ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, March 11, 2010

From Hog to Film Futures, Coming Soon to a Market Near You

Movie Earlier this week, there was a story on NPR's Marketplace about commodity futures trading, and the transition of most of the trading from the floor to computer screens. The story noted one holdout, however: livestock futures.  Floor trader James "Bugsy" Brooks explained why the livestock markets, cattle and hogs, have been slower to go electronic:

The cash livestock trade has always been a verbal, handshake, word-of-mouth agreement. And so they were very comfortable still having that personal relationship.

Nevertheless, the story noted that even livestock futures trading has largely transitioned to computer -- with more than 50% of cattle futures traded electronically, and around 70% of hog futures following suit.

Hogs for sale Before you get nostalgic for the old days of traders in coats, shouting and waving around their arms on a trading floor, realize that this same technology has paved the way a new type of futures trading: movie futures.  The New York Times DealBook reports today:

Cantor Futures Exchange, a subsidiary of Cantor Fitzgerald, expects to open an online futures market next month that will allow studios, institutions and moviegoers to place bets on the box-office revenue of Hollywood’s biggest releases. Last week, the company learned from regulators that customers could start putting money into their accounts on March 15.

“I’ve worked in the futures industry for a long time,” said Richard Jaycobs, the president of Cantor Exchange, who has worked with derivative markets and the cotton exchange. “And none of the products has the overall appeal that this does. This just has a tremendous potential audience.”

Betting on the success of Hollywood releases has long been a parlor game for moviegoers. In 2001, Cantor Fitzgerald bought the Web site (for “Hollywood Stock Exchange”), where users can place bets with play money on a film’s box-office success; smart traders win little more than satisfaction. Mr. Jaycobs said that he hoped to lure a sizable portion of that site’s 200,000 active users to the real futures exchange.

But buyers beware: if “Avatar” is any indication, the public isn’t always so wise about Hollywood fortunes. Most users of predicted a flop, and if those users had placed real money on the Cantor exchange, they would have taken a serious hit.

In the real market, contracts on the Cantor exchange will trade at $1 for every $1 million a movie is expected to bring in — a figure determined by traders — at the domestic box office during its first few weeks in theaters. So if “Robin Hood” is expected to bring in $100 million in its opening weeks, a single contract could be bought for $100 by a trader who thinks Russell Crowe’s role in the movie will drive sales far above expectations. If that trader guesses right, and the movie sells $150 million in tickets, the trader makes $50.

Mr. Jaycobs said the metric used — domestic box-office receipts — “is as simple as it can possibly be.” He hopes the business will also attract professional and institutional investors. If a movie distributor, for example, screens a movie it has backed and thinks sales will beat expectations, the company can take an even bigger financial stake in the movie by buying contracts for it. The possible mix of investors — Hollywood insiders and moviegoers at large — creates an interesting laboratory, said P. Clark Hallren, a managing partner at Clear Scope Partners, a financial adviser to entertainment businesses who advises Veriana Networks, a company that is planning its own futures trading operation.

Whether its movie or hog futures, it is a gamble.  Iowan hog farmer Todd Wiley never knows if he will make enough money selling his hogs to cover the cost of their feed, so he hedges by selling futures contracts on the Chicago Mercantile Exchange.  The contracts guarantee a price for his hogs, and Wiley told Marketplace:

I'm not a big gambler.  I mean, we drive by casinos and my buddies say you want to stop and play a little bit, and I say "I play every day." Everything's a gamble, and you manage your risk to the best that you can. 

It does bring that Oscars pool to a whole new level.

[Meredith R. Miller]

March 11, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

Pink Floyd v. EMI -- Dark Side of the Recording Industry

Pinkfloyd  The band Pink Floyd has taken its record label, EMI, to court, as reported here in the Financial Times.  There are two aspects to the dispute.  First, the band is challenging the way EMI calculates royalties from online sales.  At the time the parties entered into their current agreement, online sales were not a major factor, but they now account for over 1/4 of all record company revenues, according to the Financial Times.   In addition, the band objects to having its songs "unbundled"; that is, sold as single tracks rather than together in an album.  

The latter is an interesting issue.  Pink Floyd was one of my favorite bands when I was in high school, but I could not have told you the names of many of the songs on "Dark Side of the Moon," "Wish You Were Here," or "Animals."  One always listened to their records -- there were records in those days -- track by track, and it would not have made sense to do anything else.  Theirs were concept albums, and the songs flow into one another -- so much that one could not always say where one ended and the other began.  Moreover, in the state most people were in when listening to Pink Floyd albums in the 70s, nobody would have wanted to take the initiative to get up from the couch, nor did they possess the fine motor skills it would have taken to move the needle to the desired track.  But since all music is now digitized, listeners usually have the option of a "shuffle" feature that enables them to play the tracks in random order.  In short, regardless of what Pink Floyd wants, listeners can conveniently opt to listen to the band's songs in any order or in random order.  I'm not sure there is much a court can do to affect that.

UPDATE in the comments.  Pink Floyd won its case, at least with respect to the bundling issue.

[Jeremy Telman]  

March 11, 2010 in Celebrity Contracts, Music, Recent Cases | Permalink | Comments (2) | TrackBack (0)

Wednesday, March 10, 2010

Ninth Circuit Rules Government Contracting No Bar to Exercise of Free Speech Rights

Louis_Pollak  Judge Louis H. Pollak, sitting by designation on the Ninth Circuit, authored the unanimous opinion in Marez v. Bassett, a case brought by a vendor who claimed that he was retaliated against for speaking out against the Las Angeles Department of Water and Power procurement process.  Mr. Marez sold products to the Department for years and so was selected to join a Small and Local Business Advisory Committee established by the LA City Council.  He then became the co-chair of a sub-committee on "Mega-Contracts."  In that latter capacity, Mr. Marez received numerous complaints about a recent contract, and he spoke out against that contract and about the Department's procurement procedures more generally.  According to the complaint, adverse actions followed almost immediately, ranging from harassment and threats to reforms in the procurement process that were intended to and did prevent Mr. Marez from winning bids which he claimed he should have won.   Mr. Marez brought suit against various city employees in their individual capacities and against the Department, alleging First Amendment violations and relying on 28 U.S.C. § 1983

The District Court granted defendants' motion for summary judgment, finding that Mr. Marez had offered "no evidence" of any adverse action.  The Ninth Circuit vacated the grant of summary judgment and remanded.  The issue before the Ninth Circuit was whether Mr. Marez was barred by Garcetti v. Ceballos, which held that government employees speaking publicly in an official capacity do not enjoy First Amendment protections against employer discipline. The Ninth Circuit found that Garcetti was inapplicable because Mr. Marez was not an "employee" of the city simply by virtue of his service on an advisory committee. He was not paid for his service, and the court noted that he did not work for the city; he worked with it.  The court further found that Mr. Marez's evidence of adverse retaliatory actions was sufficient to give rise to questions of material fact that could not be resolved on summary judgment.

[Jeremy Telman]

March 10, 2010 in Government Contracting, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Weekly Top Ten from the Social Science Research Network

RECENT HITS (for all papers announced in the last 60 days) 

TOP 10 Papers for Journal of Contracts & Commercial Law 

January 9, 2010 to March 10, 2010

RankDownloadsPaper Title
1353Choice of Law in the American Courts in 2009: Twenty-Third Annual Survey 
Symeon C. Symeonides
Willamette University - College of Law
2249The Foundations of a Market Economy: Contract, Consent, Coercion 
Yulie Foka-KavalierakiAristides N. Hatzis
University of Athens, Department of Philosophy & History of Science , University of Athens - Department of Philosophy & History of Science
3231The Ethics of Contract Drafting 
Gregory M. Duhl
William Mitchell College of Law
4212Bayesian Contractual Interpretation 
Yair Listokin
Yale Law School
5205The Core Nature of Fiduciary Accountability 
Robert Flannigan
University of Saskatchewan
6123On and Off Contract Remedies 
Richard R. W. BrooksAlexander Stremitzer
Yale University - Law School, Yale Law School
799The Coaching Carousel in Big-Time Intercollegiate Athletics: Economic Implications and Legal Considerations 
Richard T. Karcher
Florida Coastal School of Law
896Bankruptcy Markets: Making Sense of Claims Trading 
Adam J. Levitin
Georgetown University - Law Center
991Preventing Future Economic Crises Through Consumer Protection Law or How the Truth in Lending Act Failed the Subprime Borrowers 
Jeff Sovern
St. John's University - School of Law
1087After the Storm: Asymmetrical Information, Game Theory, and an Examination of the 'Minnesota Model' for National Regulation of Mortgage Brokers and Tomorrow's Predatory Lenders 
Mark Ireland
Hamline University - School of Law

[Jeremy Telman]

March 10, 2010 in Recent Scholarship | Permalink | TrackBack (0)

Tuesday, March 9, 2010

New Episode in the Prolonged Aerial Refueling Contract Drama

Aerial Refueling  We have had occasion previously to note the competition between Boeing and Northrop Grumman for a contract to design and build a new fleet of aerial refueling aircraft for the Air Force.  We noted in passing that, as illustrated to the right, aerial refueling is cool.  When we first reported on this issue, the contract had been awarded to Northrop Grumman in partnership with the parent company of Boeing's Professor Moriarty, Airbus. Later, we reported that Boeing had successfully protested the award and a new round of bidding was to commence.

Today, the New York Times reports that Northrop will not participate in the bid process, leaving Boeing as the only bidder.  Northrop also states that it will not challenge the award to Boeing, although it claims that it would have grounds to do so.  Northrop claims that the bid process was rigged to Boeing's advantage.  The Times suggests that this is a blow to the Obama administration, which was attempting to eliminate single-bidder government contracting.  As the Wall Street Journal reports, Members of Congress from Alabama, where the planes were to be built had Northrop won the bid, expressed "disappointment" and "outrage" at the news and suggested that the bid was rigged to favor Boeing to the detriment of American servicemen and women.  A Member of Congress from Washington State, where the planes are now to be built, suggested that Northrop and its European partner had been cheating all along and that challenges under international trade agreements would have followed an award to Northrop.  

[Jeremy Telman]

March 9, 2010 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Contracting Around the Duty of Good Faith & Fair Dealing in California

Sahara_posterThe New York Times reported over the weekend on the case of Cussler v. Crusader Entertainment, LLC, an unreported California Court of Appeal, Second District, Third Division decided on March 3rd.  The case involves a option agreement between Clive Cussler, whom the court describes as a "widely read novelist" and Crusader Entertainment LLC [Crusader], which exercised its contractual option in producing the movie "Sahara" based on one of Mr. Cussler's novels.  Before the film was produced, both parties sued each other alleging breach of the option agreement.  At trial, the jury rejected all of Cussler's claims and most of Crusader's but awarded the latter $5 million based on a finding that Cussler had breached the covenant of good faith and fair dealing.  On Mr. Cussler's appeal, the Court of Appeal reversed, finding that the breach of covenant claim was barred as a matter of law.

Crusader exercised its option to make "Sahara" in November, 2001.  Under the terms of the agreement, Crusader was contractually obligated to start filming within 24 months.  But wrangling over the screenplay, which Cussler allegedly declared to be "crap," made it difficult for Crusader to do so. The parties eventually arrived at an impasse, allegedly due to Cussler's insistence that he should write the screenplay and Crusader would not let him do so, both because actors did not like Cussler's screenplays and because of concerns related to the fact that Cussler was not a member of the Writers' Guild.  When Crusader proceeded to produce and release the film, Cussler publicly criticized it, stressing that he had not approved the screenplay.

On the key issue in the appeal, the court found that Cussler had a contractual right to review and reject proposed changes to the original Approved Screenplay "for unreasonable reasons. . . or for no reason at all."  The court rejected Crusader's argument that granting Cussler such broad discretion rendered the agreement illusory, since Crusader retained the right to produce the film using the Approved Screenplay.  In short, because the contract did not require Cussler to act either reasonably or in good faith, he could not be held liable for having failed to do so.  

Because the Court of Appeal reversed the trial court's ruling on damages, it remanded the case back to the trial court for a determination of which party had "prevailed" for the purposes of determining which party should bear the costs.

[Jeremy Telman]

March 9, 2010 in Celebrity Contracts, In the News, Recent Cases | Permalink | Comments (2) | TrackBack (0)

Monday, March 8, 2010

The Ethicist and the Lawyer

As I have previously confessed, I read Randy Cohen's "The Ethicist" column in the New York Times Sunday Magazine.  Mr. Cohen occasionally uses the law as a point of reference in explaining his grounds for thinking behavior is ethical or unethical.  I object, citing my conviction that the law sometimes reflects something like a collective ethic and sometimes reflects complex political processes that operate beyond good and evil.  On occasion, as indicated in this previous post, Mr. Cohen assumes positions consistent with mine, for which I heartily applaud him.  So, I've chided him for giving too much credence to the law as evidence of ethics and applauded him for recognizing that law and ethics can diverge.  Today, I return to congratulate him for recognizing some of the the subtleties of the dance between contracts law and ethics.

In last week's column, Mr. Cohen responded to a reader seeking advice respecting a school-year length agreement with a baby sitter to look after his two children two days a week.  The reader learned that he would be laid off in April and would no longer need the baby sitter's services, but his wife felt bound by the agreement to employ the baby sitter through June.  Mr. Cohen sides with the wife, arguing that the reader is bound, both in ethics and in law by his commitment to the baby sitter.  However, a contract is not a suicide pact.  Mr. Cohen recognizes that there are legal as well as ethical solutions short of pretending to putter about the house two days a week while your two children pester the under-utilized baby sitter with questions about why Daddy is still in his bathrobe and hasn't shaved in a week.  Mr. Cohen does not consider the defense of frustration of purpose, which might have some applicability in this context.  That is too bad, as it would be interesting to consider the extent to which our ethical intuitions overlap with legal doctrine with respect to that affirmative defense.  

Mr. Cohen correctly notes that, while one can assist the baby sitter in finding alternative employment or can offer her a compromise of one month's severance, she has no legal obligation to accept such an offer.  In the real world, she might see the advantages of being accommodating.  But here again, in my view, ethics and law diverge.  As a matter of ethics, I agree with Mr. Cohen that it is the breaching party's obligation to seek to mitigate the harm to the non-breaching party.  In law, however, the baby-sitter has a duty to seek alternative employment or she would forfeit her entitlement to damages that would make her whole.  This divergence of law and ethics is one about which I have strong views, since I regard myself as a victim of past baby sitters who have cancelled without notice and considered it my problem to find a replacement or change my plans for the evening.

Mr. Cohen also offers a brief paean to written contracts and their advantages over oral agreements.  Mr. Cohen notes that written agreements lend clarity to the terms of an agreement -- although there seems to be no ambiguity as to the terms of the baby-sitter contract at issue -- and provide an opportunity to make those terms explicit.  If the parties had wanted to stipulate that the agreement was contingent on the employer's continued employment at his own job, they could have made such an assumption explicit.  

This seems a bit off to me.  Very few people would want their informal contracts solemnized in writings, and it is highly unlikely that such a writing would address unforeseen -- though not unforeseeable -- events such as those that befell Mr. Cohen's reader.  A good baby-sitter contract -- one that addressed all contingencies and rendered its terms explicit -- would have to be drafted by an attorney.  But the costs of the contract would be excessive in relation to the value of the contract to the employer, who could not reasonably expect that the baby sitter would share the costs of drafting the agreement.  Moreover, because it would contain terms that likely would be opaque to the baby-sitter, a written contract could exacerbate the already uncomfortable inequality in bargaining power between the parties.  

[Jeremy Telman]

March 8, 2010 in Commentary, In the News | Permalink | TrackBack (0)

Protecting Your Passwords From Beyond the Grave

Preston_cheryl  BYU's Cheryl Preston gave a very stimulating presentation at the UNLV Spring Contracts Conference called "Hosting Kids Online: Applying 'Terms of Use to Minors."  At issue in the presentation are the rights of the parents of a deceased minor to that minor's password-protected internet communications.  Some internet service providers' Terms of Service provide that the ISP may destroy such communications upon the demise of their author, but Professor Preston's research questions the enforceability of such a ToS when entered into with a minor.   

Delong Fellow conferee Sid DeLong has called our attention to a possible, but perhaps problematic solution.  There is a service called Legacy Locker.  Among other things, Legacy Locker gathers and tests your online passwords for you and then passes them on to your personal representative or named beneficiary when you die.  More information on the service can be found here.  Please note: although the name of the principal behind Legacy Locker is similar to that of the undersigned, we at the blog intend neither to endorse nor to criticize the product.  We just think it is an interesting example of private ordering that could at least potentially save the bereaved from the kinds of adversarial wrangling described by Professor Preston. 

In the specific case described by Professor Preston, the parents of a beloved child wanted to recover some of her e-mail communications, and Professor Preston believes that they had a legal right to such communications. However, in many cases, though not the case Professor Preston discusses, minors have passwords on their internet accounts precisely because they want to keep those communications private from their parents.  That reasonable assumption could be easily overcome if children specified, through Legacy Locker or some other service what was to become of their accounts in case of their demise.

[Jeremy Telman]

March 8, 2010 in Conferences, E-commerce, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, March 4, 2010

A Sign of Rational Acting?

Clooney  This blog has suggested elsewhere that baseball contracting is irrational.  Players are offered jaw-dropping contracts based on their past performance which incentivizes them to have performed well in the past.  Sports contracts, we suggested, should have enough downside protection to lure players to a team, but the bulk of the salary should be in the form of incentives.  That's how it works in the world of corporate executive pay, and clearly corporate executives are not paid when they don't perform. Oh, wait.  Yeah.  Well, perhaps we more than a few tweaks away from the Peaceable Kingdom.  

In any case, today's New York Times reports that the film industry is moving away from the mega-contracts that paid the likes of Leonardo DiCaprio and Russell Crowe $20 million up front for appearing in blockbuster movies.  Although nobody will talk on the record, it seems that the newly risk-averse studios are now paying a measly $2 million or so up front to land even huge stars like George Clooney.  But don't worry, George Clooney and Sandra Bullock will not soon be sharing a roach-infested bed-sit in the East Village.  They make their profits, which still can be in the $20 million range, or even higher, once their films pass the break-even point.

So, even if actors cannot be counted on to behave rationally, there is evidence of some rational acting in Hollywood.

[Jeremy Telman]

March 4, 2010 in Celebrity Contracts, In the News, True Contracts | Permalink | Comments (2) | TrackBack (0)

Wednesday, March 3, 2010

Another UNLV Conference Paper Available on SSRN

Listokin Yair Listokin presented his paper, "Bayesian Contractual Interpretation" at the Spring Contracts Conference at UNLV last week.  Yesterday, the written version showed up in my e-mail via a Social Science Research Network notice.  The paper is downloadable from the site here.  Get it while it's hot; it's already climbed to #5 on SSRN's Top Ten.  Here is the abstract:

Courts seeking the most likely intent of contracting parties should interpret contracts according to Bayes’ Rule. The best interpretation of a contract reflects both the prior likelihood (base rate) of a pair of contracting parties having a given intention as well as the probability that the contract would be written as it is given that intention. If the base rate of the intention associated with the simplest reading of the contract is low, then Bayes’ Rule implies that the simplest reading is not necessarily the interpretation of the contract that most likely captures the parties’ intentions. The Bayesian framework explains when default rules should be more or less “sticky” and helps define the appropriate role of boilerplate language in contractual interpretation.

The piece is fun in part because it applies the Bayesian framework to Cardozo's classic opinion in Jacob & Youngs v. Kent, a case we have mentioned on occasion on this blog, e.g., here,  here  and here.  The popularity of the case meant that everyone at the conference had a strong opinion about what Cardozo was really saying and how Bayesian analysis, to which many of us were introduced at the conference, is properly applied to the timeless question of Reading v. Cohoes pipe.

[Jeremy Telman]

March 3, 2010 in Conferences, Famous Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Weekly Top Ten from the Social Science Research Network


RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law 

RankDownloadsPaper Title
1337Choice of Law in the American Courts in 2009: Twenty-Third Annual Survey 
Symeon C. Symeonides
Willamette University - College of Law
2236The Foundations of a Market Economy: Contract, Consent, Coercion 
Yulie Foka-KavalierakiAristides N. Hatzis
University of Athens, Department of Philosophy & History of Science , University of Athens - Department of Philosophy & History of Science
3200The Core Nature of Fiduciary Accountability 
Robert Flannigan
University of Saskatchewan
4182The Ethics of Contract Drafting 
Gregory M. Duhl
William Mitchell College of Law
5178Bayesian Contractual Interpretation 
Yair Listokin
Yale Law School
6125Fixing the Home Affordable Modification Program to Mitigate the Foreclosure Crisis 
Jean Braucher
University of Arizona - James E. Rogers College of Law
7124The Evolution of Contract Remedies (and Why Do Contracts Professors Teach Remedies First?) 
George G. Triantis
Harvard University - Harvard Law School
8118On and Off Contract Remedies 
Richard R. W. BrooksAlexander Stremitzer
Yale University - Law School, Yale Law School
999The Coaching Carousel in Big-Time Intercollegiate Athletics: Economic Implications and Legal Considerations 
Richard T. Karcher
Florida Coastal School of Law
1088Bankruptcy Markets: Making Sense of Claims Trading 
Adam J. Levitin
Georgetown University - Law Center

[Jeremy Telman]

March 3, 2010 in Recent Scholarship | Permalink | TrackBack (0)

Tuesday, March 2, 2010

Supreme Court Rejects Franchisees' Claims for Statutory Relief for Constructive Termination of Franchise Agreements

Supreme_Court_US_2009  The U.S. Supreme Court today decided Mac's Shell Service, Inc. v. Shell Oil Products Co.  The unanimous decision was authored by Justice Alito.  The consolidated cases involved franchisees who claimed that their franchise relationship had been constructively terminated or that their franchises had not been renewed in violation of the Petroleum Marketing Practices Act, PMPA, 15 U.S.C. s. 2801 et seq.  The PMPA limits the right of the franchisor to terminate or refuse to renew petroleum franchises.  However, in these cases, the Justices held that the franchisees could not claim that either constructive termination or refusal to renew had occurred because in all cases, the franchisees retained their franchises.

The PMPA claims resulted from a change in the way rents were calculated in the franchise agreements.  Traditionally, franchisees paid a fixed rent, discounted based on a formula that incorporated the quantity of gasoline sold at their service stations.  Despite frequent assurances from Shell that the formula would be retained, Shell's managing agent, Motiva Enterprises, altered the franchise agreements to eliminate the volume-based rent subsidy.  In some but not all cases, this resulted in rent increases for the franchisees.  63 franchisees characterized the elimination of the rent subsidy as: 1) breach of contract; 2) constructive termination in violation of PMPA; and 3) constructive non-renewal in violation of PMPA.

The First Circuit denied the constructive non-renewal claims because the franchisees had signed renewal agreements and were operating the franchises.  However, the First Circuit found that there could be constructive termination claims where the terms of the new franchise agreement entailed a breach of the prior agreement.  The Supreme Court rejected the latter position, finding that termination under the PMPA requires conduct that has the effect of ending the franchise.  

This case may also be of interest to fans of the standard teaching cases in Business Associations, Humble Oil v. Martin and Hoover v. Sun Oil, which also involve petroleum franchise agreements.

[Jeremy Telman]

March 2, 2010 in In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

About Our Comments Feature

We welcome comments!  Nothing pleases us more than when we get some response to our posts.  Otherwise, we never know if our posts are reaching intelligent life.

If you do comment, please be patient.  One of us has to check the comments section on typepad and approve of the comments.  We approve all comments that are substantive, even if they are critical, so long as they are not abusive. 

Alas, most of our comments are of this variety:  "Thanks for the informitive post.  I reely enjoy reading yr blog."  And then there is some link to a commercial website.  That's why we monitor the comments section.

But if you are not using our comments section to advertise your mortgage-lending business or the like (and yes, we at the blog are all perfectly satisfied with our penis sizes, nor are we in the market for viagra), please, please, please feel free to join in or start the conversation.

[Jeremy Telman]

March 2, 2010 in About this Blog | Permalink | Comments (0) | TrackBack (0)

District Court in West Virginia Enforces Class Action Waiver in Arbitration Clause

At the Contracts Conference at UNLV, there was an exceedingly impressive panel on arbitration.  During the Q&A, Professor Victor Goldberg (Columbia) commented that he was surprised that none of the presenters mentioned the class action waiver.  After all, aren’t many companies using arbitration to avoid class actions?  And, if class action waivers are not enforceable, will they stop opting for pre-dispute arbitration clauses in their contracts? 

I tend to agree that the nub of the whole pre-dispute (“mandatory”) arbitration regime is the class action.  Some courts have specifically invalidated these class action waivers as unconscionable, some courts have generally invalidated the entire arbitration clause as unconscionable based on the class action waiver, and some courts have upheld both the waiver and the arbitration clause more generally.  Recently, in Wince v. Easterbrooke Cellular, the Federal District Court in West Virginia fell into the last camp, concluding that the arbitration clause used by AT&T Mobility (“ATTM”) is valid and enforceable even though it contains a class action waiver.  

The court held that the waiver was not unfair because it was written in a way that did not financially disincetivize plaintiffs from bringing smaller, individual claims.  The court reasoned:

Here, however, each putative class member has incentive to bring his or her claim, regardless of whether classified as “high” or “small” dollar.  This incentive is provided by several provisions of the ATTM arbitration clause.  First, with limited exceptions, ATTM has committed to pay all of the costs of arbitration whether a customer wins or loses.  Second, if a customer prevails in arbitration, he or she may obtain the same remedies-including compensatory, punitive, and statutory damages; injunctive and declaratory relief; and attorneys' fees-that are available in court.  Finally, if the arbitrator awards the customer an amount greater than ATTM's last settlement offer, ATTM must pay him $10,000.00, plus double attorneys' fees.

ATTM certainly figured out how to build the better class action waiver – in the drafting stages, taking aim at some of the policy critiques of the waivers.  It will be interesting to see whether the same clause will hold up in other jurisdictions.

Wince v. Easterbrooke Cellular Corp., --- F.Supp.2d ----, 2010 WL 392975 (N.D.W.Va. Feb 02, 2010) (NO. CIV.A. 2:09-CV-135).

[Meredith R. Miller]

March 2, 2010 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, March 1, 2010

UNLV Conference Already Paying Off!

Cherry  No sooner did I return from the Spring Contracts conference in Las Vegas when I received an e-mail from a former students seeking guidance on a research project.  The student sought help on seeking a contractual solution to recent failures in the derivative markets.  He was interested in exploring whether there might be a way to hold accountable a company like AIG on the ground that it fraudulently induced parties to invest while through mismanagement it failed to assure that it had adequate collateral.  

Wong  Ordinarily, I would have simply responded truthfully by saying that the question is beyond my expertise.  Fortunately, for the student however, this time I did not have to leave it at that.  Among the many presentations from which I benefited at the conference was one by Miriam Cherry & Jarrod Wong on clawbacks as a possible solution in such contexts.  The paper that was the basis for their presentation can be found in Volume 94, 2009 of the Minnesota Law Review and can be downloaded from SSRN.  Here is the abstract:

In the spring of 2009, public outcry erupted over the multi-million dollar bonuses paid to AIG executives even as the company was receiving TARP funds. Various measures were proposed in response, including a 90% retroactive tax on the bonuses, which the media described as a "clawback." Separately, the term "clawback" was also used to refer to remedies potentially available to investors defrauded in the multi-billion dollar Ponzi scheme run by Bernard Madoff. While the media and legal commentators have used the term "clawback" reflexively, the concept has yet to be fully analyzed. In this article, we propose a doctrine of clawbacks that accounts for these seemingly variant usages. In the process, we distinguish between retroactive and prospective clawback provisions, and explore the implications of such provisions for contract law in general. Ultimately, we advocate writing prospective clawback terms into contracts directly, or implying them through default rules where possible, including via potential amendments to the law of securities regulation. We believe that such prospective clawbacks will result in more accountability for executive compensation, reduce inequities among investors in certain frauds, and overall have a salutary effect upon corporate governance.

My student may not find exactly what he was looking for in the article, as Cherry & Wong are really proposing clawback clauses that could address the harms attendant to the next meltdown in the capital markets.  Given the prospects for a new regulatory regime with teeth, it is wise for us to start bracing for impact now.

[Jeremy Telman]

March 1, 2010 in Conferences, Recent Scholarship, Teaching | Permalink | Comments (0) | TrackBack (0)

UCC Legislative Update

It has been a fairly quiet eight months on the UCC legislative front since my last update.

Revised Article 1

As of March 1, 2010, Revised Article 1 was in effect in thirty-seven states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and West Virginia.

State legislatures continue to grapple with the definition of "good faith," although the uniform § R1-201(b)(20) definition has the upper hand.  Of the 37 enacting states, 26 have adopted the uniform definition, while 11 have retained the pre-revised definition that, in conjunction with § 2-103(1)(b), imposes a different good faith standard on merchants and non-merchants.  Effective July 1, 2010, one of those eleven minority states (Indiana) will join the majority as SB 501, enacted in 2009 primarily for the purpose of amending Articles 3 and 4, also included a new good faith definition for Indiana's Article 1.

With many state legislatures occupied with more pressing issues of the moment, 2009 yielded only three new adoptions -- Alaska, Maine, and Oregon -- down from five in 2008, and seven in 2007.  While a downward trend in new enactments eventually becomes inevitable once two-thirds of the states have signed on, 2009's three enactments were the fewest in a year since 2003 (when Idaho became the third state overall to enact Revised Article 1).

As of March 1, only two states -- Mississippi and Wisconsin -- appear to be serious candidates to enact Revised Article 1 in 2010.

Mississippi SB 2419, introduced and amended (to replace a choice-of-law provision that appeared to have derived from the original § R1-301 that all 37 enacting states have declined to adopt and the ALI and NCCUSL have disavowed with one that reflected the substitute § R1-301 the ALI and NCCUSL promulgated in 2008) in January, unanimously passed the Mississippi Senate on February 10.  It is presently before the House Judiciary Committee.

Wisconsin AB 687, introduced on January 25 and amended on February 16 to replace the uniform R1-201(b)(20) "good faith" definition with the pre-revised 1-201(19) version, received the Assembly Committee on Financial Institutions's unanimous approval on February 26.  It is presently before the Assembly Rules Committee.

Two other bills, Massachusetts HB 89 and Washington SB 5155, seem less likely to produce results.

Massachusetts HB 89, a fifth attempt to enact Revised Article 1 in the Commonwealth, was assigned to the Joint Committee on Economic Development and Emerging Technologies on January 20, 2009.  No further action has been reported as of March 1, 2010.

Washington SB 5155, introduced on January 15, 2009, appeared to be drawn directly from the language of official Revised Article 1 circa 2001, including the original version of § R1-301.  At an initial public hearing on January 23, 2009, all those testifying in support of and in opposition to the bill opposed the choice-of-law provision.  The Washington Senate has taken no further action on the bill.

Article 2 and 2A Amendments

As of March 1, 2010, only three state legislatures (Kansas, Nevada, and Oklahoma) have considered bills proposing to enact the 2003 amendments to UCC Articles 2 and 2A. In 2005, Oklahoma amended Sections 2-105 and 2A-103 of its Commercial Code to add that the definition of “goods” for purposes of Articles 2 and 2A, respectively, “does not include information,” see 12A Okla. Stat. Ann. §§ 2-105(1) & 2A-103(1)(h) (West 2009), and amended its Section 2-106 to add that “contract for sale” for purposes of Article 2 “does not include a license of information,” see id. § 2-106(1). The net effect is similar to having enacted Amended §§ 2-103(k) & 2A-103(1)(n), both of which exclude information from the meaning of “goods” for purposes of Article 2 and 2A, respectively. Otherwise, no state has enacted any of the 2003 amendments.

While the list of states enacting any of the 2003 amendments may not change in the near future, the number of amendments Oklahoma enacts may.  Introduced on February 1, 2010, Oklahoma HB 3104 proposes amendments to forty-nine sections of Article 2 and four sections of Article 2A.  The bill includes neither the reformulation of Sections 2-206 and 2-207 nor the addition of Sections 2-313A and 2-313B included in the 2003 Article 2 amendments.  Many of the amendments appear designed to facilitate electronic signatures and transactions and to accommodate the terminology surrounding them that grows out of UETA, E-SIGN, and Revised UCC Articles 1 and 7, or to otherwise align Article 2 and 2A terminology with that used in Revised Articles 1 and 7.  That is not to say that HB 3104 proposes only cosmetic changes to Oklahoma's versions of Articles 2 and 2A.  Several of the proposed amendments alter existing substantive rights, obligations, or remedies.  Some of those alterations (e.g., raising the statute of frauds floor from $500 to $5,000) do not seem to be inherently controversial; some (e.g., granting/recognizing a right to cure after a justifiable revocation) may or may not be controversial depending on how courts have interpreted the current Article 2; and some (e.g., giving sellers the right to recover consequential damages) do seem inherently controversial.  This, however, is neither the place nor the time for a detailed assessment of HB 3104. 

Article 3 and 4 Amendments

As of March 1, 2010, the 2002 amendments to Articles 3 and 4 were in effect in eight states: Arkansas, Kentucky, Minnesota, Nevada, New Mexico, Oklahoma (for a second time), South Carolina, and Texas.

In addition to enacting the 2002 amendments to Articles 3 and 4 and the usual conforming amendments, Indiana SB 501, which Governor Mitch Daniels signed into law on May 12, 2009, but does not take effect until July 1, 2010 also revises the definition of “good faith” in Ind. Code § 26-1-1-201(19) to require all parties to act honestly and to observe reasonable commercial standards of fair dealing. At present, Ind. Code § 26-1-1-201(19) requires only “honesty in fact.” Like the rest of SB 501, this change will take effect July 1, 2010, and further tip the balance among enacting states in favor of the unitary good faith definition in uniform R1-201(b)(20).

As of March 1, 2010, the only pending Articles 3 and 4 bill is Massachusetts HB 90, which has been languishing for more than a year.

Revised Article 7

As of March 1, 2010, Revised UCC Article 7 was in effect in thirty-six states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, and West Virginia.

Additional bills are currently pending in Georgia, Massachusetts, Washington, and Wisconsin; but only the Wisconsin bill appears to be making any progress.

First introduced on February 18, 2009, Georgia HB 451 won unanimous approval in the Georgia House on March 12, and the Senate Judiciary Committee recommended passage on March 26. However, the legislature adjourned on April 3 without a third reading and final action in the senate.  HB 451 was "recommitted" to the Georgia Senate on January 11, 2010.  No further action has been reported.

Massachusetts HB 89, which also proposes adopting Revised Article 1, was assigned to the Joint Committee on Economic Development and Emerging Technologies on January 20, 2009.  No further action has been reported.

Washington SB 5154 was introduced on January 15, 2009, scheduled for a public hearing on January 23, 2009, and then stalled, like its Revised Article 1 counterpart, but without as compelling a reason.  It was "reintroduced and retained in present status" on January 11, 2010.  No further action has been reported.

Wisconsin AB 688 was introduced on January 25, 2010.  On February 22, the Assembly Committee on Jobs, the Economy and Small Business unanimously recommended passage.  The bill is now before the Assembly Rules Committee.

[Keith A. Rowley]

March 1, 2010 in E-commerce, Legislation | Permalink | Comments (0) | TrackBack (0)

And on to the Next Conference . . .




A Joint Program of the Sections on Balance in Legal Education and Academic Support

Co-Sponsored by the Section on Student Services


Theme:  “Beyond Humanizing:  Can – and Should – Law Schools Strive to Graduate Happy Students?”


Students often enter law school with goals of helping others, improving peoples’ lives, and making the world a better place.  By the time they graduate, however, other considerations have supplanted students’ pro-social inclinations.  Their aspirations succumb to more extrinsic values, such as prestige and money, and are often faced with the realities of time pressure and the dehumanizing effects of legal education.  Despite the prestige associated with being an attorney, the profession is not ranked in the top ten for job satisfaction or happiness.  In fact, one recent study revealed that a majority of practitioners would not recommend law to a young person.


Three AALS Sections, Balance in Legal Education, Academic Support, and Student Services will be hosting a program in which we explore the causes of lawyer distress, the role legal education plays in producing unhappy law students and lawyers, and the concrete steps law schools are currently taking or could take to combat those causes.  The Program Committees invite proposals that provide concrete demonstrations of ways doctrinal, clinical, legal writing, and academic support professors and student services professionals are addressing these concerns.


The Program Committees will give preference to presentations designed to actively engage the workshop audience, so proposals should contain a detailed explanation of both the substance of the presentation and the interactive methods to be employed.  In addition, we would like to highlight talent across a spectrum of law schools and will look for variety in presentations and presenters.  Based on participant numbers for the last several years, we anticipate over 150 people will be attending the program.  To assist the presenters in the interactive piece, the program committee members and other volunteers will be on hand to act as facilitators with audience members.


Proposals must be one page and include the following information:

1.  A title for your presentation.

2.  A brief description of the objectives or outcomes of your presentation.

3.  A brief description of how your presentation will support your stated objectives or outcomes.

4.  The amount of time allocated for your presentation and for the interactive exercise. No single presenter should exceed 45 minutes in total time allowed.  Presentations as short as 15 minutes will be welcomed.

5.  If warranted, a detailed description of how the presentation will be interactive.

6.  Whether you plan to distribute handouts, use PowerPoint, or employ other technology.

7.  Your school affiliation, title, courses taught and contact information (include email address and telephone number).


Optional and on a separate page:  A list of the conferences at which you have presented within the last three years, such as AALS, national or regional conferences, or other academic conferences.  (The committees are interested in this information because we wish to select and showcase seasoned, as well as fresh, talent.)  Any articles or books that you have published describing the technique(s) you will be demonstrating.


Send proposals by March 15, 2010 via email (preferably in a Word Document) to Prof. Emily Randon, University of California, Davis School of Law, at  Phone number:  530-752-3434.


Questions?:  If you have questions, feel free to contact Emily Randon, Program Chair for the Academic Support Section, Andrew Faltin, Program Chair for the Balance Section, at or Catherine Glaze, Student Services Section at

[Jeremy Telman]

March 1, 2010 in Conferences | Permalink | Comments (0) | TrackBack (0)

Thank You to Keith and UNLV!

Thank-you Day Two of the Spring Contracts Conference in Las Vegas was just as enriching and engaging as day two; if you are interested in the full program it is available here.  This is thanks in no small part to Keith Rowley and UNLV for being such dedicated, energetic, organized and gracious hosts.  Thank you, Keith, for putting together such a wonderful conference.  While I was feeling the mental fatigue by the end of Saturday, I have come away with a renewed energy in my teaching and scholarship.  It was a wonderfully diverse program, and many agreed that it was the best annual conference so far. So, thanks and congrats!  

[Meredith R. Miller]

March 1, 2010 in Conferences | Permalink | Comments (1) | TrackBack (0)