June 10, 2008
Limerick of the Week: The Franchise Cases
If you were looking for this weekly installment yestereday, when it usually appears, and were outraged that you could not find it, please sue American Airlines for all damages reflecting your disppointment, including pain and suffering of course. Today's Limerick is delayed because my return flight from Philadelphia was diverted to Indianapolis. And when American Airlines tells you that the diversion of my flight was due to weather conditions beyond their control. don't believe them!! If it weren't for a mechanical problem that delayed our take-off from Philly, we would have beat the front that hit O'Hare last night.
I will do my best to make things better, offering an almost unprecedented Limerick two-fer. The cases herein memorialized are actually tort cases and thus, to some extent, beneath the dignity of contracts profs and readers of the Contracts Profs Blog. Still, the vital question at issue in both cases is whether an agency relationship arises from the typical franchise agreement between gas station franchisees and the oil companies with which they contract. While the tort aspects of the case create the typical intellectual challenges posed by a prat-fall, the agency aspects of the cases, touching as they do on contractual relations, are complicated.
Both cases involve accidents at service stations. In the first (Humble Oil), a car is raised for servicing without the parking break engaged. It rolls down a hill (comically no doubt) and then (less comically) mows down some innocent bystanders. The question is whether Schneider, the franchisee, can be liable for the harm done to the bystanders. In the second (Hoover), plaintiff was injured in a fire that erupted at the back of his car while it was being filled with gasoline (see Limerick for my theory as to how the fire might have started). The question here is whether the franchisee Barone can be liable for plaintiff's harm. While the torts involved are different, the law and the legal framework governing the cases are similar. Still, the cases come out differently, and both are wrongly decided IMHO. The Limericks lay out the bases for the courts' reasonsing, with some simplification:
Humble Oil v. Martin
To Humble must Schneider report,
Humble set the hours, so the court
Refused to remand.
The verdict must stand;
The franchisor's liable in tort.
Hoover v. Sun Oil
In Hoover, the gas-filling bloke
Chose an unfortunate time for a smoke.
Sun Oil owned the station,
But Barone set the hours, now he's broke.
Mandatory Arbitration of Credit Card Disputes Gets Mainstream Press Attention
Finally, Business Week's cover story, Banks v. Consumers (Guess Who Wins), brings a mainstream press indictment of the big business of The National Arbitration Forum (NAF), and the not-so-mysterious fact that consumers lose these cases more than 90% of the time. The article echoes what some contract scholars have been saying for years about the lack of consent to arbitrate. The article begins:
What if a judge solicited cases from big corporations by offering them a business-friendly venue in which to pursue consumers who are behind on their bills? What if the judge tried to make this pitch more appealing by teaming up with the corporations' outside lawyers? And what if the same corporations helped pay the judge's salary?
It would, of course, amount to a conflict of interest and cast doubt on the fairness of proceedings before the judge.
Yet that's essentially how one of the country's largest private arbitration firms operates. The National Arbitration Forum (NAF), a for-profit company based in Minneapolis, specializes in resolving claims by banks, credit-card companies, and major retailers that contend consumers owe them money. Often without knowing it, individuals agree in the fine print of their credit-card applications to arbitrate any disputes over bills rather than have the cases go to court. What consumers also don't know is that NAF, which dominates credit-card arbitration, operates a system in which it is exceedingly difficult for individuals to prevail.
[emphasis added]. The article continues:
An arbitration company collaborating with law firms to land business troubles some legal scholars. "Most people would be shocked," says Jean Sternlight, an arbitration expert at the University of Nevada, Las Vegas. "Our adversarial system has this idea built into it that the judge is supposed to be neutral, and NAF claims that it is," she adds. "But this certainly creates a great appearance, at a minimum, of impropriety, where the purportedly neutral entity is working closely with one of the adversaries to develop its business."
The only criticism I have of the article is that it doesn't mention any solutions -- in particular, The Arbitration Fairness Act, which would ban pre-dispute agreements to arbitrate in the consumer, franchise and employment contexts.
[Meredith R. Miller]
June 9, 2008
T-Mo Sues Starbucks Over Free Wi-Fi Plan
In light of slumping profits, it is no secret that Starbucks is looking to restore its image to the humble coffeehouse of Seattle in 1971. That is, it has undertaken "initiatives intended to restore an authentic coffeehouse experience to the stores and, in turn, re-energize an ailing stock that has lost half its value in the last 15 months." (Query whether it is possible to turn back time when a corporation has 15,011 stores in 44 countries).
In this effort, the ubiquitous coffee chain carted out a new logo (causing some controversy because the new logo sports a bare chested mermaid). It also purchased the Clover coffee machine, likely pulling from underneath the non-publicly held, truly local coffee shops the possibility of obtaining a $11,000 coffee machine that brews by the cup and had the potential to change how we think about coffee (note that this Slate piece was written before Starbucks got its hand on the Clover). Starbucks has also announced a "loyalty program" - which could act like the punch card system of the local coffee house ("get your 10th cup free"), but sounds more like the fine print bureaucracy of frequent flier programs of major airlines (will Starbucks have blackout dates?).
Further to the effort, Starbucks has announced free wi-fi (that is, at least for a couple of hours a day). This actually does sound like the small, local coffeeshop - though, they ordinarily don't limit access to two hours. T-Mobile, however, is not happy with the coffee chain's plan. Starbucks had an existing wi-fi contract with T-Mo, pursuant to which Starbucks customers paid for the wi-fi access. The cellphone giant claims that Starbucks breached that contract by allowing rival AT&T to supply the free wireless service to customers. Here's more on the lawsuit:
In its 12-page complaint, filed Thursday in New York State Supreme Court in Manhattan, T-Mobile alleged breach of contract, interference with contract and unfair competition over a recent Starbucks Wi-Fi promotion with AT&T Internet Services Inc., which T-Mobile claims risks overloading its lines and equipment.
T-Mobile, which had been exclusively providing Wi-Fi service at Starbucks since 2002, accused Starbucks of "secretly" developing a promotional plan to let AT&T provide free Internet service at more than 7,000 U.S. Starbucks stores. T-Mobile said it is bearing the cost and burden of that offer, because it still provides equipment and technology in all but two of Starbucks' U.S. markets.
"The conduct of Starbucks has caused T-Mobile monetary damages, and such damages will continue should Starbucks continue its breaching conduct," T-Mobile said.
Starbucks began transitioning from T-Mobile to AT&T as its Wi-Fi provider in February. T-Mobile maintains that the Starbucks promotion violates a transition agreement giving T-Mobile exclusive rights to market and sell Wi-Fi Internet access at Starbucks stores until Jan. 4, 2009.
The transition agreement gave AT&T and Starbucks only "limited rights" to promote the move to another Wi-Fi provider. T-Mobile said only two markets, San Antonio and Bakersfield, Calif., have fully converted from T-Mobile to AT&T, the biggest U.S. phone company.
T-Mobile said Starbucks gives free Wi-Fi service using T-Mobile's equipment and lines to anyone with a Starbucks Card, which causes "risks of spikes in usage, drains on that network and T-Mobile's resources and therefore causes delays, frustrations and other harm to all users of T-Mobile's network."
The provider seeks unspecified damages, legal fees and an order preventing Starbucks from breaching the transition agreement.
In a statement Friday responding to the suit, Starbucks said, "Our goal is to ensure Wi-Fi access at all Starbucks locations. This is a benefit offered to our Starbucks Card Rewards members as well as AT&T subscribers, and steps are being taken to ensure that this access continues."
Bradley Ruskin of the law firm Proskauer Rose, who is representing T-Mobile, declined to comment further on the suit.
The case is T-Mobile USA Inc. v. Starbucks Corporation, 601702/2008, New York State Supreme Court (Manhattan).
[Meredith R. Miller] [disclosure: some time ago, I worked at Proskauer, and participated in the representation of T-Mobile, but not in connection with the matter discussed in this post]