September 15, 2007
Rap Bet / Offer / Contract?
In the past, we've seen some interesting contracts questions that arise out of the music scene. Whether it's canceled tours, arguments with managers, or one-sided record deals, they provide us with a great deal of blog fodder. Here's the latest wrinkle - Kanye West and Fifty Cent's battle over who would sell the most records. Does it look like a contract to you? Here are the facts from the LA Times:
[Fifty Cent agreed] to hang up his mike if Kanye West's "Graduation" outsells 50's third album, "Curtis," in their first week of release. Now, just two days after both CDs went on sale -- and a month after his challenge began generating an inescapable din of promotional hype -- Nielsen SoundScan has tallied the albums' early returns, putting West on pace to best 50 by about 125,000 copies by Tuesday.
But a closer reading of 50's original invitation to throw down, taken with comments the Queens, N.Y.-born rapper made to The Times just before "Curtis" was released, makes it clear that even if the sum of all of 50 Cent's fears were to materialize, rap fans -- and haters -- haven't likely heard the last from hip-hop's most diss-prone MC.
Since August, media scrutiny has focused on only one part of the commitment 50 made on the hip-hop website SOHH.com: "If Kanye West sells more records than 50 Cent on Sept. 11, I'll no longer write music. I'll write music and work with my other artists, but I won't put out any more solo albums."
But even with his future solo output seeming to hang in the balance, little attention has been paid to 50's opt-out clause -- his promise to quit only if certain terms and conditions are met.
"And I bet this, when Kanye West's sales come in, he's gonna have a 70% decrease [the second week] 'cause Def Jam is gonna buy records to keep him closer to 50 Cent," he continued. "So watch the first week and then watch the second week. Watch his [expletive] drop off the planet. We keep our angles covered before we make a decent bet."
In a conversation with The Times, the rapper confirmed that a steep second-week sales drop for "Graduation" is a central part of his challenge. That would be evidence, 50 said, that West's record company Island Def Jam had been using some kind of market manipulation to artificially boost West's first-week numbers.
"I think the perception on some levels would be that Kanye West is generating more interest than 50 Cent regardless of actual record sales," 50 said. "He's never had a fraction of the sales 50 Cent has. So when you see him come out and it's like they were close? They could have one scan and have it count four times."
Fifty's made a promise, sure. But did Kanye take him up on it? I haven't heard anything about Kanye promising to retire. I suppose it's more a question of Fifty losing credibility with his fans if he makes these types of statements and then doesn't follow through. But as I play "In da Club" this morning while I work on an article, I have to tell you it would be a sad day if I could no longer listen to new rap anthems from Fifty (best line: "I love you more than a fat kid loves cake.")
September 14, 2007
In the News: September 14
The California Labor Commission has ruled that the agent for actress Nicollette Sheridan wasn’t properly licensed when he represented her, but that this fact may not have been relevant to his breach of contract claim for fees arising out of her work on Desperate Housewives.
Baltimore has terminated a school busing contract with a private operator after its service was interrupted by striking drivers.
Barbra Streisand’s promoters are suing ticket agencies in the U.K., claiming that thousands of tickets (worth nearly £ 1 million) for her much-ballyhooed series of "sold out" English concerts were never actually sold.
Two well-known NASCAR drivers, Sterling Marlin and Joe Nemechek, are suing Ginn Racing and Dale Earnhardt Inc. for breach of contract; their jobs were eliminated when the two teams merged.
News Corp. says it expects "prickly and dicey and contentious" negotiations with Apple Corp. over the terms for showing Fox television and film properties over Apple’s iTunes platform.
Green Eggs and Contracts
Okay, law isn't exactly rocket science. And contract law may not be as intellectually demanding as, say, Constitutional law, where the ability to count to five is critical. But it's still a little sad when students see through what we try to do in class and manage to encapsulate one of our most mysterious doctrines in language that any first-grader can follow. Here, courtesy of Charles Calleros (Arizona State) is a pithy recap from one of his students.
DR. SEUSS ON OFFERS
by Alison Atwater
Listen! Listen! Can you hear?
There is an offer very near.
I want to offer, yes I do.
I want to offer a contract to you.
I want to offer right away.
I want to offer-what do you say?
I'll make an offer with a quote
I'll write it on this great, big note.
Stop right there! You cannot do it.
A quote has got no offer to it.
Unless you give a certain limit,
A quote has got no offer in it.
Then here's an offer to change your story:
My full-color ad in all its glory!
You cannot offer in an ad.
There's too much risk that will be had.
Your ad is seen by way too many;
An offer, well, you don't have any!
How about an offer made with laughter?
Will it bind us ever after?
It will not bind us, it cannot yoke.
You cannot offer with a joke!
No one with reason could thus glean
A serious offer is what you mean.
But surely I do offer well
When I tell you I will gladly sell.
You do not offer well at all!
An offer, that, I cannot call.
No power moves from you to me;
We won't contract if I agree.
Listen! Listen! What do you say?
What if I make you an offer this way?
I'll tell you the what and the where and the how,
I'll offer to make you a promise right now.
Then it is you who can make the decision.
Tell me, does this offer need more revision?
You've done it, I say! You've done it quite nicely
This time you've made me an offer precisely.
If I accept now, if I promise too,
A contract will form and then we'll be through!
Now I can see it-a transfer of power.
Thank you, thank you! We'll contract in the hour!
Non-Compete Might Fly in California
California is famous for its general refusal to enforce no-compete agreements. With certain limited exceptions, such agreements are void as against public policy. In a recent case, therefore, the state’s court of appeals knocked out as "overly broad" a provision that prevented a business customer of a software consulting firm from hiring employees of the consulting firm.
The facts in this one were pretty easy. The consulting firm had supplied only 16 hours of service to the client, the employee who was hired had not worked for the client at all, and the hiring had come through an unrelated Internet job ad. The consulting firm’s clause, which would have barred the hiring, was far too broad.
Interestingly, the court suggested in dicta that a narrower clause the prohibited solicitation of employees who had actually worked for the client might be enforceable. Rick Bergstrom of San Francisco’s Morrison & Foerster LLP offers his take on the facts and the holding of the case here. (Free registration required.)
September 13, 2007
In the News: September 13
A nice little shrinkwrap case is brewing out in Seattle, where software publisher AutoDesk has been using a provision in its End User License Agreement to stop sales of its products over eBay.
The battle to force the Seattle SuperSonics basketball team to keep playing in a city arena is heating up; Seattle is "lawyering up" and has brought in former Republican Senator Slate Gorton, who previously helped prevent the baseball Mariners from leaving for greener pastures.
Authorities in Ghana are trying to boost the leasing industry by promulgating a new law governing lease contracts; the new law provides for more lessor self-help and allows them to enlist police to repossess goods from delinquent lessees.
Earthlink Inc. can breath a little easier today, after the San Francisco City Council formally terminated the proposed contract to blanket the city with free Wi-Fi. Earthlink was set to lose a tidy chunk of money on the deal, and had withdrawn its proposal last month.
UCI is Looking for a New Dean
Many Californians think the Golden State needs another state-supported law school about as much as it needs another fast food restaurant. It is, after all, the only state where anybody with a spare bedroom and a table can open a law school, and where you don't even have to go to law school to become a lawyer. But they've apparently found something they like even less: a high profile leftist law professor to act as its founding dean.
The chancellor of the University of California-Irvine, apparently under some pressure from the Board of Regents and members of the UCI community, has canceled the contract of Duke law professor Erwin Chemerinsky to become the Orange County law school's first dean. Getting Chemerinsky, widely regarded as one of the country's most prominent legal scholars, had been something of a coup for UCI. But his highly public advocacy on hot-button issues like abortion, affirmative action, and displays of the Ten Commandments, his attacks on conservative supreme court justices, and his reported unwillingness to lower his profile made him a political lightning rod, especially in one of the most conservative areas of California. The fact that the new school is being named for a prominent Republican who gave it $20 million is said not have affected the decision. Chemerinsky, who had previously been turned down for the deanship at Duke, says he won't challenge the termination.
Many commentators are saying that UCI will now have trouble attracting candidates for the $300,000+ position. So this is your chance to get your application in.
A Penalty is a Penalty is a Penalty . . . .
In Iannello & Anor v. Sharpe, the purchaser had agreed to buy a parcel of land for $4.5 million. He put down $225,000 in cash, which was 5 percent of the purchase price. The custom in New South Wales, apparently, is that buyers put down 10 percent. So under the contract, the buyer was also obliged to ante up an additional 5 percent "deposit" in the event he backed out of the deal -- and the entire deposit would be forfeited.
If the whole 10 percent had been paid up front, it would all have been a "deposit" and the forfeiture would presumably have been valid. Did the fact that the additional 5 percent was not paid paid up front change the equation? Yes, said the court. Only the money paid down on the barrelhead counts as a "true" deposit. By making the second payment contingent on a breach by the buyer, the seller had simply imposed an improper penalty.
David Meagher of Sydney’s Cutler Hughes & Harris has some thoughts about the case in When a 'Deposit' Payable Under A Contract May Not Be A Deposit. (Free registration required.)
September 12, 2007
In the News: September 12
Skittish lenders apparently are driving a downturn in real estate deals.
The winner of the Miss Tuscola (Ill.) beauty pageant has been stripped of her crown and a $1,000 scholarship for breach of contract after pictures of her in a hookah bar were posted on the Internet.
Manager Ozzie Guillen of the Chicago White Sox -- the team with the worst record in baseball -- has been given a new contract extension through 2012. Rumor has the figure at over $2 million a year.
Sevilla goalkeeper Andres Palop -- who is having a much better year than Ozzie Guillen -- also gets a contract extension from Sevilla F.C., this one to run through 2011.
The Colorado Supreme Court has refused to review a $4 million judgment won by a sheep rancher against an Oklahoma oil company for failing to pay appropriate royalties.
Some people do make a nice, legal living off of illegal drugs -- like Raytheon, which just earned a contract worth up to $15 billion to provide technology to try to stop the trade.
A Maryland appellate court has reversed a lower court ruling that Steve Belkin, majority owner of hockey’s Atlanta Thrashers and basketball’s Atlanta Hawks, had a contractual right to buy out his co-owners.
In a big privatization deal, America’s Ford Motor has acquired Romania’s state-owned Automobile Craiova for € 57 million, with a pledge to pump another € 675 million in the troubled company and a promise to buy € 1 billion in Romanian parts and supplies by 2012. Ford had a plant in Romania until 1944, when it was confiscated by the state.
American Top 20: The Law School Rankings
Law school rankings are a dime a dozen, and most of them are entirely pointless, rating law schools on things that don't matter at all to most law students -- like how many law review citations their faculty members garner for articles that the students will never, ever unless they're assigned in class. So we at ContractsProf, for the second year in a row, offer our annual ranking of the Top Twenty American law schools based on something that is important to law students: the quality of the football team.
In this year's first ranking, USC (which has won more undisputed National College Football Championships than any school except Yale), claims the top spot, a notch ahead of Louisiana State. Here, ranked by CP's Proprietary Football Power Ranking Index, are America's Top Twenty Law Schools:
1 Southern California
2 LSU (Hebert)
9 Louisville (Brandeis)
10 Ohio State (Moritz)
12 Penn State (Dickinson)
15 South Carolina
U.K. Courts Favoring Arbitration Clauses?
Courts in the U.K. are increasingly willing to enforce dispute resolution clauses in contracts, according to a client report from Jeremy Glover at London’s Fenwick Elliott. LLP. Glover examines the recent High Court decision in Harper v Interchange Group Limited  EWHC 1834. (Free registration required.)
The case involved a dispute about commissions that Interchange was allegedly supposed to pay to Harper. The contract contained rather awkward clause, which provided that if the two parties were unable to reach agreement on the commission amounts:
then the dispute shall be referred, with the agreement of the Purchaser and Mr Harper, or in the absence of such agreement, by the President for the time being of the Institute of Chartered Accountants in England and Wales on the application of either of them, to an independent chartered accountant (being a partner of one of the "big 6" firms) who, once appointed, shall act as an expert (not as arbitrator) and whose decision shall, in the absence of manifest error, be final and binding on the parties.
One of Harper’s arguments was that the clause (presumably because it said that the accountant would not serve as an arbitrator) meant that the expert accountant was only supposed to calculate damages, but that issues of construction of the contract would have to go to the courts. Writing for the court, Mr. Justice Aikens disagreed.
September 11, 2007
In the News: September 11
All things come to he who waits: top NFL draft pick JaMarcus Russell has apparently agreed "in principle" to a deal with the Oakland Raiders that will guarantee him $31 million and may be worth as much as $68 million over six years.
Used car buyers in Thailand have a new remedy under a new labeling law promulgated by the country’s Consumer Protection Board.
A British pub owner has learned that using your domestic satellite subscription to broadcast sports in your bar is not just a breach of contract, it’s a crime.
Frustrated authors are suing a vanity publisher whom they say took large payments from them to publish their books but now won’t return phone calls.
Banks and pension funds in Tanzania have put together what is being called East Africa’s largest corporate finance deal ever in their bailout of troubled Tanzania Electric.
Chicago teachers have voted to accept a new five-year contract that gives them 4 percent annual pay raises and freezes their health care contributions for three years.
Back to the Future
Hard as it may be for law students to believe, there was a time when the point of law schools was actually to train lawyers. For generations, however, our beloved Mother Ship -- the Association of American Law Schools -- has been working to focus law schools on more important things: generating more law review articles; getting faculty in other departments to recognize that we really are, too, scholars, not Hessian trainers; and cutting teaching loads for tenure-track faculty.
Is the AALS rethinking its mission? Well, maybe. President Nancy Rogers (Ohio State), in an op-ed piece in the National Law Journal, notes that a lot of people have been calling for changes in the way law schools go about actually preparing students for practice. That, she says, will be one of the things talked about at this year's annual AALS Bean Feed and Wiener Roast in New York City, when 3,000 of the Best and Brightest will gather to talk legal education and eat at good restaurants on expense accounts.
We may disagree about how to go about fixing the problem -- fewer law review articles and more time teaching and mentoring don't seem to be on anyone's agenda -- but we can expect the attendees to agree with Rogers that Congress needs to offer some debt relief to students so we can keep charging them really high fees while teaching only nine to twelve semester hours a year.
Disclaimer: We want to remind everyone that the comments on this blog are not the opinions of the Association of American Law Schools, or the Section on Contract Law -- which are obviously fictitious entities which couldn't have any opinions in the first place -- or of the editors of this blog, or of the writers, or possibly of anyone at all.
China Gets New Labor Contract Law
This coming January 1, China will have a new law governing employment contracts. Among the requirements is one that all employees be provided with a written employment contract; failure to do so will turn the relationship into "indefinite" employment which can be terminated only for cause. And failure to specify a term may also lead to creation of "indefinite" employment. And trying to get around the rules by using a series of fixed-term contracts won’t likely work, either.
Samuel Estreicher and Winston Zhao of Cleveland’s Jones Day offer a rundown of the new law here. (Free registration required.)
September 10, 2007
In the News: September 10
A Brooklyn family is suing a local cemetery for breach of an implied contract to maintain a grave after a cemetery worker was caught urinating in the urn placed on their grave of a loved one.
Macedonia has been hit with more than $50 million in damages for breach of a contract with Hellenic Petroleum.
All three parties have settled their contract litigation with a deal that will allow AT&T to put its logo on Jeff Burton’s car in the Nextel Cup NASCAR racing series.
Two St. Louis lawyers involved in a pending contract trial were cited for breaching the peace after they got into a fistfight in a courthouse hallway.
"Actual Malice" Required for Breach of Contract Claim
A company that provides credit rating services under a contract with a public company has a constitutional right to be protected against breach-of-contract claims for failure to do its job in a workmanlike manner, unless the client can prove "actual malice." That’s the word from the U.S. Court of Appeals for the 6th Circuit, which becomes the first appellate court to decide that breach-of-contract claims that result in harm to reputations must satisfy the stringent standards applied to defamation cases.
In the case, Compuware Corp. v. Moody’s Investor Services, Compuware retained Moody’s to rate its debt. Moody’s issued an unfavorable opinion, lowering Compuware’s debt to junk status. Compuware sued on several grounds, including defamation, negligence, and breach of contract. Moody’s won summary judgment on all counts. With respect to the contract claim, Compuware argued that Moody’s breached its contract by "incompetently compiling, investigating, and evaluating Compuware’s credit position." In doing so it relied on Michigan's implied covenant that one providing services under a contract will perform in a workmanlike manner.
But the court, in a 2-1 decision written by Judge Alice Moore Batchelder, found that credit rating services were precisely the sort of thing that the Constitution was designed to protect. Focusing only on the written language in the agreement, the court noted that Moody’s had, in fact, satisfied the contract, because it was only required to deliver "a credit rating" (emphasis in original) not an accurate or workmanlike one. Since, reasoned the court, Compuware was relying on the implied covenant to perform in a workmanlike manner, and that obligation is very similar to negligence, and negligence is a tort, and defamation is also a tort (follow?), the breach of contract in question had to meet the tort standard for defamation.
Interestingly, the court drew a sharp distinction between express contractual obligations and those implied in fact or law. The court repeatedly emphasized that Moody's undertook no express duty to do its analysis in a reasonable or workmanlike manner. If it had, the court suggested, the result might be different. For the court, implied contractual duties are not really contractual, and thus ought to be treated more like torts.
On its contract claim Compuware sought only rescission of the contract and refund of the more than $200,000 it had paid to Moody’s, but it was out of luck. The court found that Moody’s had a constitutional right to keep the payments even if it had botched the rating.
In a partial dissent, former Kentucky law professor John M. Rogers noted that constitutional rights can be contracted away, and so a contract to provide only opinions that are soundly researched and well-grounded ought to be enforceable. He seems to have differed from the majority by considering the implied covenant to be an ordinary part of the contract.
Employee Profit Bonus is Legal in California
A bonus provision in an employment contract does not run afoul of the California Labor Code merely because its calculation takes into account losses and other expenses of the employer’s operation, according to a recent decision by the California Supreme Court.
California law prohibits employers from reducing wages of employees to reflect business losses or expenses. Employers, for example, can't reduce wages to charge employees for broken equipment or disappearing property, or for other expenses that are usually the employer's responsibility. The state’s court of appeals had held that this rule applied to bonuses, so that an employer who offered a bonus based on profits could not lawfully deduct expenses from income to derive the profits. Ralph's Supermarkets, said the court, had violated the rule because in calculating profits it had deducted its expenses.
In Prachasaisoradej v. Ralphs Grocery Co., 07 C.D.O.S. 9940 (Aug. 23, 2007), California's top court reversed, holding that reduction of a "bonus" was not a reduction in "wages" to the employee. Since the employer had paid the wages agreed to, and had specified that additional amounts were payable only if it achieved certain profits, and "profits" requires that expenses be taken into account, the practice was not illegal.
Doug Dexter and Diego Acevedo of San Francisco’s Farella Braun & Martel offer a recap of the case and their commentary here. Another take, by R. Brian Dixon and Diane L. Kimberlin of S.F.’s Littler Mendelson LP is here. (Free registration required for each.)
Weekly Top Ten
1 (1) Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits, Christopher Lewis Peterson (Florida).
2 (2) Consumer Protection in the United States: An Overview, Spencer Weber Waller & Jillian G. Brady (Loyola-Chicago).
3 (-) Explaining the Spread of At-Will Employment as an Inter-Jurisdictional Race-to-the-Bottom of Employment Standards, Richard A. Bales (No. Kentucky).
4 (3) You Asked for it, You Got It . . . Toy Yoda: Practical Jokes, Prizes, and Contract Law, Keith A. Rowley (UNLV/Alabama).
5 (4) Renting the Good Life, Jim Hawkins (Independent).
6 (5) The Other Side of the Picket Line: Contract, Democracy, and Power in a Law School Classroom, Richard Michael Fischl (Connecticut).
7 (7) Anti-Social Contracts: The Contractual Governance of Online Communities, Joshua Fairfield (Indiana-Bloomington).
8 (6) A Positive Law Theory of Contract, Fergus Farrow (Victorian Bar).
9 (8) Economics of Contract Law, Cento Veljanovski (Case Associates).
10 (9) A Study of Interest, John Y. Gotanda (Villanova).
September 9, 2007
Teaching Assistants: Douglas Baird
Douglas Baird (at left) has an engaging historical essay, Reconstructing Contracts: Hamer v. Sidway, in Foundation Press's Contracts Stories, pp. 160-185, which Baird also edited. The essay does far more than provide a narrative background (actually several narrative backgrounds) on what Frank Snyder has called "the granddaddy of all unilateral contracts cases." The case involves a pledge by William E. Story, Sr. ("William") to his nephew, William E. Story, 2d ("Willie") that William would give Willie $5000 if Willie abstained from drinking, smoking and gambling until his 21st birthday. Judge Parker's decision for the N.Y. Court of Appeals articulates the doctrine that forebearance from engaging in activities in which one has a legal right to engage suffice as consideration. Parker's opinion reduces the facts of the case in a way that render it ideal for teaching that particular doctrine. Baird's essay complicates the facts and illustrates how they can be spun to justify any number of rulings on different legal grounds.
Baird begins with a fascinating account of the role Hamer v. Sidway has played in legal education right from the time it was decided. He then proceeds to a number of "reconstructions" of the facts of the case. In various versions of the case, Willie can come off as a "wayward adolescent" or as "a responsible adult who . . . has to care for an elderly parent." (161) Baird expresses skepticism about courts' abilities to sort out family relationships -- which may be both intimate and commercial -- and to determine which promises made in the family context ought to be enforced. While Judge Parker's opinion in Hamer reduces the focus of the narrative to the relationship between William and Willie, Baird suggests that the conflict had at least as much to do with William's relationship to his older brother, Willie's father, and with William's concerns about making sure his neices were cared for after his death.
In the formalist version of the facts of Hamer, Willie bargains with his uncle, reserving for himself the right to play cards and billiards, "so long as it was not for money." (164) In formalist hands, the case served to limit the number of enforceable promises, becasue the facts of Hamer could be contrasted with other familial promises in which the elements of a bargain were not present. Hamer is thus a very satisfying case from the formalist, doctrinal perspective, but Baird notes that formalists such as Langdell and Holmes did not provide -- and did not care to provide -- any justification for the principle of bargained-for exchange as a means of determining which promises ought to be enforced. (165)
Focusing on different facts, Corbinian Legal Realists questioned whether Hamer involved a bargain at all. They saw William's statements as adding a condition (Willie needed to straighten up and fly right) to a pre-existing gratuitous pledge William had made repeatedly since Willie was a boy. (166) Still, Legal Realists could live with the result in Hamer because it protected Willie's reasonable reliance on his uncle's promise.
Baird next reconstructs the facts from the perspective of William's executor, Franklin Sidway (at left). From this perspective, it is not hard to see why New York's intermediate appellate court refused to enforce William's promise. William had already given Willie and his father $5000 to start up a business. That business failed, leading Willie into bankruptcy. Later, William again set up Willie and his father in a business, at which time Willie executed a release discharging William from any claims Willie might have against him. (176) There were also good grounds for believing that Willie's assignment of his claim against his uncle was a fraudulent transfer. (177) From this perspective, it seems that the promise, if there was one, was either already fulfilled (perhaps twice) or excused. It must have been surprising to Sidway that the court even reached the issue of consideration.
Baird then reconstructs the facts of Hamer again, this time from the perspective of Willie's father, James. Here Baird assembles from the court record evidence of the complex financial arrangements between the brothers. Apparently William provided for James, both by paying him to care for their demented father and by allowing him to live in properties that William owned provided that James contributed to the renovations of such homes. William might have viewed these arrangments as a form of charity. James more likely viewed the arrangements as just compensation. In any case, Baird speculates that William's sudden death may have deprived James of a home. Willie may have pursued his claim (through his mother-in-law) against his uncle in order to procure the means to house his father.
In his conclusion, Baird reminds us that whether or not a promise should be enforceable turns "on whether enforcing that promise will make the society in which it operates a better place." (185) I have a hard time deriving that lesson from the conflicting narratives that Baird reconstructs. If by "that promise" Baird means William's specific promise to Willie, his multiple narratives suggest that courts are ill-equipped to decide the question. Should a court be deciding whether society benefits from favoring James Story over William Story, Sr.'s nieces?
If by "that promise" Baird means "that kind of promise" -- or "that category of promises," one's answer will depend on what sort of promise one thinks William made to Willie. Choosing which category fits the promise will also turn on one's preferred reading of the facts, and once again, Baird seems to think courts are not well-positioned to make such choices. Perhaps Baird is advocating placing William's promise in the category of "familial promises," a category of promises that we know should rarely be enforced. But some such promises clearly should be enforced, and it would be helpful to be able to identify that sub-category.