November 21, 2008
Foreclosure Prevention and Modifying Mortgages
In light of the subprime mortgage crisis, which lead to the credit freeze, which has dominoed into a full-out global market meltdown, I thought it would be interesting to talk to someone actually "working on the ground" to prevent foreclosures and keep people in their homes.
This curiosity lead me to Rebekah Cook-Mack, a Skadden Fellow working in the Foreclosure Prevention Project at South Brooklyn Legal Services. You can listen to our podcast interview at The Slippery Slope or download it from iTunes.
Of particular interest to readers of this blog may be our discussion of renegotiation of mortgages to make them more affordable -- which is, really, a matter of contract modification. Topics also include how New York's court system has created mechanisms to encourage mortgage modifications, predatory lending practices, and whether government bailout money should be used to guaranty homeowners' repayment of renegotiated mortgages.
[Meredith R. Miller]
November 20, 2008
Gentlemen's Agreement or Implicit Understanding
Today's New York Times has a fascinating account of a dispute regarding a 22-year-old Japanese pitcher named Junichi Tazawa. Mr. Tazawa sports a gaudy 1.02 E.R.A. and can throw a 97 mile per hour fastball. Not surprisingly, Major League Baseball (MLB) teams in the United States are interested in hiring the young hurler. But this sort of thing simply isn't done. U.S. teams have never gone after Japanese amateurs.
Tazawa was not chosen by any of the 12 teams that constitute Nipon Professional Baseball (NPB), the Japanese counterpart to the United States' major leagues. Indeed, his only option was to pitch for Japan Oil's team in the industrial league, which is not affiliated with the professional leagues.
For some time, international transactions involving baseball players in Japan and the United States have been governed by a protocol agreement between MLB and NPB. According to that agreement, Japanese professional players can only play for U.S. teams after they have completed nine seasons in Japan unless they are "posted" earlier. Posting permits a team to auction off a player before he has completed nine seasons.
Since Tazawa is not in the NPB, he is arguably not covered by the protocol agreement. According to the Times, MLB officials were outraged when a Japanese official suggested that there was a "gentelmen's agreement" that MLB would not try to lure amateur talent to the Untied States and thus evade the protocol agreement. Some baseball officials, including the Yankees' Brian Cashman, side with the Japanese, but this excerpt from the New York Times article is what I find really puzzling:
“This was more than just a gentlemen’s agreement, but rather an implicit understanding that the major leagues would do no such thing,” Nippon Professional Baseball said in a news release on signing Japanese baseball amateurs. “That a handful of clubs from the majors is trying to break this gentlemen’s agreement is truly regrettable.”
I wouldn't think that an implicit understanding would be "more" than a gentlemen's agreement, especially where, as here, there are wildly differing views as to the extent and nature of the understanding. But if the NPB does not think there was some sort of (presumably unenforceable) gentlemen's agreement relating to Japanese amatuers, why call it a gentlemen's agreement? Perhaps something is lost in translation.
In any case, while MLB and NPB are fighting over whether or not they have an agreement, I see an opportunity for my co-blogger, Frank Snyder. Why not offer Tazawa a spot in the Texarkana Gunslingers' starting rotation? Tazawa can pitch a season with Texarkana without violating any agreement between MLB and NPB. After he's pitched in the U.S. for a year, would NPB have any standing to object to a contract that Frank might negotiate on Tazawa's behalf with, for example, the Chicago Cubs?
November 19, 2008
World's Worst Director Ordered to Pay $2.1 Million for Breach of Contract
Many have called Uwe Boll (pictured) among the world's worst directors. For example, here, here, here, here, and here. Boll has not taken the criticism standing down. Rather, he has challenged his critics to boxing matches and easily bested them (you can view a video of three quick boxing matches on the New York Times website). Boll was gracious after pummeling his critics. In an interview reprinted in The Guardian, he said:
They were badmouthing me but they showed balls going into the ring. Now they are brain dead and they will like my movies.
Still, the criticism has only increased. In fact, there is a website devoted to trying to get him to stop making movies. Now that's pretty cold. There is another website devoted to convincing people that Uwe Boll is an antiChrist (or the antiChrist -- the website isn't entirely clear on that one). Ouch. Let me be very clear here. I don't have an opinion about Uwe Boll, and I don't box. All I will say is this: Ben Kingsley?
But now Mr. Boll has more pressing problems. As The Hollywood Reporter here reports, a Los Angeles court has now affirmed an arbitrator's judgment ordering the German director to pay his distributor $2.1 million in damages for for breach of contract and libel. The libel claims stems from disparaging e-mails that Boll sent to Fantastic Films International's customers. Press reports are necessary as to the details of the breach of contract claims, but apparently Boll has exclusive distribution agreements with Fantasy Films and either sought to distribute his films through other partnerships or failed to pay commissions due to the distributor. The real shocker (or perhaps reel shocker -- ha ha ha!) is that the films (some of which were honored with a placement on IMDb's Bottom 100) were to be distributed in over 45 countries. I suppose the fact that Mr. Boll's movies are not popular with critics does not rule out the possibility of commercial appeal.
November 18, 2008
Two Princes and One King Involved in Breach of Contract Suits
First, as reported in eflux Media here, Revelations Perfume and Cosmetics is suing the artist formerly known as the artist formerly known as "Prince" (now, just Prince again -- pictured), as well as his music publisher, Universal. The perfume company alleges that Prince and Universal have failed to live up to their contractual obligations to promote two fragrances released in conjunction with Prince's 2006 studio recording, "3121." According to Revelations, the company spent $2.5 million developing the scents and agreed to pay Universal half the profits from the products in return for Prince's and Universal's efforts to promote them. Those efforts have been lacking according to Revelations. Unconfirmed reports suggest that Prince has been reluctant to promote the products because he feared hearing calls of "Hey, Prince, 3121 stinks!!"
In other princely news, Google News reports that a Bahraini prince is suing King of Pop, Michael Jackson, alleging a $7 million breach of contract. Sheikh Abdulla bin Hamad Al Khalifa, second son of the King of Bahrain, alleges that he loaned Mr. Jackson money when Jackson was having liquidity problems during and after his child molestation trial in 2005. Mr. Jackson apparently construed the cash infusions as gifts. In the alternative, Google News reports that Mr. Jackson is alleging the affirmative defenses of mistake, misrepresentation and undue influence. In happier times, the Prince and the King had a "close personal relationship" and collaborated on a song. The Prince wrote the song and Mr. Jackson recorded it. The song was to be released as a charity single intended to raise money for the victims of the 2004 tsunami. Instead, that recording is now slated to have its debut as a trial exhibit.
business Associations Limerick of the Week: Auerbach v. Bennnett
Our last Business Associations Limerick introduced the concept of demand in shareholder litigation. We now move on to the next option for boards seeking to stave off shareholder derivative litigation. If demand might well be excused as futile (which, interestingly enough, was more or less assumed in Auerbach v. Bennett, even though it's hard to see why it would be), the Board has the option of setting up a Special Litigation Committee (SLC) made up of disinterested (or brand new) directors who can then make a recommendation to the Board as to whether or not to permit the litigation to proceed. SLCs generally recommend dismissal of the suit, and the question here (under New York law) is what amount of deference is due to such an SLC recommendation. The answer, in New York, is that so long as the members of the SLC are not interested in the challenged transaction and undertook a thorough investigation, their recommendation will be accorded the benefits of the business judgment rule.
In this case, the shareholder derivative litigation related to allegations that GTE was engaged in foreign bribery. Its Board established an audit committee and found that there had indeed been bribery and took measures to prevent a recurrence. In response to a shareholder derivative suit, the Board formed an SLC which recommended dismissal of the suit. The court limited its review to the SLC's procedures and found the SLC both independent and sufficiently thorough. The standard for thoroughness is that the investigation was not a sham.
The interesting thing about this standard is that it would require a court to dismiss a suit based on the SLC's recommendation regardless of he underlying conduct. In this case, the court assumed that demand was excused, which would mean either that the majority of the Board was alleged to have been engaged in culpable conduct or that the Board was captured by those who were. Still, if the SLC was not personally compromised and they really investigated, the court would have to dismiss.
In short, an SLC is like the hard candy shell of a tootsie pop. So long as the shell is independent and its investigation is not a sham, the court will not break through the the gooey center.
Note, this is the rule for New York. Playing against type, Delaware courts are far less deferential to the recommendations of SLCs.
Auerbach v. Bennett
The Board's business judgment prescribed
That foreign officials be bribed.
If the Lit. Comm.'s disinterested
The court won't be interested
In shareholder rights circumscribed.
November 17, 2008
DC Law Firm Sues the D.C. Government
BLT reports that Crowell and Moring LLP has filed a suit agaisnt the District of Columbia seeking unpaid legal fees in excess of $300,000. According to the complaint, C&M represented the DC Public Schools from 2001 through March 2006. Despite its satisfaction with C&M's legal services, DC failed to pay for three months of legal services. In April 2006, DC Public Schools decided to shift responsibility to the Office of the Attorney General for a class action law suit that C&M had been handling, allegedly as part of an attempt by the DC government to reduce its reliance on external counsel. C&M alleges that it was not paid for its services from January through March, 2006.
C&M alleges causes of action for breach of a written contract, breach of an implied-in-fact contract, quantum meruit and unjust enrichment.
Really, a DC law firm suing the government has a tinge of a dog biting the hand that feeds it. In fact, I have some footage here of the scrap that led to the falling out:
Ah Barney, when will you learn? If it weren't for reporters, you'd just be another dog. And do you know what they do to dogs that bite?
contracts Limerick of the Week: Hoffman v. Red Owl Stores
Hoffman v. Red Owl Stores is the classic case for illustrating the grounds for liability in cases of pre-contractual reliance. Generations of students have been drawn to the drama of Mr. Hoffman's heroic efforts. He started a grocery store in Wautoma, and then sold that profitable business, as well as a bakery, (while raising a family, volunteering as a local firefighter and inventing the internet in his spare time) based on his good faith belief in the pondscum he was dealing with from Red Owl Stores. Well, it's a nice story, but Columbia University's Robert E. Scott says it's not true. In his article, Hoffman v. Red Owl Stores and the Myth of Precontractual Reliance, 68 Ohio State Law Journal 71 (2007), Professor Scott contends that the case wasn't really about precontractual reliance and that lawyers would be leading unwary clients down the primrose path if they encouraged them to seek recovery based on that doctrine, which courts treat with great skepticism. Here's Professor Scott's abstract:
For decades there has been substantial uncertainty regarding when the law will impose precontractual liability. The confusion is partly attributable to the unfortunate case of Hoffman v. Red Owl Stores and to the unusual degree of scholarly attention that it has attracted. A careful examination of the record of the Hoffman case reveals facts that are much different from conventional understanding. The disagreement between Joseph Hoffman and Red Owl Stores resulted from a fundamental misunderstanding between the parties regarding the terms of Hoffman’s capital contribution to the franchise. The misunderstanding was largely a product of Hoffman’s penchant for moving assets around during the negotiation period, his failure to clarify the terms of his $18,000 capital investment, and the “no debt” condition attached to loans from his father-in-law. These facts show that neither promissory estoppel, negligent misrepresentation, unjust enrichment, or a failure to negotiate in good faith would have been a proper ground for imposing liability on Red Owl Stores. This result is consistent with a systematic survey of the case law showing that courts overwhelmingly decline to impose liability for representations made during preliminary negotiations. The preoccupation with reliance on preliminary negotiations has led scholars to ignore an important recent development in the law. A number of modern courts now impose a duty to bargain in good faith when parties make reliance investments following a “preliminary agreement” in which the parties agree to some terms but leave others open for further negotiation. Professor Scott argues that lawyers and academic commentators should turn their attention away from the Hoffman paradigm and instead focus on key issues that the contemporary cases have yet to resolve: when have parties reached sufficient agreement to trigger the duty to negotiate further in good faith, and precisely what does that duty entail?
Fair enough, but the court's approach in Hoffman v. Red Owl Stores, faulty though it may be, remains Limerickworthy.
Hoffman v. Red Owl Stores
Hoffman moved from Wautoma to Chilton
And his finances were slowly wiltin'.
Because legal science
Protects sound reliance,
He recovered from Red Owl's jiltin'.
He's more popular than Paris Hilton