ContractsProf Blog

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

A Member of the Law Professor Blogs Network

Monday, October 31, 2011

Volatility in the Cotton Market Leads to Record Number of Breaches

Cotton-field-England-ArThe WSJ reports on the volatile cotton market and the record number of contract disputes that have arisen as a result.  Here's a sample:

Just how binding is a binding agreement?

In the cotton market, dozens of remorseful buyers are putting that question to the test.

Since they agreed earlier this year to buy thousands of bales of cotton when prices were at record highs, cotton mills have seen prices tumble 54%. So, as delivery time nears and bills come due, some have decided not to pay up.

In a phenomenon that may be unique to the cotton market, contracts are considered by many buyers to be little more than a message of intent, with any agreement up for negotiation. And because the market is so farflung—merchants in the U.S. often trade with thousands of small buyers in Bangladesh or Indonesia—regular legal battles can be costly and lengthy.

Thanks to the wild swings in cotton prices, the industry is facing a record number of contract disputes. The International Cotton Association has received 168 requests for arbitration this year. That is the most since the industry's self regulator starting keeping track in 2000.

This year, it is mostly mills and other buyers backing out, industry officials and traders say. They bought when cotton was as pricey as $2.1515 a pound, the record hit in March. On Monday, cotton for December delivery rose 0.9% to close at 97.94 cents a pound on ICE Futures U.S.

Shrugging off those contractual obligations has made cotton prices jumpy. Having backed out of deals struck in the futures market, buyers have gone into the spot, or cash, market to get what they needed to spin thread for T-shirts, underwear and the like. Those reverberations have been felt by clothing makers of all sizes, whose margins were squeezed by the run-up in prices and now have to decide whether they can lower prices ahead of the holiday season.

"Both the textile mills [and] the merchant...have had a great deal of trouble in managing their risk," said Joe Nicosia, chief executive of Allenberg Cotton Co., the cotton arm of French trading house Louis Dreyfus Group, during an industry conference call in July.

When mills don't live up to their end of the deal, cotton merchants, including big, multinational commodity-trading firms, are at times left holding the bag.

Each year, 100,000 to 200,000 cotton contracts are signed, said Terry Townsend, executive director of the International Cotton Advisory Committee, a group that advises cotton-growing nations. For the crop year that ended July 31, about 10% of contracts have been defaulted on, said Mr. Townsend.

Defaults are a fixture in the cotton market.

You mean the buyer and seller didn't agree to shipment of the cotton on the Peerless?

For more (including a snazzy graphic with data), scale the WSJ paywall and read the article.  As one commenter wrote: "A deal's a deal until a better deal comes along."

[Meredith R. Miller]

October 31, 2011 in Famous Cases, In the News | Permalink | Comments (0) | TrackBack (0)

Friday, October 28, 2011

ContractsProf Blog Nominated to Lexis/Nexis Top 25 Business Law Blogs

We received word yesterday that the ContractsProf Blog was nominated to be among LexisNexis top 25 business law blogs.  Unfortunately, the day we received word was the day the opportunity ended to encourage our readers to "talk up" our blog on the LexisNexis site and thereby get us over the hump and into the top 25.

Apparently, but for a missed e-mail, that glory could have been ours.  And you, Dear Reader, could have had the chance to register and LexisNexis's website so that you could proclaim your love of this blog to all the world!

Cruel Kismet!

Nonetheless, congratulations to those enterprising blogs that made the list.  Worthy rivals all.

[JT]

October 28, 2011 in About this Blog | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 26, 2011

A Mini-Report from the Wisconsin Contracts Law Conference

Macauley
Earlier this week, we invited participants in the recent contracts conference honoring the scholarship of Stewart Macauley held at the University of Wisconsin at Madison to send in accounts of the proceedings.

Claire Hill from the University of Minnesota provides the following account:

The recent conference at the University of Wisconsin, Madison, to honor Stewart Macaulay’s work, was just as it should have been – a felicitous mix of empirics and theory, in sociology, economics, law and philosophy, on relational contracts, norms, networks, what contract law can and can’t do, what we should be teaching our students, what we shouldn’t be teaching our students, what people use contracts to do, what they don’t use contracts to do, what they shouldn’t or can’t use contracts to do, and much more. My contribution was on mistakes in complex business contracts. It was great fun to collect examples and quotes (one was “Commas all over the place. Complete confusion.”) I’m very grateful to have been invited to such a wonderful and well-organized event.    

[Posted on behalf of Claire Hill by JT]

October 26, 2011 in Commentary, Conferences | Permalink | Comments (0) | TrackBack (0)

New in Print

Pile of BooksPeter A. Alces, A Theory of Contract Law: Emirical Insights and Moral Psychology (Oxford 2011)

Uri Benoliel, The Behavioral Law and Economics of Franchise Tying Contracts,  41 Rutgers L.J. 527(2010).

Victor Goldberg, Traynor (Drennan) Versus Hand (Baird):Much Ado About (Almost) Nothing, J. Legal Analysis Advance Access (Oct. 7, 2011)

Michael H. Hoffheimer, Conflicting Rules of Interpretation and Construction in Multi-jurisdictional Disputes, 63 Rutgers L. Rev. 599 (2011)

Jan M. Smits, Rethinking the Usefulness of Mandatory Rights of Withdrawal in Consumer Contract Law: The Right to Change Your Mind? 29 Penn St. Int'l L. Rev. 671 (2011)

Huma T. Yasin, Playing Catch-up: Proposing the Creation of Status-based Regulations to Bring Private Military Contractor Forms within the Purview of International and Domestic Law. 25 Emory Int'l L. Rev. 411- (2011)

Noah D.Zatz,  Beyond Misclassification: Tackling the Independent Contractor Problem without Redefining Employment. 26 A.B.A. J. Lab. & Emp. L. 279 (2011).

[JT]

October 26, 2011 in Recent Scholarship | Permalink | TrackBack (0)

Tuesday, October 25, 2011

Weekly Top Tens from the Social Science Research Network

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

August 25, 2011 to October 24, 2011

RankDownloadsPaper Title
1 305 The Reasonable Person 
Alan D. MillerRonen Perry
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2 276 Managing Disputes Through Contract: Evidence from M&A 
John C. Coates, IV
Harvard Law School
3 169 The Foreign Corrupt Practices Act & Government Contractors: Compliance Trends & Collateral Consequences 
Jessica Tillipman
The George Washington University Law School
4 161 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration 
Thomas Stipanowich
Pepperdine University School of Law
5 114 Analyzing Law - A Framework for Understanding Law of All Sorts and for All Purposes (Cases, Exercises and Commentary) 
Neil K. Komesar
University of Wisconsin - Madison
6 109 Lochner and Constitutional Continuity 
David Bernstein
George Mason University - School of Law, Faculty
7 96 To Perform or Pay Damages 
Gregory Klass
Georgetown University - Law Center
8 85 The Essence of Economics - Behavior, Choice and Comparison 
Neil K. Komesar
University of Wisconsin - Madison
9 80 Online User Account Termination and 47 U.S.C. §230(c)(2) 
Eric Goldman
Santa Clara University - School of Law
10 77

The General Principles of Civil Law: Their Nature, Roles and Legitimacy 
Martijn W. Hesselink
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

August 25, 2011 to October 24, 2011

RankDownloadsPaper Title
1 305 The Reasonable Person 
Alan D. MillerRonen Perry
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2 275 Managing Disputes Through Contract: Evidence from M&A 
John C. Coates, IV
Harvard Law School
3 161 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration 
Thomas Stipanowich
Pepperdine University School of Law
4 96 To Perform or Pay Damages 
Gregory Klass
Georgetown University - Law Center
5 87 A New Tortious Interference with Contractual Relations: Gender and Erotic Triangles in Lumley v. Gye 
Sarah Lynnda Swan
Columbia University - Law School
6 76 The General Principles of Civil Law: Their Nature, Roles and Legitimacy 
Martijn W. Hesselink
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
7 70 Arbitral Power and the Limits of Contract: The New Trilogy 
Alan Scott Rau
University of Texas at Austin School of Law
8 64 Is Private Law Meaningless? 
Steve Hedley
University College Cork (UCC)
9 63 The Law of Contract: An Introduction 
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
10 62 The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design 
G. Mitu GulatiRobert E. Scott
Duke University - School of Law, Columbia University - Law School

[JT]

October 25, 2011 in Recent Scholarship | Permalink | TrackBack (0)

Default Settings, Notice and Contract Design

There have been several interesting articles about company policies in the news in the past couple of weeks. First there was this article which discusses how, as annoyed as customers might be by fees, they stay with their banks. They stay, not out of loyalty, but inertia. This article explains how certain magazine subscriptions are set to automatically renew upon notice. The problem is that the notice is not very noticeable. The next article explains how Google has captured the market for search because it is the default search engine for many users – and because resetting to another default is too complicated. Finally, there’s news here and here that wireless companies have agreed to notify customers when their data usage approaches or exceeds their monthly allotment – and they start to incur excess usage costs.

What all these articles illustrate is the importance of effective notice and default settings -- and how their design is the result of conscious business decisions. Companies get consumers to agree to bank fees, data overage fees and choice of search engine by setting the default to an option that favors the company. Ostensibly customers have a choice. They don’t have to agree to the default. They can affirmatively opt out, but they don’t. The contract (because there is bound to be one) is itself a default setting. The company substitutes notice for an affirmative indication of assent. It has made a choice not to require the customer’s actual assent. Bank fees are slightly different, but even there, the default enables the customer to use the card and assumes they agree to the fees; if they don’t agree, they have to “opt out” by changing their existing habit of using the card.

The design of a contract, including notices, and the choice of default settings really matters. Woody Hartzog has discussed contract design in the context of privacy policies . . Hartzog argues that a company’s privacy settings should constitute part of the agreement with the user. Ryan Calo has done interesting work about “visceral notice” that shows how notice can be rendered in a more effective manner. I’ve argued here and here that we should change the default setting on contractual assent in the online context to presume non-consent, thereby making actual assent a “cost” and making the contracting process part of the product or service offered by the company. [Of course, Arthur Leff made that argument way before I did in a famous essay, Contract as Thing, 19 AM. U. L. REV. 131 (1970).]

Calo’s work on visceral notice will be especially relevant in light of the wireless industry’s agreement to provide customers with text messages to alert them when they approach data usage limitations. Will these companies bombard consumers with so many marketing text messages (for example, to upgrade to another plan) that the usage warnings go ignored? Will users receive more SPAM by marketers, who take advantage of the attention that users will be paying to their texts – with the consequence that users no longer pay attention to their texts?

A broader question -- When there is so much that companies can do to affect the contracting process, especially online, shouldn’t we require them to do it? If a company can provide visceral or visual notice (rather than simply textual notice), why shouldn’t they be required to? If a company can easily enable the customer to indicate assent (by forcing a click, for example) to particular terms, why should we permit “blanket assent” online?

[Nancy Kim]

October 25, 2011 in Commentary, E-commerce, In the News, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, October 24, 2011

Round-up From the Blawgs

Above the Law reports on law-related things, including hottie lawyers, up for sale on e-Bay.

Gordon Smith reports on The Conglomerate about the recent contracts conference honoring the scholarship of Stewart Macauley.  By the way, if anyone out there attended and wants to file a report, please feel free to send us a guest post.  

Our partners in the Law Professor Blogs Network over at the Workplace Prof Blog have a couple of posts that are revelant to contracts.  First, Richard Bales reports on benefits cuts at Wal-Mart here.  Professor Bales also writes about a new Catalyst Report that finds that women are not to blame for the pay inequality that they suffer.  

Finally, over at Feminist Law Professors, Bridget Crawford often asks "Where are the Women?" when women are unrepresented or underrepresented in publications or conferences.  Well, the answer to "Where are the women writing on contracts law?" is not on the Feminist Law Professors blog.  It's here at the ContractsProf Blog.  

[JT]

October 24, 2011 in Weblogs | Permalink | Comments (0) | TrackBack (0)

Saturday, October 22, 2011

Boyz N the Court

BoyzJohn Singleton, director, producer, writer, overall film extraordinaire, now may add "plaintiff in a breach of contract action" to his long resume.  Singleton's case and claims somewhat mirror those of a modern Contracts casebook staple, Locke v. Warner Bros, Inc.  Singleton, like the actress/director plaintiff in Locke, claims, inter alia, that a production company, Paramount Pictures, breached the implied duty of good faith and fair dealing (as well as some express promises) when it failed to finance at least two of Singleton's later-proposed film projects.  According to the complaint, Singleton previously had traded some of his rights to two highly acclaimed films, Hustle & Flow and Black Snake Moan, in exchange for cash and for Paramount's promise to finance two of his future projects, subject to some conditions.  Paramount's defense likely will be that those conditions were not satisfied.  And just for good measure, Singleton's complaint also includes an unjust enrichment claim, the basis of which is that he would have demanded more cash for his Hustle & Flow and Black Snake Moan rights had he known that Paramount would not finance the later pictures.  Thus, the case could be useful in illustrating various contract law concepts to a group of students, some of whom were not even born when Boyz N the Hood was released. 

[Heidi R. Anderson h/t (and it pains me to type this) TMZ]

October 22, 2011 in Celebrity Contracts, Film, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, October 20, 2011

Geek Love: Siri's EULA Doesn't Cover Marriage

A few days ago, we pondered whether the robots were coming for our jobs.  What's next?  Robot marriage? Well, apparently if you ask Siri to marry you, one of her (its?) responses is: "My End User Licensing Agreement does not cover marriage. My apologies."  How's that for private ordering?!  And, how romantic!

I learned of this via song (via the Atlantic) - the first duet with Siri that I've seen:

[Meredith R. Miller]

October 20, 2011 in In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 19, 2011

Interesting Fact Pattern out of Orleans Parish

According to a complaint filed by New Orleans attorney James L. Arruebarrena, his client Cherie Garman beautifully strung along him and his associate, getting them to represent her in a mediation and then refused to pay them.  The facts have enough wrinkles to hold out the prospect of an interesting dispute.

New Orleans

Views of New Orleans brought to you from Wikipedia's Creative Commons

According to this report in the Louisiana Record, the facts alleged are as follows:

  • Garman contacted Arruebarrena on May 9th to represent her in an EEOC-sponsored mediation on May 11th
  • Arruebarrena's associate, Rachel Martin-Deckelmann (M-D) sent Garman via e-mail a fee agreement and contract
  • Garman e-mailed relevant documents to the attorneys but claimed she could not open the files that M-D had sent
  • On May 10th, Garman represented that she had received the documents (now pasted into an e-mail) and would return them immediately
  • That same day, Arruebarrena contacted the EEOC and confirmed that he would represent Garman
  • But Arruebarrena had a medical emergency on May 11th, and so told M-D to represent Garman at the mediation
  • One hour before the mediation, M-D spoke with Garman and went over the litigation strategy.  At that point, Garman represented that she had executed and returned via fax the attorneys' contract
  • During a break in the mediation, M-D learned that the contract had not been received.  She notified Garman, who promised to re-fax the contract immediately after the mediation
  • After a five-hour mediation, the parties agreed to a $100,000 settlement
  • When it came time for the check to be issued, Garman claimed that she had never signed the contract and that all funds should go to her.

Arruebarrena has now sued for fraud and breach of contract, seeking reasonable attorneys' fees, costs and punitive damages.  

Our blogger Nancy Kim is no doubt all over the issues that arise from cases like this one, since her work is all about the perils of e-contracting, so perhaps this case is pretty humdrum, but one wonders if the sudden change of attorneys had something to do with Garman's refusal to pay.  There are interesting lacunae in the narrative set out in the complaint.

[JT]

October 19, 2011 in In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 18, 2011

Weekly Top Tens from the Social Science Research Network

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

August 17, 2011 to October 16, 2011

Rank Downloads Paper Title
1 293 The Reasonable Person
Alan D. Miller, Ronen Perry,
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2 274 Managing Disputes Through Contract: Evidence from M&A
John C. Coates, IV,
Harvard Law School
3 161 The Foreign Corrupt Practices Act & Government Contractors: Compliance Trends & Collateral Consequences
Jessica Tillipman,
The George Washington University Law School
4 155 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration
Thomas Stipanowich,
Pepperdine University School of Law
5 115 Remoteness Re-Invented?
David McLauchlan,
Victoria University of Wellington - Faculty of Law
6 102 Lochner and Constitutional Continuity
David Bernstein,
George Mason University - School of Law, Faculty
7 94 To Perform or Pay Damages
Gregory Klass,
Georgetown University - Law Center
8 89 Why There is No Duty to Pay Damages: Powers, Duties, and Private Law
Nathan B. Oman,
William & Mary Law Schoolt 9, 2011
Last Revised: October 10, 2011
9 83 Analyzing Law - A Framework for Understanding Law of All Sorts and for All Purposes (Cases, Exercises and Commentary)
Neil K. Komesar,
University of Wisconsin - Madison
10 77 The Essence of Economics - Behavior, Choice and Comparison
Neil K. Komesar,
University of Wisconsin - Madison

RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of LSN: Contracts (Topic)

August 18, 2011 to October 17, 2011

Rank Downloads Paper Title
1 294 The Reasonable Person
Alan D. Miller, Ronen Perry,
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2 274 Managing Disputes Through Contract: Evidence from M&A
John C. Coates, IV,
Harvard Law School
3 157 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration
Thomas Stipanowich,
Pepperdine University School of Law
4 95 To Perform or Pay Damages
Gregory Klass,
Georgetown University - Law Center
5 87 A New Tortious Interference with Contractual Relations: Gender and Erotic Triangles in Lumley v. Gye
Sarah Lynnda Swan,
Columbia University - Law School
6 60 The General Principles of Civil Law: Their Nature, Roles and Legitimacy
Martijn W. Hesselink,
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
7 57 The Law of Contract: An Introduction
Jan M. Smits,
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
8 55 Is Private Law Meaningless?
Steve Hedley,
University College Cork (UCC)
9 46 Classical Contract Law, Past and Present
Anat Rosenberg,
Hebrew University of Jerusalem, Faculty of Law
10 46 Arbitral Power and the Limits of Contract: The New Trilogy
Alan Scott Rau,
University of Texas at Austin School of Law

[JT]

October 18, 2011 in Recent Scholarship | Permalink | TrackBack (0)

Monday, October 17, 2011

Layaway Plans, Personal Finance and Consumer Behavior

There was an op-ed by Louis Hyman (author of Debtor Nation: The History of America in Red Ink)in last week's NYTimes about the reappearance of the layaway plan. A layaway plan is where a shopper pays a small fee (about $5-$10) and a down payment (usually 10%) in order to make payments toward an item. The shopper can't take the item until the payments are made. The payments typically must be made within 2-3 months. If the shopper is unable to make all the payments, the store returns the money that has been paid, less the plan fee. Some plans, like Walmart's, will also charge a cancellation fee (of $10). Hyman notes that:

"...as a financing option, layaway is decidedly worse than most credit cards. Imagine a mother going to Wal-Mart on Oct. 17 and buying $100 worth of Christmas toys. She makes a down payment of $10 and pays a $5 service fee. Over the next two months she pays off the rest. In effect, she is paying $5 in interest for a $90 loan for two months: the equivalent of a credit card with a 44 percent annual percentage rate, a level most of us would consider predatory.

In comparison, even a card with an 18 percent A.P.R. would charge only half as much interest — and she could take those presents home the same day.

Then consider what would happen if she couldn’t finish all the payments. Wal-Mart would give her the money back, less $10. If she borrowed that $90 and paid $15 in interest for two months, she would have the equivalent of a jaw-dropping interest rate of 131 percent."

These are all very good points, but there are also good reasons why layaway plans may be a better option for some consumers. Unlike with credit cards, a consumer can't charge astronomical sums without being aware of it. It's easy to do that when you use credit --$20 bucks here, $5 bucks here -- the numbers add up, and it's the rare consumer who keeps a running, cumulative tally of their various credit purchases. While the interest rate might be high using Hyman's hypothetical, there is a limit on the hurt a consumer feels.  That's not necessarily the case with credit cards. A consumer who fails to pay the entire balance on a credit card gets charged a penalty. That, plus the balance on the credit card, plus interest on that new bigger balance, gets carried over until the following month. The consumer feels okay about it as long as minimum payments are being made -- even though the size of the debt may be growing.  And the size of the debt is likely to be growing because, even if the entire balance hasn't been paid off, additional purchases are likely being made, adding to the outstanding balance (upon which interest and fees are being added)....You get the picture. This is the debt rabbit hole that a layaway plan helps a consumer avoid.

The fact that the shopper can't take the item home that day is probably the biggest benefit to a layaway plan. Shoppers like shiny new things. They see them and want them now. If they pay for something knowing they don't get it right then, they might be less impulsive about their purchases. In addition, a layaway plan protects a shopper against his or her own cognitive limitations (and who doesn't have them?) You may not really need that new flat screen t.v., but you just won't listen to reason. You come to your senses a week later, but rather than being out a thousand dollars and stuck with an item you no longer want, you're out the service fee and the cancellation fee ($10-15 dollars usually). You haven't fallen into the rabbit hole of consumer debt over that bad purchase.

This is not an endorsement of layaway plans, just an acknowledgment that the reality of personal finance is not as simple as the numbers on the page. Personalities and circumstances affect whether a certain strategy is for you. Some people can't control their drinking, so they abstain. Some people know they can't control their spending, and so they cancel their credit cards and pay in cash if they have it, or put their items away on layaway. It's not just a financial plan, it's a financial and behavioral strategy.

Now for the contract's angle:

Read the fine print. Credit card companies nabbed many customers with their fine print. Customers interested in layaway plans should read and understand the terms of the plan. They should read the fine print. The cancellation fee for the WalMart plan is in very small letters and easy to miss.

Get the specifics. In writing. Information about layaway plans that are available on retailer websites are big on touting things you can buy but skimpy on the specifics of the plan. The Best Buy plan, for example, doesn't explain how much of your money is refunded in the event of cancellation. The consumer may expect all of it, but does that include the down payment? I think it does and hopefully if the retailer tries to argue that it doesn't, a court will interpret the provision against the drafter. But a consumer never wants to get involved in litigation over something like this. Anyway, there's probably a mandatory arbitration clause in the layaway contract so a consumer would be out of luck....The confusing nature of layaway plans is especially troubling where the consumer is not a native English speaker. Terms that deviate from the "standard" terms of a layaway plan (i.e. where the downpayment and all payments are not returned in the event of cancellation) should be scrutinized very carefully. (Language issues in consumer contracts require a standalone post, there's so much to say on that topic!)

Layaway plans make me think of Williams v. Walker Thomas, the famous unconscionability case. Although that case involved a payment installment - and not a layaway - plan, it raised the same issues regarding consumer wants and needs, behavior, fine print, bargaining power, and alternatives. Funny, whenever I bring up layaway plans in discussing the case in class, most of my students have no idea what they are. I wonder if that will change.

[Nancy Kim]

October 17, 2011 in Commentary, In the News | Permalink | Comments (3) | TrackBack (0)

Sunday, October 16, 2011

The Robots are Coming for Arbitration....

Is a robot going to steal your job?  About two weeks ago, I read that entertaining piece in Slate on what seemed like a hypothetical question.  Then I read about "cybersettle" in the WSJ.  Apparently commercial arbitration is no longer efficient enough.  A unit of GE has, therefore, required thousands of suppliers to agree to "cybersettlement" in "simple disputes" over no more than about $65,000.  From the article:

The company's system involves blind bidding online to see if the parties agree on a settlement amount. If that that doesn't pan out, an arbitrator rules, but communicates only online and without a hearing.

"We get a large number of claims that are simply about money and they can take up a lot of attorney time and costs," says Kenneth S. Resnick, general counsel of GE Oil & Gas, which is based in Florence. "This allows a cheap—and, most important, fast—way of solving them."

GE says 15 disputes over claims for €136,000 total were settled in a three-month look at the cybersettlement process this year. The company has faced resistance from employees and suppliers skeptical that their claims will get a fair shake. Another possible hitch: The system doesn't allow claimants a way to vent.

"Some people file claims because they see dollar signs. But many people who file claims are just totally upset and feel a sense of injustice," says New York City Comptroller John Liu, who last year axed a similar online dispute-resolution approach in the city.

"I can't get my arms around the lack of a human element," says Sanford Ring, general counsel of Hino Motors Manufacturing U.S.A. Inc., a Toyota Motor Corp. truck subsidiary. Without testimony or face-to-face interaction, it can be difficult to evaluate the credibility of either side of a business dispute, he says. "The credibility aspect is very important."

Nonetheless, GE is looking to use the system more broadly, including for disputes involving customers, as well as suppliers, Mr. Resnick says.

Here's more on the GE program:

GE's process begins with automated online double-blind bidding. After a claimant pays a $500 filing fee, the supplier and GE upload relevant documents, which the opposing side can read.

The parties also enter three settlement figures—in ascending or descending order, depending on whether the party would be paying or getting paid—that would be acceptable. The figures aren't disclosed to the opposing side. If an offer and demand in any round overlap, a settlement is reached. The $500 fee is then split equally.

Robert C. Ballou, the chief executive of Cybersettle Inc., whose technology is used by GE and was adopted by New York City, says that for parties using a three-round online negotiation process, the overall settlement rate is 65%. That is consistent with research on litigation in general, which shows that the majority of cases will settle before they reach the courtroom, GE says. Cybersettle is paid a fee for each dispute handled.

In GE's cybersettlement process, if no settlement is reached through automated bidding, the dispute gets bumped to online arbitration for an additional $1,000 paid by the claimant. GE asked the International Centre for Dispute Resolution, a division of the not-for-profit American Arbitration Association, to design the overall online process. The center found engineers to arbitrate cases.

A single engineer reviews the documents that were uploaded, determines a winner and tells the center, which communicates with both sides online—no lawyers, witnesses or hearing dates.

It didn't work out for New York City because, well, robots aren't exactly humans:

New York for several years used a Cybersettle process to settle small personal-injury and property-damage claims. The city's comptroller at the time said that by 2009, the system allowed the city to settle more than 4,000 personal-injury claims at an average cost of $11,662 each, compared with $23,379 achieved through litigation.

But Mr. Liu, who took office last year, concluded that the same work could be done less expensively with an in-house staff of claims adjusters who negotiated by phone. The city is now saving the $600,000 a year that it paid to Cybersettle, his office says.

"If someone is checking for account balances, perhaps a computer or phone system could more quickly give that information," he says. "But for a more complicated, interactive function, such as claims settlement—or settlement of any kind of dispute—it shouldn't be that surprising that a computer is not up to the task."

This was all essentially predicted decades ago:

[Meredith R. Miller]

October 16, 2011 in In the News | Permalink | Comments (1) | TrackBack (0)

Thursday, October 13, 2011

Supreme Court of Ohio Holds that Woman Injured by Tree is Not a Third-Party Beneficiary of Contractor

Ohio-flagDust off Restatement (2d) of Contracts § 302....

Lisa Huff was out walking during a heavy thunderstorm in Hartford Township, Ohio, when she was seriously and permanently injured by the limb of a tree.  A large sugar maple tree split in two and the limb fell and struck her.  While Ohio Edison Company did not own the property where the tree was located, the tree was 20 feet from utility lines that it owned and maintained.  Ohio Edison had hired Asplundh Tree Expert Company to inspect and maintain the trees along its power lines in that area.  Huff sued Ohio Edison and Asplundh on the theory that they “failed to inspect, maintain and remove the tree or to warn the landowner of the public danger raised by the tree.” 

So far it sounds like one for the torts anthology; indeed, Ohio Edison and Asplundh argued that they owed no duty to Huff.  However, Huff responded that Ohio Edison had contracted with Asplundh to inspect and maintain the trees and she was a third-party beneficiary of that contract. 

The contract specifically provided that Asplundh “shall plan and conduct the work to adequately safeguard all JALcolor persons and property from injury.”  Nevertheless, the Supreme Court of Ohio held that Huff was not an intended beneficiary.  In reversing the intermediate appellate court, Judge Lanzinger reasoned:

When this statement is placed in context, however, it is unambiguous that neither Ohio Edison nor Asplundh intended to make the Huffs third-party beneficiaries under the contract. The contract was not entered into for the general benefit of the public walking on public roads. It was designed to support the electrical service offered by Ohio Edison. The contract states that it applies to work, consisting of “tree trimming, tree removal, clearance of rights-of- way using either manual or chemical methods, and disposal of trees and brush,” completed by Asplundh on behalf of Ohio Edison. The purpose of the contract, then, is to ensure that Ohio Edison’s equipment and lines are kept free of interference from trees and vegetation. The remainder of the contract sets forth how this work is to be carried out, such as the standards by which Asplundh is to perform its work, the limits on liability for the performance of thework, and the necessary qualifications for the Apslundh employees who were to perform the work. The contract contains no language establishing an ongoing duty to the general public on behalf of either Ohio Edison or Asplundh.

TOcolorIn a concurring opinion, Judge O’Donnell agreed with the result but not the majority’s statement of law insofar as it “create[d] a new requirement that the intention to benefit a third party must be indicated in the terms of the contract.”

Huff v. FirstEnergy Corp, et al., Slip Op No. 2011-Ohio5083 (Oct. 5, 2011).

[Meredith R. Miller]

October 13, 2011 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Federal Circuit Rejects $50 Million Claim for Breach of a Psychic Services Contract

Mulder´s_officeLast week, the Federal Circuit affirmed the Court of Federal Claims dismissal of a $50 million law suit brought against various leading politicians and the U.S. government.  The case is Bussie v. United States.  Plaintiff alleged that he had not been compensated for psychic services he performed in assisting the government in its pursuit of "high value targets" including the "masterminds" behind 9/11.  The suit named President Obama, former President George W. Bush and Fox News analyst Sarah Palin, among others as defendants.  The Federal Circuit affirmed the Court of Federal Claims' finding that it had no jurisdiction under the Tucker Act to hear claims against individuals.

As plaintiff was proceeding pro se, the Federal Circuit construed his complaint generously as seeking damages from the United States.  However, the court found that the Court of Federal Claims had correctly concluded that plaintiff had not alleged facts sufficient to sustain a claim for an implied-in-fact contract.

The Federal Circuit opinion is very short.  Further details can be found in the Court of Federal Claims opinion here.  

The complaint raises interesting possibilities.  Has the government in fact been hiring psychics to try to track down terror suspects?  Is that so implausible?  After all, didn't Nancy Reagan consult an astrologer in order to make certain the heavens were aligned properly with President Reagan's schedule?  If the government has not been hiring psychics, why not?  They are likely at least as effective as waterboarding.

[JT]

October 13, 2011 in Government Contracting, Recent Cases | Permalink | Comments (1) | TrackBack (0)

Wednesday, October 12, 2011

Occupy Wall Street and why it's all contracts fault....

The Occupy Wall Street movement has gained momentum as it spreads to affiliate movements across the country, including in San Diego (Usha Rodrigues has a post about the protest in Athens, GA, and Frank Pasquale has thoughtful observations about the movement in general here). As I alluded briefly in a prior post,the movement highlights some of the difficulties in mobilizing disparate individuals into collective action. You may not have thought the Occupy Wall Street movement was about contracts, but I think it is, at least in part.

Many of the problems arising from the financial crisis and the mortgage crisis (which are mentioned in the movement’s first official declaration ) originated from contracts – contracts that were hard to understand, contracts that were too long, contracts that contained aggressive and surprising terms. Contracts conferred legitimacy on transactions that later turned out to be problematic.Contracts were and are part of the problem in another way. The growing anger and frustration exhibited by the Occupiers of Wall Street stem from a general feeling of helplessness.

Contracts contribute to that feeling. Consumers have given up reading contracts – there are too many, and they are too long and convoluted. If all consumers actually read each contract they “agree” to, the economy would grind to a halt. Imagine– every time you download music, log on to Facebook, rent a car, check your bank balance. You’d never get anything done. Can you imagine if everyone who bought a house read all the paperwork that they signed? It takes an hour just to sign through all the different documents. The lender and the broker and all the various drafting parties don’t actually want you to read the documents – they just want you to sign them. (Heck ,the lenders don’t even read their own documents if the robo-signing controvery is any indication).

Some contracts scholars defend standard form contracts by stating that if the majority of consumers don’t like certain terms, they will push back. It’s the familiar, the “market will respond” argument. The assumption is that if enough consumers really don’t like terms, we will eventually hear about it. The problem is that, given the coordination problems associated with mobilizing individuals who are strangers to each other and dispersed across the country, we may not hear a clear, unified message. More troubling, we won’t hear about mass scale dissatisfaction until mass scale societal harm has already occurred. The “market will respond” argument is a regressive argument, not a progressive, improving one. The Occupy Wall Street Movement is a reaction, not a preventative movement (and David Brooks of the NYT thinks it is a weak one because of it).

But, you might ask, in a free society and in a free market,shouldn’t we respect what two parties voluntarily agree to do? To a certain extent, yes. But it depends. It depends upon the meaning of the word voluntarily. It depends upon the meaning of the word agree. And it depends upon whether (and how and how much) what the contracting parties agree to do impacts the rest of society. Contracts are the vehicle through which banks and other financial institutions carry out their business. They were the tools that lent legitimacy to socially harmful practices. The agreement of two private actors shouldn’t be enforced if it threatens the well-being of society, violates important policy principles, and cripples the economy.

[Nancy Kim]

October 12, 2011 in Commentary, Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 11, 2011

New in Print (Including New or New Editions of Contracts Casebooks from Lexis/Nexis)

Derrick Bell

The legal academy lost a giant with the passing of Derrick Bell, who pioneered the Critical Race movement and changed the way many academics think about how the law works. I think Bell's theories apply widely to different doctrinal areas of the law, including contract law. For example, I think we are seeing Bell's interest convergence theory in action in that many of the predatory lending (and contracting) practices that wreaked so much havoc on the economy were first targeted toward racial minorities. The government didn't act, however, until the interests of majority homeowners converged with minority homeowners - not just in terms of the lending practices becoming widespread, but the foreclosures that have a contagion effect.

R.I.P. Professor Bell.

[Nancy Kim]

October 11, 2011 in Commentary | Permalink | Comments (1) | TrackBack (0)

"Disappeared Contractors": David Isenberg on Steven Schooner on Contractor Deaths in Iraq & Afghanistan

PMSCs David Isenberg, author of Shadow Force: Private Secuity Contractors in Iraq has a provocative new piece on HuffPo in which he argues that private military and security contractors (PMSCs) are like the "disappeared" victims of dictatorial rule.  This is not of course literally true, in that the bodies of PMSCs who are killed abroad are returned so that families can mourn and bury their dead.  However, Isenberg finds the analogy fitting because we do not recognize or track the extent to the which PMSCs are bearing the burden on the on-going War on Terror.

He relies on the scholarship and testimony of Geroge Washington University Law School Professor friend-of-the-blog Steven L. Schooner.  Professor Schooner has written about this topic in an article co-authored with GWU law student Collin D. Swan, called "Dead Contractors: The Unexamined Effect of Surrogates on the Public's Casualty Sensitivity," about which we have previously blogged here.

The Isenberg piece provides extensive quotations from Professor Schooner's testimony before the congressionally mandated Commission on Wartime Contracting.  The gist of the exerpted portions is that we now have more PMSC casualties than military casualties in Iraq and that trend is spreading to Afghanistan as well.  These deaths are not reported in the way military deaths are.  PMSC deaths thus impose a lower cost in terms of public tolerance for continued war than do military deaths.  Professor Schooner also notes, without allocating blame, that the government does more to protect members of the military than it does for PMSCs.

[JT]

October 11, 2011 in Contract Profs, Government Contracting, In the News, Weblogs | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

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

August 10, 2011 to October 9, 2011

Rank Downloads Paper Title
1 279 The Reasonable Person
Alan D. Miller, Ronen Perry,
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2 270 Managing Disputes Through Contract: Evidence from M&A
John C. Coates, IV,
Harvard Law School
3 199 Subprime: Why a Free and Democratic Society Needs Law
Joseph William Singer,
Harvard Law School
4 151 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration
Thomas Stipanowich,
Pepperdine University School of Law
5 150 The Foreign Corrupt Practices Act & Government Contractors: Compliance Trends & Collateral Consequences
Jessica Tillipman,
The George Washington University Law School
6 107 Remoteness Re-Invented?
David McLauchlan,
Victoria University of Wellington - Faculty of Law
7 93 Lochner and Constitutional Continuity
David Bernstein,
George Mason University - School of Law, Faculty
8 91 To Perform or Pay Damages
Gregory Klass,
Georgetown University - Law Center
9 87 Why There is No Duty to Pay Damages: Powers, Duties, and Private Law
Nathan B. Oman,
William & Mary Law School
10 72 Preemption and Choice-of-Law Coordination
Erin A. O'Hara O'Connor, Larry E. Ribstein,
Vanderbilt University - Law School, University of Illinois College of Law

RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of LSN: Contracts (Topic)

August 10, 2011 to October 9, 2011

Rank Downloads Paper Title
1 279 The Reasonable Person
Alan D. Miller, Ronen Perry,
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2 270 Managing Disputes Through Contract: Evidence from M&A
John C. Coates, IV,
Harvard Law School
3 151 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration
Thomas Stipanowich,
Pepperdine University School of Law
4 90 To Perform or Pay Damages
Gregory Klass,
Georgetown University - Law Center
5 85 A New Tortious Interference with Contractual Relations: Gender and Erotic Triangles in Lumley v. Gye
Sarah Lynnda Swan,
Columbia University - Law School
6 62 Bringing Order to Contracts Against Public Policy
David Adam Friedman,
Willamette University College of Law
7 51 Is Private Law Meaningless?
Steve Hedley,
University College Cork (UCC)
8 47 Restitution and Relationships
Hanoch Dagan,
Tel Aviv University - Buchmann Faculty of Law
9 45 The General Principles of Civil Law: Their Nature, Roles and Legitimacy
Martijn W. Hesselink,
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
10 43 The Law of Contract: An Introduction
Jan M. Smits,
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)

[JT]

October 11, 2011 in Recent Scholarship | Permalink | TrackBack (0)