Friday, November 28, 2008
Although last Friday did not, as once advertised, bring us the cinematic release of Harry Potter and the Half-Blood Prince, and today's receipts may not provide retailers the boost they are used to seeing the day after Thanksgiving, the last few weeks' mail has delivered a spate of interesting-looking articles, essays, notes, and comments, including the symposium that arose from last year's AALS Contracts Section's annual meeting panel, and a thought-provoking restitution roundtable.
Arbitration Clauses and Waivers
Omri Ben-Shahar, How Bad Are Mandatory Arbitration Terms?, 41 U. Mich. J.L. Reform 777 (2008).
Christopher R. Drahozal, Arbitration Costs and Forum Accessibility: Empirical Evidence, 41 U. Mich. J.L. Reform 813 (2008).
Theodore Eisenberg, Geoffrey P. Miller & Emily Sherwin, Arbitration's Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, 41 U. Mich. J.L. Reform 871 (2008).
Daniel R. Higginbotham, Note, Buyer Beware: Why the Class Arbitration Waiver Clause Presents a Gloomy Future for Consumers, 58 Duke L.J. 103 (2008).
Theodore J. St. Antoine, Mandatory Arbitration: Why it's Better Than it Looks, 41 U. Mich. J.L. Reform 783 (2008).
Amy J. Schmitz, Ethical Considerations in Drafting and Enforcing Consumer Arbitration Clauses, 49 S. Tex. L. Rev. 841 (2008).
W. Mark C. Weidemaier, From Court-Surrogate to Regulatory Tool: Re-framing the Empirical Study of Employment Arbitration, 41 U. Mich. J.L. Reform 843 (2008).
Nina Yadava, Note, Can You Hear Me Now? The Courts Send a Stronger Signal Regarding Arbitration Class Action Waivers in Consumer Telecommunications Contracts, 41 Colum. J.L. & Soc. Probs. 547 (2008).
Comparative and International Contract Law (including the CISG)
Harry M. Flechtner, Funky Mussels, a Stolen Car, and Decrepit Used Shoes: Non-conforming Goods and Notice Thereof under the United Nations Sales Convention ("CISG"), 26 B.U. Int'l L.J. 1 (2008).
Victoria J. Siesta, Note, Out at Home: Challenging the United States-Japanese Player Contract Agreement Under Japanese Law, 33 Brook. J. Int'l L. 1069 (2008).
Dennis Solomon, The Private International Law of Contracts in Europe: Advances and Retreats, 82 Tul. L. Rev. 1709 (2008).
Lisa Spagnolo, Opening Pandora's Box: Good Faith and Precontractual Liability in the CISG, 21 Temp. Int'l & Comp. L.J. 261 (2007).
Alicia Jurney Whitlock & Boris S. Abbey, Who's Afraid of the CISG? Why North Carolina Practitioners Should Learn a Thing or Two About the 1980 United Nations Convention on Contracts for the International Sale of Goods, 30 Campbell L. Rev. 275 (2008).
Robert Cooter, Doing What You Say: Contracts and Economic Development, 59 Ala. L. Rev. 1107 (2008).
Michael G. Pratt, Contract: Not Promise, 35 Fla. St. U. L. Rev. 801 (2008).
Alan Schwartz & Robert E. Scott, Market Damages, Efficient Contracting, and the Economic Waste Fallacy, 108 Colum. L. Rev. 1610 (2008).
Ryan Kriegshauser, Comment, The Shot Heard Around Virtual Worlds: The Emergence and Future of Unconscionability in Agreements Relating to Property in Virtual Worlds, 76 UMKC L. Rev. 1077 (2008).
Michael H. Passman, Comment, Transactions of Virtual Items in Virtual Worlds, 18 Alb. L.J. Sci. & Tech. 259 (2008).
John D. McCamus, Rethinking Section 142 of the Restatement of Restitution: Fault, Bad Faith, and Change of Position, 65 Wash. & Lee L. Rev. 889 (2008).
Doug Rendleman, Restating Restitution: The Restatement Process and Its Critics, 65 Wash. & Lee L. Rev. 933 (2008).
Caprice L. Roberts, A Commonwealth of Perspective on Restitutionary Disgorgement for Breach of Contract, 65 Wash. & Lee L. Rev. 945 (2008).
Chaim Saiman, Restitution and the Production of Legal Doctrine, 65 Wash. & Lee L. Rev. 993 (2008).
[Keith A. Rowley (with an assist from Meredith R. Miller)]
Thursday, November 27, 2008
Earlier we praised Dr. Pepper on this blog for living up to its agreement to provide a free soda to everyone in America if the new Guns N' Roses album were to appear this year. But now the New York Times reports that lawyers for Axl Rose (pictured) are angry that Dr. Pepper has not in fact made good on its promise. Apparently, Dr. Pepper's website crashed as soda-starved Rose fans stormed the site on the appointed day. The company extended the deadline to apply for a free bottle of soda until Monday, but Mr. Rose, whose recent album took 14 years to complete, has no patience with delays. The Times reports that Mr. Rose's lawyers want Dr. Pepper to take out full-page ads in major newspapers apologizing to Mr. Rose's fans and extending the deadline for the free giveaway.
The Times provides choice excerpts from Mr. Rose's lawyers' letter here.
Wednesday, November 26, 2008
I have already provided a brief comment on the Wall Street Journal's campaign to blame international human rights law for the sudden rise in piracy off the coast of Somalia. But the Journal's interest in international law goes beyond piracy. Tuesday's paper also included this opinion piece by Jack Goldsmith and Eric Posner, "Does Europe Believe in International Law?" You may already be familiar with the works of Goldsmith and Posner on international law, such as "A Theory of Customary International Law," in which they attempt to demolish all hitherto existing understandings of customary international law, "Moral and Legal Rhetoric in International Relations: A Rational Choice Perspective," in which they argue that "moral and legal rhetoric in international relations is the result of strategic incentives, not of the desire to comply with morality or law," and The Limits of International Law, in which they argue that states comply with their international obligations only when it is convenient for them to do so.
In their new opinion piece, Goldsmith and Posner confront the United States' reputation as an international scofflaw by contending that Europe is no better than the U.S. when it comes to compliance with international legal obligations. " Like the Bush administration," they write, "Europeans obey international law when it advances their interests and discard it when it does not."
This is clearly point II in the brief on behalf of the United States. The Legal Advisor to the U.S. Department of State, John Bellinger, is off arguing to anyone who will listen that the United States takes its international obligations very seriously. When the U.S. is accused of non-compliance, Bellinger says, those accusations are usually the product of a good faith disagreement about the nature of those obligations rather than a willful breach.
For example, consider these excerpts from his June 6, 2007 lecture at The Hague:
The United States does believe that international law matters. We help develop it, rely on it, abide by it, and - contrary to some impressions - it has an important role in our nation's Constitution and domestic law. . . .
In the course of the evening, a few themes should emerge. One is that a reliance on sound bites and short-hand can give the deeply misleading impression that we are not committed to international law. A second is, in fact, deeply ironic: that the very seriousness with which we approach international law is sometimes mischaracterized as obstructionism or worse. A third is that some of the most vehement attacks of our behavior - although couched as legal criticism - are in fact differences on policy. A fourth and related theme is that our critics often assert the law as they wish it were, rather than as it actually exists today. This leads to claims that we violate international law - when we have simply not reached the result or interpretation that these critics prefer.
So Goldsmith and Posner argue in the alternative. In case the court rejects Bellinger's defense of the United States as a good faith participant in international legal regimes, Goldsmith and Posner argue that the United States' disregard for its international obligations is no worse than that of those highfalutin' Europeans.
The difficulty with their arguments, however, is that the examples they cite of European violations of international law are not generally viewed as anything of the sort. They name European participation in NATO's humanitarian intervention in Kosovo and in the International Criminal Court as not only violations of international law but as violations of the U.N. Charter. Unfortunately, these instances are simply additional examples of how the U.S. sees international law as requiring one thing and the vast majority of other states see it as requiring something completely different, just as Mr. Bellinger said.
Which brings me back to a theme I have addressed in previous posts, e.g. here and here. Jack Goldsmith was briefly the director of the Office of Legal Counsel, the President's chief source of legal advice within the DoJ. If the President's advisor suggests that the U.S. has no real international legal obligations, only political ones, it undermines any remaining confidence that the United States' potential treaty partners might have in its willingness to uphold a bargain.
I have posited here before that all of contract law could be taught with turkey cases. I’ve recycled two turkey posts year after year, perhaps leading some to believe that I fulfill my blogging commitments with leftovers. But, I am now working on a casebook proposal for The Modern Law of the Turkey: Cases and Problems. Here’s a teaser:
The chapter on Turkeys and Torts will include Pepin v. Wal-Mart Stores, 542 F.Supp.2d 107 (D. Me. 2008). There, a customer at a Wal-Mart store was knocked unconscious when some combination of boxes and frozen turkeys fell off of a pallet and struck him. This case provides a lesson in res ipsa loquitor, a claim which survived Wal-Mart’s motion for summary judgment:
Plaintiff's claim presents a classic res ipsa loquitur case. Resolving all reasonable inferences in favor of Plaintiff, the record on summary judgment supports that Plaintiff has satisfied his burden to produce evidence establishing each element of res ipsa loquitur.
First, there is an unexplained accident: empty turkey boxes fell off of a pallet and struck Pepin. * * * Second, the boxes and pallet were under the management and control of Defendant Wal-Mart. Wal-Mart does not argue otherwise. * * * Third, in the ordinary course of events, this type of accident does not happen absent negligence. This is not a case where there are multiple reasonable causes for a pipe to burst or where two independent automobiles collided. * * * Instead, the character of this accident, where a stack of seemingly stable boxes and/or frozen turkeys fell, is not the type of accident to occur absent negligence.
The chapter on Turkeys and Intellectual Property will include Lucky Break Wishbone Corp. v. Sears, Roebuck & Co., 528 F.Supp.2d 1106 (W.D.Wash. 2007), which involved claims of copyright infringement against an advertising agency, retailer and other competitors. What was the purportedly copyrighted item? Lucky Break Wishbone Corp's founder, Ken Ahroni, conceived of a mass-produced plastic breakable turkey wishbone during Thanksgiving in November 1999, and he kept the wishbone from his Thanksgiving turkey to use as a model. Ahroni took the natural wishbone to a company, which, in turn, used 3-D design and manufacturing software to collect basic structure data of the natural wishbone for use in manufacturing. A prototype was created and Lucky Break registered the “Lucky Break Wishbone” sculpture with the United States Copyright Office.
The chapter on Turkeys and Criminal Law and Process will include People v. Chafford, 2007 WL 2751878 Cal.App. 1 Dist., Sept. 1, 2007) (no longer good for at least one point of law), which raises issues of prosecutorial misconduct based on the following statements made by a prosecutor during closing arguments:
“Now, reasonable doubt, I want to touch on that. Reasonable doubt was presented to you by Mr. Keller as some type of insurmountable burden. It's not. It's not only the same burden that's used in this case, it's the same burden or standard of proof that's used in every criminal court in California and in the country. People are convicted beyond a reasonable doubt every day, so it is not this great insurmountable burden.
“It's built into the system that we have ... and as such, it's always used as a defense. Crime wasn't proven to you beyond a reasonable doubt. That's always a defense to any criminal case. It's kind of like you make the analogy: you can't have Thanksgiving without turkey. Well, you can't have a criminal trial without the defense being reasonable doubt. That's just the way it is. It's built right into the system. [emphasis added] * * *
“Ladies and gentlemen, reasonable doubt is there for a reason. It's there to protect the innocent; it is not meant to be used as a legal loophole for the guilty. Remember that when you're discussing reasonable doubt.”
As always, it is, without a doubt, that we here at ContractsProf wish you a happy Thanksgiving!
[Meredith R. Miller]
Well, it's a bit of a stretch, but treaties are just contracts between states, so it's close enough for a day-before-Thanksgiving post. The Wall Street Journal is on a campaign to convince the world that international law is to blame for the sudden rise in piracy off the coast of Somalia. Last week, it was David Rivkin and Lee Casey blaming international human rights "scolds" for our wimpy response to the Somali pirates. "Why Don't We Hang Pirates Anymore?" Bret Stephens asks in yesterday's Journal. The answer, according to Stephens, is that it is all the fault of the U.N. Convention on the Law of the Sea (UNCLOS), Article 110 of which, according to Stephens, "enjoins naval ships from simply firing on suspected pirates. Instead, they are required first to send over a boarding party to inquire of the pirates whether they are, in fact, pirates." He neglected to mention that the boarding party must also offer the suspected pirates tea and scones.
But here is the relevant text of Article 110:
1. Except where acts of interference derive from powers conferred by treaty, a warship which encounters on the high seas a foreign ship . . . is not justified in boarding it unless there is reasonable ground for suspecting that:
(a) the ship is engaged in piracy . . . .
2. In the cases provided for in paragraph 1, the warship may proceed to verify the ship's right to fly its flag. To this end, it may send a boat under the command of an officer to the suspected ship. If suspicion remains after the documents have been checked, it may proceed to a further examination on board the ship, which must be carried out with all possible consideration.
3. If the suspicions prove to be unfounded, and provided that the ship boarded has not committed any act justifying them, it shall be compensated for any loss or damage that may have been sustained.
I don't know why Stephens insists on reading Article 110(2)'s "may" language as a "shall" or a "must." I can't find anything in UNCLOS that would justify Stephens' reading of what is required under international law when one engages pirates. And of course, even if Article 110 did prohibit firing on suspected pirates based on reasonable suspicion (and I do not believe that it does), that provision could be overridden by treaty. So the real question is why states have not developed a more muscular policy for dealing with Somali pirates.
Tuesday, November 25, 2008
A recurring theme on the ever-fabulous AALS contracts list-serve involves pressing “reply to all” accidentally. The list is a fabulous resource, but over the years it has seen its share of embarrassments (because it automatically replies to all when you hit reply, leading many to conclude that maybe that default rule should be changed, yet somehow it remains reply to all, despite the fact that everyone on the list is teaching contracts law and thus understand default rules and should realize that this is a penalty default, with too much information seemingly forced from us and onto the entire listserve, nonetheless we all have to live the consequences of this particularly onerous penalty default, including this horrible run-on sentence).
We all have experience with this, and I can speak personally. That law firm associate who accidentally hit “reply all” when responding to the inquiry about workload? That would be me, informing everyone at the law firm that I indeed was satisfied with my current work assignments (hey, it could have been worse). But sometimes it seems that people “reply all” strategically. They *want* everyone to know something good that they did. So someone sends an email out to an entire list, making public their donation to the homeless shelter. Other times, someone wants to embarrass the person who sent the original email by picking apart some mistake in the original email. It’s framed as a private reply, of course, but it goes to everyone. Of course the author, if asked, will try to play it off as a mistake. “Ooops, sorry, didn’t mean for that to go the whole list.” Sure, sure, we believe you… What’s the best / worst example of “reply y’alling” that ya’ll can think of?
[Miriam Cherry / Cross-Posted at Concurring Opinions]
Alas, Michael Jackson's fans will have to wait for his next law suit if they want to hear him testify. As reported earlier on this blog, Sheikh Abdulla bin Hamad Al Khalifa, second son of the King of Bahrain, alleged that he loaned Mr. Jackson money when Jackson was having liquidity problems during and after his child molestation trial in 2005. Mr. Jackson apparently construed the cash infusions as gifts. According to the New York Times, Mr. Jackson, always gifted when it comes to creating buzz, first sought to testify via video and then said that he would testify in person. In the end, the parties entered into a settlement, the terms of which were . . . not disclosed. There were air kisses all around.
McConnell v. Hunt Sports Enterprises, though a Business Associations case, has a strong contractual element to it. The question at hand is, to what extent can the members of an LLC contract around their fiduciary duties in the LLC agreement. The answer is, quite a bit, actually. Lamar Hunt and John McConnell formed an LLC called Columbus Hockey Limited in order to draw an NHL franchise to the city of Columbus, Ohio. Seems improbably, no? Nationwide Insurance didn't think so. That's why the Columbus Blue Jackets play their hockey in Nationwide Arena (pictured). Nationwide approached Hunt with an offer to build an arena and then lease it to the LLC. Hunt, purportedly acting on behalf of the LLC, turned down Nationwide's offer. McConnell later learned of the offer and decided to take it up on his own, acting with new partners and directly competing with the LLC.
Seems like a clear breach of fiduciary duty on McConnell's part, but the LLC agreement had some boilerplate language that permitted the parties to compete with one another. The court concluded that Hunt did not have authority to turn down Nationwide's offer and that McConnell breached no duty to Hunt or the LLC when he took up that offer on his own. Parties to an LLC agreement can contract around standard duties of loyalty, so long as they do not eliminate the duty entirely.
McConnell v. Hunt Sports Enterprises
McConnell, who always competes,
Was fed up with Hunt's rank deceits.
Hockey's new franchise
Is McConnell's new gran' prize
And Hunt haunts the nose bleed seats.
Monday, November 24, 2008
Steven Schooner (pictured) of the George Washington Law School, has posted to the Social Science Research Network his new article, Why Contractor Fatalities Matter. As a Law Prof whose scholarship focuses on national security and U.S. foreign relations law but who also teaches contracts (and contributes to this blog), I am happy to call our readers' attention to the work of another scholar whose work spans the subject matters of contracts law and national security law. Professor Schooner's work is published in Volume 38, no. 3 (Autumn 2008) of Parameters. The abstract follows:
At the end of July 2008, the media reported that 4,600 service members have died in Operations Iraqi Freedom and Enduring Freedom. But reporting only military fatalities understates the human cost of America's engagements in these regions by nearly a fourth. On the modern, outsourced battlefield, the U.S. government increasingly has delegated to the private sector the responsibility to stand in harm's way and, if required, die for America. As of 30 June 2008, more than 1,350 civilian contractor personnel had died in Iraq and Afghanistan, while another 29,000 contractors have been injured; more than 8,300 seriously. Nonetheless, contractor fatalities (and injuries) remain generally outside the public's consciousness. This article asserts that, in a representative democracy, public awareness of the human cost of our nation's security and foreign policies is critical.
I taught Baby M for the first time this year. The image at left shows Baby M, at eight cells. Well, it might be Baby M. I'm not really sure. There's not a lot of contracts doctrine in the case, but there is some. By including it in the syllabus, one places oneself in danger of having to mediate a dispute on reproductive rights, but it certainly does arouse student passions. I literally had two students screaming at each other from across the room. Fortunately, they were doing so with smiles on their faces. As occurred during the original Baby M controversy, much of the controversy in my classroom hinged on the question of May Beth Whitehead's fitness as a mother. She had, after all, threatened to kill the baby while she was hiding out in Florida. The New Jersey Supreme Court cut through all the confusion and simplified matters by declaring the case to be about the sale of a child. Such a sale violated both New Jersey's statutory scheme governing lawful adoptions and public policy. As the sale was impermissible, the Stern family's surrogacy contract with Ms. Whitehead could not be enforced. The future of Baby M was to be determined according to the traditional standard of the best interests of the child.
Baby M Limerick
"Illegal, criminal and void!"
Cried the court, more than slightly annoyed.
"Let's put a lid
On this sale of a kid."
But who'll pay for her sessions with Freud?
Things turned out better than the Limerick predicts for Baby M, at least according to this report. At the time of the report, Melissa Stern was a 21-year-old college student majoring in religion and contemplating a ministry. She found it "strange" when the Baby M case came up in her bioethics class. She also spoke with great warmth of her parents, the Sterns:
“I love my family very much and am very happy to be with them,” Melissa Stern says, referring to the Sterns. “I’m very happy I ended up with them. I love them, they’re my best friends in the whole world, and that’s all I have to say about it.”
Friday, November 21, 2008
In light of the subprime mortgage crisis, which lead to the credit freeze, which has dominoed into a full-out global market meltdown, I thought it would be interesting to talk to someone actually "working on the ground" to prevent foreclosures and keep people in their homes.
This curiosity lead me to Rebekah Cook-Mack, a Skadden Fellow working in the Foreclosure Prevention Project at South Brooklyn Legal Services. You can listen to our podcast interview at The Slippery Slope or download it from iTunes.
Of particular interest to readers of this blog may be our discussion of renegotiation of mortgages to make them more affordable -- which is, really, a matter of contract modification. Topics also include how New York's court system has created mechanisms to encourage mortgage modifications, predatory lending practices, and whether government bailout money should be used to guaranty homeowners' repayment of renegotiated mortgages.
[Meredith R. Miller]
Thursday, November 20, 2008
Today's New York Times has a fascinating account of a dispute regarding a 22-year-old Japanese pitcher named Junichi Tazawa. Mr. Tazawa sports a gaudy 1.02 E.R.A. and can throw a 97 mile per hour fastball. Not surprisingly, Major League Baseball (MLB) teams in the United States are interested in hiring the young hurler. But this sort of thing simply isn't done. U.S. teams have never gone after Japanese amateurs.
Tazawa was not chosen by any of the 12 teams that constitute Nipon Professional Baseball (NPB), the Japanese counterpart to the United States' major leagues. Indeed, his only option was to pitch for Japan Oil's team in the industrial league, which is not affiliated with the professional leagues.
For some time, international transactions involving baseball players in Japan and the United States have been governed by a protocol agreement between MLB and NPB. According to that agreement, Japanese professional players can only play for U.S. teams after they have completed nine seasons in Japan unless they are "posted" earlier. Posting permits a team to auction off a player before he has completed nine seasons.
Since Tazawa is not in the NPB, he is arguably not covered by the protocol agreement. According to the Times, MLB officials were outraged when a Japanese official suggested that there was a "gentelmen's agreement" that MLB would not try to lure amateur talent to the Untied States and thus evade the protocol agreement. Some baseball officials, including the Yankees' Brian Cashman, side with the Japanese, but this excerpt from the New York Times article is what I find really puzzling:
“This was more than just a gentlemen’s agreement, but rather an implicit understanding that the major leagues would do no such thing,” Nippon Professional Baseball said in a news release on signing Japanese baseball amateurs. “That a handful of clubs from the majors is trying to break this gentlemen’s agreement is truly regrettable.”
I wouldn't think that an implicit understanding would be "more" than a gentlemen's agreement, especially where, as here, there are wildly differing views as to the extent and nature of the understanding. But if the NPB does not think there was some sort of (presumably unenforceable) gentlemen's agreement relating to Japanese amatuers, why call it a gentlemen's agreement? Perhaps something is lost in translation.
In any case, while MLB and NPB are fighting over whether or not they have an agreement, I see an opportunity for my co-blogger, Frank Snyder. Why not offer Tazawa a spot in the Texarkana Gunslingers' starting rotation? Tazawa can pitch a season with Texarkana without violating any agreement between MLB and NPB. After he's pitched in the U.S. for a year, would NPB have any standing to object to a contract that Frank might negotiate on Tazawa's behalf with, for example, the Chicago Cubs?
Wednesday, November 19, 2008
Many have called Uwe Boll (pictured) among the world's worst directors. For example, here, here, here, here, and here. Boll has not taken the criticism standing down. Rather, he has challenged his critics to boxing matches and easily bested them (you can view a video of three quick boxing matches on the New York Times website). Boll was gracious after pummeling his critics. In an interview reprinted in The Guardian, he said:
They were badmouthing me but they showed balls going into the ring. Now they are brain dead and they will like my movies.
Still, the criticism has only increased. In fact, there is a website devoted to trying to get him to stop making movies. Now that's pretty cold. There is another website devoted to convincing people that Uwe Boll is an antiChrist (or the antiChrist -- the website isn't entirely clear on that one). Ouch. Let me be very clear here. I don't have an opinion about Uwe Boll, and I don't box. All I will say is this: Ben Kingsley?
But now Mr. Boll has more pressing problems. As The Hollywood Reporter here reports, a Los Angeles court has now affirmed an arbitrator's judgment ordering the German director to pay his distributor $2.1 million in damages for for breach of contract and libel. The libel claims stems from disparaging e-mails that Boll sent to Fantastic Films International's customers. Press reports are necessary as to the details of the breach of contract claims, but apparently Boll has exclusive distribution agreements with Fantasy Films and either sought to distribute his films through other partnerships or failed to pay commissions due to the distributor. The real shocker (or perhaps reel shocker -- ha ha ha!) is that the films (some of which were honored with a placement on IMDb's Bottom 100) were to be distributed in over 45 countries. I suppose the fact that Mr. Boll's movies are not popular with critics does not rule out the possibility of commercial appeal.
Tuesday, November 18, 2008
First, as reported in eflux Media here, Revelations Perfume and Cosmetics is suing the artist formerly known as the artist formerly known as "Prince" (now, just Prince again -- pictured), as well as his music publisher, Universal. The perfume company alleges that Prince and Universal have failed to live up to their contractual obligations to promote two fragrances released in conjunction with Prince's 2006 studio recording, "3121." According to Revelations, the company spent $2.5 million developing the scents and agreed to pay Universal half the profits from the products in return for Prince's and Universal's efforts to promote them. Those efforts have been lacking according to Revelations. Unconfirmed reports suggest that Prince has been reluctant to promote the products because he feared hearing calls of "Hey, Prince, 3121 stinks!!"
In other princely news, Google News reports that a Bahraini prince is suing King of Pop, Michael Jackson, alleging a $7 million breach of contract. Sheikh Abdulla bin Hamad Al Khalifa, second son of the King of Bahrain, alleges that he loaned Mr. Jackson money when Jackson was having liquidity problems during and after his child molestation trial in 2005. Mr. Jackson apparently construed the cash infusions as gifts. In the alternative, Google News reports that Mr. Jackson is alleging the affirmative defenses of mistake, misrepresentation and undue influence. In happier times, the Prince and the King had a "close personal relationship" and collaborated on a song. The Prince wrote the song and Mr. Jackson recorded it. The song was to be released as a charity single intended to raise money for the victims of the 2004 tsunami. Instead, that recording is now slated to have its debut as a trial exhibit.
Our last Business Associations Limerick introduced the concept of demand in shareholder litigation. We now move on to the next option for boards seeking to stave off shareholder derivative litigation. If demand might well be excused as futile (which, interestingly enough, was more or less assumed in Auerbach v. Bennett, even though it's hard to see why it would be), the Board has the option of setting up a Special Litigation Committee (SLC) made up of disinterested (or brand new) directors who can then make a recommendation to the Board as to whether or not to permit the litigation to proceed. SLCs generally recommend dismissal of the suit, and the question here (under New York law) is what amount of deference is due to such an SLC recommendation. The answer, in New York, is that so long as the members of the SLC are not interested in the challenged transaction and undertook a thorough investigation, their recommendation will be accorded the benefits of the business judgment rule.
In this case, the shareholder derivative litigation related to allegations that GTE was engaged in foreign bribery. Its Board established an audit committee and found that there had indeed been bribery and took measures to prevent a recurrence. In response to a shareholder derivative suit, the Board formed an SLC which recommended dismissal of the suit. The court limited its review to the SLC's procedures and found the SLC both independent and sufficiently thorough. The standard for thoroughness is that the investigation was not a sham.
The interesting thing about this standard is that it would require a court to dismiss a suit based on the SLC's recommendation regardless of he underlying conduct. In this case, the court assumed that demand was excused, which would mean either that the majority of the Board was alleged to have been engaged in culpable conduct or that the Board was captured by those who were. Still, if the SLC was not personally compromised and they really investigated, the court would have to dismiss.
In short, an SLC is like the hard candy shell of a tootsie pop. So long as the shell is independent and its investigation is not a sham, the court will not break through the the gooey center.
Note, this is the rule for New York. Playing against type, Delaware courts are far less deferential to the recommendations of SLCs.
Auerbach v. Bennett
The Board's business judgment prescribed
That foreign officials be bribed.
If the Lit. Comm.'s disinterested
The court won't be interested
In shareholder rights circumscribed.
Monday, November 17, 2008
BLT reports that Crowell and Moring LLP has filed a suit agaisnt the District of Columbia seeking unpaid legal fees in excess of $300,000. According to the complaint, C&M represented the DC Public Schools from 2001 through March 2006. Despite its satisfaction with C&M's legal services, DC failed to pay for three months of legal services. In April 2006, DC Public Schools decided to shift responsibility to the Office of the Attorney General for a class action law suit that C&M had been handling, allegedly as part of an attempt by the DC government to reduce its reliance on external counsel. C&M alleges that it was not paid for its services from January through March, 2006.
C&M alleges causes of action for breach of a written contract, breach of an implied-in-fact contract, quantum meruit and unjust enrichment.
Really, a DC law firm suing the government has a tinge of a dog biting the hand that feeds it. In fact, I have some footage here of the scrap that led to the falling out:
Ah Barney, when will you learn? If it weren't for reporters, you'd just be another dog. And do you know what they do to dogs that bite?
Hoffman v. Red Owl Stores is the classic case for illustrating the grounds for liability in cases of pre-contractual reliance. Generations of students have been drawn to the drama of Mr. Hoffman's heroic efforts. He started a grocery store in Wautoma, and then sold that profitable business, as well as a bakery, (while raising a family, volunteering as a local firefighter and inventing the internet in his spare time) based on his good faith belief in the pondscum he was dealing with from Red Owl Stores. Well, it's a nice story, but Columbia University's Robert E. Scott says it's not true. In his article, Hoffman v. Red Owl Stores and the Myth of Precontractual Reliance, 68 Ohio State Law Journal 71 (2007), Professor Scott contends that the case wasn't really about precontractual reliance and that lawyers would be leading unwary clients down the primrose path if they encouraged them to seek recovery based on that doctrine, which courts treat with great skepticism. Here's Professor Scott's abstract:
For decades there has been substantial uncertainty regarding when the law will impose precontractual liability. The confusion is partly attributable to the unfortunate case of Hoffman v. Red Owl Stores and to the unusual degree of scholarly attention that it has attracted. A careful examination of the record of the Hoffman case reveals facts that are much different from conventional understanding. The disagreement between Joseph Hoffman and Red Owl Stores resulted from a fundamental misunderstanding between the parties regarding the terms of Hoffman’s capital contribution to the franchise. The misunderstanding was largely a product of Hoffman’s penchant for moving assets around during the negotiation period, his failure to clarify the terms of his $18,000 capital investment, and the “no debt” condition attached to loans from his father-in-law. These facts show that neither promissory estoppel, negligent misrepresentation, unjust enrichment, or a failure to negotiate in good faith would have been a proper ground for imposing liability on Red Owl Stores. This result is consistent with a systematic survey of the case law showing that courts overwhelmingly decline to impose liability for representations made during preliminary negotiations. The preoccupation with reliance on preliminary negotiations has led scholars to ignore an important recent development in the law. A number of modern courts now impose a duty to bargain in good faith when parties make reliance investments following a “preliminary agreement” in which the parties agree to some terms but leave others open for further negotiation. Professor Scott argues that lawyers and academic commentators should turn their attention away from the Hoffman paradigm and instead focus on key issues that the contemporary cases have yet to resolve: when have parties reached sufficient agreement to trigger the duty to negotiate further in good faith, and precisely what does that duty entail?
Fair enough, but the court's approach in Hoffman v. Red Owl Stores, faulty though it may be, remains Limerickworthy.
Hoffman v. Red Owl Stores
Hoffman moved from Wautoma to Chilton
And his finances were slowly wiltin'.
Because legal science
Protects sound reliance,
He recovered from Red Owl's jiltin'.
He's more popular than Paris Hilton
Friday, November 14, 2008
- Albert Choi and George Triantis, Completing Contracts in the Shadow of Costly Verification, 37 J. Legal Stud. 503 (2008).
- Jonathan Riley, Embracing the Principle of Growth: A Call for an Expansion of the Doctrine of Fortuitous Event in Louisiana Law (Associated Acquisitions, L.L.C. v. Carbone Props. Of Audubon, L.L.C., 962 So. 2d 1102, 2007), 35 S.U. L. Rev. 413 (2008).
[Meredith R. Miller]
Thursday, November 13, 2008
As WSAZ.com reports, Sam Juniper, a West Virginia man, sued his former employer to enforce the employer's promise that his medical benefits would not change after he retired in 2000. In 2002, he received a $40 invoice relating to some blood work after the former employer switched insurance providers. The case went all the way to the United States Court of Appeals in Richmond, which affirmed the district court's award of damages to Mr. Juniper in this per curiam opinion. Unfortunately, the opinion merely adopts the district court opinion, which I have been unable to locate online.
I note that the wages for giant-slaying have been suffering from a steady decline in the Common Era. David became King of Israel. Mr. Juniper is still awaiting his check for $40, which he plans to frame and mount. Still, there has been some improvement in the lives of giant-slayers. As the image at left illustrates, David's trophy was nasty. Bathsheba would never have put up with having that thing hanging on her living room wall.