Friday, December 30, 2011
In 1996, two parties, Grigsby & Associates (Grigsby) and M Securities Investment (M) agreed to underwrite a $183 million municipal bond offering in Dade County, Florida. GBR Financial Products failed to pay Grigsby, so Grigsby didn't pay M. Lots of lawsuits followed. In 2006 M initiated an arbitration proceeding against Grigsby seeking $2 million in damages, the amount allegedly owed to M for its role in the bond offering. Grigsby then brought an action in the federal district court claiming that M had waived its right to arbitration and therefore should be enjoined. The arbitration proceeded, and M won an award of $100,000, plus interest and attorneys' fees, and Grigsby was sanctioned $10,000 for failing to comply with discovery obligations.
Grigsby challenged that award in federal court, but the district court confirmed the award. Grigsby then appealed to the 11th Circuit. Last week, the 11th Circuit issued its opinion, Grigsby & Associates Inc. v. M Securities Investment. Before the district court, Grigsby had argued that the arbitration was barred by res judicata and because M had waived the right to arbitrate by filing several lawsuits against Grigsby before initiating arbitration proceedings.
The 11th Circuit agreed with the district court that the res judicata issue is in the category of "disputes over whether a particular claim may be successfully litigated anywhere at all," and that such disputes are presumptively assigned to the arbitrator. Grigsby's waiver claim would seem to be in the same category, since in Howsam v. Dean Witter Reynolds, Inc., 123 S. Ct. 588 (2002), the U.S. Supreme Court included "allegations of waiver" on the list of issues presumptively for the arbitrator. The 1st, 3rd, and 6th Circuits have nonetheless treated waiver as issue presumptively to be decided by the courts rather than by arbitrators when the waiver is based on a party's conduct. The 11th Circuit decided to follow the reasoning of these Circuits. The district court's failure to decide the issue of waiver was legal error and therefore an abuse of discretion.
The case was remanded to the district court to decide Grigsby's waiver claim on the merits. Until it does so, the 11th Circuit vacated the district court's order denying an injunction of the arbitration award, subject to reinstatement if the district court determines that no waiver occurred.
Thursday, December 29, 2011
Plaintiff Alan Vitt’s laptop "crapped out" (term of art) just after the 1-year warranty expired. The crux of his complaint on behalf of all purchasers of the iBook G4: the laptop did not last “at least a couple of years,” which he allaged is the reasonable consumer expectation of a laptop. He alleged that “this is because one of the solder joints on the logic board of the iBook G4 degrades slightly each time the computer is turned on and off, eventually causing the joint to break and the computer to stop working shortly after Apple’s one year express warranty has expired.” Plaintiff further alleged that Apple “affirmatively misrepresented the durability, portability, and quality of the iBook G4 and did not disclose the alleged defect.”
In affirming the dismissal of his complaint, the 9th Circuit held that the marketing statements are non-actionable puffery:
Vitt challenges Apple’s advertising because it stated that the iBook G4 is “mobile,” “durable,” “portable,” “rugged,” “built to withstand reasonable shock,” “reliable,” “high performance,” “high value,” an “affordable choice,” and an “ideal student laptop.” The district court held that these statements are generalized, non-actionable puffery because they are “inherently vague and generalized terms” and “not factual representations that a given standard has been met.” We agree. Even when viewed in the advertising context as Vitt urges, these statements do not claim or imply that the iBook G4’s useful life will extend for “at least a couple of years.” For example, to the extent that “durable” is a statement of fact it may imply in context that the iBook G4 is resistant to problems occurring because of its being dropped, but not that it will last for a duration beyond its expressed warranty.
Vitt v. Apple Computer, Inc. (9th Cir. Dec. 21, 2011).
[Meredith R. Miller]
Wednesday, December 28, 2011
Monday, December 26, 2011
If you are attending next week's AALS Annual Meeting, please join us for the Contract Section's program, New Voices in Contracts Scholarship, scheduled for Saturday, January 7, 2012, from 1:30 to 3:15 p.m., at the Marriott Wardman Park Hotel. The program will feature three junior scholars whose proposals the selection committee chose from the many quality responses to our CFP.
In alphabetical order, the featured speakers and their topics are
Aditi Bagchi (University of Pennsylvania Law School), Parallel Contract;
Mohsen Manesh (University of Oregon School of Law), Contractual Freedom under Delaware Alternative Entity Law; and
Emmanuel Voyiakis (London School of Economics & Political Science, Department of Law), Contract Law and Reasons of Social Justice.
There will be a brief business meeting following the program.
I look forward to seeing many of you in less than two weeks.
[Keith A. Rowley]
Thursday, December 22, 2011
The DC Contract Appeals Board is hiring law clerks for the Spring 2012 semester. They are interested in 2Ls, 3Ls, and LL.M.s with a strong interest in government contracts law, and litigation.
The CAB has an extremely busy docket, providing you with an excellent opportunity to gain experience working on bid protest and contract claims. Moreover, each student will work directly for a judge, serving as the judge's law clerk.
Requested Application Materials:
Applicants should provide a one-page cover letter, resume, recent legal writing sample (8 pages maximum that has been written within the last 3 years), and three professional references (including email addresses and telephone numbers).
Applications may be mailed or emailed as follows:
D.C. Contract Appeals Board
441 4th Street, NW., Suite 350N
Washington, D.C. 20001
[JT w/ HT to Jessica Tillipman and the Government Procurement Law Program at the George Washington University Law School]
Tuesday, December 20, 2011
Some clues as to how the Greeks have spent all their money are available now from the Congressional Research Service.
A few other random thoughts on the data:
- African governments clearly are not doing all they could to help the U.S. economy through purchases of U.S. weaponry
- Hooray for Canada's unexpected militarism
- And while we're at it, good on ya Australia!
- Eastern Europe (other than Poland), don't look now but there's still a big Russian bear behind you. Can we interest you in some supersonic jets?
Thanks to Steven Aftergood of the Federation of American Scientists' Secrecy News blog for providing the link!
Thursday, December 15, 2011
In Jim Walter Resources Inc. v. United Mine Workers of America, plaintiff Jim Walter Resources (Jim Walter) alleged that the defendant Union had conducted a work stoppage in violation of the parties' collective bargaining agreement (the Agreement). The District Court had dismissed Jim Walter's claim, holding that the dispute was subject to arbitration under the terms of the Agreement. The Eleventh Circuit reversed and remanded the claim of back to the District Court for trial.
The Agreement permitted the Union to designate "memorial periods" for legitimate purposes not exceeding a total of ten days during the term of the Agreement. The Union did so on October 14, 2008 and again on October 28, 2008. The Union justified the memorial days based on the workers' desire to attend local hearings of the Department of Labor, Mine Safety and Health Administration. Jim Walter countered that the justification was pretextual, and that the memorial days constituted improper work stoppages as a protest in connection with disputes at one of the mines. Jim Walter sued and sought damages.
The Union argued that the Agreement provided a "settlement of disputes" mechanism designed to avoid resort to the courts. Jim Walter countered that the contract did not "contemplate or provide for . . . the arbitration of any claim or grievance asserted by the employer." Drawing on caselaw from the old 5th Circuit, which included the states now comprising the 11th Circuit and is therefore binding on the 11th Circuit, the Court adopted the rule that an employer is not bound to arbitrate a claim for damages flowing from an alleged breach of a collective bargaining agreement where “the contractual grievance machinery is wholly employee oriented." The Court noted similar rules adopted in the 1st, 3rd, 7th and 9th Circuits, while conceding that decisions from the 2nd, 3rd and 4th Circuits are arguably to the contrary. The District Court had relied on the 2nd Circuit's decision in ITT World Communications, Inc. v. Communications Workers of America, 422 F.2d 77 (2d Cir. 1970), but the Supreme Court subsequently called that decision into question in Rock Company v. International Brotherhood of Teamsters, U.S., 130 S. Ct. 2847, 2859, n. 8 (2010).
Here, the Court ruled that the grievance procedure at issue was "wholly employee oriented" and thus did not apply to Jim Walter's claim.
Wednesday, December 14, 2011
In Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C. the Supreme Court of the State of Montana asked the non-musical question: "Can an employer enforce a covenant not to compete when the employer ends the employment relationship?" Wrigg was a shareholder in JCCS, an accounting firm. The covenant at issue stated the following:
If this Agreement is terminated for any reason and Shareholder provides professional services in a business...in competition with JCCS the Shareholder agrees as follows:
To pay to JCCS an amount equal to one hundred (100%) of the gross fees billed by JCCS to a particular client over the twelve month period immediately preceding such termination, if the client was a client of JCCS within the twelve month period prior to Shareholder’s leaving JCCS’ employment...and the particular client is thereafter within one year of date of termination served by Shareholder’s partners, or any professional services organization employing the Shareholder.
In May 2009, JCCS's CEO notifed Wrigg that her contract would not be renewed when it came up in June. the letter reminded Wrigg of the covenant not to compete. Wrigg had difficulty finding work at another accounting firm, but the covenant made it difficult for her to find work. Eventually, she found employment with Rudd and Company (Rudd), but in order to do so she had to accept a significant cut in salary from $154,000 to $87,000 due to Rudd's concerns about the covenant. Wrigg sought a declaration regarding the enforceability of the covenant. The trial court ruled that the covenant was enforceable because it was reasonable as to time and place, was based on good consideration and afforded reaonable protection without imposing an unreasonable burden on the employer, the employee or the public.
The key issue for the Montana Supreme Court, not addressed by the District Court, was whether the covenant protected a legitimate business interest in a case such as this one. Montana generally disfavors covenants not to compete, and the Supreme Court noted that such disfavor is heightened when the employer chooses to end the relationship. Surveying law from other jurisdictions, the Montana Supreme Court ruled that "an employer normally lacks a legitimate business interest in a covenant when it chooses to end the employment relationship." The Court found immaterial the question of whether Ms. Wrigg's departure was triggered by a termination or simply the expiration of her contract. Either way, she did not leave on the terms usually contemplated in such covenants -- she did not voluntarily leave employment so that she could compete against JCCS.
Tuesday, December 13, 2011
David R. Camm has been twice tried and convicted for the murder of his wife, his son, and his daughter in September 2000. Twice those convictions have been overturned. During the second trial in 2006, Floyd County Prosecutor Keith Henderson, who had served as prosecutor at the second trial, sought a literary agent for a book he planned to write about the case. He found an agent and negotiated an agreement between the end of the trial and sentencing. Three years later, Henderson entered into a contract with Penguin to publish the book "Sacred Trust: Deadly Betrayal" (shouldn't that be a semi-colon?).
When Camm's conviction was reversed for the second time, Henderson wrote to his literary agent. Henderson emphasized his commitment to writing the book but insisted that it could not come out prior to the completion of a third trial. Eventually, the parties agreed to cancel the contract, and Henderson returned his advance. Camm, having learned of the book deal, petitioned for the appointment of a special prosecutor. Henderson issued a press release in which he noted that the publishing contract had been canceled but stressing his desire that "the unedited version of events needs to be told.”
At a hearing on the petition, Dean Emeritus Norman Lefstein of the Indiana University School of Law testified that Henderson's conduct created a conflict of interest under Indiana's Rules of Professional Conduct 1.7 and 1.8(d). The trial court rejected that argument, finding that there was no "clear and convincing evidence" of a conflict.
Camm filed an interlocutory appeal. The Indiana Court of Appeals reversed, finding that Henderson, in signing a contract to write a book about Camm "permanently compromised his ability to advocate on behalf of the people of the State of Indiana" in Camm's third trial. The full opinion can be found here: Camm v. State.
RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal
October 13, 2011 to December 12, 2011
|1||394||The Corporation as Social Contract
M. Kaptein, Johan Wempe,
Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM), Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)
|2||212||Codification and Flexibility in Private International Law
Symeon C. Symeonides,
Willamette University - College of Law
Ralph C. Nash,
George Washington University - Law School
|4||150||How to Opt into the Common European Sales Law? Brief Comments on the Commission’s Proposal for a Regulation
Martijn W. Hesselink,
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
|5||140||Bijzondere Overeenkomsten in Kort Bestek (Specific Contracts in a Nutshell)
Alain-Laurent Verbeke, Pieter Matthias Brulez, Nicolas Carette, Nele Hoekx,
University of Leuven, Faculty of Law, Department of Private Law, Unaffiliated Authors - affiliation not provided to SSRN
|6||126||Keynote Address: A Regulatory Framework for Managing Systemic Risk
Steven L. Schwarcz,
Duke University - School of Law
|7||125||A Theory of Redressive Justice
Andrew S. Gold,
DePaul University - College of Law
|8||124||Political Risk and Sovereign Debt Contracts
Stephen J. Choi, G. Mitu Gulati, Eric A. Posner,
New York University (NYU) - School of Law, Duke University - School of Law, University of Chicago - Law School
|9||113||Arbitral Power and the Limits of Contract: The New Trilogy
Alan Scott Rau,
University of Texas at Austin School of Law
|10||109||Endogenous Institutions: Law as a Coordinating Device
Gillian Hadfield, Barry R. Weingast,
USC Law School and Department of Economics, Stanford University - The Hoover Institution on War, Revolution and Peace
Greetings from Netanya Academic College, where I will enjoy this symposium tomorrow: Law of Contract or Laws of Contracts (here's the program: Download Symposium). Come join us if you are in Israel!
[Meredith R. Miller]
Monday, December 12, 2011
A recent letter to the NYT's consumer advocate, the "Haggler," (aka David Segal, who some of us law profs may not love so much anymore since his recent swipe at legal scholarship...) raised some interesting contracts issues. A reader complained that in early September he bought two round trip tickets from San Francisco to Palau for $510 on Korean Air for a trip in February. In the interim, he booked hotels, bought an underwater camera and made plans. Sixty-four days later, he received an email from Korean Air stating that the posted fare was "erroneous" and that his tickets were cancelled. They offered a refund for "travel-related" expenses, including the tickets, and a $200 Korean Air voucher. The reader stated that with the voucher, his new fare would be $360/ticket higher than the fare he had originally booked.
So, what's the price of an average airline ticket to Palau from S.F. in early February? I checked and it's anywhere from $1600 to $2500 for coach. But before you say unilateral mistake -- for didn't the reader check other airlines and know that the quoted rate was so much lower? - I say, Hold on. I realize this is not the first time an airline, or any company, has posted an erroneous fare. The Haggler discussed another incident involving British Airways that arose in 2009 where the company posted fares from U.S. to India for $40. In that case, British Airways covered travel-related costs and gave out $300 vouchers. (One of the issues in an exam I wrote several years ago was inspired by this situation).
But the British Airways case was different from the Korean Air case in several ways. The British Airways fare was so low that I think the purchasers "knew or should have known" about the mistake. The Korean Air price was also low, but given the deals to be found on the Internet and that the tickets were booked so far in advance, it is not evident that the purchaser "should have known" that the fare was a mistake. It's a great deal, but not clearly a mistake. Furthermore, the wrong price was listed for only a few minutes on the British Airways site, whereas the erroneous fare was posted on the Korean Air website for several days ("at least four"). Would it be "unconscionable" to force Korean Air to honor the fare? Maybe. Under Donovan v. RRL Corp., the standard of"unconscionability" for unilateral mistake purposes is lower than required when it's a standalone defense.
There's another issue that was raised in the Haggler column as a potential problem for the purchasers, the "contract of carriage." I checked on the Korean Air website and found the document - all 44 pages of it. It's accessible as a link on the bottom of the Korean Air website, of course. I took a brief glance at the document (necessarily brief b/c of the length). There were some references to Korean Air's ability to cancel for broad and vaguely defined reasons, but I would not have interpreted these as permitting cancellation for posting an erroneous fee - these seemed more appropriately interpreted as allowing cancellation for equipment failure or scheduling or weather complications.
I may have missed it, but I didn't see a provision allowing Korean Air to cancel for posting an erroneous fare after it has confirmed the reservation. To interpret the existing cancellation clauses to mean Korean Air can cancel at will would create mutuality issues. Korean Air would not want to make this argument for while such an interpretation would disadvantage the purchasers in this particular case, it could also mean that the contracts it enters with its other customers are void (and customers could cancel at the last minute).
Another provision I didn't see and just might have missed (although I doubt it) was a choice of law provision with respect to contract claims.
Sunday, December 11, 2011
Last week was a big week for contracts to "keep-your-mouth-shut". The L.A. times had this article about the recent exchange between "The Girl with the Dragon Tattoo" producer, Scott Rudin, and New Yorker film critic, David Denby. It seems that Denby broke his promise not to publish a review of an early screening of the movie. While these "agreements" are common in the film and publishing industry, they are much harder to enforce because of the Internet and the ability to post instantaneously.
On the flip side, more businesses that would otherwise not have considered such agreements are doing so. Paul Levy discusses one type of agreement that has been receiving some attention in the blogosphere, "medical confidentiality" agreements. Dave Hoffman blogged about it as well here. While I can understand, on a personal level, the desire to contain what one considers to be unfair negative reviews on an easily googleable website (not that it's ever happened to me, ahem...), these contracts raise a lot of troubling issues. And while it may seem like bad business for a doctor or dentist to have a patient sign a "zip-it" contract, if these practices are widely adopted, they become standard practice, leaving consumers with no real choice (kind of like the intrusive tracking policies adopted by so many websites which we can't really seem to prevent....).
Friday, December 9, 2011
As I write, my students at the DePaul University College of Law are taking my Business Organizations exam. Because I visited at other law schools in Fall 2010 and this Fall, I have not taught contracts in two years. I miss it, but I had a great deal of fun with the DePaul students. They were very accepting of me despite the fact that I now have very long hair (for a business law professor) and I banned all use of laptops and electronic devices during class. As a result, my class had a rather unorthodox look to it, as the picture at right illustrates.
Somehow, a tradition developed in my afternoon class that one of the students would draw a little picture on the attendance sheet. But when I picked up the attendance sheet after the last day of class, there was no picture. I immeidately protested. After class, a student, who would neither confirm nor deny that he had drawn the previous pictures (the outcome of forensic testing is pending), drew a snowman holding a sign. On the sign, he wrote the following:
At first, I thought Telman a kook,
He looks like Jesus and no Facebook
But despite my apprehension
I actually paid more attention.
That Telman's okay in my book.
Thursday, December 8, 2011
Jeremy Telman recently posted about this front page article in the NYT about oil and gas well leases, and the contractual traps for the unwary. This article mentions and explains some common terms in such leases.
There are additional contract issues that were raised by the article having to do with the bargaining process. There's a bargaining imbalance where you have one party with greater financial resources than the other or one with greater financial need. Another bargaining disparity involves knowledge - the oil and gas companies are much more familiar with these types of transactions and more knowledgeable about what could go wrong. It's their business. The landowners, on the other hand, presumably don't enter into these transactions often.
Unfortunately, contract law doesn't usually recognize these kinds of bargaining disparities, especially outside of the consumer context -- at least not to invalidate the contracts. A court might consider them in interpreting ambiguous contractual clauses. In addition, the landowners might be able to raise a lack of good faith argument that might affect the interpretation or construction of some of the contractual clauses or the parties' performance under the contract. For example, one lease cited in the article contained language that said that "preparation" to drill would allow the gas company to extend the duration of the lease. The landowners had negotiated what they considered a bad deal and planned to renegotiate it after it expired. A day before the expiration date, the gas company "parked a bulldozer nearby and started to survey an access road. A company official informed them that by moving equipment to the site, Chief Oil and Gas was preparing to drill and was therefore allowed to extend the lease indefinitely." I don't know about you, but that strikes me as performance that's not in good faith. I hope a judge would agree.
Something else that struck me in reading about these leases was how they highlight the overconfidence and optimism bias in these types of deals. Landowners are likely to focus on the potential upside of these deals - which can be pretty sky high. But things can and do go wrong in any type of transaction. The long term nature of these contracts makes it even more important to think carefully about the risks and not just the upside -- but a long time horizon also makes it harder to evaluate those risks.
And of course, as Jeremy mentioned in his post, there's the Peevyhouse issue. Even if you carefully draft a "clean up" or similar clause, a court may find performance to be economically wasteful and not enforce it. To safeguard against that, the parties might consider putting clean up costs in an escrow account and including a liquidated damages provision.
While this article was about gas well leases, I can see similar issues arising with other long term contracts, particularly those between landowners and energy companies. I predict we'll see a slew of innovative solutions around alternative energy (such as windfarms on private land) which is great - but again, it's important to take a large dose of caution with that optimism, especially if you are representing the "little guy/gal."
Wednesday, December 7, 2011
A New Baltimore woman is suing a car dealership, alleging employees there failed to tell her the sport utility vehicle she purchased once held a dead body.
Margarita Salais sued Suburban Ford of Sterling Heights, claiming the dealership did not disclose information about a 2006 Ford Expedition she bought in March, says the complaint filed in Oakland Circuit Court.
After Salais bought the car, she noticed a rotten odor. "They bought the car while it was still cold out in March," said Dani Liblang, Salais' lawyer. "The warmer it got, the worse the smell got."
Salais brought the car to the dealership, and someone informed her the smell came from a dead animal, Liblang said. But she wasn't satisfied.
Salais filed a claim with her insurer, State Farm, which hired a biohazard cleanup company to check the car, Liblang said. Clinton Township-based Elite Trauma Clean-up, Inc. determined the odor was of human origin, according to a letter from State Farm in the complaint.
The dealership did not respond to a call for comment Monday and has not yet filed a response to the Nov. 1 lawsuit. The suit was filed in Oakland County because Suburban Ford's offices are registered in Troy.
A man who answered the phone at Elite Trauma Clean-up on Monday said it was determined only that the car smelled of "rotten meat." The man, who wouldn't give his name, said he inspected the car and there was no way to find the origin of the smell without dismantling it.
The car had been stolen and used as a rental car, according to the complaint. The dealership didn't purchase the car until December 2010, so the same cold weather that hid the smell from Salais might have kept it hidden from the dealer, Liblang said.
Salais is suing the dealer and Chief Financial Federal Credit Union, which financed the vehicle, for $25,000 plus fees.
[Meredith R. Miller]
We have shown Sotheby’s the love before on this blog. Perhaps it was the financial difficulties attendant to Sotheby’s onerous SEC obligations that has led the corporation to try to save in other areas. Regardless of the cause, Sotheby’s and its unionized employees have been engaged in a protracted labor dispute. According to the New York Times, art handlers for Sothebys have been locked out since August.
Members of the union decided to up the pressure on the corporation recently by confronting a member of Sotheby’s board, Diana L. Taylor, a/k/a New York City Mayor Michael Bloomberg’s girlfriend. The result was not pretty. According to the New York Times, Ms. Taylor told Sotheby's president and chief executive that if acceded to any of the union's demands, "I will resign from the board."
Here’s the video.
Tuesday, December 6, 2011