Upon rising this time, he promptly spoke the proper line and went home.
The explanation soon became apparent: Fields's contract stipulated that he be paid an $800 bonus every time he worked past midnight!
[Meredith R. Miller]
October 14, 2005
Buying a Contract Problem
You can find almost anything on eBay, even an interesting contract interpretation problem. Take, for example, the 1960 contract between actor Cliff Robertson and Paramount Studios regarding how Robertson's name will be credited in a television episode. The original contract (left) is for sale now on the auction site. It was obviously prepared by Paramount, and it has this interesting clause:
"No casual or inadvertent failure to comply with the provisions hereof shall be deemed a breach of this agreement by us."
The “by us” at the end is what is curious. Without it, it’s a kind of sensible substantial performance clause that applies to both parties. Adding the “buy us” seems deliberately intended to make it one-way -- but which way? Since it’s a movie studio, you’d expect them to mean, “No casual or inadvertent failure by us will be deemed a breach.” But it can also be read to mean, “A casual or inadvertent failure will not be deemed by us to be a breach of the agreement” -- which would seem to mean that that Paramount’s own inadvertent failure would, if substantial, be a breach.
An Increase in the Number of "Contract Attorneys"
Law.com reports that, increasingly, the nation's largest 250 law firms are turning to temporary attorneys -- "contract attorneys" -- to wade through seemingly infinite piles of discovery documents. The article explains:
Firms commonly bring in contract attorneys through agreements with staffing agencies that do much of the screening for them. Firms generally charge the client by the hour, with a markup for what they pay the temp agency.
With growing frequency, however, corporate clients themselves are taking bids from staffing agencies and guiding the selection of contract attorneys who will work with law firms, said Robert Singer, former executive director at Weil, Gotshal & Manges of New York, who in August became chief executive officer of De Novo Legal, a staffing company in New York.
In addition, he said that more corporate counsel are supplementing their own staffs with contract work.
The firms report that the "greatest advantage to the arrangements is saying goodbye to the extra labor -- and their wages -- when the job is finished." Some contract attorneys say that they like the freedom of choosing when to work, or the ability to supplement income when solo practice is slow.
The firms hand down large discovery-related tasks to contract lawyers -- an "unwelcome" task for most associates. This arrangement provokes the question: what are first year associates doing these days?
Moreover, the additon of contract attorneys creates another tier in the hierarchy of attorney labor at these law firms, which raises issues of employee "integration."
[Meredith R. Miller]
"The Hidden Roles of Boilerplate in Standard Form Contracts" Michigan Law Review, Vol. 104, March 2006 by David Gilo, Tel Aviv University Buchmann Faculty of Law and Ariel Porat, Tel Aviv University Buchmann Faculty of Law.
This article focuses on benefits the supplier can derive from the transaction costs that boilerplate language creates, most of which have been ignored by courts and legal writers. As the Article demonstrates, transaction costs generated through boilerplate language could have different impacts on different types of consumers, enabling, inter alia, screening out unwanted consumers, price discrimination, cartel stabilization and the studying of consumer preferences.
On other occasions, the transaction costs are imposed in order to hide benefits granted to certain consumers. On yet other occasions the transaction costs are self-imposed by the supplier, in order to signal to buyers or to his competitors that negotiation of the contract would be very costly. There are also cases in which boilerplate language does create asymmetry of information between the supplier and his consumers, as in the classic discussions of boilerplate language, but the asymmetry is used as a cartel-facilitating tool, an anticompetitive signaling device, or a tool for creating the appearance of a fair contract, rather than to merely extract surplus from uninformed consumers.
One of this Article's conclusions is that the law's concernshould not be only with harsh boilerplate terms, but also with beneficial boilerplate terms. At times, beneficial boilerplate terms extract surplus from uninformed consumers, exactly as harsh terms do, but by using a different technique. Another conclusion of the Article is that boilerplate language should be carefully reviewed even when no particular terms are hidden in it, neither beneficial nor harsh, because the boilerplate provisions could be used just for the sake of artificially complicating the transaction. The Article also inquires whether the various uses of boilerplate language are desirable from a social perspective, and if not, it asks how the law should discourage them.
The Article shows that the lack of awareness of the various uses of boilerplate language on the part of courts, legislatures and administrative agencies has resulted in a lack of sufficient legal tools to handle these uses. One of the Article's goals is to develop such tools. Document: Available from the SSRN Electronic Paper Collection:
Today in History: October 14
1066: On a hill six miles from Hastings, King Harold II takes an arrow in the eye and loses the battle that will change the course of English history.
1586: Queen Mary I of Scotland goes on trial in England for conspiracy against Queen Elizabeth I. Things won’t go well.
1651: Outraged members of the Massachusetts legislature pass a new sumptuary law:
And, although we acknowledge it to be a matter of much difficulty, in regard of the blindness of men's minds and the stubbornness of their wills, to set down exact rules to confine all sorts of persons, yet we cannot but account it our duty to . . . commend unto all sorts of persons the sober and moderate use of those blessings which, beyond expectation, the Lord has been pleased to afford unto us in this wilderness. And also to declare our utter detestation and dislike that men and women of mean condition should take upon them the garb gentlemen by wearing gold or silver lace, or buttons, or points at their knees, or to walk in great boots; or women of the same ran to wear silk or tiffany hoods, or scarves which, though allowable to persons of greater estates or more liberal education, we cannot but judge it intolerable.
1906: German-American political theorist Hannah Arendt is born at Hanover. Her thesis that fascism and communism are related will be very controversial for many years.
1911: Supreme Court Justice John Marshall Harlan dies at age 78. He accomplished the judicial equivalent of the Daily Double, dissenting in both Plessy v. Ferguson and Lochner v. New York.
1912: John Schrank, acting on spectral orders from the dead William McKinley, shoots former President Theodore Roosevelt during a campaign stop in Milwaukee, Wisconsin. The bullet grazes TR, who goes on to deliver a 90-minute speech despite the bullet hole in the manuscript.
1996: The Dow Jones Industrial Average closes above 6,000 for the first time in history. It will nearly double again in less than four years, creating many investment geniuses.
October 13, 2005
News in Brief
A European consortium has won the controversial $7.2 billion contract to build the world’s longest suspension bridge, which will link Sicily to the toe of Italy. (International Herald Tribune)
Bridgestone Firestone has agreed to pay $240 million to Ford Motor Co. to settle claims arising out of Ford’s recall of Firestone tires because of safety problems. (Associated Press)
Guitarist Eric Clapton has signed a book deal with Random House Group to write a tell-all memoir; terms were not disclosed but it’s likely a multi-million dollar deal. (PR Newswire)
BT Group Plc is running nine months behind on a massive $1.74 billion phone contract with the U.K. health service, and may be hit with another “fine” under the contract. (Bloomberg)
Greyhound owners in Connecticut are suing a local track for breach of contract after it announced it would end live racing. (Norwich Bulletin)
The Philippine Justice department says it reviewed the loan documents for the controversial NorthRail project, but wasn’t informed that the loan was tied to a no-bid contract with a Chinese firm. (Manila Times)
Express Conditions Precedent in the Context of Substantial Performance
Does the doctrine of substantial performance excuse a contractor’s failure to comply with an express condition precedent to final payment that is unrelated to completion of the building? An appellate court in the Lone Star Sate held: no; while the substantial performance doctrine permits a contractor to sue under the contract, it does not ordinarily excuse the non-occurrence of an express condition precedent.
TA Operating Corporation (“TA”) contracted with Solar Applications (“Solar”) to construct a prototype multi-use truck stop in San Antonio. The parties expressly agreed that, even after the work to construct the truck stop was completed, Solar was not entitled to final payment until it provided TA with a release of all liens filed in connection with the work. The parties called this document an “all-bills-paid affidavit,” and they agreed that, as a condition precedent to final payment, Solar had to provide this affidavit to TA.
When Solar’s work on the truck stop was substantially performed, TA terminated the contract because Solar had not completed certain "punch list" items. Solar sued TA for breach of contract on the theory of substantial performance. TA counterclaimed for breach of contract and requested damages due to delays in the construction, alleged defects, and the liens filed against the project by subcontractors. The trial court severed TA’s counterclaim based on the liens and awarded Solar final payment for the project, less the cost of remediable defects in the construction.
TA appealed, arguing, among other things, that the doctrine of substantial performance did not excuse Solar’s failure to comply with the express condition precedent to final payment – provision of the all-bills-paid affidavit. The appellate court sided with TA; quoting Williston’s treatise, the court held:
if the terms of an agreement make full or strict performance of an express condition precedent to recovery, then substantial performance will not be sufficient to enable recovery under the contract.
The court noted that, had Solar provided TA with the affidavit, it would have met the express condition precedent of the parties’ contract, it could have relied upon the doctrine of substantial performance. The court noted:
[w]hile we recognize the harsh results occasioned from Solar’s failure to perform this express condition precedent, we recognize that parties are free to contract as they choose and may protect themselves from liability by requesting literal performance of their conditions for final payment.
TA Operating Corp. v. Solar Applications Engineering, Inc., 2005 Tex. App. LEXIS 7908 (Sept. 28, 2005).
[Meredith R. Miller]
Jordan Has New Casebook
Georgetown commercial law prof Emma Coleman Jordan (left) has a new casebook out. It’s Economic Justice: Race, Gender, Identity and Economics, co-authored with Angela Harris of UC-Berkeley and published by Foundation.
Drafting Dispute Resolution Clauses
Once upon a time, dispute resolution clauses in contracts used specified arbitration. Then folks started to add a mediation component that the parties had to go through before arbitration could be invoked. Now, it's getting more common to see clauses that require some kind of “discussion” before even the mediation is triggered.
Are such “discussion” requirements enforceable? And what exactly is required? A take on the question from the U.K./Hong Kong perspective is Agreement to Negotiate/Mediate: A Matter for Careful Drafting by Chee Yean Choy of Jones Day in Singapore.
Today in History: October 13
1307: King Philippe IV, who apparently never heard the story of the goose with the golden eggs, arrests all the members of the Knights Templar in France so he can seize their lucrative banking property.
1694: Jurisprude Samuel von Pufendorf dies at Berlin in Brandenburg. The first university chair in international law was created for him at the University of Heidelberg, but he had to move to Sweden after he criticized a new tax.
1845: Republic of Texas voters approve a new constitution that will allow the republic to join the United States.
1890: Samuel Freeman Miller, one of the few physicians to serve on the U.S. Supreme Court, dies in harness at Washington, D.C.
1925: Future chemist, barrister, Prime Minister, and co-inventor of soft-serve ice cream, Margaret Thatcher, is born at Grantham in Lincolnshire.
1957: Ford Motor Co. sponsors a gala television show featuring Bing Crosby and Frank Sinatra to introduce its much-touted new car, the Edsel.
1983: Ameritech Mobile Communications puts the first U.S. cell phone network into operation in Chicago, Illinois. Ameritech is now Cingular, and that particular network is now part of Verizon.
October 12, 2005
Trail Hits the Trail at Baylor
Baylor Law School has announced that Professor Bill Trail is retiring after 23 years on the faculty. Trail, who is currently teaching Contracts I and II at the Waco, Texas, school, will be moving to Corpus Christi.
“This is a bittersweet moment,” said Dean Brad Toben, who noted that Trail has also been “a superb classroom teacher who is consistently cited by our first-year students as being a very notable influence on their academic life and on their perspectives in the first-year experience.” He also played a big role in the success of Baylor’s interscholastic advocacy teams and was chair of the school’s ten-year building project.
Trail earned a B.A.(Phi Beta Kappa) from Michigan State and a J.D. from Virginia. He joined the Baylor faculty in 1982, after stints with Navy J.A.G., the Civil Division of the Justice Department, and private practice. Currently the Darrell L. Keith Professor of Law and Medicine, he’s written casebooks on Health Law, Health Care Litigation, and Federal Courts.
Cubs Pitcher Faces Contract Suit
Chicago Cubs pitcher Mark Prior won’t be in the World Series this year, so he’ll have plenty of time to prepare for a breach of contract action brought against him by a Chicago-area gift store, Just Ducky Too.
Seems Prior had an $80,000 gig to spend three hours signing various items at the gift shop. The claim is that he behaved rudely to the large crowd of customers and left after 45 minutes, having signed only two-thirds of the stuff he was supposed to. The gift shop sued for breach of contract. Defendants Prior and the company that set up the deal, Upper Class Collectibles, countersued, claiming that Just Ducky had breached the contract by charging higher prices than agreed upon and trying to stiff Upper Class on a share of the proceeds.
The case will go to trial in Naperville, Illinois, in January.
News in Brief
An Indian drugmaker is suing America’s Barr Pharmaceuticals and Israel’s Teva Pharmaceuticals, claiming that joint venture between them to make generic allergy drug Allegra violates its contracts. (Forbes)
Workers at Cereal giant Kellogg Co. have ratified a new four-year pact which includes no wage increases but does offer better pension coverage and bonuses, along with lower pay scales for new workers. (Battle Creek Enquirer)
More than a half-million Chinese citizens are working overseas as “contract workers,” as part of the country’s “going global strategy.” (People’s Daily)
Some fans of the New York Yankees, knocked out of baseball’s World Series chase for the fifth straight year, are actually asking that the organization give manager Joe Torre a contract extension. (Poughkeepsie Journal)
General Motors is making plans to re-source parts made by its bankrupt supplier Delphi if UAW workers launch a threatened walkout. (MarketWatch)
Capitol Records has signed an Australian “pub band”called “Airbourne” to a 5-record, $2 million contract, the biggest ever given to a previously unsigned Australian musical act. (The Age)
Welcome to the blogosphere for our new colleagues at PropertyProf Blog, run by Ben Barros of Widener-Harrisburg. The new venture already has some interesting commentary up, including a reference to a neat case involving the question whether a row of 40-foot-high arbor vitae plants is a "hedge." Be sure to visit.
Does Liability Insurance Cover Policyholder's Shoddy Work?
Is an insurer bound to defend its insured under a general commercial liability policy if the real claim is that the insured performed did its work in a “shoddy” manner? A federal district court, applying Texas law, held that the claim was basically for breach of contract, and thus that the insurer had no duty to defend. The U.S. Court of Appeals for the Fifth Circuit has certified the question to the Texas Supreme Court, asking for clarification.
Lamar Homes, Inc. v. Mid Continent Casualty Co., No. 04-51074, 2005 U.S. App. LEXIS 21441 (5th Cir. Oct. 3, 2005)
Today in History: October 12
1492: Christopher Columbus’s expedition to the Indies strikes land in the Caribbean, probably San Salvador in the Bahamas.
1823: Scotsman Charles Macintosh begins selling raincoats made of rubber. They don’t become popular until the discovery vulcanization keeps the rubber from being stiff in winter and sticky in summer.
1860: Inventor and entrepreneur Elmer Ambrose Sperry is born at Cortland, New York. His various electronic and gyroscope enterprises will later become Sperry Corp. and then Unisys.
1937: Radio’s longest-running detective show, Mr. Keen: Trace of Lost Persons, debuts. Sponsors over the years will include Anacin, Kolynos toothpaste, BiSoDol antacid mints, Hill’s cold tablets, Heet liniment, Dentyne, Aerowax, RCA Victor, and Chesterfield cigarettes.
1940: Tom Mix, the Western star who made $6 million in motion pictures over a 26-year career, is killed by a suitcase.
1944: Some 25,000 teenage girls block the streets around Times Square, screaming for Frank Sinatra, who is scheduled to perform at the Paramount Theater.
October 11, 2005
News in Brief
Lawyers for 40,000 poor people who may be forced out of their homes by the controversial new Northrail project are asking the Philippine Supreme Court for a restraining order, claiming the contract for the project is illegal. (INQ7.net)
Investors are suing Rupert Murdoch’s News Corp. for breach of contract, saying the broke promises it made when the company moved from Australia to the U.S. (New York Times News Service)
An unusual Canadian government contract, which requires a consultant to make only oral presentations and not leave any paper behind that auditors could see, is raising some questions. (Globe and Mail)
A Maryland fire department is offering residents an unusual contract: They get a free smoke alarm if they sign a contract to pay for fire damage caused by their own inattentiveness. (Hagerstown Herald-Mail)
Guangzhou city officials have unveiled a new model contract for local employers, which suggests pay based on hours worked instead of a fixed minimum wage. (China Daily)
The University of North Dakota is mulling a court challenge for breach of contract by the NCAA, which has demanded that the school drop the “Fighting Sioux” nickname for its sports teams. (Grand Forks Herald)
The High Court of India has granted a restraining order prohibiting an American company from doing business in India, pending resolution of a breach of contract claim by the company’s former Indian distributor. (PR Leap)
Louisiana businesses are complaining that most of the FEMA reconstruction contracts for that state are going to out-of-state businesses, usually those that have worked with the agency in the past. (KLFY-TV)
Ho Chi Minh might roll over in his grave at the news that Vietnam’s Pha Run Shipyards have just won a $55 million contract to build 5 commercial freighters for a South Korea company. (Thanh Nien News)
Enforceability of Release of FMLA Claims
Is a release of an employee's retrospective and prospective claims under the Family Medical Leave Act ("FMLA") enforceable? The Fourth Circuit says no; the Fifth Circuit says yes.
In Taylor v. Progress Energy, Inc., 415 F.3d 364 (4th Cir. 2005), the Fourth Circuit recently held that an employee's retrospective and prospective FMLA claims cannot be waived or settled by private agreement between the employee and employer. In Taylor, an employee was terminated based upon medical related absences, which her employer misinformed her were not covered by the FMLA. Upon her termination from employment, she signed a general release in exchange for additional severance and benefits. The Fourth Circuit held that, to the extent it waived FMLA claims, the general release was not enforceable because the FMLA regulations (CFR 825.220(d)) do not allow an employee to waive her rights under the FMLA.
The Fourth Circuit disagreed with the analysis of the Fifth Circuit in Faris v. Williams WPC-I, Inc., 332 F.3d 316 (5th Cir. 2003). In Faris, the Fifth Circuit interpreted the regulations to include only current employees, and held that a former employee could waive FMLA claims.
From law.com, drafting advice to employers in the Fourth Circuit:
unless they want to invite scrutiny by seeking approval of the DOL or a court. . ., employers should modify their general release agreements used within these states to remove any reference to the waiver of FMLA claims and avoid the catchall language that was deemed unenforceable in Taylor. The result is that employers in the 4th Circuit that pay severance to their departing employees in exchange for a general release of claims do so fully aware of the fact that the employees may turn around and sue for violations of the FMLA.
Alternatively, for employers in the Fourth Circuit and circuits that have not yet decided the issue:
employers can choose to leave their agreements unchanged and continue to condition eligibility for severance pay upon a release of all claims, including those arising under the FMLA. Employers opting for this approach run the risk that this provision will be invalidated. Therefore, these employers should ensure that they the release contains "severability" language stating that if one provision of the agreement is struck down, the remaining provisions remain intact.
Another possible approach:
eliminate reference to the FMLA, retain the catchall provision and add a sentence that the general release agreement applies to the waiver of claims "except to the extent such waiver is prohibited by law." At such time as an employee who signs a release commences an FMLA action, the employer can determine whether it wishes to raise the general release agreement as an affirmative defense to the employee's claims.
[Meredith R. Miller]
Cell Phone Arbitration Clause Unconscionable
An arbitration clause in a cell phone agreement is unconscionable where it prohibits class actions for very small individual claims, according to the California Court of Appeals in an unpublished decision.
In the case, Jaime Wing bought a cell phone from a Costco store.
The phone came in a shrink-wrapped box inside a cardboard sleeve, and on that cardboard sleeve were instructions for activating wireless service with Cingular. Beneath the shrink wrap on top of the box were several documents, including a notice advising the customer not to open the box until service had been activated. Also on top of the box were a welcome letter, the written terms and conditions of Cingular's wireless service, and a handbook of Cingular services. The written terms and conditions of Cingular's wireless service included an arbitration clause requiring arbitration of all disputes arising out of the wireless service agreement.
After Cingular started a new practice of charging customers for portable phone numbers, Wing and others brought a class action suit, alleging breach of contract, fraud, and various statutory violations.
The court had no trouble holding that the arbitration agreement was part of the contract, since Wing knew about it before she signed the deal. It was nevertheless unconscionable, though. Here’s the analysis:
To be unenforceable, a contract must be both procedurally and substantively unconscionable, but the courts employ a "sliding scale" or a balancing relationship between the two elements of unconscionability, such that the greater the degree of unfair surprise or unequal bargaining power, the less the degree of substantive unconscionability required to annul the contract and vice versa. . . . .
The wireless service agreement here was presented on a take-it-or-leave-it basis, placed inside the shrink-wrapped box along with the telephone. We agree with the trial court's conclusion that the wireless service agreement was a contract of adhesion and, hence, procedurally unconscionable. . . .
. . .
The more difficult question is whether the ban on class-wide relief is substantively unconscionable. That question was recently examined by our Supreme Court in Discover Bank, where the court focused on the exemption that a contract clause banning class action or class arbitration relief may provide to an offending business from liability for its bad business practices. The court said: "Class action waivers found in [adhesive] contracts may also be substantively unconscionable inasmuch as they may operate effectively as exculpatory clauses that are contrary to public policy. . . ."
While recognizing that class action and class arbitration waivers are not, in the abstract, exculpatory clauses, the court commented that such clauses are "indisputably one-sided.” . . . The court expressly rejected the notion that provisions in the arbitration agreement allowing litigation in small claims court or recovery of attorney fees by the prevailing party are adequate substitutes for the important mechanism of class-wide arbitration. . . .
The Supreme Court concluded as follows: "We do not hold that all class action waivers are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party 'from responsibility for [its] own fraud, or willful injury to the person or property of another.' . . . Under these circumstances, such waivers are unconscionable under California law and should not be enforced." . . . .
Since the claim against Cingular involved a series of very small charges (about a dollar a month per customer) the court found arbitration to be unconscionable.
Wing v. Cingular Wireless, LLC, No. A105906, 2005 Cal. App. Unpub. LEXIS 9005 (1st Dist. Oct. 3, 2005).
Case Seeks New Dean
Case Western Law School is in the market for a new dean. The school announced that Gerald Korngold has stepped down as dean and that a dean search committee has been formed. Applications and nominations should be sent by November 15, 2005, to:
Professor Sharona Hoffman
Chair, Dean Search Committee
Case Western Reserve University
School of Law
11075 East Blvd.
Cleveland, OH 44106