Friday, April 29, 2011
Other than AT&T v. Concepcion (which may or may not really be about contracts), it has been a pretty slow news week for the blog. While most people were focused on a birth certificate and/or a royal wedding, this important article about law student employment rates was published in The New Republic.
Prof. Paul Campos (Colorado) isn't a contractsprof, but he was nevertheless dead-on in exposing the smoke and mirrors that law schools use in reporting inflated employment numbers. I am sure that this is not news to most of us on law school faculties. Though, Prof. Campos summed up nicely something I have been struggling with lately:
If you’re a law professor and you want to get depressed, try to figure out how many of your recent graduates have real legal jobs that pay enough to justify the tuition that funds your salary, and also involve doing the kind of work they wanted to do when they went to law school.
This has given me the blues. It nags at me. Law schools are pumping out too many lawyers. And the ABA keeps approving more law schools. And tuition keeps increasing, entirely out of pace with inflation and stagnant/declining salaries. With law school applications down significantly, it may just be that the law school bubble has burst.
The legal market has changed. It doesn't take any special clairvoyance to predict that law schools will change too. They have to. While I definitely would not decline a raise, law school professor salaries may be too high and this market is an opportunity for correction. And, while I love contract theory as much as the next guy reading this blog, the academy has overvalued lofty, disconnected, highly theoretical scholarship that is of little use to the practice of law (and arguably comes with a very high price tag). This is the currency in academia but a joke to practitioners (which, once they hopefully find a job, our students will become). (And I say this even though I am just weeks away from my tenure vote with a file full of scholarship that just might fit this harsh description).
To serve our students and the bar, the academy needs to be reconnected to the actual practice of law. For so many years, I have heard about applying the medical school model to law schools. I am not an expert on this, but at least anecdotally, I have heard that most medical and dental school professors practice a few days a week. I think this could be the future of law schools. I am not suggesting that law schools should or will staff classrooms entirely with adjuncts (though, this is the trend in academia generally). This is an opportunity for law schools to hire full-time, dedicated teachers who also spend some time "in the field" (whether in law school clinics or outside the school). Law schools could, thus, pay professors less and take some of the tuition burden off of the students. Faculty scholarship would likely decline in quantity but would likely increase in its actual contribution beyond the ivory tower. It would likely be more grounded in practice, and so would the classroom discussion.
In that connection, for example, 3 out of 4 dental school graduates are self-employed in solo practices. There has been a lot of discussion lately about the values (and burdens) of solo and small firm law practice. In this market, I have seen this type of practice regain a dignity that may have been lost because it was too often (incorrectly) seen as a default for those graduates who could not get big law firm, public interest or government jobs.
Law appears to be returning to a "small" model, which gives attorneys more control over their work/workload ("work life balance," which is coincidentally of higher priority to Gen Y) and also makes legal services more affordable for the clients they serve. Like so many business models that looked to get bigger, bigger, bigger..., we have seen that the "big law" firm may not be a sustainable model. (An analogy to industrial farming comes to mind, but I digress). And, even if "big law" is sustainable, it is not a long-term employment situation for most young lawyers who land jobs there.
So, law schools need to ask themselves: how can we graduate students who are in a position to employ themselves (if they so choose) within 3 years of graduation? How can we do this at a lower cost to the students?
Depressing, maybe. But, I had a boss once who would have called it "an action opportunity."
[Meredith R. Miller]
Thursday, April 28, 2011
Harvey Rosenfeld and Todd Foreman on Consumer Watchdog don't care for the opinion much.
Andrew Cohen weighs in in The Atlantic here with the following bottom line:
This AT&T Mobility decision marks another shoe dropped on the heads of individuals who have sought fair redress against corporate interests this Term. But the next shoe from the Court's conservatives, due by the end of June in Wal-Mart v. Dukes, isn't going to fall from the sky. Instead it's going to kick all those employment discrimination plaintiffs right in the ass. Just you watch.
For a sampling of what California class-action attorneys think of the ruling, there is this piece by Petra Pasternak in The Recorder
Daniel Fisher suggests on Forbes.com that the new consumer protection agency currently headed on an interim basis by Elizabeth Warren (pictured at left comforting a consumer facing mortgage foreclosure) will get medieval on this ruling's buttocks.
PCWorld's Nancy Gohring provides commentary here.
"Chris in Paris" concludes on the Americablog that "Corporate America wins again."
On Public Citizen's blog, Deepak Gupta calls the decision, "a crushing blow to American consumers and employees."
Wednesday, April 27, 2011
Today, the U.S. Supreme Court decided AT&T Mobility LLC, v. Concepcion. Here is the opinion. In a nutshell, the Court determined by a 5-4 majority that California's Discover Bank rule, which permits courts to strike as unconscionable any arbitration provision that prohibits class actions, was preempted by the Federal Arbitration Act. Take a guess which Justices were in the majority!
Lacking the expertise to delve into the Serbonian Bog of the Court's recent arbitration rulings, we refer our readers to the following sites:
SCOTUSblog does its usual reliable job providing background to the case here.
We will try to update the list as new responses are posted.
One year after argument, the Supreme Court of Texas issued its opinion on April 15, 2011 in Italian Cowboy Parnters, Ltd. v. The Prudential Insurance Company of America. The Court's 6-3 majority concluded that a contract's merger clause does not prevent a party from bringnig a claim based on fraudulent inducement. The Court reversed teh judgment of the court of appeals and remanded. It also rendered judgment in favor of Italian Cowboy on its claim for rescission prmised on a breach of the implied warranty of suitability.
The case arose when Jane and Francesco Secchi (the Secchis) sought to rescind the lease on their "Italian Cowboy" restaurant because of a persistent sewer gas odor. The landlord, Prudential, counterclaimed for breach of contract. During the negotiations of the lease, representatives fro the property management company repeatedly told the Secchis that there was absolutely nothing wrong with the property. The lease agreement included standard clauses stating that the landlord and its agents had made no representations about the property other than those contained in the agreement and that the lease constitutes the entire agreement between the parties.
While the Secchis were renovating the property for their restaurant, they learned that the previous tenant had been a hamburger restaurant that was plagued by a "very, very bad odor." The representatives for the property manager denied any knowledge of an odor problem but eventually conceded that a sewage smell did now plauge the Italian Cowboy. The Secchis eventually learned from the previous tenants that the property manager's representatives were in fact well aware of the odor problems, which were the cause of the demise of the previous tenants' restaurant. The trial court thus found for Italian Cowboy on all of its claims, awarding over $600,000 on the lease, plus attorneys' fees, prejudgment interest and $50,000 in exemplary damages because "lyin's bad, mmkay?" The court of appeals reversed. It did not permit rescission and it found in favor of Prudential on its counterclaim for breach of cotnract.
The Supreme Court first held that the lease contract did not effectively preclude the Secchis from relying on Produential's representations and that the language in the lease could not negate Italian Cowboy's fraudulent inducement claim. The Court cited case law going back 50 years to the effect that a merger clause does not stand in the way of a fraudulent inducement claim. Because the court of appeals did not address all of the factual elements of that claim, the Court remanded Italian Cowboy's fraud claim back to the court of appeals.
The Court also found that nothing in the contract relieved Prudential from liability for breach of the implied warranty of suitability and that the sewage odor was a latent defect vital to Italian Cowboy's use of the premises. Accordingly, the Court rendered judgment in favor of Italian Cowboy on its claim asserting a breach of the implied warranty of suitability. The Court thus reinstated teh trial court's ruling on rescission and remanded to the court of appeals for additional consideration of the amount of damages owed to Italian Cowboy.
Three Justices dissented. While the majority treated the contractual provisions at issue as a standard merger clause, superceding any prior agreements, the dissenting Justices focused on what they viewed as a simple factual statement that the defendants had not made any representations about the property on which the Secchis had relied other than those contained in the written agreement. They were sophisticated parties and they signed an agreement that contained this factual statement. The dissenters would not permit them to now come into the court and make a different -- and self-interested -- factual claim that there had indeed been representations made and that they had relied on these representations to their detriment. The dissenters would also have ruled against Italian Cowboy on the implied warranty of suitability since, in the dissenters' view, the odor problem was covered under the lease which assigned to Italian Cowboy resopnsibility "for all repairs to the interior and non-structural components of the Premises, including . . . all . . . ventilating . . . systems."
Daphna Kapeliuk & Alon Klement, Contracting Around Twombly, 60 DePaul L. Rev. 1 (2010)
Tuesday, April 26, 2011
This may not exactly be news, but if you haven't read David Lee Roth's autobiography, it is likely news to you. We got this contracts story when we downloaded the most recent podcast of This American Life called "Fine Print 2011." More posts may follow once we finish listening to the entire show. Actually, it's not news to our Meredith Miller, who blogged about the earlier version of This American Life's "Fine Print" show.
The basic story is as follows: rumor had it that Van Halen insisted on a bowl of M&Ms backstage whenever they performed and that -- this is the crucial part of the infamous rider -- all brown M&Ms be removed from the bowl. As This American Life's Ira Glass explains, this story has usually been read as epitomizing the extent to which our celebrities demand that we pamper them. But David Lee Roth (pictured to the right) provides a different explanation in his aforementioned autobiography, helpfully excerpted on Snopes.com here:
Van Halen was the first band to take huge productions into tertiary, third-level markets. We'd pull up with nine eighteen-wheeler trucks, full of gear, where the standard was three trucks, max. And there were many, many technical errors -- whether it was the girders couldn't support the weight, or the flooring would sin in, or the doors weren't big enough to move the gear through.
The contract rider read like a version of the Chinese Yellow Pages because there was so much equipment, and so many human beings to make it function. So just as a little test, in the technical aspect of the rider, it would say "Article 148: There will be fifteen amperage voltage sockets at twenty-foot spaces, evenly, providing nineteen amperes . . ." This kind of thing. And article number 126, in the middle of nowhere, was: "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation.
So, when I would walk backstage, if I saw a brown M&M in that bowl, well, line-check the entire production. Guaranteed you're going to arrive at a technical error. They didn't read the contract. Guaranteed you'd run into a problem. Sometimes it would threaten to just destroy the whole show. Something like, literally, life-threatening.
It's a nice story, but I don't buy it. If you are concerned about girders not being able to support the weight of your show, check the girders, not the M&Ms. Moreover, Meredith's earlier post links to the relevant page of the rider from TheSmokingGun.com, and it does not threaten forfeiture or anything else.
Another nice excerpt from the autobiography:
I came backstage. I found some brown M&Ms, I went into full Shakespearean "What is this before me?" . . . you know, with the skull in one hand . . . and promptly trashed the dressing room. Dumped the buffet, kicked a hole in the door, twelve thousand dollars' worth of fun.
Two problems. First, the rider does not seem to permit twelve thousand dollars worth of fun. That's not covered under the term "forfeiture." Second, Hamlet doesn't say anything like "What is this before me" when he contemplates Yorick's skull. I think Roth is thinking of Macbeth's dagger monologue, which begins, "Is this a dagger which I see before me?" And then in some productions he dumps the buffet and kicks a hole in the door.
Monday, April 25, 2011
On April 14, 2011, the Supreme Court of Arkansas issued its opinion in Arkansas Research Medical Testing, LLC v. Osborne. William Jennings B. Osborne and Marie E. Osborne owned Arkansas Research Medical Testing Center, Inc., which performed tests for the pharmaceuticals industry. They sold it to defendants in 2004, who re-established the business as Arkansas Research Medical Testing, LLC (ARMT). Under the terms of the agreement, the Osbornes were to be paid $3 million per year for three years, so long as ARMT had gross revenues in excess of $7.5 million in each year. They got their $3 million payment in 2004, but ARMT failed to meet the gross revenue target in 2005 and 2006, so the Osbornes got nothing for those years.
They sued on every conceivable ground, but the jury awarded them $3 million in damages based only on a finding of breach of the duty of good faith and fair dealing. The jury found for the defendants on the Osbornes' breach of contract claim. The Supreme Court decided a pure issue of law: does Arkansas recognize an independent cause of action for a breach of the duty of good faith and fair dealing. The Supreme Court ruled that it does not. Accordingly, it reversed the verdict and remanded the case to the circuit court to set aside the judgment.
This seems a bit of an odd result, and perhaps it is just a matter of faulty pleading and jury instructions. The Supreme Court cites to Arkansas cases that seem to adopt R.2d s. 205, which considers the covenant of good faith and fair dealing an implied term in every contract. Thus while it is true that Arkansas law does not recognize an independent cause of action for breach of the duty of good faith and fair dealing, if the jury finds that such a breach has occurred, then it has found a breach of contract, its verdict to the contrary on the breach of contract claim notwithstanding. This is so even though, as the Supreme Court notes, there is no separate cause of action -- whether in contract or in tort -- for breach of the duty of good faith and fair dealing. The most likely reading of the jury verdict is that it found no breach of contract other than the breach of the duty of good faith and fair dealing. But that should have been breach enough.
Friday, April 22, 2011
On March 8, 2011, Patricia Caruso filed this complaint against former prosecutor and television personality Nancy Grace, alleging a $15 million breach of contract. The two met back in 2002, when both were working for CourtTV. They became colleagues and friends. Caruso claims that she advised Grace when Grace's contract with CNN was up for renewal. She claims that she persuaded Grace to insist on a "carve-out" to permit her to create a syndicated vehicle for her talents, while continuing her gig with CNN.
Caruso alleges that Grace breached a contract to develop a syndicated television series, which Grace would host and Caruso would produce. Caruso claims that she worked tirelessly to market, develop and sell the show, which she wanted to call Grace's Cases. Grace allegedly provided near-constant assurances that she would not proceed with any such show without "patty in place," Here is a video of their most recent interaction which illustrates the importance of having your patty in the right place:
According to the complaint, Swift Justice with Nancy Grace, which is a version of the show that Caruso helped develop, premiered in Fall 2010 without Caruso and has been a huge success. Although Grace was allegedly assuring Caruso that she would be one of the show's executive producers as late as January 2010, in February, CBS offered her a one-year position as “Executive, Talent and Audience Relations," with the possibility for a renewal and a salary of $100,000.
The complaint provides interesting details about the industry. For example:
Were she an executive producer of Swift Justice with Nancy Grace, Caruso would reasonably expect to be compensated consistent with industry standards, namely with a fee in the range of ten percent (10%) of the show budget per week and “back end” compensation in the
16 range of ten percent (10%) of the modified adjusted gross revenue (MAGR) for the life of a television series.
The complaint also provides a little glimpse into the lives of the rich and famous: restaurants are the site for many of the dramatic scenes recounted in the complaint.
Thursday, April 21, 2011
The Los Angeles Times reports here that a jury rejected Cheri Olvera's claims against her ex-fiance baseball player Brian Giles (pictured at left while playing for the San Diego Padres). The jury also ordered the return of a $107,000 engagement ring. Olvera's complaint can be found on Findlaw.com's sports section [really!] here. It relies on causes of action recognized in the earlier California case, Marvin v. Marvin, about which we have blogged in the past.
According to the complaint, Olvera and Giles started dating in May 2002. In September of that year, Giles invited Olvera to come live with him. She claims that Giles told her to sell her house and all of her possessions, which she did, in reliance on his promise to provide for her. She alleges that the parties entered into a detailed oral agreement in December 2002 according to which she agreed to be his partner, homemaker, and caretaker for their respective children in return for financial security for life. The parties became engaged to be married in 2005, but the marriage never took place, due to Olvera's allegations that she was a victim of domestic abuse. Giles counterclaimed alleging that he had been the victim of domestic violence. Olvera filed suit in 2008, alleging breaches of express and implied contracts and other causes of action.
According to this article from Sign On San Diego, although Olvera's complaint originally sought $10 million in contractual and other damages, at trial, her attorney told the jury that she sought only $500,000, to which the parties had agreed in an unsigned pre-nuptial agreement that the parties negotiated in 2005. This was apparently a strategy to address the impression that Olvera's suit was motivated only by a desire for money. Olvera is engaged to another former baseball player, Chuck Knoblauch, who is now cast in the role of Dick van Dyck to Giles' Lee Marvin.
Wednesday, April 20, 2011
Just when I thought that the Charlie Sheen saga was over (at least from a Contract Law blogging perspective), this comes along. Charlie Sheen--entangled in a contractual dispute with his employer, Warner Brothers--first claimed that his contract had no morals clause (which turned out to be false) and later claimed (and said) all sorts of much crazier things. Now, Sheen and his lawyers are arguing that the provision in his contract requiring any dispute to be resolved via arbitration is unconscionable. Yes, you read that correctly. Charlie Sheen--whom many have described as having no conscience--is claiming unconscionability.
When I teach the concept of unconscionability, I emphasize that a provision is unconscionable only if there is both procedural unconscionability (one party has substantially more bargaining power than the other, among other factors) and substantive unconscionability (the term itself unreasonably favors one party). I also state that there is a sliding scale--the more procedural unconscionability you can show, the less substantive unconscionability you need to show, and vice versa. Admittedly, these are generalizations, but they're the kind of generalizations that tend to work well for first-year Contracts students.
I doubt Charlie Sheen could show either procedural or substantive unconscionability here. As Warner Brothers' lawyers note, the procedural element likely is lacking when the party claiming that he had little bargaining power was able to bargain for "$2 million dollars for [every] 22 minute[s] of television." To counter that point, Sheen's lawyers understandably emphasize that Sheen's contract was "non-negotiable" and, on the substantive side, was quite "onerous." I am not familiar with the nuances of California law on this subject so it will be interesting to see how this particular case is decided.
It's not unheard of for courts to rule that arbitration provisions are unconscionable (see our earlier post regarding the AT&T case recently heard by the Supreme Court). However, if you are tired of hearing about Mr. Sheen, you should hope that the court finds that the arbitration term was valid. That's because...if it is unconscionable, the case most likely will be heard in a California court, where the whole thing will be filmed and potentially broadcast to us all. Yikes.
For previous ContractsProf Blog posts about other Sheen-focused Contract Law topics, see here (Warner Brothers' termination notice), here (Warner Brothers' complaint), here (Sheen's countersuit alleging interfence with contractual relations), here (Sheen's bargaining power--perhaps relevant to his unconscionability claim), and here. At this point, I'm wondering if I could teach every Contract Law topic via Charlie Sheen. The textbook, entitled, "Winning at Contract Law!" sure would be fun to write.
Things were definitely iffy for those looking for a new season of Mad Men, but now it appears that the new season is a go -- with a slight delay. AMC was in a mess of contract negotiation problems for the award winning hit summer show. The contractual issues involved both Lionsgate, the production company behind the show, and Mathew Weiner, the show’s creator. The new season will begin March 2012 reports the Huffington Post.
Matthew Weiner finally accepted a $30 Million deal for three more seasons of the show after his previous contract expired last October, according to the Los Angeles Times. The contract calls for two seasons for certain, with the possibility of a third if a majority of the cast sticks around. Apparently, the sticking points in negotiations included: whether or not to shorten the show by two minutes per episode; decreasing the cast budget; and additional product placement as previously reported by the New York Times. The parties reportedly agreed to have the first and last episodes of the season run the usual 47 minutes, while the middle episodes will be shortened. They also agreed to keep the current cast for at least two years.
The next problem that may occur with the fan base. Will Mad Men junkies stick around for close to another year? Is the cliffhanger of the 4th Season enough to draw people back in? Or will the familiar celebratory blend of style, misogyny and alcoholism be enough to keep people glued to their high-definition screens? Tune in in about eleven months to find out. Meanwhile, for a devastating take on the show’s appeal, see Daniel Medelsohn’s article in the New York Review of Books.
[Katherine Freeman and JT]
Tuesday, April 19, 2011
Just a week ago, the Ninth Circuit ruled in favor of Facebook, finding the parties bound by a 2008 settlement agreement. But before you can say Winkelvosses, Facebook is back in court, this time in the Southern District of New York, being sued by yet another claimant to the title of Facebook co-founder. As reported in the New York Times, Paul Ceglia claims that the guy who claims to have founded Facebook -- no, not the Winklevosses and not Eduardo Saverin, but Mark Zuckerberg (pictured) -- was working for Ceglia at the time he developed the idea for what was then called "The Facebook" and that Zuckerberg agreed to share profits from the venture 50/50 with Ceglia.
The Times provides the following additional details about the case:
- Ceglia alleges that a work-for-hire contract that he entered into with Zuckerberg when the latter was 18 entitles Ceglia to at least a 50% share in Facebook;
- The suit is based on a 2003 written contract and an exchange of e-mails;
- Asked why he waited until 2010 to claim an ownership stake in Facebook, Mr. Ceglia told Bloomberg News that he had forgotten about his contract with Mr. Zuckerberg until he was looking through old files so that he could find assets with which to pay customers of his wood-pellet service and discovered that he owned a majority stake in a multi-billion dollar business;
- Ceglia first filed his complaint last year, but now he has filed an amended complaint and is represented by DLA Piper;
- Robert W. Brownlie, a partner at DLA Piper, has never seen the original documents on which Ceglia's claims are based but he warns that “Anyone who claims this case is fraudulent and brought by a scam artist will come to regret those claims”;
- Facebook claims that the e-mails are fabricated and the case a fraud;
- In 2009, Ceglia was arrested, charged with fraud and had his environment-friendly wood pellet business shut down by then NY State Attorney General Andrew Cuomo.
Monday, April 18, 2011
It is time to get into the Passover spirit by revisiting Fallsview Glatt Kosher Caterers v. Rosenfeld, 7 Misc.3d 557 (Civ. Ct. Kings County, NY, 2005), which gave us the opportunity to pause and consider: is a “Passover retreat” predominantly a good or service under the UCC? (Which, also came to be known as an added, fifth question for the youngest child at the seder).
Plaintiff Fallsview operated a retreat during Passover at Kutscher’s Country Club. (A Jewishy resort in the Catskills where, as a young child, I spent all of my grandmother’s laundry quarters on Ms. Pac-Man). For those that did not grow up going to B’nai Brith conventions in “The Country” (that’s what the NYC Jews called it), see this video, which comports with my memory.
Fallsview’s “retreat” included accommodations, entertainment and kosher food service. Willie Rosenfeld allegedly reserved spaces for 15 members of his family and agreed to pay $24,050 for the retreat. Fallsview made necessary arrangements, but Rosenfeld failed to appear at the hotel and did not remit the payment. Fallsview sued Rosenfeld for breach of contract.
Rosenfeld moved to dismiss, pointing to the statute of frauds. Rosenfeld argued that there was no agreement and, even if there was, it was oral and did not satisfy UCC 2-201, which requires that contracts for the sale of goods for the price of $500 or more be in writing. Fallsview’s response: the UCC does not apply because the Passover retreat is a service, not a good.
Because the alleged contract called for accommodations, entertainment and food, it was a hybrid transaction, and the court looked to whether goods or services predominated. Rosenfeld argued that the retreat was about food, a conclusion that he argued was “compelled by the very nature of the Passover holiday”:
The essential religious obligation during this eight day period- and the principal reason why people attend events similar to the Program sponsored by plaintiff- is in order to facilitate their fulfillment of the requirement to eat only food which is prepared in strict accordance with the mandate of Jewish law for Passover, i.e., food which is ‘Kosher for Passover’. It is the desire to obtain these ‘goods'-and not the urge for ‘entertainment’ or ‘accommodations'-that motivates customers to subscribe to such ‘Programs.’
But the court noted all of the possible daily activities at the retreat included “tennis, racquetball, swimming, Swedish massage, ‘make over face lift show,’ ‘trivia time,’ aerobics, bingo, ice skating, dancing, ‘showtime,’ ‘power walk,’ arts and crafts, day camp, ping-pong, Yiddish theater, board games, horse racing, horseback riding, wine tasting, and indoor bocci-and that is only through Wednesday.” There were also “ traditional and Orthodox religious services, lectures on religious and other subjects (presumably with a religious or cultural perspective), and a series of activities that are clearly designed to be of interest to families of observant Jews during a highly significant period in their calendar. “ The all-inclusive price covered these activities, as well as accommodations and food.
The court (Battaglia, J., who coincidentally, used to teach at my home institution), sided with Fallsview and decided the essence of the retreat was a “family and communal ‘experience’” and, therefore, was defined primarily by services and not by goods. Rodenfeld’s motion to dismiss was denied.
[Meredith R. Miller]
So many cases that end up in litigation begin with parties trying to do their best to fulfill their contractual obligations. So it is with FloorPro, Inc. v. United States. Back in 2002, the Navy awarded a contract to GM&W Construction to install new floor coatings in some warehouse bays. GM&W sub-contracted with FloorPro and the latter was to be paid about ninety percent of the contract price -- $37,500 out of $42,000. FloorPro did the work but was not paid, apparently because GM&W was in financial difficulties. FloorPro wrote to the contracting officer to complain of the non-payment. The contracting officer felt guilty, because s/he had asked FloorPro to work with GM&W.
In order to facilitate payment, the Navy entered into a contract modification which provided for a joint check to be issued to both FloorPro and GM&W and also provided that the government was thereby released from any claim against it by the contractor. Unfortunately, the joint check was not issued. Instead, the government paid GM&W, and FloorPro never got paid. It sued the government on the theory that it was a third-party beneficiary to the contract modification.
The general rule is that subcontractors do not have standing to bring claims against the government for breach of contract when they are not in privity with the government. However, subcontractors will have standing if they can establish that they were intended third-party beneficiaries of a contract with the government. The court applied the following test to determine whether FloorPro had standing as a third-party beneficiary: (1) Did the contracting officer intend to benefit FloorPro through the modification? and (2) Did the modification result in a direct benefit to FloorPro?
The answer to the first question was obviously yes, since the purpose of the contract modification was to help get FloorPro paid. The court likewise had no difficulty in determining that the joint check conferred a benefit on FloorPro because such a check could not be deposited without FloorPro's endorsement.
The court rejected the government's argument that there be a third prong to the third-party beneficiary test, requiring that a contract modification intended to benefit a third party must be a “condition precedent” to further performance. Although there is some language to that effect in Flexfab, L.L.C. v. United States, 424 F.3d 1254, (Fed. Cir. 2005), no court in the Circuit had adopted that language as part of the test for third-party beneficiary standing.
The court accordingly denied the government's motion for summary judgment and granted summary judgment to FloorPro.
Thursday, April 14, 2011
Victoria Kummer writes in the NYLJ:
Arbitration is a creature of contract, and just as you would draft any other contract with provisions carefully tailored to your company's specific needs, so too should you put such effort into drafting your arbitration clause. As a party to the contract, you are empowered to structure the arbitration process in any way you please. If you have an appetite for protracted litigation and relish the possibility that disputes under your contract will involve a comprehensive airing of every conceivable claim, with far-reaching discovery and exhaustive interim motion practice—just leave your arbitration clause silent as to these issues.
If, however, you want to structure the process so as to achieve the swift, efficient resolution that is (or should be) the hallmark of arbitration, it would be wise to include any desired procedural limitations within the arbitration clause itself. Attempting to impose such limitations after the arbitration has already commenced can be significantly more difficult, requiring you (or more likely, your litigation counsel) to negotiate with a hostile adversary in the heat of battle, and often leads to drawn-out disputes over a range of procedural issues—especially discovery protocols and the money pit known as e-discovery or ESI.
Here's the complete article (subscription required).
[Meredith R. Miller
Wednesday, April 13, 2011
Last week, as a shutdown of the federal government seemed imminent, the General Services Administration (GSA) issued this order clarifying the ramifications of such a shutdown for government contractors. In short, they get stiffed.
Under the Anti-Deficiency Act, which dates back to 1884, prohibits agency officials from incurring obligations in the absence of appropriations. As a result, a shutdown would have the following consequences:
- The 1500 federally-owned buildings and 8000 leased buildings which the GSA maintains will operate in "weekend mode," enabling tenant agencies to provide essential services;
- GSA will provide workspace, products and services ordered before the shutdown based on continuing need, but with certain exceptions, it will not process new orders;
- GSA will not make payments for products or services not funded before the funding lapse;
- GSA will not maintain or update websites, except on an emergency basis; and
- No animals will be harmed in the making of this political circus
Tuesday, April 12, 2011
We have been having a hard time updating our masthead on the left side of our page. We are not at liberty to discuss the reasons for the delay beyond saying that it involved an act of dog. In the meanwhile, we will leave this temporary masthead up so that our readers know from whom they are hearing.