March 4, 2010
A Sign of Rational Acting?
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.
March 3, 2010
Another UNLV Conference Paper Available on SSRN
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.
Weekly Top Ten from the Social Science Research Network
March 2, 2010
Supreme Court Rejects Franchisees' Claims for Statutory Relief for Constructive Termination of Franchise Agreements
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.
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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 1, 2010
UNLV Conference Already Paying Off!
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.
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
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]
And on to the Next Conference . . .
CALL FOR PROPOSALS
AMERICAN ASSOCIATION OF LAW SCHOOLS – 2011 Conference, Jan 5-9th
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 firstname.lastname@example.org. 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 email@example.com or Catherine Glaze, Student Services Section at firstname.lastname@example.org.
Thank You to Keith and UNLV!
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]