August 9, 2008
Now in Print
- Nicholas C. Dranias, Consideration as Contract: A Secular Natural Law of Contracts, 12 Tex. Rev. L. & Pol. 267-327 (2008).
From Symposium: Intellectual Property, Trade and Development: Accommodating and Reconciling Different National Levels of Protection, 82 Chi.-Kent. L. Rev. 1109-1626 (2007), The Role of Contracts and Private Initiatives:
- Severine Dusollier, Sharing Access to Intellectual Property through Private Ordering, 82 Chi.-Kent. L. Rev. 1391-1435 (2007).
- Arti K. Rai, "Open source" and Private Ordering: A Commentary on Dusollier, 82 Chi.-Kent. L. Rev. 1439-1442 (2007).
[Meredith R. Miller]
August 7, 2008
Court Allows Associate's Claim to Proceed for Nominal Damages Only Because Damages (for Not Making Partner) are Too Speculative
In 1999, plaintiff Patrick Hoeffner ("Hoeffner") began working in Orrick's New York office as an associate in the IP group. In 2002, two of Orrick's New York IP partners left for Chadbourne & Park. Hoeffner was solicited by the departing partners to leave for Chadbourne, but based on alleged promises of partnership made by certain Orrick partners ("Partners"), Hoeffner stayed at Orrick. In early 2004, Hoeffner was not "put up" for partner and alleges that he did not, as promised, receive the full support of the Partners. Hoeffner sued for, among other things, breach of contract.
A New York trial court (Fried., J) recently denied defendants' motion for summary judgment and allowed the breach of contract cause of action to go forward for nominal damages only. The court reasoned that Hoeffner's alleged damages based on not making partner are "speculative and contingent rather than proximate and certain." Here's a taste:
The claim seeks to recover damages which Hoeffner allegedly suffered from: the loss of the salary, fringe benefits and other income that he would have received if Orrick made him a partner in January 2004; the "cost of seeking out partnership opportunities at a new firm"; the loss of "future earnings because of the delay in becoming a partner"; and/or the loss of the future income Hoeffner would have earned if he had become a partner at a firm with lower partnership compensation levels than Orrick. * * *
However, as the defendants correctly assert, Hoeffner's fourth cause of action fails to allege any damages that are recoverable on a breach of contract claim. "[B]reach of contract damages are intended to place a party in the same position as he or she would have been in if the contract had not been breached." * ** "'The damages for which a party may recover for a breach of contract are such as ordinarily and naturally would flow from the non-performance. They must be proximate and certain, or capable of certain ascertainment, and not remote, speculative or contingent.'"* * *
The damages which Hoeffner seeks in his breach of contract claim are speculative and contingent rather than proximate and certain. All of the purported damages are predicated upon losses that Hoeffner allegedly suffered because Orrick did not make him a partner in January 2004. However, even assuming that the Partners had performed their purported obligations under the Agreement -- i.e., that the Partners had given their full support and encouragement in helping Hoeffner to become a partner and that Anthony had put Hoeffner up to Orrick's executive committee for partnership in the end of 2003 and/or beginning of 2004 -- it is not reasonably certain that Hoeffner would, as a consequence, have been made a partner in January 2004. Rather, his becoming a partner would have been contingent upon the occurrence of an additional event over which the Partners did not exercise control, namely, the executive committee's approval and recommendation of Hoeffner to Orrick's full partnership for election to partnership in January 2004.
Hoeffner v. Orrick, Herrington & Sutcliffe, No. 602694/2005 (Aug. 1, 2008).
[Eds note: Update: Explanation Corrected.]
[Meredith R. Miller]
Second Circuit Certifies Contract Modification Question to New York Court of Appeals
The Second Circuit has certified a contract question to the New York Court of Appeals in Israel v. Chabra. In that case, Michael and Steven Israel sued to recover a bonus for services rendered to AMC Computer Corp. The Israels sued AMC's Chief Executive Officer Surinder "Sonny" Chabra, who had personally guaranteed the bonus payments. An article at Law.com explains:
Southern District Judge Denny Chin found Chabra liable for the debts and he ordered Chabra to pay the Israels $332,816 each and a total of $299,890 in attorney fees.
Chabra appealed to the 2nd Circuit, where the case was reviewed by Judges Guido Calabresi, Reena Raggi and Peter Hall.
Hall wrote that the issue was whether a post-guarantee agreement between AMC and the Israels to modify the bonus payment schedule discharged Chabra's obligations under the guarantee.
Complicating matters was the fact that Chabra signed the first amendment modifying the bonus payment schedule twice, in both his personal and corporate capacities, but only signed a second amendment once. Chabra argued that the sole signature was proof that he was acting solely in his corporate capacity.
"Unlike the district court, we find that this question cannot be answered by mere reference to the fact of the signature," Hall said. The circuit then found that Chabra did not agree to the second amendment by signing it.
But Hall said that "try though we have," the circuit could not reconcile two competing clauses.
The first, relied on by the Israels, is a consent clause which said Chabra's obligations under the guaranty "are absolute and unconditional irrespective of ... any change in the time manner or place of payment."
The second, relied on by Chabra, was a "writing requirement" stating that references to the "employment agreement shall mean the employment agreement immediately after the execution of Amendment No. 1 and shall not affect subsequent amendments to the Employer Agreement unless Guarantor has agreed in writing to such amendments."
Hall said the common law rule is that "where two clauses of the agreement are so totally repugnant to each other that they cannot stand together, the first of such clauses in the contract will be received and the subsequent one rejected."
The problem, he said, was that while the common law rule would lead to rejecting the writing requirement as secondary to the consent clause, "doing so would require us to disregard a private statute of frauds" created by New York General Obligation Law §15-301(1) to assure the authenticity of an amendment by requiring that a contractual modification be sealed with a "formal writing."
New York law, he said, "presumes that statutory law does not abrogate the common law unless it evinces a 'clear and specific legislative intent' to do so."
"We are unable to determine whether, in enacting §301(1), the New York State Legislature sought to abrogate the common law to the extent that the common law would give effect to a contractual provision at odds with the writing requirement," Hall said.
So the question sent to the Court of Appeals was: Does §301(1) "abrogate, in the case of a contract where the second of two irreconcilable provisions requires that any modifications to the agreement be made in writing, the common law rule that where two contractual provisions are irreconcilable, the one appearing first in the contract is to be given effect rather than the one appearing subsequent?"
[Meredith R. Miller]
August 6, 2008
Grain Contracts: Floods and Price Fluctuations
What is a grain farmer obligated to do when a flood causes loss of a crop? Is the farmer still obligated to deliver grain under forward contracts? If the flood causes the market price of grain to increase, can the farmer demand more than the contract price? What damages might be assessed against the farmer if he fails to deliver the grain? This, and many other questions are addressed in a report from the University of Illinois: "Grain Contracts, High Prices, Floods, and Failure to Deliver." The report is authored by Donald L. Uchtmann, a Professor Emeritus in the Department of Agricultural and Consumer Economics at the University of Illinois at Urbana-Champaign, A. Bryan Endres, an Assistant Professor in the same department, and Stephanie B. Johnson, a law student at the University of Illinois.
The 4-page report, which may be of interest to contracts profs, begins by explaining:
The 2008 flood wreaked havoc on farmland throughout the Midwest. In addition to destroying thousands of acres of crops, the floods have contributed to an increase in grain prices compared to the fall of 2007. The flooding has some grain farmers wondering what to do if they cannot deliver on “forward contracts” to sell grain entered into before their crops were lost to the floodwaters.
Also, some elevators may be wondering what would happen if an unscrupulous farmer who contracted to sell gain to the elevator when prices were lower were to ignore these contracts for future delivery and, instead, sell the grain on a higher spot market. For example, what are the likely legal consequences if a farmer ignores a contract entered into in the fall of 2007 to deliver 2008 corn at harvest for a price under $4/bushel and, instead, sells the corn on the cash market after harvest at, say, $5/bushel?
Here's the abstract of the questions raised by the report:
This article addresses important issues arising when a farmer’s crop is lost to floodwaters or when market prices rise much higher than the contract prices negotiated when grain prices were lower. Is a grain contract binding if it was never signed by the farmer? Does the inability of a farmer to harvest a crop because of flood provide an excuse for the farmer not to deliver grain as required by contract? What if a farmer harvests a crop but prefers to sell it at a higher price than the contract price negotiated before a rise in grain prices? What damages might be assessed against a farmer who fails to deliver grain as required by contract? Is a farmer still liable for breach of contract damages if the farmer files bankruptcy? This article is part of a law-related educational program for Illinois family farmers made possible by a gift from the Illinois Bar Foundation. The assistance of the Agricultural Law Section Council of the Illinois State Bar Association in reviewing the article also is appreciated.
[Meredith R. Miller]
August 5, 2008
Limerick of the Week: Owen v. Cohen
Owen v. Cohen is a highly Limerick-worthy case. First off, since it is about a failed partnership to operate a bowling alley, it, along with Escott v. BarChris, is part of my business associations course's running bowling theme. Second, the names of the parties rhyme (although it would be too cheap and easy to use them both as end-rhymes). Finally, because there is a Cohen involved, this case provides the basis for the course's inaugural Borscht Belt Limerick.
Why Owen wanted to be Cohen's partner is a mystery beyond my comprehension. His reasons for fronting the business a loan are even more elusive. According to the opinion, Cohen refused to do any work ("I haven't worked in 47 years, and I don't intend to start now"), offered to sell his interest in the business back to Owen at an extortionate rate ("It would cost you plenty to get rid of me"), attempted to set up a gambling room on the business's premises, and embezzled money from the business. In any case, within months, Owen wanted out, and the court ordered a dissolution.
Owen v. Cohen
Owen furnished the loan,
And did all the work on his own.
The court could not knit
This 7-10 split:
Oy vey! That meshuggene Cohen!*
*Because I teach at a Lutheran University, I provide my students the following translation of the last line:
Good grief, that Cohen fellow is irksome!
August 4, 2008
Blame it on the Lawyers: NDA for iPhone Application Developers
iPhone enthusiasts may have noticed that many of the applications available in Apple's much-hyped "app store" fall short. Many of the applications are buggy and have stability and crashing issues. Blame it on the lawyers!
Many application developers would tell you the reason is a Non-Disclosure Agreement ("NDA") that Apple required developers to agree to before they could download and use the iPhone software development kit (SDK). SDK is the only sanctioned way to develop applications for the iPhone and iTouch. Apple is treating the contents of the development kit as "confidential information," and the NDA prohibits discussion of any "confidential information." To say the least, the NDA has application developers frustrated and angry.
While the NDA might have made sense when SDK was in its "beta period," most developers would now say that the utility of the NDA has run its course, and is actually doing more harm than good. Developers are accustomed to collaborating in various ways (online forums, blogs, mailing lists), all of which is prohibited by the NDA. It also prevents new developers from learning code from other, more seasoned developers. Likewise, the NDA silences authors and publishers of programming books about SDK. There is even talk that a conference for SDK developers is threatened by the NDA.
The NDA eliminates collaboration, which threatens the quality of the applications developed. It also threatens the reputation of Apple and the social norm of collaboration among developers:
Unfortunately for student Jeffrey Long, his experience learning to develop for the iPhone "has been like no other experience I've had with computers," he wrote. "It’s been a much, much lonelier one." Certainly, this is not the reputation Apple wants among developers for its hot new mobile platform.
[Meredith R. Miller]