September 26, 2008
Now in Print
- Stephen D. Dunn, The Next Reform: The State of Contractual Freedom in China, 9 Austl. J. Asian L. 289-306 (2007).
- Norman Otto Stockmeyer, To Err is Human, To Moo Bovine: The Rose of Aberlone Story, 24 T.M. Cooley L. Rev. 491-502 (2007).
[Meredith R. Miller]
NY Appellate Court: End User Has No Case Against Manufacturer
On this appeal, we are asked to consider whether a dissatisfied end user of a computer system may maintain a cause of action against the system's manufacturer sounding in breach of contract where the end user did not purchase the system from the manufacturer, but from an authorized dealer. We also consider whether, in the absence of privity between the end user and the manufacturer, the end user may nonetheless maintain a cause of action against the manufacturer to recover damages for breach of implied warranties, or breach of express warranties contained in the manufacturer's brochure, a written price quote, an on-line digital licensing agreement, and a seller's distribution agreement. We hold that, in the absence of privity, the end user has no cause of action against the manufacturer sounding in breach of contract or breach of implied warranty. We conclude, however, that the end user has a cause of action against the manufacturer to recover damages for breach of express warranties contained in the brochure, the price quote, and the seller's distribution agreement. Since the end user here did not personally accept, agree to, or rely upon the terms of the on-line digital licensing agreement, she has no cause of action against the manufacturer to recover damages for breach of the express warranties contained therein. For the same reason, the manufacturer may not invoke the provisions of the digital licensing agreement to limit or restrict the express warranties contained in the brochure, the price quote, or the seller's distribution agreement.
Jesmer v. Retail Magic, Inc., __ A.D.3d ___ (2d Dep't Sept. 9, 2008).
[Meredith R. Miller]
Bix on Consent
Contracts are usually said to be different from things like crimes and torts in that they impose duties based on the consent of the party. We're all bound by duties of tort law whether we choose to be or not, but at least in theory we are not subject to contractual duties unless we have consented to them.
The problem, as all first-year contracts students quickly learn, is that theory and practice don't fit all that well together. There are many situations in contract law where the law imposes duties even where it's clear a party has not consented, and many others where the law excuses performance even from those who have agreed.
So what exactly is contractual "consent"? Minnesota's Brian Bix takes an interesting whack at the question in Consent in Contract Law:
Here's the abstract:
Consent, in terms of voluntary choice, is - or, at least, appears to be or purports to be - at the essence of contract law. Contract law, both in principle and in practice, is about allowing parties to enter arrangements on terms they choose - each party imposing obligations on itself in return for obligations another party has placed upon itself. This freedom of contract - an ideal by which there are obligations to the extent, but only to the extent, freely chosen by the parties - is contrasted to the duties of criminal law and tort law, which bind all parties regardless of consent. At the same time, consent, in the robust sense expressed by the ideal of freedom of contract, is arguably absent in the vast majority of the contracts we enter these days, but its absence does little to affect the enforceability of those agreements. Consent to contractual terms often looks like consent to government: present, if at all, only under a fictional (as if) or attenuated rubric.
This article explores a variety of topics relating to consent, and the role it plays in contract law doctrine and theory. The article begins by a brief examination of the nature of consent, then turns to contract doctrines that turn on the alleged absence of consent (e.g., duress and undue influence); contract rules and principles (e.g., implied terms) that turn on hypothetical consent; the challenges to consent that arise from electronic contracting and bounded rationality, and theories of contract law that emphasize consent.
If You Can Put a Man on the Moon . . .
. . . settling a dispute over a government contract ought to be easy, right? Maybe, maybe not. The two contractors fighting over NASA's proposed Constellation moon-rocket project have apparently called a "weeklong truce" in their battle. United Space Alliance, the biggest contractor at Kennedy Space Center, is suing Alliant Techsystems, claiming that Alliant had promised it a long-term subcontract to work on the Moon missile project.
You can already hear the jokes: "The bad news is that NASA has had to scale back the project so that the Moon rocket will only travel one way. The good news is that the lawyers will be flying the spacecraft."
September 25, 2008
Letterman Resorts to Self Help
On Wednesday, John McCain announced that he was suspending his Presidential campaign so that he can help fix the current financial crisis. As a result, he had to back out of his promised appearance on the "Late Show with David Letterman".
According to the Los Angeles Times, McCain told Letterman that he had to cancel his appearance on Letterman's show so that he could rush to the airport and head to Washington. However, during the taping of his show, Letterman learned that McCain was not only still in New York, he was a few blocks away preparing to be interviewed by Katie Couric.
Letterman seems to viewed McCain's conduct as an actionable breach of contract. Rather than filing a complaint, he attempted to extract damages from the politician with the comedic tools at hand: The L.A. Times reports Letterman's commentary on the live feed that the "Late Show" played of McCain getting ready for his interview with Couric.
“He doesn’t seem to be racing to the airport, does he?” Letterman said, shouting at the television monitor: “Hey, John, I got a question! You need a ride to the airport?”
Letterman didn't stop there. He devoted much of the show to berating McCain for jilting him and for not sending Vice Presidential nominee, Sarah
Palin in his stead.
Apparently, Letterman is not the type to just let things go. According to the Los Angeles Times, Letterman devoted considerable air time to savaging the McCain campaign yet again Thursday night.
Lehman Multi-Lender Contracts Under Scrutiny
The bankruptcy of Lehman Brothers has caused shockwaves around the world, and those who participated in multi-lender deals the venerable investment banking house are looking anxiously at their contracts to find out just what they’re facing. Lawyers Merritt Pardini, Timothy Little and Sheri Chromow of Chicago’s Katten Muchin Rosenman LLP run down a list of the looming questions in a recent client alert, United States: Implications Of The Lehman Bankruptcy Entities On Multi-Lender Financings. (Free registration required.)
The school is on a $120 million kick to build up it’s law school facilities. Sounds pretty good, especially if you’re a football fan. The contact is Professor Gary Gildin.
Better Resolution for Insurance Disputes?
When an insurance company wrongly denies your claim, or gives you less than you ought to get, you have an arsenal of legal weapons available to you. Fact is, though, that most of these weapons are unrealistic for ordinary people, says Minnesota’s Daniel Schwarcz in a new paper, The British Approach to Consumer Financial Disputes: A Model for Reform in Insurance Law and Beyond.
Schwarcz argues that neither litigation nor alternative dispute resolution does a good job of redressing wrongful denials, and suggests that U.S. policy makers might want to look at a British model instead. Here’s the abstract:
Much of insurance law and regulation is concerned with compensating consumers who have been wrongly denied coverage. But policyholders nonetheless have relatively few realistic options for challenging an insurer's adverse coverage determination. Litigation is often too slow and costly for those who have recently suffered significant financial loss. Meanwhile, the alternative dispute resolution options that do exist - such as the mediation services that insurance regulators offer or the existing variants of insurance arbitration - are generally either ineffective or unavailable for most disputes. This Article proposes a new way forward by looking to the United Kingdom's innovative Financial Ombudsman Service, which operates in parallel to the British regulatory agency and is devoted solely to resolving consumer financial disputes. It argues that the comparative success of the Financial Ombudsman Service is attributable primarily to the ways in which it blends elements of the individual, uncoordinated insurance ADR schemes that are used in America. As such, the Article concludes that American lawmakers can significantly improve insurance compensation by strategically rethinking the institutional architecture of insurance dispute resolution. It also suggests that the British Financial Ombudsman Service may offer a model for improving consumer dispute resolution in realms beyond insurance.
September 24, 2008
After Ten Years, They're Apparently Fed Up
Some contract disputes are simple. Some aren't. The $100 million breach-of-contract dispute between American Skiing Co. and Wolf Mountain Resorts over Park City's The Canyons resort is apparently one of the latter. Asked what the litigation is about, a lawyer for ASC said that it involves "many, many different breaches in play, with 10 years of dealings between the parties." Exactly what the breaches are will presumably emerge during discovery, since (as an opposing lawyer notes), "We're all fighting over the same ski resort that is worth quite a lot of money."
You Can Lead a Kid to Farnsworth, But You Can't Make Him Think
There seems to be a gulf, says Suffolk’s Jeff Lipshaw, between practicing lawyers and the professors who taught them. There is another gulf between the practicing lawyers and their clients. In a new "thought piece," Law's Illusion: Scientific Jurisprudence and the Struggle with Judgment, Lipshaw argues that it may be that single thing most important to a lawyer who can solve a client’s problem is something that just can’t be taught: judgment. Here’s the abstract:
Why are there two fairly clear chasms that affect practicing lawyers - one between themselves and their clients, and one between themselves and their professors? Both have to do with the irreducibility of judgment - perceiving regularities, applying rules to new situations, and deciding in advance what to do. I suspect Kant was right over two centuries ago, and there has not been much progress theorizing about it since then (even after the behavioral theorists like Tversky and Kahnemann and popular expositors like Malcolm Gladwell); judgment, either the inductive inferences from what we observe to what we generalize, or the leap from what we generalize to what to do next, is not teachable, but only achievable through practice. Practicing lawyers are reductivists in comparison to their clients - reducing the complex world through the science of law to a model; professors are reductivists in comparison to their students - either reducing the practice to a rational science, or avoiding the question of judgment at all.
Update: Dan Rather's Breach of Contract Action
We've mentioned before that Dan Rather has sued CBS for breach of contract. Here's an update from the Austin Business Journal:
A New York judge ruled Monday that former CBS anchor and longtime newsman Dan Rather can proceed with a $70 million lawsuit against the network for firing him, Bloomberg reports.
Rather, a native Texan who maintains a residence in downtown Austin, filed the complaint alleging breach of contract in 2007. New York Supreme Court Judge Ira Gammerman ruled in April that depositions could be taken in the case. Gammerman said on Monday that Rather can sue over claims that the network damaged his reputation when it fired him. But Gammerman said the newsman cannot sue CBS Corp. for fraud, or the one-time parent company Viacom Inc. on claims it interfered with his contract.
Rather’s attorney Martin Gold told Bloomberg: “I think the breach-of-contract claim is essentially a slam dunk, there’s no defense to that.”
James Quinn, a lawyer for CBS, told the news agency he intends to ask the judge for a pretrial ruling dismissing the remaining breach-of-contract and breach-of-fiduciary duty claims against CBS after depositions and discovery have been completed.
[Meredith R. Miller]
The Blog Post to Nowhere: Political Economy and the Convenience of Contract
You may have heard, Governor Sarah Palin said "thanks but no thanks" to the "bridge to nowhere" in Ketchikan, Alaska. Well, our fourth branch of government, CNN, has uncovered that Gov. Palin did, however, say "yes" to a "road to nowhere." In all fairness, the road to nowhere was to lead to the bridge to nowhere that was never built.
In an act of courageous reporting, CNN traveled to the site of the road to nowhere, and tried to find someone to take the position that, once the bridge project was cancelled, there was still good reason to spend millions of taxpayer dollars on the road that would have lead to the bridge. As you'll see in the clip (above), they found Meg Stapleton, a McCain-Palin spokesperson, who said that Gov. Palin had no choice - because the federal money was earmarked for the road, and the contract for the road's construction had already been signed before Palin took office. It is beyond my expertise to speak about federal earmarks, though I suspect that a State can return the money once the need for it is obviated, no questions asked. The point about an existing contract is, of course, more interesting to me -- at least, to the extent that it becomes a matter of political convenience, and an unconvincing excuse. People change their minds, why can't governments?
Even before the recent downward spiral of our financial markets, politicians have analogized the federal purse to the home budget. That is, just as each American family's budget, the government shouldn't be spending more than it can afford. (Which, of course, is in part to blame for our recent mess - that both the American family and the government are spending more than they can afford). But, I digress. The point: government contracts are no different than our own, private contracts, and people renege on deals all of the time. If I hired a contractor to build a fence around a pool that I was going to construct in my backyard, but then decided against building the pool, I would also renege on the contract to construct the fence. Sure, I might have to pay the contractor damages (likely, forfeit a deposit), but certainly not the full amount of original fence contract. Similarly, I'd rather pay a few million in taxpayer money in damages to a road contractor than more millions for a road to nowhere.
I wonder how effective it is as a political device to say to the American people that "a contract had already been signed." I wonder if the societal norm is to view a contract as an iron clad commitment. Or, is a contract seen as something there is always a way to weasel or pay your way out of? I can't be sure, but I suspect the latter. Which would make "the contract was already signed" an unconvincing political line.
[Meredith R. Miller]
Stop Eating My Intellectual Property!
The recipient of the produce contained in this package agrees not to propagate or reproduce any portion of the produce, including (but not limited to) seeds, stems, tissue and fruit.
Thanks to Michigan's Bruce Frier for tipping me off. Bruce would appreciate learned opinion on the enforceability of such a EULA.
September 23, 2008
Law v. Social Pressure in Medieval Business
How do societies develop methods of enforcing commercial dealings? That’s a subject that both economists and historians have investigated over the years. They've paid particular attention to the "Maghribi," Jewish traders in the Islamic Mediterranean of the Middle Ages. Stanford’s Avner Greif (left) has written about them extensively, suggesting that they relied on a "multilateral reputation mechanism" in a closed society to enforce dealings, rather than a formal legal system, and arguing that this left them at a disadvantage vis-a-vis the more legalistic Italians.
Earlier this year, two Cambridge economists, Jeremy Edwards and Sheilagh Ogilvie, took issue with that claim in a a paper that argued that Maghribis did, in fact, deal extensively with outsiders and used formal legal mechanisms to do so.
Greif has now responded with Contract Enforcement and Institutions Among the Maghribi Traders: Refuting Edwards and Ogilvie. You probably need to be an expert to follow the nuances, but both articles are worth a read. Here’s Grief’s abstract:
Edwards and Ogilvie (2008) dispute the empirical basis of the view (Greif, e.g., 1989, 1994, 2006) that a multilateral reputation mechanism mitigated agency problems among the eleventh-century Maghribi traders. Based on anecdotal evidence and an interpretation of the secondary literature they assert that the relations among merchants and agents were law-based. This paper refutes this assertion based on comprehensive quantitative analyzes of the documentary corpuses and a careful review of the documents and the literature Edwards and Ogilvie cite. The assertion that the legal system had a major role in supporting trade is based on unrepresentative and irrelevant examples, an inaccurate description of the literature, and a consistent misreading of the few sources Edwards and Ogilvie consulted. The claim that merchants' relations with their overseas agents were law-based in this historical era is wrong.
Among the recent and new quantitative findings reported here is that (1) less than one percent of the documents' content is devoted to legal activity on any matter. (3) The legal system was mainly used for mandatory, non-trade related matters. (Edwards and Ogilvie constantly present mandatory legal actions in non-trade related legal cases as evidence for voluntary legal actions in matters pertaining to trade.) (3) The documents reflect thousands of agency relations but there are less than six court documents possibly reflecting its use in agency disputes. (4) A ten percent random sample of all the documents finds no trade-related legal actions among Maghribis beyond those in the court documents. (5) About 75 percent of agency relations were not based on a legal contract. The paper also reaffirms the accuracy of Greif's documentary examples and sheds light on the roles of the legal system and reputation mechanism during this period. The empirical basis for the multilateral reputation view is stronger than originally perceived.
No, Really, It Has Nothing to Do With the Market Downturn
A Russian hedge fund manager is suing the redeveloper of New York's Plaza Hotel, claiming that the $53.5 million penthouses he bought in reliance on computer modeling are unsatisfactory and "attic-like." Andrei Vavilov plunked down $10 million as a down payment to buy both penthouses in the renovated hotel, planning to make one giant condo overlooking Central Park.
The developer, however, is fighting back, claiming that Vavilov's claimed dissatisfaction is a sham and suing him for libel.
Business Associations Limerick of the Week: Brehm v. Eisner
Michael Eisner, Disney's CEO for 20 years, hired his friend, the celebrated Hollywood agent, Michael Ovitz, to be Disney's President. The hire was a disaster from the start. I don't think it was really Ovitz's fault. I blame Eisner. Eisner's subordinates all took an immediate dislike to Ovitz and, according to James Stewart's Disney War, refused to answer to him. Eisner did nothing to protect his #2. He threw Ovitz to the dogs.
In addition, there were all sorts of irregularities in the hiring process. Ovitz had packed the board with loyal supporters. Nobody really looked very closely at Ovitz's employment agreement, including the compensation expert retained by the company. Indeed, by the time Disney's Board too a look at the agreement, Eisner had already told Ovitz he had the job. So many within Disney, as well as many shareholders, were shocked when Ovitz's severance package was valued at around $140 million, far more than he was likely to have made if he had not been fired within two years of taking the position.
In Brehm v. Eisner, the court stressed that when evaluating the decisions of a corporate board, the court reviews only the process, not the board's substantive business decisions. And since under Delaware law, a board is permitted to rely on an expert's opinion, Disney's Board could not be sued for a breach of the duty of care, even though the compensation expert had not done a very good job. That ruling was eventually reversed, since it turned out that there was no proper expert report supplied to and relied on by the Board. However, after a couple more years of litigation, the end result was the same. The main claim was that the Disney Board breached its duty of care, and that claim was dismissed.
I have often wondered if plaintiffs could have made some sort of breach of loyalty claim against the officers of the corporation who refused to answer to Ovitz. Weren't they putting their own interests ahead of those of the corporation? James Stewart's book suggests that Ovitz had some pretty good ideas about directions Disney might have taken in the late 1990s, but he couldn't implement any of them because nobody would work with him.
In any case, while the court found the process sound, I have my doubts . . . .
Brehm v. Eisner
That board meeting, it was a quickie,
And Ovitz left sporting a hickey.
Though questions abound,
The process was sound.
Did Ovitz slip Disney a mickey?
September 22, 2008
Joy at Frank's Return
Regulars to this blog will notice the return of a number of familiar by-lines. You will be seeing a lot more of Keith and Miriam. And I am especially delighted to have Frank back posting regularly on this blog. Frank was the one who invited me to join the blog, and it's been a terrific experience, made much easier by all the work that Frank and my co-bloggers did to set up the blog before I came on board.
Words cannot describe my happiness. So if you see me walking around with a stupid grin on my face, this is the scene playing out endlessly in my head:
There's NO Crying in Blogging!
As you'll see from today's posts, its good to have our faithful blog editor Frank Snyder "back in the saddle." (His words, and not my own cheap reference to his ill-fated altercation with a quarter horse named Moses).
Among other things, Frank has been busy with his beloved Texarkana Gunslingers. As I imagine it, Hanks was channeling Frank in this clip:
Inspiring to base-ballers and bloggers alike!
[Meredith R. Miller]
Weekly Top 10
After a lengthy hiatus and with a semester still fairly new, here are the top ten most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending September 21, 2008.
1 Freedom of Contract, David E. Bernstein (Geo. Mason).
2 Contract Enforcement and Institutions Among the Maghribi Traders: Refuting Edwards and Ogilvie, Avner Greif (Stanford-Econ)
3 Consent in Contract Law, Brian Bix (Minnesota).
4 Law's Illusion: Scientific Jurisprudence and the Struggle with Judgment, Jeffrey M. Lipshaw (Suffolk).
5 The British Approach to Consumer Financial Disputes: A Model for Reform in Insurance Law and Beyond, Daniel Schwarcz (Minnesota).
6 Resolving the Foreclosure Crisis: Mortgage Modification in Bankruptcy, Adam Levitin (Georgetown) & Joshua Goodman (Columbia-Econ).
7 The Right Not to Be a Genetic Parent?, I. Glenn Cohen (Harvard).
8 Intellectual Property and Restrictive Covenants, Orly Lobel (San Diego).
9 Spanish and International Judicial Interpretation of CISG, Anselmo M. Martinez Canellas (Islas Baleares).
10 To Err is Human, to Moo Bovine: The Rose of Aberlone Story, Norman Otto Stockmeyer (Thos. Cooley).
WNE Law Expands
Congrats to Western New England College's School of Law, which last week unveiled a new $5.5 million addition to the school's S. Prestley Blake Law Center. It marks a major expansion to the Springfield, Mass. campus. From the release:
The expanded Law Center includes a new 10,500-square-foot wing and entrance that provides a gateway to the rest of the campus. The entrance, with its soaring marble pillars, leads to a two-story lobby that serves as a primary gathering space for students and the hosting of Law Center events. "This Law School is a dynamic place; new ideas march through its halls with breathtaking pace," said Dean Arthur R. Gaudio. "We needed an equally dynamic venue where professors and visiting scholars could present those ideas to collected groups of students and faculty."
Besides the new addition, the biggest change students and visitors will notice is the restructured law library, which now extends to all three floors of the Law Center. Along with the new space comes a new user-friendly way of accessing library materials, with patrons able to take most books out of the library area and into any part of the Law Center. "You can go in and out of the library and into the Law School at any level," said Gaudio. "The Law Library is now as large as the entire Law School building." Western New England College School of Law is one of only a few schools in the country to try this cutting edge approach to access. Materials must still be checked out to leave the building, with sensors at the exits to the building monitoring the library's collection.