Monday, February 28, 2011
Charlie Sheen’s antics, documented virtually everywhere, have kept the public agog for months. As the seriousness of his scrapes escalates, questions swirl about how this will all end. As parents caution a hyperactive child obviously heading for a fall that “it will all end in tears”, I am rooting for a happy ending, despite all indications. I am hoping, as I watch this awful drama unfold, that it will not culminate in a tragic end.
It was only a few weeks ago that Charlie Sheen reportedly announced that his contract for Two And A Half Men has no morality clause. It was alleged that he proudly asserted that he could do as he pleased, because he had not given the powers that be the contractual power to ‘dominate and totally interfere with my personal life’.
The unfolding drama raises contract questions galore. Is it true, for instance, that there is no moral clause in his contract? Really? It almost makes you want to incredulously ask who wrote the thing, until you realize that morality clauses are no longer de rigueur – at least not in entertainment contracts. He may even have such a clause in his contract - some accounts have him confirming the existence of such a clause but admitting that he hasn’t read it.
Clause or not, good luck Charlie; in the past a mere whiff of scandal could be the kiss of death for a career – yet this has not happened to Charlie - yet. A conceptual pair of reins over his scandalous behavior would do him some good, I think. A morality clause, and a carefully crafted artistic control clause, for example, could do some good. Regarding contractual control over his artistry however, this may depend on where performing ends and true life starts for Charlie. The two may have blurred into one. It almost seems like he was hired to play himself. (Does that make anything he does off set a spin-off? One might be forgiven for thinking so by his behavior).
It seems, in any case, that artistic authenticity is important to Charlie. Charlie wants to be true to self . The tragic thing about this is that he allegedly believes that authenticity precludes sobriety - at least for him. This brings to mind a pantheon of tormented stars that departed before their time. It makes you want to shake the guy saying “Snap out of it man – you’re not doomed. It doesn’t have to end this way".
Did he ever take the time to read the contract? We can safely presume that he signed it or that it was signed on his behalf, but he allegedly claims to not have read it. Perhaps he is no different from the large number of people who routinely sign before reading. Or perhaps he has not read it because he feels that is what he pays his legal team for. It’s hard, admittedly, to imagine Charlie Sheen taking the time to read a how-many-pages-long contractual document of carefully worded clauses at this point. Perhaps he once did – during that awful five years of sobriety a long time ago.
Maybe he enough patience for his legal team to give him only the nitty gritty of his contract i.e. what behavior will get him fired. He certainly seems confident that he has a long string to play with. Although he comes across as cocky, I suppose he has some reason for this – he is not known as ‘Teflon Charlie’ for nothing.
So here’s another question – what makes it so difficult for the reputational mud to stick to Teflon Charlie? Does he have a super slick contract assisting his PR agent? If so, what might be the ingredients for the slickest contractual Teflon – a tepid moral clause and wide discretion? The right to engage in ‘artistic expression’ so long as that bargain, and its expression, remain on the right side of public policy? Maybe being liked in the industry pragmatically translates to Teflon? Or is it just a good old double standard at work?
It’s hard to believe a party the size and sophistication of the CBS TV/Warner Joint Venture would leave itself contractually vulnerable to the antics of a Teflon profligate. CBS/Warner is surely working through its arsenal of options. That would include termination – firing Charlie – although the CBS/Warner has stopped short, for now, of doing so.
Another option, of course, would be to stand by Charlie - with gritted teeth. The show’s ratings have not been harmed by his troubles. It is likely, in fact, that his antics have helped the ratings. The show has performed so strongly, that if no more epsodes are made, the CBS/Warner will still profit handsomely from syndication which likely would go on for years. That’s good news and bad news for Charlie. It's good news if he gets a percentage cut of profits. Onthe other hand, the fact that he is no longer indispensible may be a bad omen for his continued antics as a CBS-Warner star.
CBS-Warner has undoubtedly weighed its choices every step of its turbulent journey with Charlie. So far the preference has been to put a good face on things. After his latest antic however - savaging the hand that fed him – it will be understandable if the CBs/Warner decides it’s time for the gloves to come off.
Before things turn really nasty, before the last straw breaks the camel’s back, might a point be reached when it becomes immoral – contractually speaking - to stand by and watch an actor, no matter how profitable, implode? It’s one thing to condone the omission of a morals clause – big boys are allowed to live out the bargains of their choice after all, but when does standing by and watching a train wreck become permissible? When does benefitting from the fast motion slide of a rakishly cute actor morphing into something less cute – though compelling viewing - become a breach of the duty of good faith and fair dealing? “All publicity is good publicity” the show biz adage goes – but might there be a point where standing by an out of control star begins to seem a cynical enablement of that actor’s race to self destruction?
He’s a big boy you may say – he knows when to say no – but does he, really? The ability to say no to poor choices is playing a starring role in this whole drama. His family is concerned and has asked the public to pray. Allegedly plagued by all manner of addiction issues, it is becoming harder after his latest rant to argue that Charlie’s ordinary judgment, let alone his contractual ability is intact. He may even think that HE is a contract. Concerned contemporaries and celebrity doctors are predicting that things will end badly if he does not get help now.
Let’s say hypothetically that the acceptance of an offer to make another season of a hugely popular show could be convincingly shown to be more likely harmful than beneficial to a random troubled star. Addicted not only to substances, but to public attention, the hypothetical star accepts the offer in a snap. Establishing that the hypothetical contract is voidable - because the hypothetical star, due to his substance induced intoxication was either unable to understand what he was getting into (unlikely) or act reasonably in relation to the bargain (more likely) , and hence a bad deal for him - could be a step toward establishing a lack of good faith on the part of the Network. Entering into a contract ,knowing the star has addiction issues, and then standing by while the star self-destructs amid skyrocketing ratings could arguably qualify if, for example, the contract obliges the Network not only to provide employment, but employment that is reasonably likely to enhance or benefit to the star's image. Though unlikely in an ordinary employment contract, this makes sense in an agreement for the employment of an actor - as an independent contractor - to whom image building is of primary importance. The act of facilitating the self destruction of a known addict would be deemed detrimental to that actor, one would hope. The chances of success will be stronger where the argument that the Network callously failed to intervene to wring out maximum profits is credible on the facts. The omission of a morality clause from the hypothetical star's contract could cut both ways. While freeing the star from the moral control of the network, it could also release the network from the already minimal responsibility the network might have for the hypothetical star's poor choices.
CBS/Warner Bros may be in the early process of disassociating itself from the imploding soap opera that has become Charlie’s life. The discreet cancellation of the rest of the season first, and then what? You can be sure of this – Charlie will not go quietly. He is not happy about the cancellation of the remainder of the season, and he wants the world to know it.
So, now what? Time to activate some Teflon abrasive – the moral clause (if there is indeed one in his contract) or a close equivalent? Perhaps another clause might have the bite of a moral clause? A moral clause is a glorified termination sub clause, in one sense, and as we all know, a termination clause is the emergency escape chute. If there is no moral clause, check the wording of the termination clause next. Actions such as consistently failing to be in a fit condition to work, bringing the network into disrepute (a.k.a making the boss look bad), or being charged with a serious felony, could easily fall within the terminations clause of an entertainment contract.
More details will definitely seep out in ensuing weeks. We will discover whether termination is on the cards for Charlie Sheen - and whether Charlie is really going to sue. Should CBS/Warner get to the point of pulling the plug – and it’s not a given that it will, it will certainly be interesting to see what finally is deemed grounds to terminate the contract rather than merely exercising the option to cancel a season.
Eniola O. Akindemowo.
On February 14th, the Court of Federal Claims unsealed its opinion in Spectrum Sciences and Software, Inc. v. U.S., in which it found on behalf of Spectrum to the tune of $1.2 million on its breach of contract claim. In October 2000, Spectrum entered into a cooperative research and development agreement (CRADA) with the Air Force, designed to facilitate the sharing of information between the parties and to help improve conveyor technology that the Air Force used for the assembly of aerial bombs. In a prior opinion, the Court held that the Air Force had violated the CRADA through the unauthorized release of Spectrum's proprietary information to third parties, including some of Spectrum's competitors. See Spectrum Sciences & Software, Inc. v. United States, 84 Fed. Cl. 716 (2008).
The parties worked together in 2001, and in 2002, Spectrum offered to produce four redesigned munitions assembly conveyors (MACs) per month. The Air Force instead put together its own procurement team, which included people who had access to Spectrum's proprietary information disclosed through the CRADA, to design a new generation of MACs. The Air Force then used information gathered by Spectrum to put out a Request for Proposals (RFP) for new MACs. Based on Spectrum's research, but without attribution, the RFP suggested improvements to the old MAC system. Although Spectrum submitted its proposal, the contract was awarded to a rival, D&D Machinery. After trial, the court reached what it called the inescapable conclusion that "that the Air Force repeatedly breached its confidentiality obligations under the agreement." Following further discovery, a second trial was held in January 2010 on the subject of damages.
Spectrum sought damages equal to the value of its lost income-producing asset – the proprietary information regarding the MAC – as of the time of the breach. The government tried unsuccessfully to characterize plaintiff's theory of damages as an attempt to collect lost profits on contracts it might have had if its proposal had been selected or with third parties. The court rejected this characterization. The case is about a lost asset, not about lost profits, and the court's task is to determine what a third party would have paid for Spectrum's proprietary information at the time of its improper disclosure. The harm attendant to the breach was clearly foreseeable to the parties at the time they entered into the CRADA and was in fact the purpose of that agreement's confidentiality provisions.
Friday, February 25, 2011
On February 4th, the Federal Circuit Court of Appeals filed its opinion in Mabus v. General Dynamics C4 Systems, Inc. The case involved a dispute that arose after General Dynamics took over from Motorola a losing contract to provide digital modular radios to the U.S. Navy. The contract called for the Navy to order a minimum number of radios annually. After it reached the minimum, the Navy could order additional radios at a discount price. In short, the more radios General Dynamics provided, the more money it lost on the contract. It sought a way out. General Dynamics believed that it found the way out in the original contract's ordering clause, which provided that: "Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the schedule.” The relevant schedule did not allow for electronic orders. On that basis, General Dynamics challenged the propriety of eleven orders that the Navy had issued by e-mail. The Armed Services Board of Contract Appeals (the Board) sided with General Dynamics, finding that the orders were invalid.
The Navy appealed. The divided Federal Circuit found that General Dynamics was equitably estopped from refusing to fill the orders. The reversal hinged on two different tests for estoppel. The Federal Circuit's Majority opinion relied on the following test:
(1) misleading conduct, which may include not only statements and actions but silence and inac-tion, leading another to reasonably infer that rights will not be asserted against it; (2) reliance upon this conduct; and (3) due to this reliance, material prejudice if the delayed assertion of such rights is permitted.
The Board had elied on this one:
“(1) [General Dynamics] knew the facts; (2) it intended that its conduct be acted upon or acted such that the Navy had a right to believe it was so intended; (3) the Navy was ignorant of the true facts; and (4) the Navy relied upon appellant’s conduct to its injury,”
The Board ruled for General Dynamics because it found that the Navy could not satisfy the first and third parts of this test. General Dynamics did not know that e-mail delivery was prohibited and the Navy knew or should have known the content of its own contracts.
General Dynamics conceded that the Board had applied an improper standard but insisted that the error was harmless. Unfortunately for General Dynamics, its previous conduct was crucial, as it had filled prior e-mail orders, thus inducing reliance, and effectively putting all questions of knowledge out of bounds. General Dynamics was thus estopped from refusing to fill the orders, and the doctrine of equitable estoppel trumped General Dynamics' alternative argument that a party must exercise an option in exact accordance with its terms.
Judge Newman filed a vigorous dissent in support of the Board's disposition of the case.
[Katherine Freeman & JT]
Thursday, February 24, 2011
Earlier this month, in McKenzie v. Betts, the District Court of Appeal of Florida (4th District) invalidated a class action waiver in a payday loan agreement on public policy grounds. In summary, the court reasoned:
the record below supports the trial court‟s conclusion that consumers would not be able to obtain competent counsel in their actions against [the Defendant] for allegedly usurious rates on its payday loans if the claims could not be brought in a class action. Also, the waiver in this case would ban the borrower from being a member of a class action suit, even one initiated by an “enforcing authority” contemplated by statute. This result would prevent a consumer from vindicating the rights that consumer protection statutes are designed to create and nurture.
The decision had to address and reconcile the result with Fonte v AT&T Wireless, 903 So. 2d 1019 (Fla. 4th DCA 2005), which upheld a class action waiver in a cell phone contract. The court stated:
[The defendant] invites us to read Fonte as creating a categorical rule that class action waivers do not violate public policy. We reject this invitation. Instead, we agree with the trial court that Fonte is distinguishable on its facts. In Fonte, the plaintiffs did not present the trial court with evidence that competent counsel would not represent individual plaintiffs on these small claims. Without such evidence, we could not say in Fonte that the class action waiver there violated public policy.
Here, however, the plaintiffs presented expert testimony from three Florida attorneys. The attorneys testified that Florida customers who wanted to challenge the practice of payday loan businesses would not be able to obtain competent representation absent the class action mechanism. This was because the issues were complex and time-consuming—and there was a substantial risk that a circuit court would award inadequate compensation at the end of a successful case. In our view, this evidence established that individuals could not secure competent representation to pursue small claims actions against [the defendant]. Indeed, one attorney testified that she had never been able to successfully refer a payday loan case to a private attorney.
Convincing distinction? The law is just a mess on this issue. That said, the decision does a nice job of collecting the cases on class action waivers and setting out a typology of class action waiver challenges.
McKenzie v. Betts, Nos. 4D08-493 and 4D08-494 (Fla. 4th DCA 2005 Feb. 2, 2011).
[Meredith R. Miller]
As reported by Washington Post Political Bookworm blogger Steven Levingston, five purchasers of Jimmy Carter's book, Palestine: Peace Not Apartheid, filed a $5 million class-action lawsuit in the U.S. District Court for the Southern District of New York against the former President and his publisher, Simon & Schuster. They allege that Carter’s 2006 book “is filled with demonstrable falsehoods, omissions, and knowing misrepresentations intended to promote Carter’s agenda of anti-Israel propaganda.” As a result, they claim, Carter committed breach of contract, unjust enrichment, negligent and intentional misrepresentation, and violation of the New York Consumer Protection act
In the complaint, the plaintiffs claim that Carter promoted his book as an accurate and truthful historical account, citing statements he made on Larry King Live and elsewhere to that effect. The plaintiffs claim that they purchased Carter’s book “in reliance on Defendants’ representations that the events and agreements which are the subject of the book were described accurately, fully, and fairly…” These allegations are at odds with plaintiffs additional allegation that Carter’s “virulently anti-Israel bias” both “comes as no surprise” and is “well known” to the public." Even if they had suspended their disbelief long enough to make their purchase, one would think Carter's title would have tipped off plaintiffs that the book expressed some views critical of Israeli policies.
Plaintiffs attempt to document what they call a “pattern of factual inaccuracies” by going page by page through Carter’s book. For example, Carter writes on page 207 “Palestinian leaders unequivocally accepted this proposal [the Roadmap for Peace], but Israel has officially rejected its key provisions with unacceptable caveats and prerequisites.” However, Plaintiffs contend that although Prime Minister Mahmoud Abbas did “verbally express his support” for the Roadmap for Peace, “there is no evidence that the Palestinian Authority cabinet ever approved the Roadmap or ratified it, as required for an international agreement between two governmental entities.” The Plaintiffs dedicate almost 15 pages of the complaint to detailing similar alleged inaccuracies, with topics ranging from compliance with United Nations resolutions to characterizations of negotiations between the Israeli and Palestinian leaders..
A spokesperson for Simon & Schuster called the lawsuit “frivolous”, “without merit”, and a “chilling attack on free speech.” Plaintiffs, in their complaint, claim that this lawsuit is “not in any way an attempt to challenge Defendant Jimmy Carter’s right to write a book” but instead about Carter “deceiving the public.”
Carter’s book cost $27 when it was first published, but a careful reading of the complaint suggests that some of the plaintiffs listened to an audiobook version rather than buying the hardcover. Those audiobooks can be pricey, but it's still a bit hard to see how plaintiffs got to the $5 million mark.
Plaintiffs' breach of contract claim is quite straightforward. They claim to have bought the book based on the defendants' representations of the book as factual and accurate. As Lionel Hutz put it, "Mr. Simpson, this is the most blatant case of fraudulent advertising since my suit against the film, 'The Never-Ending Story.'”
[Jon Kohlscheen & JT]
Wednesday, February 23, 2011
In United Automobile, Aerospace, Agricultural Implement Workers of America International Union v. Fortuño, Puerto Rico's labor unions sued its governor in order to challenge Act No. 7, enacted to address a budget crisis through, among other things, layoffs and salary freezes. Plaintiffs challenged this act as an unreasonable and unnecessary -- and thus unconstitutional -- infringement of the unions' collective bargaining agreements. See U.S. Const. art. I, § 10, cl. 1 ("No State shall. . . pass any . . .Law impairing the Obligation of Contracts").
In order to determine whether the Contracts Clause has been violated, courts employ a two-part test, first determining whether the challenged state action causes a substantial impairment of contractual obligations and, if so, determining whether the impairment is reasonable and necessary to serve some government purpose. The court assumed an affirmative answer to the first issue but nonetheless upheld the District Court's dismissal of the claim on the ground that plaintiffs had not adequately pled that the Act was not reasonable or necessary.
The First Circuit's finding turned in large part on its determination that plaintiffs bear the burden of establishing that the challenged legislation is not reasonable or necessary, despite clear law that courts need not defer to legislative findings on the subject when the government is the beneficiary of the challenged contract modification. The issue appears to be one of first impression for the First Circuit, although the court acknowledged that both it and the Supreme Court had previously used language that might be construed as placing the burden on the state. The Sixth and Ninth Circuits place the burden on the state; the Second Circuit places the burden on plaintiffs.
Having determined that plaintiffs have the burden, the court set out a multi-factor test for determining when state action that impairs contractual relations is reasonable and necessary. The court's application of this multi-factor test is complicated, but the upshot of it seems to be a severely heightened pleading standard, suggesting that one would have to hire economic experts and crunch some numbers in order to meet the burden and survive a motion to dismiss.
NB: In describing Act No. 7, the opinion indulges in a classic misuse of the word "plethora," viz:
Finally, Phase III temporarily suspended, for a period of two years, a plethora of statutory, contractual, and other provisions governing the conditions of employment for the remaining affected public employees.
Please don't make us tell you again. "Plethora" means "an unhealthy excess." It does not mean "a whole bunch."
Tuesday, February 22, 2011
We previously blogged about No Doubt's lawsuit against Activision. In a nutshell, the band admits that it granted Activision a license to use the names and likenesses of its members in one of the Guitar Hero games ("Band Hero"); however, the band claims that it never agreed that Activision could use avatars of the band members to perform songs by other artists and sing in voices of other artists (an example was Gwen Stefani, the lead singer of No Doubt, singing "Honky Tonk Woman"). (You may recall that Courtney Love was also peeved that the game allowed Kurt Cobain's avatar to sing the songs of other artists).
A California trial court had denied Activision's motion to dismiss the suit; last week, an appeals court affirmed. Here's an update on the lawsuit from the LA Times "Company Town" blog:
A three-judge panel on Tuesday rejected Activision Blizzard Inc.'s motion to throw out a lawsuit filed in 2009 by the rock band No Doubt, dealing a minor blow to the Santa Monica video game giant.
The ruling by the federal district court of appeals paves the way for No Doubt to proceed with its suit, which alleged Activision breached its contract with the group when it allowed players of Activision's video game Band Hero to use band members' avatars to perform songs they did not write.
The band, in its lawsuit, said the game's feature "transformed No Doubt band members into a virtual karaoke circus act."
Activision Blizzard filed a motion to have the lawsuit dismissed, saying it had the right of creative expression. The motion was rejected in April by Los Angeles County Superior Court Judge Kenji Machida. The appellate court Tuesday agreed with Machida, saying No Doubt can pursue its case against Activision.
While the decision is probably a mere prelude to further legal maneuvers by both sides, the Guitar Hero video game series itself, which had once generated more than $1 billion in revenue for Activision, was recently declared dead. Activision last week said it would shut down its Guitar Hero business, lay off 500 workers and cease development of a Guitar Hero title that was slated for release this year.
Here's a copy of the appellate court decision that allows No Doubt's lawsuit to continue.
[Meredith R. Miller]
As the mother of two preteen children this story hit a little too close to home. In short, kids insist on playing with Beyblades in the bathtub, said tub is chipped and soap holder is broken by the rough play, frustrated Mom seizes toys, and presumably, after reducing the kids to tears by threatening to get rid of the toys, takes a snapshot of the tearful kids holding the offending toys in a ziplock bag; frustrated Mom makes good on her threat by actually auctioning toys of traumatized kids on eBay.
Now here's the thing: there was keen bidding for the toys (estimated retail price $69) - the bids skyrocketed to $999,999! So, what's wrong with this picture? I'll tell you what's wrong - like a virtual Hydra, an online community known for rapidly rallying behind the causes of its members became indignant at the 'heartless' Mom. Members waded in, sparing no expense, to bid the auction to ridiculous heights.
The last auction bid was for $999,999. As we know, an auction sets up a contractual sale - in ordinary circumstances notice of the sale is an invitation to make offers, bids are offers, and the bang of the auctioneer's gavel (or in these circumstances, expiry of the fixed time predetermined for auction of the particular item) signifies acceptance of the highest bid. Are you serious??? Surely not $999,999 for a Ziploc bag of silly used toys (plus the guilt of being an accomplice to the trauma of two kids). Is there a law against this? There may be.
The first rule is READ THE CONTRACT. eBay's terms provide:
As an auction-style listing proceeds, we’ll automatically increase your bid on your behalf, up to your maximum bid, to maintain your position as the high bidder or to meet the item’s reserve price. The bid increment is the minimum amount by which your bid will be raised.
So, there may be automatic bidding. Okay. But you may pay less than your bid if you win:
When you win an auction you always actually pay only a small amount more than the next highest bid-even if your bid was thousands of dollars more. If your bid wins, you must buy. Your bid on an auction is a legally binding contract. If when time runs out your bid is the highest, you have purchased the item and must pay the seller for it.
So what happened here? Was the last bid $999,999, or was it in reality say (I'm picking a number out of thin air here) $73.01? Clearly this would be less cause for excitement/incredulity (take your pick). And that brings me to my next point: what was said frustrated Mom supposed to make of the bids? Was she expected to take it all seriously? Was she one of those rare creatures that actually read the fine print, and knew that $999,999 meant squat?
These are not merely rhetorical questions. If she had reason to believe the bids were in jest, would that negate the intention of the vengeful Hydra to enter into a legally binding agreement? Do eBay's terms permit this - can any random group decide to use eBay as a means of punishing (whom in its opinion is) a bad mom by frustrating her lesson-in-financial-responsibility punishment? Maybe not - eBay's terms state further:
Bidding is meant to be fun, but remember that each bid you place enters you into a binding contract. The only bids that are non-binding are those placed in the Real Estate category and for vehicles on eBay Motors. All bids are active until the listing ends. If you win an item, you’re obligated to purchase it.
But was this auction binding? Let's think this through:
if you bid in malice believing that your bid is patently ridiculous and obviously not to be taken seriously = no intention [read: not binding],
but the terms say a bid is binding, period, and you are presumed to read the terms = intention [read: binding],
but the size of the bid may not be what it seems [read: binding. Caveat: for a lesser price unknown to all except eBay during bidding],
but bids may be withdrawn in some circumstances = possibly not binding [read: not binding],
So, what's a mom to do: exasperated, ask eBay to cancel the auction? Can this be done without a reserve price? Can eBay do whatever its adhesion contracts say it can? Apparently, yes, and in this case, that is what happened. eBay cancelled the auction (presumably at the request of the humiliated Mom) and that was that.
Well I say there ought to be a law. Not necessarily against on-again-off-again auctions (if there can be such a thing - you either bid or you don't, you either accept the bid or you don't?), but against the unsympathetic hounding of frustrated mommies. You see, I know all too well how hard it is to balance lessons in obedience, responsibility and (dollars &) 'sence' with warm hugginess, patience and forgiveness. As the mother of two children, I know that sometimes, you need to just let it lie. But there are those moments when you've simply had it - when you've heard 'let 'er rip"a hundred million times, and that irritating rattle and roll in the beyblade arena (yes, one of my kids looooooves beyblades too) is ringing in your ears, for example.
Imagine another scenario: You've had a long day teaching, you are starving because all you had to eat all day was that granola bar snatched between classes. You're finally home juggling cooking dinner, supervising homework and checking voicemail messages. The fact that someone has contributed to the daunting mess in the family room by leaving beyblade paraphernalia scattered all over the place is ticking like a timebomb, at the back of your brain, setting up a 'Mommy moment'. Must you not only patiently endure your hunger, your exhaustion and your frustration, but fight the temptation of eBaying the offending toys too?
I've tried the maligned discipline tactic before, you see. Someone who will remain nameless once shattered my car windscreen during a tantrum. Exactly $173.16 of the $1000+ it cost to replace the windscreen emptied the culprit's piggy bank. Admittedly I didn't take a picture of the culprit, post it on eBay, round up all the beyblades I could find, and attempt to raise the $826.84 balance by auctioning them on eBay. I'm not even sure the lesson had the desired effect because from time to time, I'm reproachfully reminded by a certain someone (who's saving up for the latest computer-game-thingy), that s/he would have $173.16 more by now if I hadn't raided his/her piggybank. But what's a mom to do?
Its a sometimes thankless job, being a Mom, but really, what has this world come to when a random Hydra can rear up to (caution: link contains coarse language) frustrate your non-spanking discipline attempts , and you earn yourself a place in the Mommies Hall Of Shame for even trying the discipline attempt? With a chipped bathtub and broken soap dish on top, to add insult to injury?
So now I have a hilarious intended-in-jest-or-serious-contractual-offer teaching hypo for my contracts students. And, the urge to check that I have not been outed in the Mommy's Hall of Shame as a bad mom everytime I cringe at hearing 'let er rip!"
[Eniola O Akindemowo]
Fortuitously, while I was in St. Petersburg blabbing about presenting on strategic default and the tension between morality and efficiency, the Miami Herald ran a long article "The Curse of Negative Home Equity." The article focuses on South Florida's housing "tailspin" and the temptation of strategic default. Here's a taste:
As more than $113 billion worth of home equity has vanished from South Florida’s housing market in the past five years, the number of homeowners with mortgages that are larger than the values of their properties has become enormous. More than 300,000 South Florida mortgages—or 43 percent of them—are currently underwater, the highest level in decades, if not ever. That’s about four times the number of homes in foreclosure.
The underwater problem has been a thorn in the side of a housing market plagued with tight credit, record-high foreclosures and high unemployment. It has contributed to a deluge of loan modification requests, pushed up the foreclosure rate and helped revive a once-taboo exit strategy—the strategic default.
You can read the rest of the article here.
[Meredith R. Miller]
The University of Dar es Salaam Business School in Tanzania has issued a call for papers for:
International Conference on Globalization and Development:
Developing Countries’ Perspectives
The conference will provide a forum for academicians and practitioners from all corners of the globe to critically address these issues with the aim of coming up with suggestions that will lead to solutions that can help to improve the lot of developing countries.The main theme of the conference is: Promoting Trade Competitiveness in Developing Countries.
Papers to be submitted can therefore focus on any of the following sub-themes:
- Domestic Market Integration
- Market access Conditions in Emerging Markets
- Export promotion in Developing Countries
- Export Supply and Competitiveness
- Natural Resources and Competitive Advantage
- Trade in Services and its Implications in Developing Countries
- Industrial and Trade Policies Complementarities in Developing Countries
- Foreign Direct Investments in Africa
- Chinese Investments in Africa
- Regional Economic Integrations
- SMEs Development and Foreign Trade Performance
- Aid for Trade and Development
- Agricultural Trade and Poverty Alleviation
- Other contemporary Issues on International Trade and Agreements
- Abstract Submission Deadline: May 15th, 2011
- Full Paper Submission Deadline: July 30th, 2011
- Deadline for registration: August 30th, 2011
- Conference dates: 22nd – 23rd September, 2011
University of Dar-es-Salaam Business School
P.O. Box 35046
Fax: +255 22 241 0510
More information is available here.
Monday, February 21, 2011
I find that some students tend to struggle with the concept of implied terms, especially when it comes to the non-occurrence of an implied condition serving as an excuse for non-performance. When that happens, I offer some additional explanation and then point them to this clip from Seinfeld. In the contract between George Costanza and Newman, George C. promises to pay Newman in exchange for Newman's promise to deliver a calzone to George C.'s employer, George Steinbrenner, whose office is located along Newman's mail route. When George C. discovers Newman at home instead of out delivering mail and Italian delicacies, he accuses him of breach. Newman, however, has an excuse. And it's a particularly funny one given his profession. More importantly than the humor, however, is that this presentation of an implied condition leads to many of those "Oh, *now* I get it" moments that make teaching so worthwhile. Enjoy!
Saturday, February 19, 2011
It’s been an eventful twenty-four hours at the Sixth International Contracts Conference at Stetson University Law School filled with contracts theory, insightful presentations, and a triumph of the human will. The Professors embarked on a one hour boat tour, but ended up waylaid on the sandbar, rather like Prof. Bruno Zeller’s pants. In Telman-style, Profs. Nancy Ota (Albany) and Emily Houh (Cincinnati) came up with some limericks in order to celebrate the adventure:
Jamie Fox had planned for most folly.
But we boarded a boat
That could not stay afloat
How we wished we had taken a trolley.
Until the sand caused too much traction.
Nine jumped the boat.
Others hoped it would float
After which they would sue the captain.
Jamie Fox has good reason to gloat
A great conference plus a night on a boat.
Our gratitude unspoken
A reminder to find a deep moat.
[Meredith Miller / Miriam Cherry]
Friday, February 18, 2011
Behind the placid exterior, shown at left, not all is well at Fannie Mae Headquarters. Legal fees have mounted for the mortgage giant's former executives. The executives have been defending themselves against accusations of accounting improprieties alleged in a shareholder suit brought in 2004. The New York Times reports that their legal fees have climbed to over $100 million since the suit began, with the best estimate being in the $160 million range. It is not difficult to rack up such fees when, as Ohio Attorney General Mike DeWine claims in the Washington Post, they are “lawyering this case to death.” Evidence of such over-lawyering included bringing upwards of 13 seemingly mute lawyers to some 123 depositions and another 35-40 lawyers to monthly conference meetings. All of this, and the former executives are reportedly still years from trial.
Who could be paying for all of this you ask?
Well, you are, in a way. As of 2008, the government took over Fannie Mae. The executives were part of the deal, along with contracts including standard provisions calling upon Fannie Mae to indemnify them for “reasonable” legal fees associated with their employment at Fannie Mae. These contracts remain in place, even though the Housing and Economic Recovery Act of 2008, the act that created the Federal Housing Finance Agency, empowered to oversee of Fannie Mae and Freddie Mack, allowed for these contracts to be voided. Officials at the Federal Housing Finance Agency have claimed that overturning these contracts would have been "inappropriate and possibly unconstitutional."
In any case, if the executives are found liable, the Times reports, the executives will have to reimburse the corporation for the legal fees. The executives, who have already paid $31 million to settle with the Office of Federal Housing Enterprise Oversight, a predecessor regulator, may not have the means to repay the legal fees already advanced to them.
Members of Congress know a moral hazard when they see one. At a Congressional Hearing earlier this week, lawmakers questioned whether these fees are actually “reasonable.” Randy Neugebauer, chairman of the Oversight and Investigations Subcommittee of the House Financial Services Committee, claims that keeping these contracts intact gives the former execs incentive to keep running up enormous legal bills- all at the expense of the taxpayers. U.S. District Judge Richard J. Leon said it best at a hearing in 2009, "I am not so sure the taxpayers are doing pretty well, but the lawyers are doing pretty well in this deal."
[JT & Katherine Freeman]
The first panel of the 6th International Conference on Contracts is off and running with Jean Braucher (Arizona), Carol Chomsky (Minnesota), Victor Goldberg (Columbia), and Bill Woodward (Temple) discussing some of conference honoree Stewart Macaulay's contracts and pedagogical scholarship, the insights and impact of Stewart's "law in action" casebook and related scholarship, including but not limited to the importance of contextualizing contracts, contract disputes, and contract law, and Stewart's personal impact on the contracts professoriate over the past 50 years.
More to come ...
[Keith A. Rowley]
Thursday, February 17, 2011
What is “a good bargain”? Is it all in the price? The price may or may not reflect the value of the subject of the bargain. It may be underpriced (to the glee of the buyer), or overpriced (to the satisfaction of the seller). An underlying belief about what the basic value of the subject is must also exist. Without that underlying belief, judgments about how underpriced or overpriced - and thus, how good or bad - the proposed contractual bargain (price) is, cannot be made. So, what is the true value of the Huffington Post? Some see the HuffPo as a barely five year old celebrity upstart that defied expectations to become a remarkably popular blog. Was it a steal or a bust at 315 million?
Celebrity, even notoriety, seems admired and highly valued these days. And, if admiration is not quite the word, the fact of celebrity - even where the person concerned is famous for simply being famous – certainly draws our attention. It is because of this that the 'art' of being a celebrity is a hardnosed business pursuit rather than a frivolous lark. There is no shortage of promoters willing to pay someone - anyone - who can attract, however fleetingly, the public’s attention. In this era of the ever shrinking attention span therefore, the proverbial fifteen minutes of fame is a lifetime in dog celebrity years. How to explain otherwise the high dollar book deals, and the endorsements that are the badge of even the most tenuous celebutante?
So, how to quantify the objects of our admiration? We may not even be dealing with objects but with abstract values if you will – celebrity, popularity, notoriety to name a few. Might a sampling of celebrity book deal dollar values yield a value index of sorts? Perhaps - if accurate figures were not so fiercely guarded and exaggerated accounts were not so eagerly circulated. Perhaps a listing of celebrity books on the New York Times Bestseller List might provide a surrogate of sorts? One can only hope it was no mean feat for the reflections of a celebutante to make the New York Times Best Seller list at the same time that the memoirs of a former U.S. president did.
Contract law permits a wide exercise of choice here. As one person’s trash may be another’s treasure, it is the buyer’s (or seller’s) choice to make a deal that might seem a bad idea to someone else. Choice is the operative word – if the party was misled, unduly influenced or improperly threatened for example, the deal will of course be voidable.
Twenty years ago, America On Line (AOL) was a profitable media giant. A decade later, a less vibrant AOL consented to become a part of the Time Warner group. Seen as a bad idea at the time by some and now viewed as possibly the worst merger deal in history, there was no suggestion when it all ended badly, that it was anything other than an ill-advised gamble. Now a very publicly ailing member of a reputably dying breed of media and print enterprises, AOL has by this merger bought itself a chance to turn around it’s all but inevitable demise.
Presuming that this can only be a good deal for AOL which had to do something, anything, or die, what about the Huffington Post? Did the HuffPo get ‘good value’ for the trade? The jury is out on whether the deal will be a vindicated or regretted. Contractually speaking, however, a contractual party is entitled to exactly what he or she bargained for – nothing more, nothing less. Full performance of a party’s side of the bargain discharges that party’s duty to perform, while the unexcused non performance of even part of a due duty is a breach per the Restatement of Contracts (2nd) §235.
The bargain, ideally, was shaped by the parties preferences. A party may thus receive as the exchange, if she chooses, a little something now whose value at the time of contracting is greater to her than its face value. She may promise to pay, if she wishes, double, threefold or more of that face value in exchange, sometime in the future. She may choose, conversely, to pay big money for a subject of seemingly slight value in the hope that the potential she sees will soon be realized. If that potential is unrealized, she will wear the risk. Unfair tactics and public policy aside, the law is content to permit her to assign whatever value she chooses to the subject of her desire be it increased popularity, an entry pass into a stronger corporate group, or a chance to play with the big boys.
Should we conclude therefore that value is in the eye of the beholder, and that the measure of a subject’s value is how much people are willing to pay for it? This is a logical deduction, but only one side of the value-is-determined-subjectively v objectively jurisprudential debate. It must be harder in any event, to quantify the value of celebrity musings without reference to sponsored endorsements, celebrity impact rankings and such. It evidently is just as difficult, if not more so, higher up the food chain. Take our example of a very popular upstart website/blog. Analyses of monitored acquisition deals indicate that online media sites are typically acquired for 1½ times the amount of their generated revenues. Launched barely five years ago, the Huffington Post was acquired for 315 million - reportedly five times its generated revenue. It is hard to know whether this figure is a hardnosed assessment of the HuffPo’s worth, or a reflection of the fact that the negotiations were between an ailing giant and an ambitious upstart fledgling.
If all goes well, the ultimate verdict may one day be that the HuffPo was a steal at 315 M. It is possible that Adrianna Huffington may come to rue the bargain that looked oh so good at the time. If AOL’s profitability hemorrhage is not stemmed by this deal, on the other hand, its 315 M payout will be just one more milestone in its march to oblivion. There is no contractual rule against a deal that was, with hindsight, ruefully underpriced or fatally expensive. Contract law will be content where the regretted deal, truly bargained for and not compromised by vitiating factors, was based upon a freely quantified exchange.
The parties considered the bargain. They assessed its value. Once you have done that, “you pays your money and you takes your choice.”
[Eniola O Akindemowo]
I'm hoping there's time between sessions for a dip in the law school swimming pool.
[Meredith R. Miller]
The blogosphere has erupted with chatter regarding the recent acquisition of the Huffington Post by America Online (Sidebar: was anyone else surprised to learn that AOL still exists?) for a reported $315 million. While estimates of how much Arianna Huffington (shown at left prior to having herself gilded) personally profited from the sale greatly vary, it is safe to say that she made somewhere in the ballpark of $20 million to $30 million. In light of this, commentators have come out of the woodwork to both praise and question the Huffington Post model. From the journalists, the message is basically this: Arianna, you've got hate mail!
The Huffington Post employs paid journalists to create original content and editors to sift through the massive content aggregated from AP, Reuters, and major newspapers and magazines, all to draw in readers to their website. Nothing controversial so far. Beyond that, the Huffington Post also features the work of unpaid bloggers who can post their content on the Huffington Post site to benefit from the increased traffic. Up until now, most were content with this arrangement. However, the idea that a relatively small number of people made millions of dollars, at least in part due to the work of “little-guy” bloggers who won’t see a dime, does have many up in arms.
Some decry the transaction as unjust enrichment of the elite at the expense of citizen journalists. For example, David Carr at the New York Times compares the plight of unpaid bloggers at Huffington Post to serfs under feudalism.
Not to be outdone, Tim Rutten of the Los Angeles Times likened Huffington Post’s business model to “a galley rowed by slaves and commanded by pirates” with “overhead that would shame an antebellum plantation.” But there is more to this line of argument than farfetched historical analogies. While Huffington Post now draws most of its traffic from “big name” content, it only got to this point by the work of unpaid bloggers who contributed their time, efforts, and ideas. Without them, HuffPo may have been DOA.
Others praise and defend the Huffington Post model. TJ Walker at Forbes points out that no promise of payment was ever extended to these bloggers. In other words, they knew what they were getting into. And if they feel they are being exploited, Walker argues that you can always “own your own means of production” by starting your own blog on your own terms. Hillary Rosen of HuffPo notes that Huffington Post gives bloggers a platform to let their ideas be known to a larger audience than they might otherwise get themselves.
Will this joint-venture succeed? Will the “blogger serfs” ever receive compensation for their intellectual labors? Who knows? What no one can deny is that the Huffington Post model has changed the way journalism works, and the AOL/HuffPo deal validates that proposition.
Asked for comment about how this development reflects on their own business model, the managers of the Law Professors Blog Network stated, "We pay our bloggers exactly what they are worth. And if they don't like being galley slaves rowing for watered grog, they can row without the watered grog."
Okay team, pass the grog and row!
[JT and Jon Kohlscheen]
Wednesday, February 16, 2011
As reported here earlier, there was "a bit of a kerfuffle" at the Super Bowl this year. Now, the National Football League is trying to figure out what it can do to address the harm to the fans who were sold tickets to effectively non-existent seats. Of the 1260 fans effected, about 2/3 were sent to alternative seating in the stadium, The remaining 400 had to view the game on video monitors or from standing-room only spots. As reported here on Slate.com, the 400 have the following options.
First, the NFL offered the 400 $2400/ticket, three times the face value of the tickets, plus a ticket to next year’s Super Bowl which they could keep or resell. In the alternative, the NFL offered the 400 a nontransferable ticket to the future Super Bowl of their choice plus accommodations and airfare but they would not receive the $2400. The third option would be to join a class action lawsuit in the Dallas District Court filed against the NFL, the Dallas Cowboys, and Cowboys owner Jerry Jones. A fourth option is that the 400 could make an epic movie based on the graphic novel that tells the story of how 400 outraged football fans held their position at the narrow passageway through which a throng of enemies tried to invade their homeland. The screenplay is still in the works, but you can get a sense of what it will look like from this prequel:
Those not willing to become action heroes may be inclined to join the class action lawsuit. Attorney Tom Goldstein explains that fans electing this route will likely not get anything more than the NFL is already offering. According to Goldstein, this is due to the fact that in order to succeed the class action would need to demonstrate that the NFL knew that the portable seats were not going to be ready for patrons by game time and therefore failed to inform them of this. Goldstein predicts that the class action would likely settle out of court for something very similar to the offers that the NFL has already made. On the other hand, the attorney representing the class action, Michael Avenatti, says that the compensation offered by the NFL would not cover the full expenses of the patrons and therefore at this time there is not enough information to settle. He claims that based on pricing of the tickets the day of the game, and other expenses of the displaced patrons the average displaced patron lost almost $4,000, meaning that the NFL offer would not fully compensate them. Regarding the second option, Avenatti explains that there has been no information provided to the fans as to where their seats for the future Super Bowl will be located, what the airfare will include, and what other accommodations they will receive.
The class action may enhance the negotiating power of the aggrieved 400, but it also may make it more difficult and more expensive for the NFL to settle the claims. Are lawyers a good thing or a bad thing?
The NFL has also acknowledged that in addition to the 400, and the 860 fans who were assigned "nosebleed" seats when their assigned seats turned out to be unusable, 1,140 fans were delayed entry to stadium because of the problem. The NFL has apparently now offered fans in the latter two categories either face value for their tickets or a ticket to any upcoming Super Bowl.
As Slate's Jeremy Stahl explains, the best option for the fans depends on the nature of their harm and the nature of their animus. One reasonable Chicago Bears fan might be happy to have watched the Bears' 46-10 trouncing of the New England Patriots in Super Bowl XX from the comforts of home, thus saving something like $4000. Another Chicago Bears fan might place the value of being there to see Walter Payton winning his Super Bowl ring at $10,000. And what would have been the value to hypothetical fans of the New England Patriots if they were displaced and thus forced to miss the humiliation they would have experienced had they witnessed the Bears' 46-10 demolition of their Patiots in Super Bowl XX?
[JT and Jared Vasiliauskas]
Tuesday, February 15, 2011
After we discuss ambiguity, contractual interpretation, interpretive maxims and other related topics, I have my first-year Contracts students draft a morals clause for a faux contract between a television network and a performer. The exercise is an attempt to put the issues "in context" and demonstrate how and why ambiguity actually arises. We also discuss the general benefits of brevity versus the costs of leaving something out of the contract. It seems that Warner Brothers may be facing the latter scenario in its contract with actor Charlie Sheen. The clause allegedly left out is a morals clause.
Most contracts between producers and performers routinely contain a "morals clause," the breach of which entitles the show's producer to fire the performer. Conduct swept within a morals clause can range from more serious offenses, such as criminal convictions, to any behavior that merely would make the producer or network look bad. For example, as we've previously reported, Tiger Woods's reported marital infidelities may have triggered the morals clauses in some of his endorsement contracts. Because Sheen's recent off-camera behavior has made him appear to be, ahem, less than 100% moral, some industry insiders have suggested that Sheen would be fired from the highly-successful CBS show, Two and a Half Men, produced by Warner Brothers. Not so fast, says Sheen. Sheen reportedly is telling friends and advisors not to fear because his contract, unlike most others, has no morals clause. Thus, in Sheen's world, he cannot be fired from the show without his firing being a breach of the contract by Warner Brothers.
So, if you are tired of hearing about Charlie Sheen's off-camera exploits on this blog or elsewhere, blame Warner Brothers' lawyers. If they had included a morals clause in his contract, I am confident that Sheen would not be doing these allegedly immoral things (this sentence brought to you by our sponsor, Sarcasm).