ContractsProf Blog

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

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Thursday, August 14, 2008

Contract Issue in "A Series of Unfortunate Events"

Bad_beginningIf you are the sort of blog reader who prefers posts about happy resolutions to unsolved mysteries or about dutiful litigants winning large judgments or about smart people doing smart things smartly, you might want to continue your web surfing. This post is not for you.

For although this post is about Lemony Snicket, a very smart person whose life may yet result in large judgments, happy resolutions and smart things, I am afraid that it is my duty to report on a series of unfortunate decisions the renowned author made in Volume I (The Bad Beginning) of his masterpiece, A Series of Unfortunate Events. As you no doubt recall, in that first volume, the despicable Count Olaf launches a plan to capture the Baudelaire fortune by marrying the eldest of the Baudelaire orphans, Violet. Violet was to marry Olaf during a stage performance of a dreadful play, "The Marvelous Marriage." The staged marriage was to be real because Count Olaf's neighbor, Justice Strauss (sometimes referred to as Judge Strauss) presided, because Violet pronounced the words "I do" at the appropriate moment, and because Violet was to sign an official marriage certificate in her own hand. I need not remind you that Violet performed these actions because the vile Count Olaf had suspended the youngest Baudelaire orphan, Sunny, from a tower and would instruct his hook-handed minion, a word which here means "nasty subordinate who eagerly performed murderous tasks for Count Olaf," to drop her if Violet resisted the forced marriage.

Now, all of this is in strict accordance with the nuptial laws of the relevant jurisdiction, as researched by the middle Baudelaire child, the learned Klaus, as confirmed by Justice Strauss, upon some reflection, after Count Olaf had triumphantly (and a bit prematurely) announced the success of his wicked scheme. But here is where the wise Lemony Snicket goes astray, in my view.

Violet objects that the marriage is not lawful because she did not sign the marriage certificate in her own hand. Violet signed the certificate with her trembling left hand, and Violet is right-handed. Justice Strauss determined, right then and there, on the spot without the consultation of legal counsel, briefs or any legal authorities other than those stored in her head, that Violet's left hand was not her own hand. From a legal perspective, I find this a troubling and puzzling resolution, especially as the doctrine of coercion was so obviously applicable.

One can perhaps take some solace (if one is inclined to do so) in the fact that the film version of the first three books of Lemony Snicket's tale altered the marriage scene and thus avoided legal inaccuracies. I, however, take no comfort in the knowledge that an inferior movie is not further degraded by ignorance of legal doctrine. The damage to Snicket's masterpiece is, alas irreparable. I wish there were some magic potion that I could pour onto the high quality paper on which A Series of Unfortunate Events is printed so as to remove from them the tincture of legal nescience. But this is a post about Lemony Snicket, not about J.K. Rowling.

With all due respect.
[Jeremy Telman]

August 14, 2008 in Commentary | Permalink | Comments (0) | TrackBack (0)

Open Source Software: Why the Difference between Conditions and Covenants Matters

Yesterday, on the Electronic Frontier Foundation’s Deeplinks Blog, Michael Kwun keenly asked and addressed the following questions:

Imagine that you write some code, and offer it to the public under an open source license that requires that if someone distributes modified versions of the code, the modified versions also be open sourced. Now assume someone distributes modified versions of your code, but fails to open source the modified code. Do you have a claim for breach of contract? Or for copyright infringement? Or both? And why should anyone other than a law professor care?

After noting the significant differences between copyright and contract law, he explains why the situation he raises is not so hypothetical:

[I]t is very close to the facts in Jacobsen v. Katzer, a case concerning open sourced code from the Java Model Railroad Interface group. Today, the Federal Circuit vacated a district court decision [PDF] that had held that only contract law was implicated by the defendants' alleged breach of the open source license applicable to the JMRI code.

The court concluded that the key question was whether the parts of the agreement the defendants allegedly breached were mere covenants (things the defendants agreed not to do when they accepted the license), or also conditions of the license (things that must be satisfied in order for the defendants to be licensed at all). Because the license at issue went out of its way to state that licensees' obligations were "conditions," the court concluded that if the defendants were in breach, the plaintiff could sue for copyright infringement. There are a lot of things in this opinion that the open source community should cheer. The opinion notes that open source software "can often be written and debugged faster and at lower cost than if the copyright holder were required to do all of the work independently," and points out that "[t]here are substantial benefits, including economic benefits, to the creation and distribution of copyrighted works under public licenses that range far beyond traditional license royalties." And the court emphatically concluded that "[c]opyright holders who engage in open source licensing have the right to control the modification and distribution of copyrighted material."

While we're pleased to see a panel of learned judges endorse the legal foundations of the open source software paradigm, the decision may also encourage proprietary software vendors who frequently fill their "end user license agreements" with restrictions that are denominated as "conditions" on the license. If violating a "condition" in a EULA results in copyright infringement liability, what's to stop a software vendor from imposing conditions that are unrelated to copyright law (e.g. an agreement not to disparage the copyright owner, or to wear pink bunny ears on Tuesdays), or even antithetical to copyright law (e.g. a waiver of fair use rights)?

For a view of the dark side of "conditions" imposed in proprietary software licenses, consider the "thou shalt not run software we don't like" terms that Blizzard imposes on those who purchase World of Warcraft software, terms that recently were upheld in court despite a very astute amicus brief by Public Knowledge.

He promises this issue is likely to arise again in the future, so we’ll have to stay tuned.

[Meredith R. Miller]

August 14, 2008 in E-commerce, Recent Cases | Permalink | TrackBack (0)

Wednesday, August 13, 2008

Ohio Sues E-Voting Machine Company for Breach of Contract

Diebold_presOhio has waged a countersuit against e-voting machine maker Diebold (now known as Premier Election Solutions), seeking damages caused by malfunctioning machines in the swing state's 2004 and 2006 elections. The Diebold machines are infamous for losing hundreds of votes in the 2004 presidential election, and exhibiting "severe security flaws."

Premier had sued Ohio for a declaratory judgment that it met its contractual obligations. Secretary of State Jennifer Brunner has counterclaimed for, among other things, breach of contract and breach of warranty.

What will Ohio do in November? According to Ars Technica:

Brunner has advocated reverting to a system of optically-scanned paper ballots, the solution endorsed in the 2006 study, though it would not be feasible to make the switch before November's elections at this point. Still, she says, Ohioans "should not be alarmed" as they head to the polls in the fall, pledging that officials will work to catch and correct any problems that arise.

Gee, wouldn't Bush v. Gore have been more interesting if fashioned as a breach of contract action by the State of Florida against the maker of the machines that punched those hanging, dimpled and pregnant chads?

[Meredith R. Miller]

August 13, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 12, 2008

The Favre Contract

Maryhairgel It is surprising that the New York Jets have gone to so much trouble to sign the washed-up actor, Brett Favre, who didn't even get the girl (Cameron Diaz, pictured left) in his most successful film There's Something about Mary. I can't even think of another film he's done since then. Still, the Jets want him to be -- of all things -- their quarterback. I don't get it, and neither does Allen Barra of the Wall Street Journal. It seems that Favre's former team, the Green Bay Packers, couldn't get rid of him quickly enough.

According to the Boonville Daily News, the terms to the deal are as follows:

Green Bay will receive a fourth-round pick in 2009. Of course the selection could turn into a third-rounder if Favre plays in 50 percent of the plays this season, a second-rounder if he plays in 70 percent and the Jets make the playoffs, or a first-round pick if he plays in 80 percent and the Jets make it to the Super Bowl.

It's terms like these that make me think that negotiating contracts for professional athletes and other celebrities must be a lot of fun. There's lots of room for creativity. There's also lots of room for disputes. What if the Jets make it to the Super Bowl the way the 1985-86 Bears did -- with defense and a running game? What if Favre's performance is essentially irrelevant? What if they bench him down to 79.9% of the snaps when they realize they are going to the Super Bowl based on their monstrous defense? Bad faith?

Alas, it seems these issues will not arise, as the Jets, who were 4-12 last year, do not seem to be turning things around. My quick review of the sports pundits, e.g., here suggests that nobody is predicting greatness for the Favre-led Jets.

[Jeremy Telman]

August 12, 2008 in Celebrity Contracts, In the News | Permalink | Comments (1) | TrackBack (0)

Monday, August 11, 2008

California Supremes' Sweeping Ruling Invalidates Non-competes

Images Robert J. Ambrogi of Legal Blog Watch beat us to it, and did it perfectly, so here's his summary:

In a ruling sure to send shudders through corporate legal departments up and down the west coast, the California Supreme Court has ruled that virtually all non-competition agreements are invalid in that state. The Recorder has a full report on the ruling, Edwards v. Arthur Andersen, and Ars Technica has more about it.

The ruling turns on an 1872 state law, Section 16600 of the Civil Code, that says, "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The law provides exceptions for noncompete agreements in the sale or dissolution of corporations, partnerships and LLCs. "Under the statute's plain meaning, therefore," writes Justice Ming Chin, "an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule."

The decision rejects a recent finding by the 9th U.S. Circuit Court of Appeals that the statute contained a "narrow restraint" exception that allowed non-compete agreements as long as they restricted only "a small or limited part" of an employee's future ability to work, The Recorder explains.

In Edwards, accounting firm Arthur Andersen argued that the 'narrow restraint' exception condoned the company's non-competition agreement, which tax manager Raymond Edwards II signed in 1997. Five years later, banking corporation HSBC offered Edwards a job on the condition that he and Arthur Andersen terminate his non-compete contract. Edwards refused to sign the termination agreement, citing a requirement that he give up all future claims against the accounting firm, which had recently been indicted in connection with its work at troubled Enron Corp. Arthur Andersen then fired Edwards, and HSBC rescinded its job offer. Edwards sued both companies for interfering with his career.

Even though the court rejected the narrow restraint exception, lawyers were not surprised by the ruling, The Recorder says. "I think this is what most practitioners in California expected," said Jennifer Redmond, a partner with Sheppard, Mullin, Richter & Hampton.

Edwards v. Arthur Andersen (Cal. Aug. 7, 2008).

[Meredith R. Miller]

August 11, 2008 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Limericks of the Week: Walkovsky v. Carlton

Yellow_cab Walkovsky v. Carlton is a great case.  It always generates a good discussion of the public policy issues surrounding the limited liability protections attendant to the corporate form.  The facts are simple; the law is complex.  Guy gets hit by a cab.  The cab is operated by a small cab company.  That company is owned by Carlton.  Carlton owns a lot of cab companies, each of which has only one or two cabs in it so that he can take full advantage of the benefits of limited liability. 

In a rather deflating finding, the court dismissed the claim based on a strict application of New York's heightened pleading standards for fraud or fraud-like allegations. The court found that Walkovksy had not made adequate allegations to go after Carlton either through enterprise liability (i.e., treating all of the small cab companies as one big cab company) or by piercing the corporate veil.

I like this case so much, I wrote two Limericks about it.

Walkovsky v. Carlton

Walkovsky had his eye on the grail
Of piercing the corporate veil.
But Carlton won't yield
His liability shield:
The complaint was lacking detail.

Walkovsky was hit by a cab.
Would Carlton pick up the tab?
No, limited liability
Has social utility;
Undercaptialization is fab!

[Jeremy Telman]

August 11, 2008 in Famous Cases, Limericks, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Moral Damages Awarded in International Arbitration

In a recent NYLJ article, Emmanuel Gaillard provides a nice overview of the arbitration award in Desert Line Projects LLC, which granted an Omani company US $1 million in moral damages in a breach of contract dispute against the Yemen government. The article explains:

Although it is not common practice for a party to international arbitration proceedings to bring a claim for moral damages, the possibility of awarding such damages has never been questioned in international arbitration. "Moral" damage is distinguished from "material" damage that refers to damage to property or loss that can be assessed in financial terms. The codification work of the International Law Commission (ILC) refers to moral damage as including "such things as individual pain and suffering, loss of loved ones or personal affront associated with an intrusion on one's home or private life" (see ILC's Articles on the Responsibility of States for International Wrongful Acts ("ILC Articles"), Commentary of Article 31, at para. 5).

[Meredith R. Miller]

August 11, 2008 in Recent Cases | Permalink | TrackBack (0)

Shameless Self-Promotion: Medellin & Originalism

Months ago, I posted and posted and posted and posted about the Medellin v. Texas case and my concerns that if the U.N. Charter is non-self-executing and therefore without force as a matter of domestic law, the same might be said of the CISG.

Those concerns continue, and I have now written a piece about the case and the difficulties it raises in terms of U.S. participation in international treaty regimes. The article is available on SSRN here.

Here's the abstract:

In Medellin v. Texas, the Supreme Court permitted Texas to proceed with the execution of a Mexican national who had not been given timely notice of his right of consular notification and consultation in violation of the United States' obligations under the Vienna Convention on Consular Relations. It did so despite its finding that the United States had an obligation under treaty law to comply with an order of the International Court of Justice that Medellin's case be granted review and reconsideration. The international obligation, the Court found, was not domestically enforceable because the treaties at issue were not self-executing. The five Justices who signed the Chief Justice's Majority opinion, including the Court's self-proclaimed originalists, thus joined an opinion that construed the Constitution's Supremacy Clause without any serious consideration of its language or the history of its drafting, ignoring evidence of the Supremacy Clause's original meaning cited by the dissenting Justices.

This Article explores the meaning of originalism in the context of the Court's Medellin decision and contends that the Majority's opinion, while perhaps defensible on other grounds, cannot be reconciled with any identifiable version of originalism. Rather it is best understood as a decision reflecting the conservative Majority's political commitment to favor principles of U.S. sovereignty and federalism over compliance with international obligations, even when the consequences of such a commitment is to enable state governments to undermine the foreign policy decisions of the political branches of the federal government.

Ultimately, however, the Article concludes that Medellin's case never should have come before the Court. The President has a duty to "take Care that the Laws be faithfully executed." The Court determined that the Bush administration did not satisfy this duty by issuing an Executive Memorandum directing states to comply with the judgment of the International Court of Justice. That being the case, the President now must comply with his Take Care Clause duties by working with Congress to make certain that federal law compels compliance with the International Court of Justice's judgment. Indeed, this Article contends that the Medellin case is emblematic of the U.S. executive branch's broader failure to ensure that all treaties requiring domestic implementation are in fact implemented so as to avoid placing the United States in violation of its international obligations.

[Jeremy Telman]

August 11, 2008 in Recent Scholarship | Permalink | Comments (0) | TrackBack (0)