Friday, May 13, 2011
The Center for Transnational Litigation and Commercial Law at NYU recently launched a new blog,dedicated to, well, litigation and commercial law around the globe. It's called Transnational Notes and is edited by Franco Ferrari, with assists from other NYU Law faculty and students. It also welcomes outside contributions.
The first month or so has already produced a number of interesting posts on such topics as the CISG, international arbitration, and cross-border mobility of European corporations. It bids fair to be a very popular and useful resource to keep up on new developments from one of the country's top commercial law centers.
FGS (via Clay Gillette)
Thursday, May 12, 2011
Our recent post on Horn v. United States elicited even more comments than our posts usually do -- i.e., more than none. It has also generated this thoughtful response from friend of the blog and attorney for the U.S. Army Corps of Engineers, Steven Feldman (pictured), which we present below.
The Horn decision failed to mention that a conflict exists within the Federal Circuit's lower tribunals on whether Federal Acquisition Regulation (FAR) requirements contract clause 52.216-21 Alt I, analyzed in Horn, is valid. The Armed Services Board of Contract Appeals has explicitly rejected the Court of Federal Claims approach. Disagreeing with Ralph Construction, Inc. v. United States, 4 Cl. Ct. 717 (1984), heavily relied on in Horn, the board said the following about this clause in Dynamic Science, Inc., ASBCA 29510, 85-1 BCA 17,710, 1984 WL 13911,
In Maya Transit Co., ASBCA No. 20186, 75-2 BCA 11,552, the contract contained the same provision. We characterized the contract as a "limited form" requirements type. The limitation of the requirement to that portion that the Government did not choose to meet from its own capabilities did not render the promise illusory particularly because the Government was precluded from expanding its capabilities during contract performance at the expense of the contractor.
Later Board decisions also disapprove the Court of Federal Claims' reasoning. See Operational Service Corp., ASBCA 37059, 93-3 BCA 26,190, 1993 WL 243152. Because the Federal Circuit has not resolved the conflict, and because individual Court of Federal Claims judges are not bound by other decisions from the same court, it is puzzling why Judge Smith failed to consider contrary interpretations of FAR 52.216-21, Alt I.
I also would like to bring to your attention another case from the Court of Federal Claims, Howell v. United States, 51 Fed. Cl. 516 (2002) that uses a Cardozo-like approach from the Restatement (Second) of Contracts to imply a missing consideration term in an Indefinite Delivery, Indefinite Quantity (ID,IQ) contract. As noted in Horn, Judge Smith considered the alternative that the contract could have been an ID, IQ contract rather than a requirements contract. The court in Horn did not cite the Howell decision, which is at odds with the Horn analysis.
Here is what I have written about the Howell case (Tennessee Practice Services: Contract Law and Practice, Section 5:10):
In Howell v. U.S., 51 Fed. Cl. 516 (2002), the United States Court of Federal Claims analyzed a self-described IQ contract in a federal government contract that did not contain the requisite minimum quantity, although it did reflect the parties' established intent that there would be some minimum quantity. The court noted that the inclusion of standard government contract clauses from the Federal Acquisition Regulation required the agency to purchase some minimum quantity of supplies or services, although the clauses were not filled in with the specific amounts. The court further noted that the parties' conduct after contract execution reflected their mutual belief that a binding arrangement existed. Accordingly, the court relied on the Restatement (Second) of Contracts, § 204, which permits a court to supply a missing term in a reasonable way where the record otherwise establishes a sufficiently definite and binding arrangement. The Howell court employed this theory to incorporate a minimum quantity term, which was more than a nominal amount, so that there would be mutuality of obligation.
The Howell decision reflects the courts' general dissatisfaction with technical consideration objections where the circumstances show the parties' intent to be bound. It bears emphasis, however, that the Howell court found an enforceable contract only because the record showed that these particular parties clearly intended to limit the buyer's freedom of choice. If the facts were that the buyer did have total discretion on whether it could purchase from the seller, then the Court of Federal Claims undoubtedly would have deemed the promises illusory for lack of consideration.
As Judge Smith ruled in Horn, both parties entered the arrangement with the intent to form a contract. The applicable clauses in Horn did limit the buyer's freedom of choice because the government promised to use Ms. Horn for services the government could not fulfill in-house. As in Howell, the record in Horn reflected a basis for determining a fair minimum obligation. Because the contract in Horn did not reserve the agency's total discretion to purchase all its needs from any other dental hygienists, Judge Smith should not have found the promise illusory for lack of consideration.
Lastly, I disagree with your final thought that government lawyers either do not understand the FAR clauses or are willfully exploiting them "to take unfair advantage of their contracting partners." It was very unlikely that any government lawyers were involved in the award of this contract because the low dollar value ($49,920) is far below the legal review thresholds in most government agencies, which is typically $500,000. Further, I do not see any evidence of government overreaching in Horn and Judge Smith did not find any, either. As he commented, "[E]ven the government officials with whom she dealt did not seem to understand the document's lack of enforceability." Thus, I see some inadvertent oversights by both contracting parties that could have been resolved upfront with more attention to consideration issues.
[Posted, on behalf of Steven Feldman, by JT]
Contracts Prof and friend of the blog, George Washington University Law School Professor Steven Schooner (pictured) has a new article up on SSRN that is making headlines in the nearly mainstream media. Over at the Huffington Post, David Isenberg reports on Professor Schooner's new scholarship, co-authored with GWU Law student Collin D. Swan, called "Dead Contractors: The Un-Examined Effect of Surrogates on the Public's Casualty Sensitivity." Here is the abstract from SSRN:
Once the nation commits to engage in heavy, sustained military action abroad, particularly including the deployment of ground forces, political support is scrupulously observed and dissected. One of the most graphic factors influencing that support is the number of military soldiers who have made the ultimate sacrifice on the nation’s behalf. In the modern era, most studies suggest that the public considers the potential and actual casualties in U.S. wars to be an important factor, and an inverse relationship exists between the number of military deaths and public support. Economists have dubbed this the "casualty sensitivity" effect.
This article asserts that this stark and monolithic metric requires re-examination in light of a little-known phenomenon: on the modern battlefield, contractor personnel are dying at rates similar to - and at times in excess of - soldiers. The increased risk to contractors’ health and well-being logically follows the expanded role of contractors in modern governance and defense. For the most part, this "substitution" has taken place outside of the cognizance of the public and, potentially, Congress. This article explains the phenomenon, identifies some of the challenges and complexities associated with quantifying and qualifying the real price of combat in a modern outsourced military, and encourages greater transparency so that the public can more meaningfully participate in "the great American experiment."
The article is forthcoming the Journal of National Security Law & Policy. As Isenberg notes, the article and its subject matter deserve our attention.
Wednesday, May 11, 2011
Yesterday, the New York Times published a lengthy story about contracts between attorney and lobbyist Kevin Glasheen and his clients, exonerated prisoners who hired Mr. Glasheen to to sue municipalities and the state of Texas for wrongful imprisonment in return for a 25% contingency fee. Instead of filing suit, Mr. Glasheen lobbied the legislature to increase the payout to the wrongfully imprisoned. He was successful. Instead of being statutorily entitled to $50,000/year, the exonerated are now entitled to $80,000/year.
According to the Times, on that basis, Mr. Glasheen sent Steven C. Phillips, who had spent 25 years behind bars, a bill for over $1 million. A hefty portion of the fee would go to the co-founder and chief counsel of the Texas Innocence Project, apparently as a referral fee. Mr. Phillips sued, presumably seeking a declaration that he has no obligation to pay. Another exonerated prisoner joined the suit. In addition, the state bar association initiated a disciplinary action, as described here in the Lubbock Avalanch-Journal. According to the Times, the bar association characterizes the fees as prohibited and unconscionable. State legislation is in the works to prevent the collection of the such fees going forward.
Mr. Glasheen characterizes the controversy as a typical fee dispute and prognosticates dismissal. "Meanwhile, I've got drug behind the pickup truck." I'm not fluent in Texan, but that sounds to me like a reference to the horrific murder of James Byrd, Jr. Wow.
The contracts issue will depend on the actual contractual language, of course, which we do not have. Was Glasheen to be compensated for filing a law suit on his clients' behalf (which he did not do) or for lobbying, (which he did)?
Moreover, I don't get the math. As the article points out, the exonerated get their annual payments until they die or are convicted of another felony. But even in the best case, Mr. Glasheen should only be entitled to 25% of the difference between $80,000/year and $50,000/year multiplied by 25. That comes to $187,500, which would then have to be discounted to present value. In short, nothing like $1 million.
Mr. Glasheen claims he has already collected $5 million in fees from other exonerated prisoners. The Innocence Project also rises to Mr. Glasheen's defense, arguing in essence that they partnered with him because he is the best at getting money for exonerated prisoners, and you have to pay to get that kind of representation. Why doesn't Steven Phillips want to pay? According to the Times, Glasheen has a simple explanation: Phillips is a sociopath conditioned by the prison system to lie to survive.
He's the best alright.
Martin Hogg, Review of Brian Coote, CONTRACT AS ASSUMPTION Oxford: Hart Publishing (www.hartpub.co.uk), 2010, in 15 Edinburgh L. Rev. 315 (2011)
Mark Godfrey, Review of NON-CONTRACTUAL LIABILITY ARISING OUT OF DAMAGE CAUSED TO ANOTHER, prepared by Christian von Bar Oxford: Oxford University Press (www.oup.com), Principles of European Law, Study Group on a European Civil Code, 2009, in 15 Edinburgh L. Rev. 306 (2011)
Warren Swain, Review of Catharine MacMillan, MISTAKES IN CONTRACT LAW Oxford: Hart Publishing (www.hartpub.co.uk), 2010, in 15 Edinburgh L. Rev. 318 (2011)
Kenneth Veitch, Social Solidarity and the Power of Contract, 38 J. L. & Society 189 (2011)
Plus: Here are the contents of Volume 7, Issue No. 2 of the European Review of Contract Law:
Fernando Gomez, Juan Jose Ganuza
Martijn W. Hesselink
Jacobien W. Rutgers
Alex Geert Castermans
Tuesday, May 10, 2011
In Horn v. United States, the plaintiff is a dental hygienist who claims that the U.S. Federal Bureau of Prisons (the BoP) breached a contract for the provision of dental hygiene services that it entered into in 2005 with her. According to the complaint, Horn was to perform such services at a federal prison in Marion, Illinois. Horn alleges that the BoP breached the contract by failing to utilize her in accordance with the contract's estimated quantity schedule and that it was negligent in estimating its needs when it issued the contract solicitation. She sued for lost wages. The government moved for summary judgment, arguing that it was not bound by its estimate of services needed, and on May 3, 2011, the Court of Federal Claims granted the government's motion to dismiss.
The contract provided that Horn would provide up to a maximum of 1,560 one-hour dental hygiene sessions over the term of the contract. Horn was thus entitled to a fixed price of $49.920. However, the contract was specifically designated a requirements contract and contained the following provision:
(a) This is a requirements contract for the supplies or services specified, and effective for the period stated, in the Schedule. The quantities of supplies or services specified in the Schedule are estimates only and are not purchased by this contract. Except as this contract may otherwise provide, if the Government’s requirements do not result in orders in the quantities described as “estimated” or “maximum” in the Schedule, that fact shall not constitute the basis for an equitable price adjustment.
The contract further specified that the purpose of the contract's schedule was simply to estimate the BoP's requirements in excess of the services it furnished itself with its own in-house hygienist.
One month after Horn was awarded the contract, the BoP informed her that it was hiring an in-house hygienist and would not longer need her services. She had provided only 130 sessions. While Horn regarded this as a breach of contract, the BoP believed otherwise since it was not bound by the estimates provided in the contract. Horn pointed to deposition testimony and argued that the BoP was in the process of hiring an in-house hygienist before it awarded the contract to her. She argued that the BoP had breached a duty of good faith in contracting by failing to provide a reasonable estimate of the services for which it was contracting.
The Court first determined that, despite the unambiguous boilerplate provision q uoted above, the contract in question was not a requirements contract because a requirements contract demands exclusivity and here the BoP committed itself only to use Horn for dental hygiene services beyond those that it could furnish itself. According to the Court, the parties intended to form a requirements contract but failed to do so.
The Court next considered whether the contract was enforceable as an indefinite quantities contract. However, because the contract failed to specify a minimum quantity of services to be provided, it could not qualify as an indefinite quantities contract. The Court thus concluded that the contract, being neither a requirements contract nor an indefinite quantities contract, was unenforceable for lack of mutuality and consideration. The good news? Horn gets to keep what she was paid for the 130 sessions she did perform.
The Court then proceeds to lament the governments practice of continuing to use a standard form that appears to innocent third parties to be a contract when it is not. According to the Court, the government has been on notice since 1929 that this kind of form contract is unenforceable.
Oh, come on!! Do justice, sir, do justice! Cardozo would have no difficulty implying any terms necessary to render the contract enforceable. It makes no sense to permit the government to use a form contract that will mislead people into thinking they are due a set wage -- the contract specified $49,920 -- and let it escape paying them that wage on the basis of legal doctrine so complex that the government's lawyers either cannot grasp it or are willfully exploiting it to take unfair advantage of their contracting partners.
Monday, May 9, 2011
South Park creators, Trey Parker and Matt Stone (pictured at left), have taken time out from their hit Broadway musical to lampoon two more mainstream religions: contracts doctrine and Apple.
Mashable provides a nice excerpt from the April 27, 2011 episode of South Park, which is a send-up of both Apple's recently disclosed consumer surveillance activities and the terms and conditions that may or may not be included when you agree to a weekly update of your version of iTunes. Most of the episode is in poor taste, even for South Park, but the over-the-top scatological humor may be justified as a means of demonstrating the absurdity of binding consumers on the basis of their having clicked "I agree."
Still, if Parker and Stone could have exercised a little unwonted self-control, they would have done us contracts profs a big favor, as we could have covered e-contracts and contracts of adhesion simply by hitting the play button on our DVD players.