Tuesday, February 28, 2006
In the 1970s, Edward King retained attorney Lawrence Fox to represent him against MCA and Lynyrd Skynyrd in a series of disputes over royalties. As the Second Circuit explains (to be read in a Casey Kasem voice or, alternatively, in the voice of the narrator from VH1’s Behind the Music):
Edward King became a member of Lynyrd Skynyrd, a rock band that achieved great success in the 1970s and whose music is still well known today. While a member of Lynyrd Skynyrd, King played guitar and co-wrote several of the band’s biggest hits, such as the southern anthem “Sweet Home Alabama.” The band’s 1973, 1974, and 1975 albums each went gold, and MCA signed Lynyrd Skynyrd to an exclusive recording agreement in 1974. But eventually the band’s hard partying and physically violent internal conflicts became too much for King to bear. One night in May 1975, when Lynyrd Skynyrd was on tour, King quit the band and let the tour[.]
When King showed up broke, King and Fox entered into a contingency fee agreement. Fox agreed to represent King for one-third of all the recovery of any royalties past due and for one-third of all of King’s future royalties. The parties then embarked on an attorney-client relationship that lasted well over 20 years, during which Fox represented King in three separate actions to recover royalties. King alleges that Fox misrepresented certain aspects of the arrangement, including implying that it was required by court order. The allegations are too nuanced and delicate to fully recount, but the case -- the story -- is certainly worth a read.
In 1997, King sued Fox, alleging that the original contingency fee agreement was unconscionable, and claiming breach of fiduciary duty, unjust enrichment, undue influence, conversion and attorney misconduct. King demanded payment of royalties improperly collected by Fox plus interest, as well as punitive damages and rescission of the fee agreement. Because the authorities on the issues are “divided and scant” the Second Circuit has certified the following three questions to the New York State Court of Appeals:
(1) Is it possible for a client to ratify an attorney’s fee agreement during a period of continuous representation?
(2) Is it possible for a client to ratify an attorney’s fee agreement during a period of continuous representation if attorney misconduct has occurred during that period? If so, can ratification occur before the attorney has committed the misconduct?
(3) Is it possible for a client to ratify an unconscionable attorney’s fee agreement?
Stay tuned for the Court's answers.
[Meredith R. Miller]
One of the excellent presentations at the International Contracts Conference that just concluded was Jason Mehta's paper (co-written with Barak Richman and Jordi Weinstock of Duke) on the history of one of America's best-known cases on mitigation of damages. In A Bridge, a Tax Revolt, and the Struggle to Industrialize: The Story and Legacy of Rockingham County v. Luten Bridge Co., the authors dig deep into the real story behind a case best known for a doctrine that was never actually litigated in the dispute. (Left: The bridge at issue. Image: Duke Law School.) Here's the abstract:
Rockingham County v. The Luten Bridge Company is now a staple in most Contracts casebooks. The popular story goes as follows: Rockingham County entered into a contract with the Luten Bridge Company to build a bridge over the Dan River. Shortly after work commenced, the County repudiated the contract. Nonetheless, the Luten Bridge Company continued with its construction project and sued the County for the entire bill. Judge John J. Parker, the long-time chief judge of the Fourth Circuit, ruled in the famous 1929 opinion that the County was liable only for the costs up until the time of breach plus the anticipated profit, a sum of approximately $1,900, and not for the entire bill that was closer $18,000. The case is used to illustrate the "duty to mitigate," where a party to a contract against whom a breach has occurred is obligated to mitigate the damages resulting from that breach.
In this article, we revisit the history of this famous case. Examining original sources related to the case, the contemporary history, and the lives of those involved, we reveal that the case arose during, and sharply illustrates, Rockingham County's struggle to industrialize. The dispute emerged within a heated tax revolt that pitted the county's farmers against its mill owners and constituted a microcosm of the larger political conflict -- endemic throughout North Carolina and the south -- over investing in the public improvements necessary to promote industrialization. The Fourth Circuit opinion that transpired from the dispute offers many lessons and insights into the era's history, its legal issues challenges, and the development of the common law.
We do our best to bring the rich story to life and to understand its lessons. Section I of the paper documents the case's current importance in contract law, and Section II describes in detail the political and legal fights that culminated in Judge Parker's 1929 opinion. Section III then examines the true contemporary significance of the opinion. We reveal that Judge Parker's real objective was to enable North Carolina counties to enter into enforceable contracts to enable municipal development and facilitate industrialization, and that the ruling on mitigating damages was merely an afterthought. Section IV then examines the process through which the opinion, despite Judge Parker's intents, lost its original significance but later became immortalized to establish the mitigation principle.
At issue were late fees in cable television contracts, which the cable companies’ agreements specified as liquidated damages
intended to be a reasonable advance estimate of our costs resulting from late payments or non-payments by our customers, which costs will not be readily ascertainable, and will be difficult to predict or calculate, at the time that such administrative late fee(s) and related charges are set because it would be difficult to know in advance: (a) whether you will pay for the Service on a timely basis, (b) if you do pay late, when you will actually pay, if ever, and (c) what costs we will incur because of your late payment or non-payment.
A consumer activist group challenged the fees, but in Utility Consumers’ Action Network, Inc. v. AT&T Broadband of Southern California., Inc., 06 C.D.O.S. 630 (Cal. App. 2d Dist. Jan. 20, 2006), the court held that there was no need to attempt to ascertain likely damages on an individual customer basis:
Requiring a large enterprise to negotiate the terms of a late fee provision with thousands or hundreds of thousands of potential customers would effectively make it impossible to provide for late fees, even when they are warranted by the impracticability of determining damages and even when the amount selected by the business was designed to do no more than cover its damages and bore the proper relationship to the amount of such damages. We refuse to endorse such an interpretation of the reasonable endeavor requirement.
Patrick E. Premo and Karen P. Anderson of Silicon Valley’s Fenwick & West LLP provide a summary of the case and its implications in California Court Enforces Liquidated Damages in Standardized Form Contracts for Consumer Services.
In the mail today, belatedly (sent to Fort Worth and then apparently packed by dog sled to South Bend), are two pieces from contracts prof Ben Davis (Toledo). His article International Commercial Online and Offline Dispute Resolution: Addressing Primacism and Universalism, 4 Journal of American Arbitration 79 (2005), will be of special interest to those who do international commercial stuff. For those more interested in human rights issues, his Keeping Our Honor Clean: A Response to Professor Yoo, 4 Chinese Journal of International Law 745 (2005), discusses various issues arising out of the Gulf wars. You can get copies directly from Ben.
Monday, February 27, 2006
A raft of new papers have hit the charts this week, led by a new piece on privacy by Daniel Solove and Chris Jay Hoofnagle which has racked up an impressive 510 downloads since February 2. Following are the top ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the sixty days ending February 26, 2006.
1 (-) A Model Regime of Privacy Protection (Version 3.0), Daniel J. Solove (Geo. Washington) (right) & Chris Jay Hoofnagle (EPIC).
2 (1) Law and the Rise of the Firm, Henry Hansmann (Yale), Reinier Kraakman (Harvard) & Richard C. Squire (Yale).
3 (2) Contract as Statute, Stephen J. Choi (NYU) & G. Mitu Gulati (Georgetown).
4 (5) Penalties and Optimality in Financial Contracts: Taking Stock, Michel A. Robe (American-Business), Eva-Maria Steiger (Humboldt-Berlin-Business) & Pierre-Armand Michel (Liege-Management).
5 (-) Directors' Duties in Failing Firms, Larry E. Ribstein (Illinois) & Kelli A. Alces (Gardner Carton & Douglas LLC).
6 (8) Legal Infrastructure, Judicial Independence, and Economic Development, Daniel Klerman (Southern Cal).
7 (-) Bundling and Consumer Misperception, Oren Bar-Gill (NYU).
8 (3) Choice, Consent, and Cycling: The Hidden Limitations of Consent, Leo Katz (Penn).
9 (-) Reading Wood v. Lucy, Lady Duff-Gordon with Help from the Kewpie Dolls, Victor P. Goldberg (Columbia).
10 (-) The Moral Impossibility of Contract, Peter A. Alces (Wm. & Mary).
Anybody who teaches Article 2A as part of a basic Sales course knows that what differentiates a “true lease” from a “disguised sale” is one of those questions that defies easy answers. Increasing transaction complexity and increasingly clever lawyers (we’re apparently doing a good job with our students!) aren’t making things easier.
Turns out the question also has significant importance in bankruptcy law. David A. Hatch and Mark Douglas of Jones Day’s Los Angeles office explore Judge Frank Easterbrook’s (left) opinion for the court in United Airlines, Inc. v. HSBC Bank USA, N.A., 416 F.3d 609 (7th Cir. 2005), in When is a Lease Not a Lease? Seventh Circuit Adopts "Substance Over" Form Test for True Lease Determination.
Thanks particularly to all those who came and participated at the inaugural International Contracts Conference! It's easy to put on a good conference when so many enthusiastic people show up intent on really learning from each other and exposing themselves to new ideas.
To shift into promoter mode, It is not too early to start thinking about next year's event. Those who have an interest in a particular topic and would like to take responsibility for putting together a panel on it should get in touch with me. This particularly includes junior scholars -- do not be shy! We would be happy to have those panels get published as mini-symposia in a law review of your choice, since the goal is to get scholarship disseminated as broadly as possible. I look forward to seeing y'all in White Plains next year.
Sunday, February 26, 2006
It was widely agreed that the inaugural International Contracts Conference was a huge success. In two jam-packed days, there was not one dull moment, and it was a wonderful exchange of a diverse array of ideas. Perhaps next year someone will live blawg the conference, which will be held at Pace Law in White Plains, New York.
One last "thank you" to Frank Snyder and Texas Wesleyan for organizing and hosting the event.
[Meredith R. Miller]
Friday, February 24, 2006
In this recent article by Professor Juliet Kostritsky at Case Western Reserve, she considers the importance of norm incorporation in contracts in light of plain meaning formalist attacks on such an approach.
Her abstract: Article 2 of the UCC directed courts to look to business norms as a primary means of interpreting contracts. Recently the new formalists have attacked this strategy of norm incorporation as a misguided one that will lead inevitably to significant error costs. Accordingly, they have embraced plain meaning as the preferred interpretive strategy. This article argues that the strategy of rejecting trade usages unless they are part of the express contract is too rigid. The rejection is premised on an overly narrow cost/benefit analysis that fails to account for the functional role that such usages may play in curbing opportunistic behavior and thereby increasing gains from trade and overall welfare. Plain meaning and incorporation must each be evaluated to see how each one can achieve the parties’ presumed instrumental goals of curbing opportunism - the hold-up game. Decision makers should also consider the particular reasons why parties failed to include the trade usages in their express contract. Some of the reasons for omission might argue for and some against norm incorporation. The incorporation decision should also depend on assessing the critical structural factors that make self-enforcement of trade practices possible. After proposing a taxonomy for assessing the normative issue of incorporation, the article examines the case law. It suggests that the divergences can be explained by whether invocation would achieve the parties’ functional goal of reduced opportunism. The article concludes by suggesting that the taxonomy suggested here helps to overcome some past objections to incorporation strategy.
Kostritsky, Juliet P., "Judicial Incorporation of Trade Usages: A Functional Solution to the Opportunism Problem" (February 2006). Case Legal Studies Research Paper No. 06-02 Available at SSRN: http://ssrn.com/abstract=885386
[Stephen J. Safranek]
Wednesday, February 22, 2006
From today’s print Wall Street Journal comes this story about “drop catchers,” those who troll the internet looking for expired or lapsed website addresses.
I thought these issues were resolved by ICANN, but apparently after a thirty day grace period, a name is fair game. An owner could have a website address, it might expire (due to inadvertence) and that owner would have to spend a great deal in order to get the domain name back. One of the “drop catchers,” a graduate student, says that the situation is analogous to real estate, “if you’re not paying your mortgage or taxes on it, it’s going to get taken away.”
According to the story, approximately 20,000 names expire each day. The most expensive expired domain name was A1.com, at $260,250, followed by Bogota.com, which was sold for $159,500.
Travis Frey, a 33-year-old Iowa man, faces charges that he
tried to kidnap his wife. Too bad for him, he didn't have the foresight to realize that his "Contract of Wifely Expectations" would very likely be unenforceable, and would only serve as damning evidence at his criminal trial. (And, anyways, his wife never signed the contract). Courtesy of the Smoking Gun, the "contract" can be viewed: here, with the caveat that it is objectively and fairly characterized as repulsive and bizarre.
[Meredith R. Miller]
Monday, February 20, 2006
Craig Peterson, a CPA and lawyer, sought employment in the tax law field. He entered into a contract with Preference Personnel (“PP”), whereby PP agreed to assist Peterson in finding employment. The contract provided that the employer would pay PP a placement fee of 20% of one year’s gross salary. However, if Peterson voluntarily quit the position found by PP within the first 90 days of employment, Peterson was responsible for paying the placement fee. PP found Peterson a $60,000 a year job, but Peterson voluntarily quit before the expiration of the 90-day period. PP paid the employer the $12,000 placement fee. PP then, in turn, sought to recover the fee from Peterson.
It turns out that, at the time PP was assisting Peterson, its license to operate an employment agency had expired. The North Dakota Department of Labor later reinstated PP’s license retroactively. The case presented two related questions. The first issue was whether the Department of Labor had the authority to reinstate PP’s license retroactively. The North Dakota Supreme Court held that N.D.C.C. § 34-13-02 did not give the Department of Labor the authority to issue licenses retroactively.
Thus, the second issue was whether the employment agreement was enforceable because PP was unlicensed at the time it entered the contract. The North Dakota Supreme court held that the agreement was not enforceable because it was against the State’s policy of “requiring licensure prior to conducting any activities as an employment agency.” The Court reasoned:
If public policy considerations require employment agencies to undergo extensive licensing requirements before being allowed to legally conduct business in this State, it follows that it is against the public policy of this State to enforce a contract between an individual and an unlicensed employment agency. To conclude otherwise would undermine the purpose of the licensing requirement.
The Court held that, although Peterson may have breached the contract, the contract was unenforceable because PP was unlicensed at the time the parties entered into the agreement.
Preference Personnel, Inc. v. Peterson (N.D. Feb. 8, 2006).
Sunday, February 19, 2006
The age-old struggle between deontology and consequentialism in American contract law never seems to end. In The Moral Impossibility of Contract, Peter Alces (William & Mary) offers a new take on the dilemma. Here's the abstract:
In efforts to formulate the deontological or consequentialist conceptions of Contract, or to demonstrate that Contract is neither wholly explicable in terms of one or the other type of theory, claims are necessarily made about the nature of Contract as a body of doctrine, claims about what doctrine is. Now I do not mean simply that theorists disagree about what a particular doctrine entails, such as what a court should do in order to apply, for example, the consideration, frustration or unconscionability doctrines correctly. I acknowledge that reasonable minds disagree about the substance and constituents of those common law Contract doctrines. That is not my point. Instead, I am curious about what it means for a set of rules (say, the set of rules that fixes the parameters of "agreement") to be doctrine, the phenomenon that theory would try to explain. The function of theory is heuristic. The object of theory is either normative or positive. The best theorists are able to blur the distinction, often for rhetorical purposes. Legal theory (at least in some of its iterations) depends upon a posited conception of doctrine (and doctrine, too, is heuristic). That is, theory either explains or corrects doctrine. To accomplish that, legal theory is dependent upon a theory of legal doctrine. Contract theory, whether deontological, consequentialist, or pluralist, begins and must end with the doctrine, must have something to say about doctrine that serves a heuristic purpose (as well as, perhaps, other purposes). My interest is not so much with what Contract theorizing tells us, heuristically, about Contract doctrine; my concern is more with what Contract theory, in all of its extant phases, assumes about the nature of Contract doctrine. In this paper, I engage each of the foregoing observations about the theory-doctrine dynamic and try to say something important concerning Contract theory by drawing conclusions about the relationships among them.
Franchising is big business in the United States, and it’s also growing fast in the United Mexican States. The Mexican government has just promulgated a new law which provides new requirements for franchise contracts, including requirements for termination only for cause and provisions preventing franchisors from objecting to franchisee changes of control. Michael E. Santa Maria and Kevin E. Maher of Baltimore’s DLA Piper Rudnick Gray Cary provide a rundown of the new changes from the perspective of U.S. franchisors.
Saturday, February 18, 2006
In the upcoming Festschrift in Honour of Lawrence Friedman (edited by Robert Gordon and Morton Horwitz, Stanford 2006), Gunther Teubner (left) of Frankfurt's Johann Wolfgang Goethe University offers Coincidentia Oppositorum: Hybrid Networks Beyond Contract and Organization. Here's the abstract:
I. The Impossible Necessity of Sociological Jurisprudence
Thesis 1: It is a scientific misconception of the law to believe that empirical or theoretical social sciences can guide law to any significant degree. The really decisive legal irritations are not supplied by interdisciplinary contact with social sciences, but with normatively loaded "reflexive practices" of various social sectors. My example: the dramatic extension of liability throughout networks (virtual enterprises, franchising nets, just-in-time arrangements) is a doctrinally impossible, but a practically necessary, judicial reaction to social perceptions of the risks posed by networks.
Thesis 2: The "translation" of socially reflexive practices into legal doctrine is not a result of a knowledge transfer from the social sciences to law. Private law doctrine can only be persuaded to develop conceptual innovations by its own, internal, path-dependent evolutionary logic. My example: Network is not a legal concept. It is a social science concept and its legal complement can only be reconstructed within the law by evolving "relational contract" into "connected contracts" (Vertragsverbund).
Thesis 3: One of the most important achievements of sociological jurisprudence has been its ability to understand and support the contribution of law to the resolution of paradoxes within social practice. My example: Networks are confronted by their environment with paradoxical demands. Legal doctrine reacts to such network paradoxes with a new legal concept of "double-attribution."
II. Piercing the Contractual Veil in Distribution Networks:
Three Levels of Legal Reality Construction
Approach 1: Casuistry
Approach 2: Political Law-Making
Approach 3: Socially Reflexive Practices
III. Translation Problems: Networks as Connected Contracts
Definition: "The notion of connected contracts (Vertragsverbund) is used to describe any plurality of contracts which refer to each other within either bilateral or multilateral relationships, whose interconnection gives rise to direct legal effects (of a genetic, functional or conditional nature), whether these simply result in an effect of one contract to the other (or others), or whether one can also observe mutual effects."
IV. The Role of Law in Social De-Paradoxisation Processes
Under certain conditions, hybrid arrangements provide for an institutional environment where paradoxical communication is not repressed, but institutionally facilitated and, sometimes, turned productive. Hybrids as a highly ambiguous combination of networks with contracts and organizations seem the result of a subtle interplay between different and mutually contradicting logics of action. How does the law respond to their transformation of external contradictions into an internal and simultaneously individual and collective orientation? In terms of legal conditions: by means of the dual constitution of connected contracts. In terms of legal consequences: through a selective double attribution to individual contractual partners and to the network as a whole.
V. Legal Conditions: The Dual Constitution of Connected Contracts
1. reciprocal references of bilateral contracts to one another, either found within the performance program and/or distilled from contractual practice ("multi-laterality")
2. a contractual reference to the overall project of the connected contracts ("relational purpose"),
3. a close and legally significant cooperation relationship between the participants within the ulti-lateral relation ("economic unity").
VI. Legal Consequences: Selective Double-Attribution to Contractual Partners and to the Network
1. Co-opetition: Exceptions to competition law
2. Unitas multiplex: Decentralized, re-individualized collective liability
3. Private-public Networks: constitutionalizing reflexive autonomy of network nodes.
A retail tenant who repeatedly breaches covenants in a Victoria, Australia, lease isn’t entitled to exercise the lease’s renewal, at least under common law. That’s the holding in a recent case from the Victorian Civil and Administrative Tribunal, Westgate Battery Co. v. G.C.A. Property Ltd., (2005) VCAT 2080. Campbell Paine of Melbourne’s Phillips Fox runs down the issues in the case, and notes that results might be different under Victoria’s Retail Tenancies Reform Act of 2003.
Friday, February 17, 2006
Via Accidental Blogger, this excerpt from an article in the Boston Globe:
The next time you're tempted to send a nasty, exasperated, or snippy e-mail, pause, take a deep breath, and think again. Then consider the tale of local lawyers William A. Korman and Dianna L. Abdala.
Korman was miffed that Abdala notified him by e-mail this month that, after tentatively agreeing to work at his law firm, she changed her mind. Her reason: ''The pay you are offering would neither fulfill me nor support the lifestyle I am living."
In his e-mail reply, Korman told Abdala that her decision not to have told him in person ''smacks of immaturity and is quite unprofessional," and noted that in anticipation of her arrival, he had ordered stationery and business cards for her, reformatted a computer, and set up an e-mail account. Nevertheless, he wrote, ''I sincerely wish you the best of luck in your future endeavors."
Her curt retort: ''A real lawyer would have put the contract into writing and not exercised any such reliance until he did so."
His: ''Thank you for the refresher course on contracts. This is not a bar exam question. You need to realize that this is a very small legal community, especially the criminal defense bar. Do you really want to start pissing off more experienced lawyers at this early stage of your career?"
Here’s the full story from the Globe.
[Meredith R. Miller]
A dentist’s office is not a “noxious, dangerous or offensive trade or business,” and therefore the wealthy residents of the historic and extremely expensive Treadwell Farm Historic District on New York's Upper East Side will have to suffer the annoyance of having it on their block, according to a recent decision by a Manhattan state court judge, reported in the New York Lawyer.
A group of dentists occupied the first two floors of a four-story townhouse. Plaintiffs Samuel Lek (CEO of Lek Securities Corp.) and Helen Roosevelt (of Teddy’s, not Frank’s wing of the family) led a suit by the East Sixties Property Owners Association to try to boot them out, demanding a permanent injunction and a constructive trust on all their revenues. The angry Masters of the Universe sued under an 1868 real estate covenant that provided:
That no . . . business or occupation known as nuisances in the law or which may be dangerous or offensive to the neighboring inhabitants shall ever be made, erected or permitted on said lots of land.
The covenant went on to specifically to categorize things like slaughterhouses, tanneries, gunpowder manufacturers, and gambling dens.
As a matter of law, a dentist’s office isn’t in that class, ruled Justice Faviola Soto (left), dismissing the complaint. The plaintiffs essentially argued that the mere existence of a commercial establishment in the neighborhood was "offensive to the neighboring inhabitants," but Soto -- the daughter of immigrants and the first judge of Dominican descent to sit on the New York bench -- concluded that the “discreet brass plate” that announced the name of the dental offices could not reasonably be viewed in the same class as a circus, a saloon, or a brass foundry.
Incidentally, if you're willing to put up with a nearby dental office, you can rent a cute little place in the district for a mere $17,000 a month.
An adjudicator’s decision in a construction contract dispute ordinarily gets a lot of deference in the U.K, but not where the decision violates principles of “natural justice.” Those principles are violated when an adjudicator (a kind of arbitrator who issues interim rulings in ongoing construction projects but whose decisions are not final) makes a finding in the absence of any evidence on the point. That seems to have been the case in a recent Court of Session decision, Ardmore Construction Ltd. v. Taylor Woodrow Construction Ltd. Fraser McMillan of London’s Pinsent Masons offers an account of the case.
Wednesday, February 15, 2006
After ten years of litigation, the buyer of a valuable slice of Long Island oceanfront has finally won his case -- on summary judgment. He'll thus get $16 million worth of property for the $2.1 million he agreed to pay back in 1995. Of course, the summary judgment may have to go up on appeal now.
The tortured history of the case, with its aborted trial, Justice Department investigation, busted settlement, fiduciary duty claims, and special master to handle discovery disputes, is related in this story from the New York Law Journal, via Law.com.