ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, February 23, 2008

Higher Wages Can't Count as Reimbursement

A_11 California employers and their employees cannot agree to a system under which the worker gets a higher wage and pays his or her own business expenses, according to a recent decision by the state supreme court.  The California Labor Code requires employers to reimburse all expenses that employees incur in the course of their work.  Many employers have tried to deal with this rule by offering higher salaries or by offering lump-sum payments to workers.  But the recent decision in Gattuso v. Harte-Hanks Shoppers, Inc., makes that very difficult to do, according to a recent client advisory by Laura P. Worsinger and Chad C. Coombs of Los Angeles’s Buchalter Nemer PLC.

[Frank Snyder]

February 23, 2008 in Commentary, Recent Cases | Permalink | TrackBack (0)

Embattled Hoosier Coach Takes Contract Buyout

A_13 We previously noted the contractual issues surrounding the termination of Indiana University basketball coach Kelvin Sampson, who was charged with violating NCAA rules and lying about it.  Now come reports that Sampson, who denies any wrongdoing, will accept a $750,000 severance package from the Hoosiers and will forgo a breach of contract claim.

Sampson has the distinction of having won Pac-10 Coach of the Year in 1991, Big Eight Coach of the Year in 1995, and National Coach of the Year twice, in 1995 and 2002.

[Frank Snyder]

February 23, 2008 in In the News | Permalink | TrackBack (0)

Friday, February 22, 2008

Dispute Resolution and Strategic Sellers

A_9 Pre-dispute arbitration agreements carry with them the possibility that sellers who include such clauses in End User License Agreements may do so strategically -- that is, that they may use them to gain a systematic advantage over buyers.

Do sellers in general act strategically in incorporating pre-dispute arbitration?  That's the question that Florencia Marotta-Wurgler (NYU) (left) asks in a recent paper 'Unfair' Dispute Resolution Clauses: Much Ado About Nothing?, published as part of Omri Ben-Shahar's anthology Boilerplate: Foundations of Market Contracts (Cambridge 2007).  Here's the abstract:

Dispute resolution clauses are a common and potentially important component of many types of standard form contracts. I examine the use of dispute resolution clauses in 597 end-user license agreements (EULAs) of software packages sold online. I find that 75% of EULAs include choice of law clauses, 28% include forum selection clauses, 6% include arbitration clauses, and none include class action waivers. Sellers are equally likely to include dispute resolution clauses in the EULAs of consumer-oriented and business-oriented products. Despite the concerns of some legal academics, I do not find much evidence of "strategic" use of DRCs to advantage sellers over buyers. For example, sellers located in states with "seller-friendly" laws are no more likely to include choice of law or choice of forum clauses than sellers in states with stronger consumer protections; despite UCITA's flexible choice-of-law rules and otherwise seller-friendly provisions, sellers do not go out of their way to select UCITA; and, there is no evidence that fora selected are intentionally inconvenient to buyers. These results question certain proposals to regulate dispute resolution clauses in consumer form contracts on the basis of strategic behavior by sellers.

[Frank Snyder]

February 22, 2008 in Recent Scholarship | Permalink | TrackBack (0)

UCC Article 1 Legislative Update (2/22)

As of January 1, 2008, Revised UCC Article 1 was in effect in 28 states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia.  Kansas's version of Revised Article 1, enacted last year, will take effect on July 1.  Of the 29 state enactments to date, 0 of 29 include the uniform Revised 1-301 choice of law provision -- each of the 29 enacting state legislatures having opted instead for some variation of its state's pre-revised 1-105 -- and only 20 of 29 include the uniform 1-201(b)(20) definition of "good faith" -- 9 state legislatures opting to retain the pre-revised "honesty in fact" definition in Article 1 and reserve "the observance of reasonable commercial standards of fair dealing" requirement for parties and transactions subject to that standard under another Article.

As of February 22, 2008, bills proposing to enact Revised Article 1 were pending in five states: Massachusetts, Pennsylvania, South Dakota, Tennessee, and Vermont.  Massachusetts HB 4302, which succeeds the previously unsuccessful HB 3731, is currently awaiting a third reading in the Massachusetts House.  Pennsylvania HB 1152, which was tabled last fall after passing the Pennsylvania House, was removed from the table on February 12 and awaits a third reading in the Pennsylvania Senate.  South Dakota SB 93 unanimously passed the South Dakota Senate on January 29, unanimously passed the South Dakota House yesterday, and now awaits Governor Mike Rounds's approval (or lack of disapproval, as the case may be).  Tennessee HB 3949 and SB 3993 were both introduced on January 31 and are currently before their first committees in their respective introducing chambers.  Vermont HB 563 passed the Vermont House on January 24 and is now before the Vermont Senate Economic Development, Housing & General Affairs Committee.  All five currently-pending bills reject the uniform Revised 1-301 choice of law provision (opting instead for some variation of pre-revised 1-105) and embrace the unitary good faith standard of uniform Revised 1-201(b)(20).

[Keith A. Rowley]

February 22, 2008 in Legislation | Permalink | TrackBack (0)

Help Wanted

A_6 Upstate New York is beautiful in the fall, and beautiful in the winter, too, if you've got someone to shovel the snow for you.  So think about spending the year where the Vale of Onondaga meets the Eastern Sky (left) -- at Syracuse University School of Law, which is looking for someone to teach Commercial Transactions this fall and International Business Transactions in the fall or spring.  If you're interested, get in touch with Associate Dean Lisa Dolak.

A_5 For those who prefer sunnier climes and the sounds of Western Swing, you could do a lot worse than San Antonio (right), where St. Mary's University School of Law is looking for a visitor who can teach Contracts and other business-related courses.  Contact Associate Dean Victoria Mather for details.

[Frank Snyder]

February 22, 2008 in Help Wanted | Permalink | TrackBack (0)

Supreme Court: Arbitration Clause Trumps State Law

A_3 A Law professors keep writing about the problems with pre-dispute arbitration clauses and their possible interference with important public interests.  Meanwhile, the U.S. Supreme Court keeps ignoring all that advice.  Latest win for the pro-arbitration forces is Justice Ruth Bader Ginsburg's 8-1 decision in Preston v. Ferrer, No. 06-1463 (U.S. Feb. 20, 2008), which holds that the question of whether a contract is unenforceable under California's Talent Agencies Act is one that must be decided by an arbitrator, not by a court.

California law puts certain restrictions on talent agents, and vests exclusive jurisdiction over their contracts in the state's Labor Commissioner.  Television's "Judge Alex" Ferrer (left) got into a dispute with entertainment lawyer Arnold Preston (right).  Preston claimed certain fees under a contract with The Judge, and invoked arbitration, as provided in the contract.  Ferrer countered by claiming that the contract with Preston was invalid because it was in violation of the TAA.  The state Court of Appeals held that arbitration had to be stayed while the Commissioner reviewed the contract.

This was error, wrote Ginsburg, since when the parties have an arbitration clause the Federal Arbitration Act supersedes state laws that provide for a specific forum.  It is for the arbitrator, not the Commissioner, to determine whether the contract violates the state's TAA.

Justice Thomas dissented on the ground that the Federal Arbitration Act does not apply in state court proceedings.

[Frank Snyder] 

February 22, 2008 in Recent Cases | Permalink | TrackBack (0)

Thursday, February 21, 2008

Evangelicals and Payday Loans

A Traditional American usury law has always been heavily influenced by a Biblical tradition that has disfavored lending money at interest.  The prohibition of lending money at interest has been condemned at least since Plato, and was completely banned to Christians in the middle ages.  In 1311 the Council of Vienne pronounced it heresy even to argue in favor of allowing interest-bearing loans to businesses.

So it’s something of a puzzle as to why U.S. states with substantial Evangelical Christian populations -- places where conventional wisdom says that state policies are most likely to reflect Biblical values -- have some of the highest concentrations of payday lenders in the country.  But that’s the finding of Christopher L. Peterson (Florida) (left) and Steven M. Graves (Cal State Northridge), in a new paper, Usury Law and the Christian Right: Faith Based Political Power and the Geography of the American Payday Loan Regulation, which is forthcoming in the Catholic University Law Review.  Here’s the abstract:

The culture war has become a national moniker describing a variety of policy debates between social conservatives and secular liberal Americans. Hotly contested battle grounds in this metaphorical war have included abortion policy, affirmative action, the right to bear arms, and gay marriage. Frequently these debates have divided secular Americans from people of faith. This article explores this cultural divide in the context of consumer financial services. In the past fifteen to twenty years America has witnessed a stunning transformation in financial services offered to lower and lower-middle classes. A new breed of fringe creditors charging prices far in excess of the old mafia loan sharking syndicates have spread throughout much of the country. The archetype of fringe creditors commonly referred to as payday lenders, charges average simple nominal annual interest rates of around 450 percent. This Article presents empirical research based on the largest, most comprehensive database of payday loan locations yet created. Payday lender locations are compared to an index measuring the political power of conservative Christian Americans in all fifty states. We conclude that there is a strong correlation between the density of payday lending industry and the political power of conservative Christians, suggesting that conservative Christians have become a prime demographic target of payday lenders. These findings are further discussed in light of Biblical injunctions against usury.

[Frank Snyder]

February 21, 2008 in Recent Scholarship | Permalink | TrackBack (0)

Wednesday, February 20, 2008

Five Illustrated Tips for Negotiating Non-Competes has an article advising employees (and presumably independent contractors) in their negotiation of non-compete clauses.  I much prefer the "in pictures" version of the advice.  The 5 tips mirror my classroom teaching on the subject: (1) consult with an attorney, (2) limit the geography, (3) limit the span, (4) explore other restrictions and (5) get paid -- for the time you're locked up by the non-compete.  Funny thing, though, is much of this advice could really be characterized as for employers -- keeping geography and span reasonable only serve to make the covenant enforceable.  If the duration and geographic limits are unreasonable, the covenant won't hold up in court and the onus is on the employer to enforce it -- if the employee is a "lower level lieutenant" or "line worker" (the article's language), is the employer really going to invest the money it would take to enforce the non-compete?  (Perhaps, if only to make an example of the employee).  But, other than highly compensated employees, my impression is that the purpose of a non-compete is less about its actual enforcement and more about its in terrorem effect.

[Meredith R. Miller]

February 20, 2008 in Labor Contracts | Permalink | TrackBack (0)

Trouble for Hoosier Hoops

Iu The NCAA has alleged that Indiana University men's basketball coach, Kelvin Sampson, lied to NCAA investigators and violated NCAA rules.  What he allegedly lied about was impermissible phone contacts with potential recruits for his team. 

Samspon is quoted by ESPN as denying the allegations, but nobody seems to be buying it.  The general tone of the media reports,such as this one in the Los Angeles Times is that Sampson is "a dead man walking."  The Times report continues that, according to his contract, Sampson can be suspended pending termination if IU Athletic Director Rick Greenspan recommends such actions to IU President Michael McRobbie based on a finding of "a significant, intentional or repetitive violation" of NCAA rules.  Sampson has a right of appeal to McRobbie in the case of such a recommendation.  The Star Tribune reports that there is serious concern on IU's part that Sampson could challenge such a termination and seek to recover at least the $2.5 million in base pay remaining on his employment contract.

On the upside, I hear Bobby Knight is available.

[Jeremy Telman]

February 20, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Store Closing! Everything Must Go!

Aaa Folks who think they're getting great deals at furniture store going-out-of-business sales may be in for a rude surprise.  It seems buyers who think they're taking advantage of a distressed retailer are actually the ones getting stung.  Furniture liquidators who know the crowds will flock in are using the opportunity to sell a great deal of imported knock-offs at inflated prices.  The buyers who think they've scored a great price on a dining room set often discover that stuff they've bought is actually imported from China -- and can often be bought for less at ordinary retail prices.

The Milwaukee Journal-Sentinel has an interesting piece on the art of making money at going-out-of-business sales.

[Frank Snyder]

February 20, 2008 in In the News | Permalink | TrackBack (0)

That's Probably Why It's Considered "Timeless"

A One of the pleasures of having been educated in the California State Public School System from kindergarten through college is the large number of very famous books you never actually had to read.  This means that it's now possible to discover some of these books at an age where you really understand them.

Take Fyodor Dostoevsky's Crime and Punishment, which I'm now listening to in an excellent audio books version.  Turns out that it's about a law student who goes deep into debt to finance his studies, can't get a job, and can't repay his loans.  Who would have thought that a 19th century Russian could be so up-to-date?

[Frank Snyder]

February 20, 2008 in Miscellaneous | Permalink | TrackBack (0)

Sub-Primary Loans

Mccain In a story published on Saturday (arriving in Valparaiso by Pony Express today), The Washington Post reports that Senator John McCain took out a $1 million loan two weeks before the New Hampshire primary in order to keep his then-cash-starved campain afloat.  The loan agreement included a clause requiring that, if McCain did poorly in New Hampshire and could not raise sufficient funds to repay the loan out of campaign contributions, he would stay in the race for the Republican nomination so as to qualify for federal funds from which he could repay the loan.  Had that happened, McCain would also have been bound until the Republican Convention by spending caps imposed under Federal Elections Commission (FEC) rules.

Apparently, the Obama camp and other McCain critics are claiming that McCain is now required to abide by the FEC spending caps.  McCain, for his part, is reminding Senator Obama of his spokesman's pledge that Obama would "aggressively pursue an agreement with the Republican nominee to preserve a publicly financed general election."   

[Jeremy Telman]

February 20, 2008 in In the News | Permalink | TrackBack (0)

Tuesday, February 19, 2008

Mysteries of the Universe Explained

Kidd To the left is Jason Kidd.  Until recently, Kidd was the point guard for the New Jersey Nets.  He's good enough at his job that he was voted to the All Star Team this year, despite his team's disappointing first-half performance.  For some weeks now, the Nets have been on the verge of trading Kidd to the Dallas Mavericks for a handful of Dallas players.  The original deal broke down because, as explained in the Dallas News, one of those Dallas players, Devean George, invoked his "Bird exception" contractual right to refuse to be traded (scroll down to the bottom of the article to see the Bird exception defined).  Over his career, George has averaged 5.9 points, 3.3 rebounds and 0.9 assists a game, so it came as some surprise to non-insiders that George was endowed with contractual rights to stop a blockbuster trade.

Keith_van_horn Below Kidd is the translucent Keith van Horn.  Kidd is to van Horn as Derek Jeter is to Cal Ripken.  Let me clarify for the non sports fans.  Kidd is a basketball player.  Van Horn is an ex-basketball player.  He retired after the 2006 season.  Teams have offered him significant salaries and he responded as did Bartleby.  But van Horn has now agreed to be thrown into the Kidd deal under the terms of which he will be paid $4.3 million to sit on the New Jersey Nets bench for at least 30 days.  After that, he is free to coat himself in sunblock (we hope) and move to Boca.

As Marty Burns explains on, all of this is made possible through the NBA's "quirky collective bargaining agreement."  Since I don't really understand it all, I'll just quote what Burns says:

NBA rules require teams that are over the salary cap to match up salaries in trades. Sometimes it can be done with players on the roster. But there are cases when one of the teams doesn't want to take back any of the players on the other team's roster needed to make the deal work. Maybe the proposed players would be a poor fit in the locker room. Maybe they have multiyear contracts.

That's when a semiretired player, especially one with Bird Rights like Van Horn, can have enormous value. Because Van Horn never filed official retirement papers with the league and Dallas didn't renounce his rights, he remained the Mavs' property. Teams can go above the salary cap to re-sign their own free agents, and they can use players with Bird Rights in a sign-and-trade.

If I understand this correctly, the Nets preferred paying van Horn not to play to paying any other available Dallas player to play.  Or perhaps, they are hoping to bundle van Horn with some other player so that they can land a more expensive player in another trade.  Take Ben Wallace, please!

[Jeremy Telman]

February 19, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Contracting in Wartime

At the Fourth International Conference on Contracts, Jennifer S. Martin (University of Pittsburgh) presented a very interesting paper, Contracting for Wartime Actors: The Limits of the Contract Paradigm. Here is the abstract from SSRN:

Much can be (and has been) said about the war in Iraq. This essay explores the role of contract in wartime and (particularly) reconstruction. First, it considers the use of government contracts to privatize numerous government functions during the reconstruction and conflict in Iraq. Second, it considers the private ordering by contract done by government contractors to obtain security and related services from third parties. Both types of contracting raise complicated issues including: the proper use of force; to what extent the contracts should have government oversight; to what extent contractors should be accountable for crimes; and whether contractors qualify as noncombatants in case of capture. The special issues of contracting in a warzone are not best addressed primarily by common law doctrine. Additional rules and regulations are necessary to address the special issues of non-state actors who contract with the U.S. government.

The presentation was interesting despite the often insurmountable hurdle of being part of the very last panel of a long conference!

[Meredith R. Mller]

February 19, 2008 in Recent Scholarship | Permalink | TrackBack (0)

Frank Snyder Naked!!

Naked_baby_2 Okay, I admit it!  This is really just about improving the rankings of the blog. 

But what a cutey!!  Typical Snyder modesty.

[Jeremy Telman]

February 19, 2008 in About this Blog | Permalink | TrackBack (0)

This Blog Thing Might Just Catch On

Aaa The indefatigable Paul Caron, boss of TaxProf Blog and capo di tutti capi of the Law Professor Blog Network, is at it again with a new ranking of blogs written by law professors.  Caron first started doing this in his article, In Are Scholars Better Bloggers? , 84 Wash. U. L. Rev. 1025 (2006),   (The answer to that question, by the way, is "yes."  They also have whiter teeth, better-looking children, and are terrific dancers.)

He's updated his rankings of law professor blogs, which are based on citation counts.  The good news (we suppose) is that we're No. 25, edging out Empirical Legal Studies, which we would have thought would be about as popular in the legal academy as for-profit law schools.  The bad news is that he doesn't include a lot of  very popular law professor blogs that don't have site meters.  The really amazing news is that Glenn Reynolds of InstaPundit got 75 million hits last year, which is astonishing given that he hardly ever writes about contract law and doesn't have nude pictures of Jessica Simpson (top left).

(Note that by writing "nude pictures of Jessica Simpson" in this post, we'll get an extra 50,000 Google hits over the new 12 months and probably make the Top 20.  If somehow me managed to insert the words "nude pictures of Britney Spears" into the post, we'd bump that up to 100,000 and pass the University of Chicago Faculty Blog.)

[Frank Snyder]

February 19, 2008 in About this Blog | Permalink | TrackBack (0)

State Sues Over UConn Law Library

Aaa The University of Connecticut School of Law thought it was getting a new landmark when it spent $24 million for a new library in 1996.  It did, but it also wound up with a $15 million lawsuit to go along with it.  The state government is suing the designers, contractors, suppliers, and inspectors involved in the project, which has been plagued since the beginning with leaks, mold, and stone facade that was falling off.

It may be an interesting case; a lawyer for the contractors said that they performed the work to the state's specifications and that inspection reports were signed every day.

[Frank Snyder]

February 19, 2008 in In the News | Permalink | TrackBack (0)

New Fad: Suing for $54 Million

As she reports on her very revealing blog, sometime in 2006 Raelyn Campbell bought an extended warranty along with a laptop computer from Best Buy.  To make a long story short, Ms. Campbell's computer malfunctioned in May 2007, and the Geek Squad lost it.  Best Buy engaged in the usual corporate dithering but in August confirmed that it had lost the computer.  Ms. Campbell alleges that either a Best Buy employee stole it or Best Buy allowed the computer to be stolen through its negligence.  My guess is that the computer is probably hidden under a pile of Star Trek videos and nebulizers in the lonesome cubicle of some overworked Geek. 

In any case, Ms. Campbell was not satisfied with Best Buy's offer to give her a $500 gift certificate and refund her the price of her computer, characterizing the offer as an "insult" and a "lowball offer."  In November 2007, Ms. Campbell filed a lawsuit against Best Buy seeking $54 million in damages.  Ms. Campbell's complaint is not a part of her blog, but her claims seem to sound in "negligence, theft and deception," and in a District of Columbia consumer protection statute.  The damages she seeks are largely punitive and aim to force Best Buy to see the 'error of its ways."  The fanciful amount is a self-conscious homage to the suit brought by a judge against a dry cleaner who ruined his pants.  As Ms. Campbell puts it, "I'll be the first to admit that it is a ridiculous sum of money." 

Interestingly enough, Ms. Campbell's blog makes no mention (that I could find) of any contractual claims, even though any damages she is owed would likely flow from a breach of warranty claim.  Needless to say, the rush to tort theories is encouraged by the well-known limitations on contracts remedies.  Such remedies are clearly inadequate for Ms. Campbell, since she lost not only the value of her computer but also the priceless music and photos that she had stored on the computer (and apparently only on the computer).  So, unless Ms. Campbell can spark a movement to permit compensation under contracts law for non-pecuniary loss, good, hard-working people like Ms. Campbell will have no choice but to file $54 million tort claims (or learn how to back up their files).

HT (again!) to Alan White.

[Jeremy Telman]

February 19, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Monday, February 18, 2008

Opting In and Out of European Contract Law

Aaa The European Parliament has been mulling over the question whether to develop "optional instruments" for European contract law -- alternative contract law regimes that parties could elect to use, either on an opt-in or opt-out basis.

Exactly how these regimes might be developed, and what law would authorized them, is the subject of a study for the Parliament done by three Dutch scholars, Martijn Hesselink (Amsterdam Institute for Private Law), Jacobien Rutgers (Free University of Amsterdam), and Tim De Booys (University of Amsterdam).  It’s called The Legal Basis for an Optional Instrument on European Contract Law.  Here’s the abstract:

Short study for the European Parliament on the different options for a future instrument on a Common Frame of Reference (CFR) in EU contract law, in particular the legal form and the legal basis for any future optional instrument. The general conclusion is that, considering the relevant EC Treaty provisions and ECJ case law concerning legal bases, the description of an optional instrument by the European Commission in its Action Plan and its follow-up communications on European contract law, and the private law measures already in place, Article 308 EC seems to be the most likely provision to provide a legal base for enacting one or more optional instruments concerning European contract law. Art 95 EC seems to be excluded since an optional instrument would not be an instrument for the harmonisation of the laws of the Member States. From the perspective of a legal basis it would not make a difference whether the optional instruments would be applicable to B2B or B2C contracts or both, nor whether they would apply only to cross-border contracts or also to purely internal contracts. However, even Article 308 EC cannot serve as a legal basis for enacting the entire CFR; any optional instrument will have to be limited to rules on the subjects that are particularly relevant to the internal market.

[Frank Snyder]

February 18, 2008 in Recent Scholarship | Permalink | TrackBack (0)

Miscellaneous IT Roundup

The new issue of Vince Polley's excellent but really badly titled Miscellaneous IT Related Legal News (MIRLN) is out.  Some highlights:

* A study suggests that buyers on eBay saved about $19 billion in 2007 over what they would have been willing to pay for the same goods elsewhere.

* Digital music sales are up, but they're not making up for the collapse of the CD market, causing falling profits for music publishers.

* Peer-to-peer lending over the Internet is booming as new technology allows borrowers to bypass traditional lenders.

* A lawyer's misdirected e-mail may have inadvertantly made public a proposed confidential $1 billion litigation settlement.

* U.S. colleges are getting a failing grade over security of student data, but it sounds more like incompetence than hacking.

* The popular website turns out to be an online version of the Hotel California -- you can check out any time you want, but you can never leave.

[Frank Snyder]

February 18, 2008 in In the News | Permalink | TrackBack (0)