ContractsProf Blog

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

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Friday, November 14, 2008

Now in Print

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- Albert Choi and George Triantis, Completing Contracts in the Shadow of Costly Verification, 37 J. Legal Stud. 503 (2008).

- Jonathan Riley, Embracing the Principle of Growth: A Call for an Expansion of the Doctrine of Fortuitous Event in Louisiana Law (Associated Acquisitions, L.L.C. v. Carbone Props. Of Audubon, L.L.C., 962 So. 2d 1102, 2007), 35 S.U. L. Rev. 413 (2008).

[Meredith R. Miller]

November 14, 2008 in Recent Scholarship | Permalink | TrackBack (0)

Thursday, November 13, 2008

David Defeats Goliath in the Fourth Circuit

Goliaths_headAs WSAZ.com reports, Sam Juniper, a West Virginia man, sued his former employer to enforce the employer's promise that his medical benefits would not change after he retired in 2000. In 2002, he received a $40 invoice relating to some blood work after the former employer switched insurance providers. The case went all the way to the United States Court of Appeals in Richmond, which affirmed the district court's award of damages to Mr. Juniper in this per curiam opinion. Unfortunately, the opinion merely adopts the district court opinion, which I have been unable to locate online.

I note that the wages for giant-slaying have been suffering from a steady decline in the Common Era. David became King of Israel. Mr. Juniper is still awaiting his check for $40, which he plans to frame and mount. Still, there has been some improvement in the lives of giant-slayers. As the image at left illustrates, David's trophy was nasty. Bathsheba would never have put up with having that thing hanging on her living room wall.

[Jeremy Telman]

November 13, 2008 in In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 12, 2008

Keith Olbermann Contract

Keith_olbermann__smallRemember the Simpsons episode in which Homer invests in pumpkin futures and blithely predicts that the sky's the limit as the calendar moves into November? Well, no matter. Fresh from a huge spike in ratings for Keith Olbermann's show "Countdown with Keith Olbermann," as the New York Times reports, MSNBC has torn up its 4-year contract with Olbermann (pictured) entered into last year and replaced it with one that is almost twice as rich. Olbermann will now earn $7.5 million a year through the next Presidential elections in 2012.

Operating on the assumption that its viewers could never tire of Keith, the network also announced that Olbermann will play a prominent role in all major news events and will be a co-host of NBC's "Football Night in America." Chris Matthews could not be reached for comment. No offense to Keith; I enjoy a slightly unhinged political rant as much as anybody, but it's as if MSNBC believed that viewers became hooked on "Countdown" during the election season and will be unable to shake the addiction. I started watching the show occasionally during the last weeks of the campaign and I haven't thought about going back there since election day. $7.5 million a year! That's extraordinary! Where do they think Keith Olbermann will go if they don't pay him more than the $4 million a year they agreed to in February 2007? CNN? Fox News?

Moreover, as MSNBC's former president, Erik Sorenson, told the Associated Press, with reference to Olbermann and fellow MSNBC host, Rachel Maddow,

That said, the wrong guys won the election for MSNBC. If McCain won, Keith and Rachel would have a lot to talk about. The audience would have a lot to be angry about and focused on.

Here's to a decline in anger over the next four years!

[Jeremy Telman]

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

Tuesday, November 11, 2008

Business Associations Limerick of the Week: Grimes v. Donald

Nietzsche Grimes v. Donald always makes me think of Nietzsche's Unzeitgemaesse Betrachtungen, cleverly translated as "Thoughts out of Season."  Grimes brought a shareholder derivative suit challenging an executive compensation scheme that permitted the CEO (Donald) to declare himself "constructively terminated" if he felt that the board was interfering with his management of the company.  Such a declaration would result in rich benefits to Donald.  Grimes claimed that the scheme amounted to an abdication by the board of its fiduciary responsibilities.  He also challenged the compensation as excessive.  The former claim, the court held, was direct; the latter, derivative. 

The case is of interest because of its discussion of Delaware's demand requirement.  We need the derivative suit mechanism to permit shareholders to hold boards of directors accountable, but we can't permit each shareholder to drag a corporation into court each time a shareholder disagrees with a board's decision.  Thus, shareholders are required to bring a demand to the board so that the board can first determine whether it is in the corporation's interest to pursue the claim. 

Demand is almost always refused and such refusals are subject to the business judgment rule.  So a well-counseled plaintiff will always claim that demand is excused as futile -- e.g., because a majority of the members of the board have an interest in the challenged transaction and cannot be expected to pursue a claim against themselves.  For reasons that are unclear, Grimes made demand and, after it was refused, he now sought to make all the arguments he should have made at an earlier point in the litigation. 

The Chancellor found that by making demand, Grimes had essentially conceded that demand was not excused.  The Delaware Supreme Court affirmed, noting in effect that his thoughts regarding demand futility were rendered out of season.

Grimes v. Donald

The payments to Donald were grand,
So Grimes made the required demand.
In findings most reasonable
The court found unseasonable
Grimes' claims, and its judgment will stand.

[Jeremy Telman]

November 11, 2008 in Famous Cases, Limericks, Teaching | Permalink | TrackBack (0)

Monday, November 10, 2008

Posner on the "Mercury-Like Slipperiness of Indiana Law"

Richardaposner It is good see Judge Posner in such good form.  His recent opinion in Classic Cheesecake Co., Inc. v. JP Morgan Chase Bank made me laugh out loud. [Note to self: avoid reading Posner during the sermon!]  The facts of the case are pretty simple.  Classic Cheesecake approached the bank seeking a loan so that it could establish a distribution center in Las Vegas for its cheesy comestibles.  There were some difficulties, in part because one of the Classic Cheesecakes' principals had some outstanding student loans.  This difficulty was apparently quickly overcome, and at that point a bank vice president named Dowling informed Classic Cheesecake that the loan was a "go," although she also informed them that the bank was not yet ready to issue the loan.

In fact, the loan was very far from a "go,"  It was in fact closer to a "stop."  Dowling's superior had expressed significant issues and concerns relating to Classic Cheesecake's financial structure and history.  The loan was denied about three weeks after Dowling called it a "go."

Classic Cheesecake sought to enforce an oral agreement to provide the loan based on Indiana's exception to the Statute of Frauds (SoF).  Indiana's SoF requires that agreements to loan money be in writing.  There is a common law exception to that rule in cases where failing to enforce the agrement would produce an "unjust and unconscionable injury and loss."  Now, Judge Posner could have made very quick work of this case, because it is not a close call.  Posner goes to the trouble of distinguishing the facts of this case from those in which reliance on an oral promise was significant enough to at least survive a motion for summary judgment.  But he doesn't really need to, since in his view the reliance in this case was simply not reasonble.  The reliance in this case "is more easily based on hope than on a promise" and thus could not be called "reasonable."  The facts of this case would not, according to Judge Posner, even support a claim for ordinary promissory estoppel, and the Indiana standard, whatever it is, involves some kind of enhanced promissory estoppel. 

And there the fun begins.  Judge Posner begins by pointing out that the Indiana standard is vague (is "unjust" different from "unconscionable"?) and redundant (how does "injury" differ from "loss"?).  How did we get into this mess?  I'll let Judge Posner answer that one:

The particular erosive process that culminates in the doctrine of "unjust and unconscionable injury and loss" began -- where else? -- in an opinion by Justice Traynor, Monarco v. Lo Greco, 200 P.2d 737 (Cal. 1950), that allowed the statute of frauds to be circumvented by a claim of promissory estoppel.

Justice Traynor's creation caught on and developed until it landed in Indiana in its current muddled form.  Posner marches through the various Indiana cases that have invoked and variously explicated the standard.  He emerges unenlightened as to the meaning of the relevant language, which he finds  "confusing rather than clarifying."  Nonetheless, he concludes that the cases establish the following:

The more protracted the period during which reliance costs are being incurred, the stronger the inference that the oral promise was as the plaintiff represents it to be; for had there been no promise the plaintiff's conduct -- his immense reliance cost relative to his resources would be incomprehensible.

Judge Posner then proceeds, in a manner that would be of great interest to those who attended the recent conference at the University of Chicago or are otherwise familiar with Judge Posner's trochaic take on the issue of Fault in Contract Law.  Contract law is perfectly reasonable, Judge Posner insists, and that reasonableness is not well reflected in words such as "unconscionable" and "unjust."  Rather it reflects a compromise between the" value of protecting reasonable reliance and the policy that animates the statute of frauds" by requiring that a party seeking to enforce an oral promise despite the SoF "prove an enhanced promissory estoppel."  We do not enforce oral promises because the conduct of the promisor "shocks the conscience," although it may well do so, but because the conduct of the parties is best explained by the existence of a oral promise.

[Jeremy Telman]

November 10, 2008 in Recent Cases | Permalink | Comments (1) | TrackBack (0)

Contracts Limerick of the Week: Carroll v. Beardon

Van_gogh_the_brothel_2Carroll is a great public policy case. It involves the sale of a brothel in Montana. The purchase price was in the neighborhood of $50,000, even though the property itself was worth only $6000. Moreover the mortgage was to be paid back in monthly installments, with the new madame paying the old madame $2000/month during the busy harvest months but only $1000 during the slower Winter and Spring.

If the court were to regard this case as I have described it, the contract would have to be illegal and therefore void and unenforceable. But the wise justices of the Supreme Court of Montana clearly recognized a well-established institution when they saw one. They left it to law enforcement officials to shut down the brothel if they saw fit to do so. In the meantime, Montana borrowed some law from its neighbors in Wyoming and decided that a sale such as this one could be enforced so long as the seller does not benefit from the buyer's illicit business. Applying that law to this case in such a way as to uphold the bargain requires some legal gymnastics beyond my abilities, but Montana court pulled it off and scored a perfect 10.

Inspired by my colleague, Bruce Berner, I could add that in a related case the court did void a similar sale of a massage parlor. It wasn't so much that the parlor idea was illegal or even void for public policy. But its proprietor rubbed the court the wrong way.

Carroll v. Beardon

In Montana arose a dispute
O'er a house of doubtful repute.
The seller madame,
Not in on the scam
May partake of her share of the loot.

[Jeremy Telman]

November 10, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)