ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, February 2, 2008

More Mandatory Arbitration Clauses

We have already heard what Homer Simpson thinks of mandatory arbitration clauses here.  Now the Consumer Law and Policy blog weighs in with a post that may be of interest here.

[Jeremy Telman}

February 2, 2008 in Commentary, In the News | Permalink | Comments (0) | TrackBack (0)

Conservative Authors' Suit Headed to Arbitration

As reported in The New York Times last year, a group of five authors sued Eagle Publishing, the parent company of Regnery Publishing, alleging that the publisher was depriving authors of royalties by selling the books at deep discounts through affiliated entities.  The suit is of greater interest than your run-of-the-mill contract dispute because the press has made a name for itself as a conservative press.  Authors and publishers are united not in the quest for profits but in the honorable cause of spreading the conservative gospel in its various forms, ranging from "Unfit for Command: Swift Boat Vetermans Speak Out Against John Kerry" to "Dereliction of Duty: The Eyewitness Account of How Bill Clinton Compromised America's National Security."  As one of the plaintiffs put it, "We're not looking for a payoff.  We're looking for justice."

Today, the New York Times reports that Judge Huvelle of the U.S. District Court in Washington dismissed the case based on an arbitration clause in the plaintiffs' contract with Regnery.  Plaintiffs have announced their intention to continue the quest for justice in arbitration next week.

[Jeremy Telman]

February 2, 2008 in In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Dance 10, Negotiations Skills 10 Too, It Appears

Chorusline This blog clearly misunderestimated the dancers, many of whom were part of the original production of "A Chorus Line," who sued for a share in the current revival of the show when it characterized them as "being in a tough place."

As dance fans will recall, "A Chorus Line" was created by Michael Bennett, who gathered a group of dancers together in 1974 and recorded their life stories.  Bennett then put those stories together into a musical and hired many of the original interviewees to perform in it.  Although the dancers originally signed away their rights to any share in profits from Bennett's use of their stories, Bennett agreed in 1975 to share the wealth, at least with regard to the original production.  According to The New York Times, this 1975 arrangement excluded Broadway revivals such as the current one which opened in 2006.  But the Times now reports that, after lengthy negotiations, the dancers and the beneficiaries of the Bennett estate have reached an agreement to give the dancers a share.

Now those of you who were interviewed in connection with my musical, "Teaching 10, Scholarship 3," about a group of young law teachers vying for limited tenure-track teaching positions, please don't get all "I Can Do That" on me. 

[Jeremy Telman]

February 2, 2008 in In the News, Recent Cases | Permalink | TrackBack (0)

Thursday, January 31, 2008

Another Private Equity Buyout Implodes

Alliance Alliance Data Systems is suing The Blackstone Group, seeking to force the latter, a private equity firm, to go through with a $6.4 billion buyout deal.  According to this story in the Dallas Morning News, The Blackstone Group has announced that it will not proceed with the deal because of "conditions imposed by a federal banking regulator," but others suggest that Blackstone is backing out because of a more generalized buyer's remorse.

According to The New York Times, the suit alleges that Blackstone failed to exercise its "reasonable best efforts" to obtain regulatory approval as required in the buyout agreement.  Blackstone now appears not to be interested even in a much smaller investment in Alliance.  It is early, but this might be a case to watch, as suits such as these, in which very-well financed parties have billions of dollars at stake, can go to trial and lead to enlightening opinions on the enforceability of best efforts clauses.

[Jeremy Telman]

January 31, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Sunday, January 27, 2008

Material Omission?

This story from today's NY Times:

EDDIE CROWE, a 38-year-old former bar manager from Galway, Ireland, thought he had hit the jackpot.

In June 2006, after more than a year of searching for a suitable place to open a bar and restaurant, Mr. Crowe found a prime location on Second Avenue near East 93rd Street: a 1,500-square-foot space previously occupied by Hooligan’s Tavern, a dingy bar whose lease was not renewed. The site was on a busy avenue with heavy foot traffic in Yorkville, where Mr. Crowe was sure that his Irish stouts and homemade shepherd’s pie would find a loyal clientele.

Mr. Crowe happily signed a 12-year lease and sank his life savings into a $350,000 renovation. But soon after installing a 22-foot-long mahogany bar, a kitchen and flat-screen televisions, Mr. Crowe began to fear that the location for the Crowe’s Nest Bar and Restaurant, which opened last January, was not a blessing but a curse.

Sounds fantastic. Why a curse? Turns out, the NYC MTA began building the second avenue subway line. The story continues:

“I don’t want to get into detail, but from May until now it’s been very bad,” he said one recent evening as he slumped in a chair inside his nearly empty bar. “After all these renovations, suddenly I was thrown a curveball — the Second Avenue subway until 2014. If I’d known, there’s no way in hell I would have signed that lease.”Although business was steady for the first few months, April brought groundbreaking for the subway line literally outside Mr. Crowe’s front door. Soon, Second Avenue from 91st to 95th Streets was transformed into a maze of chain-link fencing and concrete barriers around a gaping hole surrounded by backhoes and dump trucks.

Some of the dozens of business owners on Second Avenue in the 90s, who had been forewarned about the project, say their income has fallen up to 35 percent because of the construction.

The thing is, Crowe was unaware of the planned subway construction when he signed the 12-year lease. His landlord, however, was presumably aware:

According to Jeremy Soffin, a spokesman for the Metropolitan Transportation Authority, that information was communicated starting in 2004, in letters to property owners, public presentations and visits to individual residences and businesses.

“We’re very straightforward,” Mr. Soffin said. “This is a huge public works project that involves certain inconveniences, and we’re doing everything we can to mitigate the inconveniences.”

Assuming the landlord was aware of the planned subway construction, and omitted to mention this fact when negotiating the lease wtih Crowe, does this constitute a material omission?

[Meredith R. Miller]

January 27, 2008 in In the News | Permalink | TrackBack (0)

Executive Pay at Delphi

When it comes to executive compensation, scholars tend to fall into two camps.  Some defend current levels of executive compensation as the product of a market.  Simply put, highly skilled executives negotiate for very rich compensation packages because of the value they bring to the companies that they lead and because they would not agree to take on the risk and responsibility of such leadership  if they were not appropriately compensated.  Others (and I am in this camp) point out that executive compensation packages are not really the product of arms-length transactions since executives negotiate their salaries with boards of directors that consist largely of other executives who want to hire good people but also want executive compensation to be generous. 

My reading of reports on the Delphi case suggests what would happen if executive pay were indeed the product of a negotiation involving an entity committed to protecting the interests of corporate constituencies other than management.  Last week, in approving Delphi's reorganization plan, Bankruptcy Judge Robert D. Drain trimmed Delphi's proposed executive incentive pay from $87 million to $16.5 million, as reported here and here. Judge Drain questioned the compensation schemes because they were challenged by representatives from two unions that in turn represented Delphi workers who had accepted cuts in their own compensation packages in order to pave the way for reorganization.  Under questioning from Judge Drain, Delphi's executive compensation consultant conceded that the approach he recommended was "novel," "rare," and "not the norm," according to Gretchen Morgenson's report in The New York Times.

I merely suggest that when parties reach an agreement for $87 million in compensation but then agree to $16.5 million in compensation under pressure from a judge, the original agreement is not the product of an arms-length negotiation.  Would you be willing to do your job for less than 20% of your current salary?  Perhaps Delphi has entered into some side agreement to provide additional compensation to executives in years to come, but if that is not the case, the Delphi reorganization plan seems like strong evidence of extraordinary elasticity in the market for executive services.

[Jeremy Telman]

January 27, 2008 in In the News, Labor Contracts | Permalink | Comments (2) | TrackBack (0)