ContractsProf Blog

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

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Wednesday, October 7, 2009

A Narrow Proposal Aimed at Mandatory Arbitration in the Contracts of Employees of Government Contractors

The broadly drawn Arbitration Fairness Act, which would invalidate pre-dispute arbitration clauses in employment, franchise and consumer contracts, has been milling about Congress.  Supporters of the Act have often pointed to the unbelievably grim story of Jamie Leigh Jones, an employee of Halliburton who was gang raped by fellow employees and detained in a shipping container while working oversees in Iraq.  Apparently she is not the only female employee of a government contractor to have endured such an unspeakable experience. 

Halliburton fought tooth-and-nail to invoke the arbitration clause in Ms. Jones’ employment contract and to thereby keep her claims against it out of court.  Ultimately, after four years of fighting for her right to sue in court, the Fifth Circuit recently construed the scope of Ms. Jones' arbitration clause narrowly, and held that Ms. Jones should not be compelled to arbitrate her claims.  But the Fifth Circuit’s holding, of course, is limited to that particular contract and that particular jurisdiction, and its reach and influence is as yet unknown. 

 Ms. Jones’ case is undoubtedly an egregious and extreme example of the potential injustices occasioned by pre-dispute (or “mandatory”) arbitration clauses in the employment context.  Those who support the Arbitration Fairness Act have told her story in support of its passage – leaving one to wonder whether the story, while a compelling one, was sui generis, and not a basis on which to paint a broad policy against pre-dispute arbitration in all employment contracts, as well as consumer and franchise contracts.

But, Stuart Smalley Sen. Al Franken has found bipartisan support in a narrower piece of legislation that would directly address cases like that of Ms. Jones.  He has proposed an amendment to the 2010 Defense Appropriations bill that would withhold defense contracts from companies like Halliburton if their contracts with their employees restrict employees from suing in court for claims such as sexual assault, battery and discrimination

Franken spoke eloquently and persuasively of the need for this legislation, which is so narrow in scope it seems hardly objectionable:

Though, some Republicans remained unwilling to walk across the aisle to meet Franken on this legislation; Sen. Jeff Sessions described the amendment as a “political attack on Halliburton.” 

Wait a second, who was attacked here?

[Meredith R.  Miller] [h/t Emily Small]

October 7, 2009 in In the News, Legislation | Permalink | Comments (1) | TrackBack (0)

Alan White on Public Policy and Pedagogy:

Brothel

The Fourth in a Series of Posts by

Guest Blogger, Alan White

One of the things I took away from Elizabeth Mertz’s

interesting book The Language of Law School was that Contracts professors have a tendency to squelch their students’ moral intuitions in the process of teaching critical thinking and legal rules.  After reading this I resolved to hear students out when they react with “it’s not right” or “it’s not fair”, while at the same time engaging with their moral sense and challenging them to consider the dialectical tensions that are ever-present in seemingly simple questions of right and wrong.

Yesterday a session on illegal contracts provided my students with an opportunity to wander in this territory.  The case at issue, Carroll v. Beardon, involves a contract for one madam to sell her house of ill repute to another.  The court enforces the note and mortgage obliging the buyer topay the remainder of the sale price (we don’t know if the buyer madam was eventually foreclosed on) based on the notion that the seller was not an active participant in the business, at least not after she sold it.

The first question students raised was why the parties did not end up in criminal court as a result of airing their dirty laundry (so to speak) in the civil case, as happened to the two partners in the Highwaymen’s case.  One can only assume that the judge and other citizens of the county all found the business at issue distasteful but tolerable, and the parties and their lawyers regarded the risk as minimal.  This thought raises a number of interesting questions about malumprohibitum and whether the legal system can occasionally look the other way when legal rules are perceived either as illegitimate or at least not worthy of strict enforcement.

This thread then led to several equally interesting questions, such as whether merely selling an illegal business would constitute a crime, and whether it made a difference that the seller received payments over time on her Note, and thus continued profiting in some sense from the trade.  These questions provided a useful opportunity to point out the seamless nature of law practice, and the need to be on the lookout for issues that clients may not have considered, most especially the prospect of jail time. 

Also interesting was the question of the lawyer’s duty when her client seeks legal advice about the sale of an illegal business.  This provided me with yet another opportunity to venture into a subject ordinarily taught by one of my colleagues.  Many students approach this question with the intuition that if a client is guilty of a crime, assisting them in any way is wrong, and perhaps we should even report them to the authorities.  Here is a nice example that might be viewed simplistically and incorrectly as differentiating between what is moral and what is legal.  The presumption of innocence, the unequal burden of proof placed on the awesome power of the state, and the freedom from self-incrimination are all moral as well as legal principles, that obviously come into tension with the basic moral notion of wanting to see wrongdoers punished.  A lawyer’s role in advising an admitted criminal to my mind is profoundly moral, as well as instrumentally legal.  Nevertheless, the idea of counseling a client who confesses past sins is troubling to students, for reasons we should not too hastily dismiss.

[Posted, on Alan's behalf, by Jeremy Telman]

October 7, 2009 in Commentary, Famous Cases, Teaching | Permalink | Comments (1) | TrackBack (0)

Can Mad Men Bring Sexy Back to Contracts?

Martini I am late to the hit AMC series Mad Menjust last week, I started watching the first season on DVD.  I am enjoying the show, and tolerating the unrelenting misogyny as a representation of the period.  That aside, the show definitely has an alluring and sexy aesthetic – partly attributable to the constant smoking and cocktail drinking in well-tailored suits.

I’d love to bring some of this allure into the contracts classroom – without the sex, sexism, smoking and drinking.  And, I just might be able to.  I have it on reliable information that there is an employment contract issue that arises as a sub-plot late in Season 2 and has carried over to Season 3 of the show.  Apparently the story line involves Don Draper refusing to sign an employment contract because it contains a non-compete clause.  When I heard this, I went from liking the show to loving it.

But, this is as informative as my post can be – because I have not yet reached these episodes of the show.  That is why I am asking those of you who read this blog and watch Mad Men to explain in the comments the non-compete sub-plot and name the episodes in which it receives treatment.  We will address non-competes in my class in a few weeks, and I am thinking I just might be able to bring sexy back to Contracts.

[Meredith R. Miller]

October 7, 2009 in Film, Food and Drink, Television | Permalink | Comments (2) | TrackBack (0)

Tuesday, October 6, 2009

Affirmative Defenses in Arkansas

Truck
NB: An earlier version of this post identified the case as coming from Alabama rather than Arkansas.  Many thanks to the attentive reader who caught the error.

The Eighth Circuit decided a contracts issue last week in All-Ways Logistics, Inc. v. USA Truck, Inc., No. 08-1054 (Oct. 1, 2009)  The District Court awarded All-Ways about $3 million in breach of contract damages on a commission agreement.  The interesting issue was USA Truck’s argument that the District Court erred in failing to instruct the jury properly on its affirmative defense that All-Ways had waived the breach by continuing to accept benefits from the contract after discovery of the breach.

In 1999 the parties entered into an agreement under which USA Truck was to pay All-Ways a five percent commission on all freight that All-Ways solicited and USA Truck transported.  In 2002, USA Truck informed All-Ways that it was terminating the agreement and that commissions would no longer be paid with respect to an account with Rheem Manufacturing, one of the largest accounts that USA Truck had gotten through All-Ways’ efforts.  All-Ways complained, but the parties continued their relationship with respect to other accounts.  In 2005, USA Truck began negotiating with the other large account it had gotten through All-Ways so that USA Truck could bypass All-Ways on that account as well.   In August of 2005, USA Truck gave notice that it was terminating its commission agreement with All-Ways, and that termination became effective in October.

In May 2006, All-Ways brought suit seeking recovery under the commission agreement for commissions earned but not paid on freight solicited by All-Ways and shipped by USA Truck through October 2005.  After a jury trial, All-Ways won a verdict in excess of $3 million, plus prejudgment interest and attorneys’ fees.

USA Truck contended that All-Ways had waived the breach by continuing to accept benefits under the agreement.  The district court refused to instruct the jury on that affirmative defense, finding that it did not apply to the facts of the case.  The Eighth Circuit found the question a close one, but found no abuse of discretion.  The district court reasoned that the agreement between the parties was structured to give rise “to a separate and unilateral contract between the parties [with respect to each account] and that All-Ways’[s] performance as to one account did not entitle it to a commission on another, nor did USA’s breach by nonpayment as to one account create a cause of action for breach as to the others.”

USA Truck contended that the question of whether the commission agreement at issue was severable in this manner should have been submitted to the jury.   However, the district court found – and the Court of Appeals agreed – that the severability of the agreement could in this case be established as a matter of law based on its clear and unambiguous terms.

In addition, the Eighth Circuit noted that there was no unambiguous waiver in this case because All-Ways had protested the termination of its commissions.  Here the Eighth Circuit reasoning seems a bit shaky to me.  The affirmative defense of acceptance of benefits exists because such acceptance is itself evidence of waiver.  The Eighth Circuit distinguished cases establishing that proposition on the ground that those cases did not apply to severable contracts.   Still, that leaves the court with one ground for its decision (the agreement was severable) and not two (severability and waiver).

Obsessive readers of the blog (and comments on the blog) might also note with interest that Arkansas law permits recovery of “reasonable attorneys fees” in contracts cases.  The horrors!  To make the Death of Contract theme even more apparent, in this case plaintiff’s attorneys sought recovery of a one-third contingency fee (which came to just over $1 million) when recovery by the lodestar method would have yielded just over $217,000.  The Eighth Circuit found no abuse of discretion in the district court’s award of fees under Arkansas law.

[Jeremy Telman]

 

October 6, 2009 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, October 5, 2009

Contracts Limerick of the Week: Brackenbury v. Hodgkin

I promised last week that I would discuss Brackenbury v. Hodgkin, 102 A.2d 106 (1917), and provide a companion Limerick to go with Fitzpatrick v. Michael.  In that case, I suggested that specific performance might have led the parties to a reasonable settlement of their dispute.  Ms. Fitzpatrick had been serving as Mr. Michael’s live-in nurse and caretaker.  Apparently induced by his grasping, conniving relatives to oust her, Mr. Michael terminated the relationship.  The court felt uncomfortable ordering two people to live together.  I think the court could have done so confident in the knowledge that they would quickly come to an agreement that would give Ms. Fitzpatrick at least a partial benefit of the bargain but would not involve court-supervised cohabitation.

Witch But the next case suggests at least one reason why law professors might make lousy judges.   People have this nasty habit of not always behaving as rational choice theory suggests they should.  Sarah Hodgkin (pictured), an aging widow, had six children, none of whom were willing to look after her.   Her one daughter agreed to do so in return for income from the farm on which Sarah lived, use of the household goods and ownership after the property after Sarah’s demise.  So, the Brackenbury family moved from Independence, Missouri to the outskirts of Lewiston, Maine.

It took all of two weeks before “the relations between the parties grew most disagreeable,” and Sarah sought to get out of her promise by transferring ownership of the property to her son Walter.   The Supreme Judicial Court of Maine found: (1) a contract that (2) created an equitable interest, (3) that Sarah had breached her duty of performance because she was primarily at fault; and (4) that the Brackenbury family had no adequate remedy at law.

The parties were ordered to continue their arrangement, which included cohabitation.  If they had been rational, the parties ought to have either quickly settled or learned to get along.   They chose to do neither.  Poor Sarah was forced to eat with an old iron fork with two tines broken off and when she asked that food be passed her way at the table, it was passed in the Peyton Manning sense of the word.

This conduct is Limerickworthy.  As the Fitzpatrick Limerick is from the perspective of the judge, this one of from Brackenbury’s perspective:

Brackenbury v. Hodgkin

I’d sooner kiss a chimera
Than put up with my in-law, Old Sarah,
Now whenever she dines,
Her fork has but two tines,
And her home ain't no French Riviera.

[Jeremy Telman]

October 5, 2009 in Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

One for the Contracts Profs – With a little Statute of Frauds and a little Varney v. Ditmars

CoaHall_postcard_Large
Back in April 2007, the WSJ Law Blog declared Snyder v. Bronfman “the best tabloid suit” of that year.  The lawsuit may not have lived up to that superlative (didn’t Anna Nicole Smith die that year?), but it certainly should be on the radar of Contracts Profs.  It will be argued before the New York Court of Appeals next week (10/14) – and there is an added bonus, because the Court website now features webcasts of oral arguments.

In the lawsuit, Richard Snyder, the former Chairman and CEO of Simon & Schuster, sues Edgar Bronfman, the CEO of Warner Music Group.  In a nutshell, Snyder claims that, while vacationing in the Carribean, he and Bronfman agreed to work together to “acquire companies using funds principally from sources outside the Bronfman family.”  However, after Snyder assisted in negotiating Bronfman’s 2003 takeover of Warner Group, Snyder alleges that Bronfman failed to compensate Snyder accordingly.  Snyder’s claims sound in (1) breach of joint venture agreement; (2) breach of fiduciary duty; (3) joint venture accounting; (4) unjust enrichment; (5) promissory estoppel; and (6) quantum meruit.  Bronfman moved to dismiss all claims.

Here’s the rub (or part of it at least): after Snyder and Bronfman discussed their business venture (over daquiris?), they did not put their agreement in writing.  Indeed, Snyder alleges that Bronfman said they did not need a writing because they were both “honorable men.”

One issue that has been percolating in the courts is whether Snyder and Bronfman’s deal comes within the statute of frauds, NY GOL 5-701(a)(10).  That provision provides, in pertinent part, that the following agreements must be in writing to be enforceable:

[A]  contract  to  pay  compensation  for  services  rendered  in negotiating  a  loan, or  in  negotiating the purchase, sale, exchange, renting or leasing of any . . .  business  opportunity, business, its good will, inventory, fixtures or an interest therein, including a majority of the voting stock interest in a  corporation  and  including  the creating  of  a  partnership interest.  "Negotiating" includes procuring an introduction  to  a  party  to  the transaction  or  assisting  in  the  negotiation  or consummation of the transaction. This provision shall apply to a contract implied in fact or in law to pay reasonable compensation . . . .

Bronfman argues that, because the deal was not in writing, the statute prohibits Snyder from recovering a finder’s fee or other compensation based on services rendered in connection with a corporate acquisition.  Synder argues that this section of the statute does not apply in this case, because Snyder was a joint venturer with Bronfman, not a finder or broker.  The trial court sided with Snyder, and held that Snyder’s allegations, when taken as true, allege that he “functioned as more than just a broker assisting defendant in a limited and transitory manner to find a company the latter could acquire and run.”  Accordingly, the trial court refused to dismiss the complaint based on the statute of frauds.

 The Appellate Division reversed.  The Appellate Division read NY GOL 5-701(a) (1) with a wider lens: 

In relevant part, this enactment renders void any oral agreement “to pay compensation for services in . . .  negotiating the purchase . . . of any . . . business opportunity.”  As is evident, the statute broadly applies to “any” business opportunity. 

Issue two at the Court of Appeals could be: even if Snyder’s claims do not come within the statute of frauds, should the breach of a joint venture agreement, breach of fiduciary duty and a claim for an accounting be dismissed because Snyder alleges an agreement that is too inherently vague to support a joint venture claim and the complaint fails to allege any agreement between the parties as to the sharing of losses?  Relying heavily upon Varney v. Ditmars, the trial court held that the agreement was too vague to create an enforceable contract.  Here’s a taste of its reasoning:

[A]s a matter of basic contract law, "[i]f an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract." Cobble Hill Nursing Home, Inc. v. Henry & Warren Corp., 74 NY2d 475, 482, (1989), citing Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 NY2d 105, 109 (1981); Restatement [Second] of Contracts §33).

In Varney v. Ditmars (217 NY 223 [1916]), the Court of Appeals affirmed a directed verdict in favor of the defendant where the plaintiff alleged that his employer, in addition to paying him $40 per week to work as an architectural draftsman, promised to pay plaintiff a "fair share" of defendant's profits through the end of the calendar year. Id. at 225-26. The Court ruled that this promise was "vague, indefinite and uncertain and the amount cannot be computed from anything that was said by the parties or by reference to any document, paper or other transaction." Id. at 227.

The contract in question, so far as it relates to a share of the defendant's profits, is not only uncertain but it is necessarily affected by so many other facts that are in themselves indefinite and uncertain that the intention of the parties is pure conjecture. A fair share of the defendant's profits may be any amount from a nominal sum to a material part according to the particular views of the person whose guess is considered. Such an executory contract must rest for performance upon the honor and good faith of the parties making it. The courts cannot aid parties in such a case when they are unable or unwilling to agree upon the terms of their own proposed contract.

It is elementary in the law that, for the validity of a contract, the promise, or the agreement, of the parties to it must be certain and explicit and that their full intention may be ascertained to a reasonable degree of certainty. Their agreement must be neither vague nor indefinite, and, if thus defective, parol proof cannot be resorted to.

* * *

This is not a case involving a missing "price term" where the amount can be determined objectively without input from the parties or by reference to an extrinsic event, commercial practice or trade usage. Nor is this an employment contract that contains an open additional compensation clause, as in Guggennheimer v. Bernstein Litowitz Berger & Grossmann LLP (11 Misc 3d 926 [Sup Ct, NY County 2006]), where sufficient guidelines could exist from past practices by the defendant law firm to allow the court to supply a bonus figure. It is the plaintiff's job to articulate the terms of the joint venture agreement upon which he sues, and if he cannot do so in his own pleading with sufficient definiteness, than the action is ripe for dismissal at this stage. See Freedman v. Pearlman, 271 AD2d 301, supra (breach of contract claim premised on promises of "fair compensation" dismissed, pre-answer, for failure to state a cause of action).

Having dismissed based on the statute of frauds, the Appellate Division did not reach the certainty issue. 

The promissory estoppel claim was likewise dismissed as “too inherently vague.”  The unjust enrichment and quantum meruit claims were also dismissed. 

[Meredith R. Miller]

October 5, 2009 in In the News, Recent Cases | Permalink | TrackBack (0)