ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, January 22, 2009

PETA and Michael Vick Won't Be Working Together After All

Pit_bullI know it sounds improbable, but the Associated Press reports that the People For the Ethical Treatment of Animals (PETA) and Michael Vick, former professional football player currently serving a 23-month sentence for criminal animal cruelty in connection with his dog-fighting sideline, were negotiating the broadcast of an anti-cruelty public service announcement. Michael Vick was going to speak out against dog fights on behalf of PETA. Negotiations broke down when Vick's attorneys sought assurances from PETA that the organization would support his return to professional football. Far from doing so, the AP reports, PETA has written to the NFL suggesting that Vick should undergo tests to determine whether or not he is a psychopath before being permitted to return to professional football. As this blog post indicates, support for PETA is far from overwhelming in the sports community.

[Jeremy Telman]

January 22, 2009 in In the News | Permalink | Comments (1) | TrackBack (0)

Tuesday, January 20, 2009

New Scholarship: Alan White on Rewriting Contracts

AlanwhiteMy colleague, Alan White, has a new greatest SSRN hit. Yes, for those of you who thought he couldn't top Behavior and Contract, Literacy and Contract, The Case for Banning Subprime Mortgages, or Risk-Based Mortgage Pricing, think again! His new article, Rewriting Contracts, Wholesale, Data on Voluntary Mortgage Modifications from 2007 and 2008 Remittance Reports, is putting up some gaudy download numbers over at SSRN.

Here's the abstract:

The 2007 subprime mortgage crisis resulted in home foreclosures at unprecedented levels, and calls for government action. The Bush Administration's response relied primarily on exhorting the mortgage industry to voluntarily modify the terms of existing mortgages to help struggling homeowners reduce their debt burden and bring mortgage debt in line with declining home values. Industry reports have tallied the rapid increase in voluntarily negotiated workouts, without specifying what the terms of those workouts have been.

To better understand the effectiveness of the voluntary mortgage crisis resolution plan, this paper reports detailed empirical information from a newly-created database. Loan-level information on the number and type of negotiated mortgage modifications was compiled from monthly servicer remittance reports from July 2007 through June 2008 for twenty-six mortgage loan pools.

The data show that while the number of modifications rose rapidly during the crisis, mortgage modifications in the aggregate are not reducing subprime mortgage debt. Mortgage modifications rarely if ever reduced principal debt, and in many cases increased the debt. Nor are modification agreements uniformly reducing payment burdens on households. About half of all loan modifications resulted in a reduced monthly payment, while many modifications actually increased the monthly payment. Finally, there is tremendous variation in the extent, if any, of payment relief offered by different mortgage servicers.

The combined effect of dwindling refinancing activity and modifications that do not write down mortgage debt, and in many cases do not even reduce monthly payments, is to delay, but not prevent, large numbers of foreclosures. Given the continuing accumulation of loans in the foreclosure and real-estate-owned categories, the subprime crisis will be worked out only over many years through painstakingly slow repayment, foreclosure and disposition of properties.

[Jeremy Telman]

January 20, 2009 in Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, January 19, 2009

Flight Delays Could Lead to Suit for Breach of Contract

800pxjet2_aeroplane_landing_at_ediThis from the WSJ:

Passengers may be able to sue airlines for breach of contract if flights are delayed too long on the tarmac, according to rules proposed by the Department of Transportation.

The agency published details last month on the proposed rules, originally developed in response to worsening delays and high-profile incidents -- perhaps most notably a 2007 Valentine's Day ice storm that left some JetBlue Airways passengers stranded on planes at New York's Kennedy International for upward of 10 hours.

If adopted, the rules would require airlines to develop contingency plans for lengthy tarmac delays -- including time limits for such delays. Those contingency plans and limits would become part of each airline's contract of carriage, a legally binding agreement that outlines an airline's responsibilities to passengers.

Also under the proposed rules, the agency would declare flights that remain "chronically delayed" to be an "unfair and deceptive practice," opening carriers up to possible civil penalties. The Department of Transportation would require carriers to publish flight-delay data on their Web sites.

Carriers are likely to be wary of changes to their contracts of carriage. "We agree with the emphasis placed on consumer protections, and we think that this proposal is an improvement over the prior one," said Elizabeth Merida, a spokeswoman for the Air Transport Association, a trade group representing airlines. "However, there are a number of issues raised by this proposal which have yet to be resolved, including items relating to the contents of carriers' contracts of carriage."

Passengers have sued carriers for tarmac delays in the past, but those suits normally don't cite a breach of contract, said David Hayes, an aviation lawyer who primarily represents airlines.

Kate Hanni, executive director of, a passengers' rights group, says that the proposed rules lack strength because they neither levy new fines nor would they require DOT approval of airlines' contingency plans for tarmac delays.

[Meredith R. Miller - h/t Sheila Scheuerman at TortsProf]

January 19, 2009 in In the News | Permalink | TrackBack (0)

Business Associations Limerick of the Week: Rosenfeld v. Fairchild Engine

The issue in Rosenfeld is whether a corporation must pay for expenses incurred in connection with a proxy fight when the insurgent group wins the proxy fight and gains control of the leadership positions in the corporation. The general rule is that the corporation pays the expenses of the incumbent leadership so long as those expenses are reasonable and the proxy fight relates to issues not to personalities (a meaningless distinction, in my view). Rosenfeld establishes that victorious insurgents are also entitled to reimbursement of reasonable expenses on the same conditions, if the shareholders approve. Board approval is a given, since the insurgents now control the Board and will certainly vote to reimburse themselves.

In this case, the dissent pointed out that neither part of the test for reimbursement was really satisfied in this proxy fight. The key issue in the proxy fight was a generous employment contract that the incumbent board approved for a former officer. That seems like a clash of personalities rather than a substantive difference. In addition, many of the expenses were incurred in wining and dining key shareholders. That may stretch the bounds of reasonable reimbursement. The latter topic makes for interesting class discussions. How far should management go to win the votes of key shareholders? Can the company's private jet be used to fly key players to corporate headquarters? How much should be spent on food? On entertainment? And what kind of entertainment is appropriate?

Rosenfeld v. Fairchild Engine and Airplane Corp.

Should a contest for proxies arise
Over insider deals in disguise,
Shareholders may pay
For both sides in the fray
If the shareholders deem payment wise.

[Jeremy Telman]

January 19, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)