October 18, 2008
Contracts Limerick of the Week: Balfour v. Balfour
Mr. and Mrs. Balfour lived together in Ceylon for 15 years. While Mr. Balfour was on leave from his position in Ceylon and the two were living in England, Mrs. Balfour developed rheumatic arthritis. Her doctors suggested that the cool, damp climate of England was just the thing for her condition, and so she stayed behind when hubby returned to Ceylon. She was to remain in England for three months in the hope that her condition might improve. In the meantime, Mr. Balfour promised to send her 30 pounds a month. But once in Ceylon, Mr. Balfour proposed to sweeten the offer by extending their separation in perpetuity. He also neglected to pay her the 30 pounds a month. They were later divorced, but Mrs. Balfour sued to collect on what she took to be a contractual obligation to pay her the promised amount. The trial court found in Mrs. Balfour's favor, reasoning that Mrs. Balfour's agreement to define his obligation to support her at 30 pounds/month was sufficient consideration for his promise.
In Balfour v. Balfour, the Court of Appeal reversed. There were three concurring opinions in the case. Lord Warrington found no contract because he found no bargain. Lord Duke was discomfited by the prospect of endless litigation between spouses seeking to enforce promises that are part of ordinary domestic relationships. Lord Atkins stressed that the parties had no intention to enter into legal relations and that marital promises such as this one thus are not the types of promises that the law ought to enforce. In short, whether or not a promise is legally binding depends on the state of mind of the parties at the time the promise is made.
The poet takes some liberties and assumes that Mr. Balfour did not leave his wife solely based on an antipathy to the arthritic.
Balfour v. Balfour
Balfour gave in to his id,
And stopped paying his wife thirty quid.
His word has no force,
For, before their divorce,
The pair did not think that it did.
October 17, 2008
Now In Print
- Michael D. Cicchini, Broken Government Promises: A Contract-based Approach to Enforcing Plea Bargains, 38 N.M. L. Rev. 159 (2008).
- Mahmoud A. El-Gamal, Incoherence of Contract-based Islamic Financial Jurisprudence in the Age of Financial Engineering, 25 Wis. Int'l L.J. 605 (2008).
- Shahar Lifshitz, Oppressive-exploitative Contracts: A Jewish law Perspective, 23 J.L. & Relig. 425 (2007-2008).
- Meredith R. Miller, Contracting Out of Process, Contracting out of Corporate Accountability: An Argument Against Enforcement of Pre-dispute Limits on Process, 75 Tenn. L. Rev. 365 (2008).
- Alan N. Resnick, The Enforceability of Arbitration Clauses in Bankruptcy, 15 Am. Bankr. Inst. L. Rev. 183 (2007).
[Meredith R. Miller]
A Take on Clickwrap?
CHINO, CA—In an unprecedented and historic event Monday, the "I Am Under 18" button, an Internet security device which if selected restricts access to websites featuring adult content, was clicked for the first time ever. "I knew I could simply claim to be over 18 and continue onto my desired destination, but I also realized that I would have to live with that lie for the rest of my life," said local resident Garrett Kinley, 17. "I admit, I was curious to see what type of material I would find on www.juggworld.com, but that button was clearly placed there for a reason, and let's face it: 17 and three-quarters is not 18. I plan to return to the site three months from now, when I will be mature enough to handle its content." Moments later, Kinley's friend Dave Gerrard, 17, pushed Kinley aside and clicked the "I Am Over 18" button himself, at which point a tactical police unit broke down his bedroom door and arrested him.
[Meredith R. Miller]
Rapid Expansion Leads to Venti Triple Lease Breach
Having outgrown itself, Starbucks is in a slump. Back in July, it announced its first list of store closings - taking with it the life of our short-lived outfit in Central Islip, NY. And with the store closings, the WSJ reports that landlords are experiencing more than caffeine withdrawal (subscription required). The article reports:
A handful of property owners and developers have filed lawsuits alleging that the Seattle coffee giant owes them money for rent or other expenses on properties where the company has shut down a store or decided not to open one after entering a lease. At least seven lawsuits have been filed against Starbucks since last year, but the anger isn't limited just to litigants.
Starbucks, which is facing slow sales and weak earnings growth as customers cut back on lattes and Frappuccinos, intends to shut down more than 600 U.S. locations by early next year as part of a broader plan to revive the company.
The lease battles represent a turnabout for Starbucks, which has been one of the most sought-after retail tenants of the past decade. The chain helped draw other retailers to shopping centers and spent top dollar to get the best real estate during its rapid U.S. expansion.
Some landlords contend Starbucks is paying rent late or darkening stores before specifying the closure dates to make the landlords wary of a fight and to pressure them into letting the company out of leases for a price they deem too low.
Starbucks says that, in general, it is in compliance with its lease obligations and not aware of locations where it is behind on rent. The company isn't necessarily obligated to pay rent for sites it no longer plans to open. In court responses, Starbucks has denied many of the allegations in the lawsuits. In some cases, Starbucks has contended that the landlord didn't uphold its responsibility or that the lease gives the company the right to terminate it.
Starbucks' senior VP of U.S. store development explained: "We're not doing anything out of the norm of any other company that would seek to restructure its real-estate portfolio[.] Our No. 1 objective is to maximize shareholder value."
Apparently the lease language allows Starbucks to negotiate out of the leases but "landlords in general and liquidation professionals, based on their background knowledge, say there is no clear-cut way for the company to exit from all these leases."
Starbucks stated in July that it planned to spend $120 million to $140 million through early next year on lease terminations.
The summary from the McCain/Palin camp: in this economy, my friends, there is goin' to be a whole bunch of contract breachin'.
And the summary from the Obama/Biden camp: in this economy, some belt-tightening is going to be necessary, including your regular half-caf triple venti machiatto.
I wonder whether the Starbucks inside the restroom of the existing Starbucks is in arrears.
[Meredith R. Miller]
October 16, 2008
Non-Competes in Russia
Have you ever wondered whether non-compete clauses are enforceable in Russia? Yury Ivanov writes in the Moscow Times:
The main problem with a non-compete clause in Russia is that it may, in certain circumstances and in certain wordings, contradict with Article 37 of the Constitution of the Russian Federation. It proclaims: "Labor is free. Everyone shall have the right to free use of his labor capabilities and choice of type of activity and profession." This rule of law just generally provides freedom of labor, but the Constitution to a certain extent allows restriction of this principal rule. For example, Article 55 stipulates that "human and civil rights and freedoms may be limited by federal law only to the extent necessary for protecting the rights and lawful interests of other persons."
Russian law thus provides for many restrictions on infringement of confidentiality -- the Labor Code, Civil Code, and other federal laws concerning information protection and secrecy. These rules make employees liable only for divulging only confidential information. Unfortunately, in practice, confidential information is usually defined separately from a particular person, in our case the employee. Yet during the period of employment, the employee may obtain not only information separated from him but many other skills and knowledge, as described above. Moreover, the employee may not only divulge the information, but also use it in his own business or work for another employer. Furthermore, the non-compete clause is an independent covenant in any particular labor relationship and cannot be simply reduced to a confidentiality covenant.
[Meredith R. Miller]
October 15, 2008
ContractsProf Blogger Concurs
As the previous post indicates, our own blogger, University of the Pacific McGeorge School of Law's Miriam Cherry, is now doing double duty as a guest blogger on Concurring Opinions where she is blogging not only about contracts but about other things as well. You can read, for example, Professor Cherry's views on gloablizing the curriculum here. You can read her ideas for promoting faculty scholarship here. And here is Professor Cherry on technology and death.
So, if you are a fan of any combination of globalism, scholarship, technology or death, you should stroll over to Concurring Opinions and check out Professor Cherry's posts.
Those who are subscribers to the AALS listserve, or who have had other occasion to interact with Sid Delong (Seattle) will not be surprised to see an example of his razor-sharp wit, but it was still a surprising amount of fun to see him take on the topic of “statutory poetry” in a short essay appearing in the Journal of Legal Education. I had no idea that Sid could find poetry in the Model Rules of Professional Responsibility, 1.17, comment 13, yet he has:
This Rule applies to the sale of a law practice by representatives of a deceased, disabled, or disappeared lawyer.
Sid comments: “[D]isappeared lawyer.’ What poignancy lies in that phrase! The image triggers a flood of allusion: Judge Crater, the Chesire cat. And consider the prosodic significance of the alliterative series ‘deceased, disabled, or disappeared.’ One cannot help but wonder what additional alternatives the poet considered and rejected: dissipated, diseased, demented, despondent, depressed, degenerate, dejected, defunct.” In the rest of the essay Sid has fun with the UCC and the bankruptcy code, noting that some of his poetry analysis “confirms what many have long suspected: Revised Article 9 was drafted not by human beings at all, but by non-English speaking robots[.]” The whole Essay is highly recommended (apparently not online except for the table of contents, but free in a faculty mailbox near you) especially if you are feeling in a mood that is either curmudgeonly or poetic (or both).
[Miriam A. Cherry / Cross-posted at Concurring Opinions]
October 14, 2008
Business Associations Limerick of the Week: Bayer v. Beran
Alas, I found no public domain images of Jean Tennyson, wife of Camille Dreyfus, who was president of the Celanese Corporation at the time it decided to promote its product (which is not, I repeat, not rayon) by sponsoring a classical music program on radio intended for the discriminating ears of those who might be inclined to care about the difference between rayon and celanese. The image to the left might help us imagine Ms. Tennyson in her prime. In Bayer v. Beran, plaintiffs challenged the corporation's decision to promote its products through a radio program featuring the boss's wife. Even if the decision to spend $1 million on a radio show was justified, why not feature popular music?
The case illustrates the standard of review that applies to claims that board members violated their duty of loyalty due to a conflict of interest in the challenged transaction. Interestingly, in this case, the Board had no conflict of interest, since only one Board member stood to gain financially from a decision to hire Jean Tennyson. Still, the court treated the situation as one in which the entire Board was interested. In short, this was a rare case in which a Delaware court recognized structural bias in such a transaction. It did so in this case because the company really was Mr. Dreyfus's creation, and the Board members owed their positions to him.
The decision to have a classical music program was accorded the protections of the business judgment rule. The decision to hire Ms. Tennyson was subjected to a heightened standard, total fairness. The burden was placed on the Board to demonstrate that the decision to hire Ms. Tennyson was in the best interests of the corporation and not simply designed to further her musical career. Because Ms. Tennyson was found to be a "competent" singer, and her pay was actually somewhat lower than that of the other singers, the court found the transaction fair. Those interested in listening and judging for themselves can pay for the opportunity to hear Ms. Tennyson singing Verdi, in a duet featuring Mario Lanza, here.
Bayer v. Beran
The Bayer v. Beran court teaches
That a firm does not commit breaches
When it employs
A director's wife's voice . . .
Unless she emits only screeches.
The Suit that Could Have Been: Citibank v. Wachovia
The Wall Street Journal Law Blog is in mourning. "Oh what fun it could have been," laments the blog. We haven't had a knock-down, drag-out tortious interference with contractual relations claim like this since the glory days of the Texaco-Pennzoil fight over Getty Oil.
Citigroup thought it had a deal to buy Wachovia's banking operations for $2.2 billion. Instead, Wachovia agreed to permit Wells Fargo to purchase all its operations for $15.4 billion. The case was filed in the New York Supreme Court's Commercial Division, where it landed on Justice Ramos's docket. The complaint alleged causes of action for breach of contract and tortious interference with contract and sought specific performance, injunctive relief and damages of (pinky finger rising to the corner of the mouth) $60 billion. Justice Ramos extended the deadline on an exclusivity agreement between Citi and Wachovia in order to preserve the status quo until the matter could be decided.
Meanwhile, Wachovia filed its own suit in Federal District Court, relying on some provisions of the recently adopted $700 billion bail-out bill (the Emergency Economic Stabilization Act of 2008, or "EECS!!"). Tulane Law's Elizabeth Nowicki, advising the Law Blog, suggested that Wachovia's reliance on the Bail Out bill was misplaced. Over the weekend, James McGuire of the New York State's Appellate Division, reversed Justice Ramos's order, in part because the emergency hearing was held in Justice Ramos's Connecticut home and it was unclear that a New York State Justice could issue an order from outside of his own jurisdiction. Justice McGuire gave additional reasons, but I like that one. Also over the weekend, the Charlotte News & Observer reported that, in a suit brought by Wachovia shareholders, a North Carolina state court judge entered a temporary restraining order enjoining Citigroup from enforcing its exclusivity agreement.
And then, on Thursday, Citigroup announced that it would not oppose the Wachovia/Wells Fargo merger. It still intends to pursue damages claims on behalf of its shareholders. That's good news for litigators, who will be racking up the billable hours on the case. Professor Nowicki thinks there might be some meat to Citigroup's claims against Wachovia, but the Bail-Out Bill might just protect Wells Fargo from liability.
October 13, 2008
Contracts Limerick of the Week: Sullivan v. O'Connor
Sullivan v. O'Connor involves a promise by a doctor to provide the plaintiff with a nose that "would enhance her beauty and improve her appearance." However, after three surgeries, the plaintiff emerged with a nose that was disfigured and deformed (as the photo to the left illustrates). She also experienced both mental and physical pain. Plaintiff sued both for medica malpractice and for breach of contract. The jury found for the doctor on the malpractice claim but for plaintiff on the breach of contract claim. She was awarded damages in the amount of $13,500.
This verdict was upheld on appeal, with the Massachusetts Supreme Court ruling that plaintiff was entitled to recover her out-of-pocket expenses ($622.65), for the worsening of her condition and for pain, suffering and mental distress involved in the third operation. Ducking the difficulty of reconciling such damages with contracts doctrine, the court found such harms compensable as either expectancy or reliance damages.
To be honest, I never much cared for this case or its hairy-handed twin, Hawkins v. McGee. They have, for me, the musty scent of a now abandoned pedagogy:
Still, even if legal pedagogy has moved on, the cases are with us -- and yes, they do raise interesting damages issues. Accordingly, a Limerick for Sullivan.
Sullivan v. O'Connor
Assessing a botched operation
Requires tort-like harm calculation.
Suffering and pain
Invade contracts domain
Both as reliance and expectation.