ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Tuesday, July 8, 2008

Telman is Shifting Paradigms!

I would ordinarily leave the honors to my able co-blogger; however, it is hard to see him over that tall pile of moving boxes.  Plus, he's a little too humble about the paradigm shifting he has accomplished in legal writing with just three metrical feet.

In all seriousness - seriously: D.A. Jeremy Telman is a real trendsetter with his legal limericks.  The judges can't seem to get enough of them.  First, there was this rhyme from Judge Schiller of the U.S. District Court in Philadelphia.  Now, another limerick; this time from Judge Leighton of the U.S. District Court for the Western District of Washington, who waxed poetic while granting defendant's motion for a more definite statement:

Plaintiff has a great deal to say,
But it seems he skipped Rule 8(a).
His Complaint is too long,
Which renders it wrong,
Please rewrite and refile today.

More from the WSJ Law Blog.  I leave to Jeremy the comments concerning the quality and form of the limerick.

[Meredith R. Miller]

July 8, 2008 in Limericks | Permalink | Comments (0) | TrackBack (0)

Wisconsin Supreme Court Applies Economic Loss Doctrine to Bar Fraud Claims Related to Residential Home Sales

Wisconsin_flag In a recent decision, the Supreme Court of Wisconsin held that the economic loss doctrine barred a buyer's claims for intentional misrepresentation in connection with a residential real estate purchase. 

Plaintiff buyer, Shannon Below, purchased a house in Milwaukee from defendant sellers, the Nortons.  The Nortons completed a statutorily required "property condition report" when they put their house on the market.  The report indicated that the Nortons were not aware of any defects with the house's plumbing system, except for a problem with the bathtub's drain handle.  After Below closed on the home and moved in, she learned that the sewer line that ran between the house and the street was broken.  Below alleged that the Nortons knew of the defect in the sewer line when they put the house on the market and, therefore, intentionally misrepresented its condition.  Below sued for, among other things, intentional misrepresentation.  The question before the Supreme Court of Wisconsin was whether the economic loss doctrine barred Below's intentional misrepresentation claim.

Below argued that the economic loss doctrine was not applicable and, on a policy level, argued that residential home purchasers "should not have the burden of allocating risk that they will be defrauded."  The Nortons countered that the rationale for the economic loss doctrine supported its application in this case -- that is, that "the buyers are adequately protected by the contractual remedies that they negotiate" and this rationale was not affected by the fact that the real estate transaction was residential rather than commercial.  The Court sided with the Nortons, and noted that Below was not without a remedy - she could still assert contractual claims and even false advertising claims.

Bradleylg Judge Ann Walsh Bradley proffered a spirited dissent:

This is a case that can affect every single person who purchases a home in Wisconsin.  For many citizens of this state, buying a home will be one of the most important purchases that they will make in their lifetime.

According to the majority, a person selling a home can look the buyer in the eye, lie about the condition of the home, and escape legal consequences in tort for the lie because of the economic loss doctrine.

Wisconsin has the dubious distinction of being the only state in the entire country to have expanded this judicially created doctrine in such a fashion.  The majority has taken a doctrine that originally applied in a very narrow context -- commercial transactions for products under warranty -- and has now used it to prevent homebuyers from recovering damages in tort caused by misrepresentations of fraudulent sellers.

Contrary to its protestation, the majority is not compelled to reach this unfortunate result.

Below v. Norton, No. 2005AP2855 (Wis., July 1, 2008).

[Meredith R. Miller]

July 8, 2008 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, July 7, 2008

Limerick of the Week: General Automotive v. Singer

Movingboxesfile_ What a week!  I am moving offices while teaching, and we have a sewage leak in our house which prevents us from using the water.  I am thus doubly homeless.  Thank goodness for my colleague and local hero, Ivan Bodensteiner, who loaned us his lovely house for the weekend!!  Meanwhile, I've just snuck onto a neighboring computer to post this Limerick, but I may not post much else this week.

The Singer case is a great one for illustrating the value placed on the duty of loyalty.  Singer was a key employee of the General Automotive Manufactuing Company.  In many ways, he was an ideal employee.  He was an expert machinist and he brought business to the company.  When things were slow, he anticipated work that the company could do for jobs coming in later on, and he fronted the company his own money to pay for the parts thus produced. 

Singer's contract called for him to work 5 1/2 days a week for the company and to devote all of his professional energies to the company.  But Singer developed a sideline, acting as a broker and sending out jobs to other manufacturing plants when General Automotive could not do the job, either because it was not equipped to do the work or because it was already working at capacity.  There is no doubt that, if the facts are as stated in the opinion, General Automotive benefitted from the good will generated from Singer's sideline.  Still, it sued him for breach of fiduciary duty.  It could have sued him for breach of contract, of course, but there would have been no contractual damages.  Under the law of fiduciaries, however, Singer was forced to disgorge his profits, a clear windfall for General Automotive.

General Automotive Manufacturing Co. v. Singer

Singer used great perspecuity
In usurping his boss's opportunity
But he failed to disclose;
Since that's a duty he owes,
He now must disgorge the gratuity.

[Jeremy Telman]

July 7, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Friday, July 4, 2008

Speaking of Unconscionability: New Mexico Supremes Refuse to Enforce Class Action Waiver

FlagAccording to the ABA Journal Online, last week, the New Mexico Supreme Court refused to enforce a class action waiver in consumer contracts with Dell Inc. (The consumers sued Dell alleging misrepresentation about the amount of memory contained in the computers). The New Mexico court held that the class action ban was unconscionable because it "essentially foreclosed" relief in a case where each consumer's damages amount was small.

The ABA Journal notes that, since 2006, the highest courts in Illinois, New Jersey, North Carolina and Washington have found that class action waivers in consumer contracts were unconscionable. Add California to that list, though Discover Bank v. Superior Court is a 2005 decision finding a class arbitration waiver unconscionable. The ABA Journal notes that many federal courts have upheld class action waivers.

I've written some about this in Contracting Out of Process, Contracting Out of Corporate Accountability: An Argument Against Enforcement of Pre-Dispute Limits on Process.

For some reason, I am having trouble locating the New Mexico decision. If you find a link or case cite, please leave it in the comments. Thanks!

[Meredith R. Miller]

July 4, 2008 in Recent Cases | Permalink | Comments (1) | TrackBack (0)

Now in Print

- Christina Bohannan, Copyright Preemption of Contracts, 67 Md. L. Rev. 616-671 (2008).
- Edith M. Brown and Charlene L. Smith, Match Point: All in the Timing, Luck, and Mutual Mistake, 32 Okla. City U. L. Rev. 263-277 (2007).
- Carl J. Circo, Placing the Commercial and Economic Loss Problem in the Construction Industry Context, 41 J. Marshall L. Rev. 39-115 (2007).
- Aaron R. Petty, The Reliance Interest in Restitution, 32 S. Ill. U. L.J. 365-401 (2008).

Happy 4th of July!

[Meredith R. Miller]

July 4, 2008 in Recent Scholarship | Permalink | TrackBack (0)

Thursday, July 3, 2008

Sonics to Move to Oklahoma; Seattle Grieves

Seattle_mayor_greg_nickels We reported earlier on a breach of contract action brought by the Seattle Sonics' former owner Howard Schultz against the new owners of the NBA basketball team, alleging that the new owners had planned all along to move the team to Oklahoma City.  The City of Seattle also filed suit, seeking to keep the hoopsters in a city better known for caffeinated hipsters.  Bowing to the inevitable perhaps, Seattle Mayor Greg Nickels (pictured) has reached a deal with the new owners.

According to the Seattle Times, the deal leaves the city in despair, but it allows Mayor Nickels to save face, as Sonics' the new owners have agreed to a $45 million payment, which will cover rent due and an earlier renovation of Seattle's KeyArena.  If Seattle cannot land a new NBA team by 2013, the new owners must pay an additional $30 million. 

Howard Schultz vows to fight on, hoping to have the Kevin Durant and co. back sipping ventes on their way to the Space Needle by the 2009-2010 season, according to the Post-Intelligencer.

[Jeremy Telman]

July 3, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Rush, You're No Howard Stern

Rush The Wall Street Journal reports that Rush Limbaugh (pictured) and Clear Channel have agreed to an eight-year $400 million contract, entailing a salary of $38 million/year plus a $100 million signing bonus.  Not bad, but still $100 million shy of Howard Stern's 2004 contract with Sirius Sattelite Radio, according to the WSJ.  The difference clearly reflects the bias of the liberal media.  Or perhaps it reflects a preference for tasteless sex jokes over tasteless political jokes. 

[Jeremy Telman]

July 3, 2008 in Celebrity Contracts, In the News | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 2, 2008

An Interesting New Unconscionability Decision

Garvin_larryThanks to the Ohio State University Moritz College of Law's Larry Garvin for sharing with us details and commentary on Knudsen v. Lax, 842 N.Y.S.2d 341 (Co. Ct. 2007), a recent case in which tenants sued their landlord seeking to terminate their lease.  Professor Garvin provides the following synopsis:

The plaintiffs, tenants in an apartment building, sued the landlord in an attempt to terminate their lease.  The lease provided that if the tenants quit the leasehold before the end of the lease term, they would be liable for the balance of the rent due, whatever the reasons for their departure.  What makes this interesting is the reason the tenants wanted to move: A registered Level 3 sex offender moved into the adjacent apartment.  (The tenants had three young daughters.)  The landlord refused to let them abandon their lease without paying the full rent -- hence the suit.

The court found that this did not breach the statutory warranty of habitability, but that the abandonment clause was unconscionable and its enforcement in bad faith.  On unconscionability, the court did fairly routine adhesion contract analysis on the procedural side.  Without much discussion, it found the contract substantively unconscionable for not permitting the tenant to abandon the lease without paying the full rent, even for good cause.  On good faith, the court found that the possibility that a Level 3 sex offender might move next door could not reasonably have been within the contemplation of the parties at the time of contracting, so it would be appropriate to use the implied-by-law good faith covenant to create a good-cause exception to the abandonment clause.  This would be a reasonable approximation of what the parties would have agreed to had they taken it into account, and in any case was consistent with the warranty of peaceful and quiet enjoyment.

Professor Garvin adds the following questions on the policy issues raised by the decision:

Is a sex offender different in kind from other obnoxious or potentially obnoxious neighbors?  What obligations does a landlord owe to existing tenants to choose new tenants cautiously?  And should this obligation -- whatever it may be -- fall under the heading of the duty of good faith and fair dealing?  It seems unlikely that the landlord derived special profit from leasing to the sex offender or otherwise acted opportunistically.  (And could this have been addressed under the rubric of frustration?)  And, if we are playing with public policy, one imagines we want sex offenders who have served their time to be able to live somewhere and restart their
lives.  What landlord would be willing to rent to a sex offender if the result would be the free departure of other tenants?  But one comes back to the particular susceptibility of this neighbor, which could easily have been anticipated at the time of contracting (assuming the tenants had small children then), and the likelihood
that they would not have rented had they known that a sex offender lived next door, or their reasonable expectation that the landlord would not rent a neighboring apartment to a sex offender.

My two cents: I think Professor Garvin points out the problems with the court's opinion in this case.  As other commentators have suggested, the court's use of unconscionability and bad faith is troubling in this context.  The better solution might be the standard one: the landlord has a duty to mitigate damages.  It may be that it is hard to find a tenant willing to move in next to a registered sex offender.  That may mean that the landlord will have to offer a special deal in order to attract a new tenant.  The tenant can leave and has to bear any cost to the landlord but not the full cost of remainder of the lease.

[Jeremy Telman]

July 2, 2008 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 1, 2008

Nine-Year-Old in Football Contract Dispute

Football Brain_2One of the images at left is a human brain.  The other is a football.  Tony Mathis carries something like at least one of these objects in his skull at all times.  You be the judge as to which.

As Tulsa World reports, Mr. Mathis is suing the Indian Nations Football Conference for the third time in a year. This time, the suit alleges a breach of contract and seeks $10,000 in damages.  Why?  Because the Conference will not let Mathis's 9-year-old son, Brayden, play in its games this fall, apparently because the father is such a pill.  Tony Mathis was banned from games last season and, according to the Tulsa World, he continued to attend games after he was banned and had to be removed by police.  Mathis is apparently contending that the Conference's refusal to let Brayden play violates a prior agreement.  The Conference claims that it only agreed to let Brayden play for one season.  It made no commitment for the coming season.

[Jeremy Telman]

July 1, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Phil Spector's Continuing Legal Problems

When we last left Phil Spector, he was looking exceedingly creepy while being found not guilty (due to a hung jury) of murder charges in the 2003 death of actress Lana Clarkson in Spector's home.  Now, Half Life Source reports that the Westin Bonaventure Hotel and Suites is after Mr. Spector for an unpaid hotel bill of $104,000.  The money is allegedly owed on a written contract according to which Mr. Spector, along with his wife and agent, stayed at the hotel for the duration of his trial.  According to the report, Mr. Spector offered to pay the balance of his bill if the hotel offered him a discount.

[Jeremy Telman]

July 1, 2008 in Celebrity Contracts, In the News | Permalink | Comments (0) | TrackBack (0)