March 4, 2006
The Importance of the Right Comma
Contract lawyers know how important a misplaced comma can be. So do engineers, writes business lawyer Alexander M. Geisler of Philadelphia’s Duane Morris LLP in Mind Your Language. In fact, he says, vague language by engineers can create legal headaches as well as engineering problems.
Canada Struggles with CISG
As we've noted previously, it's always nice to see somebody other than us Americans screwing up interpretation of the U.N. Convention on Contracts for the International Sale of Good. In The (CISG) Road Less Traveled: Case Comment on GreCon Dimter Inc. v. J.R. Normand Inc., forthcoming in the Canadian Business Law Journal, lawyer Antonin I. Pribetic takes issue with the Canadian Supreme Court's handling of a recent case. Here's the abstract:
This case comment discusses two recently released Canadian decisions on the enforceability of arbitration clauses from the perspective of the United Nations Convention on Contracts for the International Sale of Goods 1980 CISG). At first glance, the Supreme Court of Canada's decision in GreCon Dimter Inc. v. J.R. Normand Inc. appears to be a case upholding the primacy of international commercial arbitration, choice of forum and choice of law clauses. Upon closer scrutiny, however, the Supreme Court of Canada failed to consider the application of the CISG to the overall dispute. Interestingly, the same choice of forum and choice of law clauses were considered by the United States Court of Appeals a year earlier in GreCon Dimter, Incorporated v. Horner Flooring Company, Incorporated. In either of the Canadian and American GreCon decisions, the parties' (and their respective counsel's) characterization of the legal issues, including jurisdictional arguments, ultimately guided the domestic forum court's jurisprudential analysis. Unlike GreCon v. Horner, choice of forum remained a live issue when it reached the Supreme Court of Canada in GreCon v. Normand. In both cases, the parties' choice of law remained an important, but not exclusive, factor in the domestic court's overall determination of proper forum. In Sonox Sia v. Albury Grain Sales Inc., the Quebec Superior Court also considered the validity of an arbitration clause specifying that all contractual disputes be arbitrated by the ICC in London, UK, with the CISG stipulated as the governing law. Although the reasoning in both Canadian court decisions failed to consider the CISG's provisions, international case law or academic commentaries, perhaps another opportunity awaits for Canada to contribute to the CISG's global jurisconsultorium.
March 3, 2006
From Contract Back to Status
Who should decide what obligations a servant owes his or her master, the parties or the State? Should the arrangements be viewed as contractual or as status-based regulations that the parties cannot alter? That's the issue that Reza Dibadj (San Francisco) takes up in a new piece, The Misguided Transformation of Loyalty into Contract, forthcoming in the Tulsa Law Review. He argues firmly for the non-contractarian approach. Here's the abstract:
The law of unincorporated associations is engaged in a misguided march in transforming the duty of loyalty into a contractarian construct. This Article argues that these developments reflect doctrinal confusion, outworn economics, and weak policy.
The Article begins by tracing the evolution of the duty of loyalty in the law of unincorporated associations. It begins with a discussion of the struggle between contractarianism and fiduciary duty in the uniform laws promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL). It then shifts gears to the more squarely contractarian, and likely highly influential, Delaware statutes. The current state of the doctrine suggests that precious little is left of the duty of loyalty.
The article then shifts to showing that the transformation is troublesome along three dimensions. First, the move conflates fiduciary with contractual duties, notably weak and nebulous notions of good faith. Second, it deploys outworn economic concepts reminiscent of the neoclassical Chicago School. The economic justifications for contractarianism are based on facile assumptions applied in a static manner; they do not represent real humans interacting in real institutions over time. Third, the move from loyalty to contract brings with it a host of public policy problems: it tries to toss out a well developed legal tradition, downplays the role of trust and morality, and ignores the role positive law can play in shaping norms. In the end, the rise of contractarianism reflects a step backward to nineteenth-century legal formalism and presents the risk that its faulty precepts may spread further into corporate law.
Extraterritoriality and "Unfair Dismissal"
Many jurisdiction have some form of rule modifying employment-at-will to prohibit “unfair dismissal” of employees. Such rules, however, raise complex questions in a modern world where employees may be employed by, say, the British office of a Dutch company to do work based entirely in Texas.
The British courts, in particular, have struggled with the concept of when a foreign employee with some kind of British ties can bring a claim for unfair dismissal. The issues and some of the cases are discussed by Christopher Booth of London’s Pinsent Masons in Working Abroad: Who has the Right to Claim Unfair Dismissal?
Maxeiner on Standard Forms
It actually came out a couple of years ago, but we just got in the mail today a copy of Standard-Terms Contracting in the Global Electronic Age: European Alternatives, by James Maxeiner (Baltimore), which was published at 28 Yale J. Int'l L. 109 (2003).
It's an excellent comparison of the different regimes in the U.S., Germany, and the E.U., and an admonition that the U.S. would be wise to start looking more closely at the way other countries handle the problems involved in standard forms.
Herding Introverted Cats That You Can't Punish
Putting up with university administrators is admittedly a pain in the neck, but just try to imagine how difficult it must be for them. The Financial Times offers a column ruminating on why academics are "employees from hell." (You need to be a subscriber to access it.)
[Frank Snyder -- hat tip to Allen Kamp]
March 2, 2006
More on Stern Lawsuit
Without having seen Stern's contract, I can't speak to the breach of contract claims. The misappropriation and fraud claims, however, raise basic and generic issues of an agent's fiduciary duties. Under those principles, it looks like CBS has a very strong case.
Prof. Bainbridge's analysis of the agency issues can be found here. I still have yet to locate a copy of the entire complaint.
[Meredith R. Miller]
Lady Duff Gordon and the Kewpie Dolls
In his famous opinion in Wood v. Lucy, Lady Duff Gordon, Judge Cardozo fashioned an implied "good faith efforts" term in a license agreement. He apparently assumed that the parties must have intended some such obligation, although the contract was silent.
Not so fast, my friend, says Victor Goldberg (Columbia). In Reading Wood v. Lucy, Lady Duff-Gordon with Help from the Kewpie Dolls, a section of his excellent upcoming book, Framing Contract Law: An Economic Perspective (Harvard 2006), he looks at Otis Wood's involvement in an earlier piece of litigation involving a similar license, and suggests that the failure to include a best efforts clause was conscious and deliberate. (Left: Goldberg; right, Kewpie Doll, courtesy Wikipedia.) Here's the abstract:
In Wood v. Lucy, Lady Duff-Gordon, Cardozo found consideration in an apparently illusory contract by implying a reasonable effort obligation. Unbeknownst to Cardozo, Wood had agreed to represent Rose O'Neill, the inventory of the Kewpie doll in an earlier exclusive contract. Wood sued O'Neill two months prior to entering into the Lucy arrangement. That contract included an explicit best efforts clause. The failure to include such a clause in this contract was, quite likely, deliberate, suggesting that Wood was trying to avoid making a binding commitment to Lucy. The paper examines both the Kewpie doll and Lucy contract in some detail. It then goes on to argue that the decision's role in finding consideration is probably minimal -- it would be easy enough for the parties to provide an alternative source of consideration if they desired. The mischief of the opinion is its impact on contract interpretation. The UCC and some common law courts have taken to imposing a vague effort standard on promisors, even if there exists an explicit source of consideration.
Contract Litigation in Finland
If you find yourself in a contract dispute in Finland, prepare to enter a litigation scene that’s a little less complex than that of many other countries. Finnish litigation, says Gerrit J. van Setten of Helsinki’s Van Setten Kuusniemi & Partner Attorneys, Ltd., may remind American lawyers more of arbitration than traditional court proceedings. He offers an introduction to Finnish procedure here.
Brooklyn Launches Biz Law Journal
Brooklyn Law School has a new journal that will be dedicated, in part, to commercial law subjects. The school's new Brooklyn Journal of Corporate, Financial and Commercial Law will debut with a symposium issue on New Models for Securities Law Enforcement: Outsourcing, Compelled Cooperation and Gatekeepers. We wish them all the best, and look forward to a commercial law symposium in the future.
March 1, 2006
Discretionary Bonus Not Too Indefinite to Enforce
The 1915 New York case of Varney v. Ditmars is a casebook classic, holding that the promise of a discretionary bonus to an at-will employee is too indefinite to enforce. But a New York judge has just held that a promise to pay an associate "up to ten percent" of the fees generated from business she brought to the firm is definite enough to withstand summary judgment.
In the decision, associate Leah Guggenheimer alleged that she joined Bernstein Litowitz Berger & Grossman at a lower salary than that paid by competitive firms, in reliance on the class-action firm's "express promise" to give associates a share of the fees generated by cases they brought in. Guggenheimer says she brought in more than $2 million in fees, but was offered only a "token" $50,000 bonus.
Manhattan judge Bernard Fried denied Bernstein's motion to dismiss, holding that the promises made to Guggenheimer could have amounted to "oral contract agreeing to exercise that discretion in plaintiff's favor." The New York Law Journal recounts the story here.
Literal Meaning Doesn't Control if Result Would Be "Uncommercial"
The case, John Roberts Architects Ltd. v. Parkcare Homes (No.2) Ltd., involves an adjudication clause which read:
The Adjudicator may in his discretion direct the payment of legal costs and expenses of one party by another as part of his decision.
The adjudicator, apparently, did not render a decision on the merits because of jurisdictional problem, but nevertheless ordered substantial legal fees, around £87,000. The party hit with the fees objected, claiming that the clause permitted legal fees only as part of a decision on the merits of the claim. The Court of Appeal agreed that this was the literal meaning of the clause, but that it was unreasonable to read it that way.
Attorney Ben Worthington of London’s CMS Cameron McKenna LLP offers a snapshot of the facts and the court’s reasoning.
CBS Sues "Shock Jock" and Sirius For Breach of Contract
Of course shock jock Howard Stern's move from terrestrial to satellite radio could not be accomplished without a lawsuit. CBS Corp's radio division has sued Stern, Stern's agent and Sirius Satellite Radio Inc. in Supreme Court in New York, claiming that Stern breached his contract with CBS when he moved to Sirius. The lawsuit essentially alleges that Stern used radio time on CBS to hype up his move to Sirius and, in turn, his payday from the satellite radio company. This from the NY Times:
The lawsuit, which also names Sirius and Stern's agent as defendants, claims Stern improperly used CBS radio's air time to promote his new show with Sirius, which began last month. CBS also claims Stern discussed his plans with Sirius without disclosing them to CBS as required under his contract.
Apparently, this is what CBS wants from the suit:
CBS wants Stern, his agent, Don Buchwald, and Sirius to return any financial benefits they received from using CBS radio's air time to promote Sirius, including the value of a tranche of Sirius shares that Stern and Buchwald received early for exceeding a target for subscriber increases by the end of 2005.
That block of 34.4 million Sirius shares was originally worth $100 million at the time the deal was announced in 2004, but its value swelled to $200 million by the time Stern actually received the shares at the beginning of 2006, bringing the total value of his five-year deal to about $600 million.
At current prices, the shares are worth about $175 million. Stern's deal with Sirius specifies that costs for producing and marketing the show must be paid out of the compensation he receives.
Perhaps CBS also wanted this: Sirius shares fell 2.3% (12 cents) at the close of the market yesterday.
[Meredith R. Miller]
February 28, 2006
Fees, Ratification and Rock & Roll
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]
The Real Story of Luten Bridge
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.
Liquidated Damages Okay in Consumer Service K
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.
Two from Davis
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.
February 27, 2006
Weekly Top 10
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).
Sale v. Lease
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.