ContractsProf Blog

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

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Friday, June 24, 2011

Summer Slow Down

Readers of the blog can expect our posts to be somewhat intermittent for the next month or so.  Our regular contributors are less regular during the summers, as the academic calendar takes us away from teaching and therefore often away from thinking about blogworthy contracts issues.  

KingsCollegeChapelWest
In addition, I will be teaching in he Valparaiso University School of Law's Summer Program in Cambridge, so you may detect some unusual flavours in my posts over the next two fortnights.

[JT]

June 24, 2011 in About this Blog | Permalink | Comments (0) | TrackBack (0)

Virginia Supreme Court on Tortious Interference (or Why Academia Is Where You Want to Be)

Aesculap-serpentine Earlier this month, the Virginia Supreme Court decided Lewis-Gale Medical Center, LLC v. Allredge.  Karen Allredge was an emergency physician employed by Southwest Emergency Physicians (SWEP) to work in Lewis-Gale's emergency room.  She worked there from 2005 until she was terminate in 2008.  She sued, alleging that Lewis-Gale tortiously interfered with her contract with SWEP.  The facts, as recounted by the Virginia Supreme Court are as follows:

Dr. Allredge attended a dinner in the company of some of Lewis-Gale's nurses.  The nurses griped about their work conditions and mentioned a letter they had drafted addressed to the hospital administration.  A few weeks later, the nurses showed the letter to Dr. Allredge, but she did not sign it.  After the chief nurse received the letter, she was apparently displeased.  She also learned that Dr. Allredge was associating with the authors of the letter and informed the hospital's management of her view that Dr. Allredge was involving herself in the hospital's personnel matters.  Armed with this information (and nothing else that the Court found worthy of mention), Lewis-Gale's COO denounced Dr. Allredge as an "organizational terrorist" to SWEP's Board of Directors.  Not long thereafter, SWEP terminated Dr. Allredge.  

Dr. Allredge sued, alleging that Lewis-Gale had made improper threats to terminate its agreement with SWEP and thus forced SWEP to terminate her.   Lewis-Gale moved to dismiss, arguing among other things that Dr. Allredge was an employee-at-will and thus could be terminate on any grounds.  In addition, Lewis-Gale's contract with SWEP could also be terminated without cause.  The trial court rejected these arguments as irrelevant to the question of whether Lewis-Gale had used improper methods and thus tortiously interfered with Dr. Allredge's contract with SWEP.  The case proceeded to trial, and a jury awarded Dr. Allredge $900,000 in compensatory damages.

Virginia's Supreme Court determined that Dr. Allredge was indeed an at-will employee and thus bore the burden of establishing that Lewis-Gale had used improper tactics in its dealings with SWEP.  The Supreme Court was not persuaded that Dr. Allredge had made any showing of improper conduct.  The key language is as follows:

Dr. Alldredge did not allege or present any evidence tending to prove that Lewis-Gale’s actions were “illegal or independently tortious.” Nor was there any fiduciary duty owed to Dr. Alldredge that Lewis-Gale could have violated. 

Dr. Alldredge did not assert that Lewis-Gale’s motivation in seeking to have SWEP terminate her employment involved a desire to gain some competitive advantage, violated an established standard of the dealings between hospitals and their independent medical contractors, or involved unethical conduct in the form of sharp dealing, overreaching, or unfair competition. 

Rather, Dr. Alldredge maintains that Lewis-Gale’s actions were improper in that it used intimidation, duress, and undue influence based upon Lewis-Gale’s ability to bring “financial ruin” on SWEP by canceling its contract to provide emergency room services to Lewis-Gale, which was SWEP’s principal source of revenue. However, while the evidence supported the inference that SWEP was concerned about the continuation of its contract with Lewis-Gale, the at-will contract between Lewis-Gale and SWEP allowed termination of the contract upon due notice and without cause at any time. This status required that SWEP be continually sensitive to the possibility of termination for any reason or no reason, regardless of any specific action or comment made by Lewis-Gale officers or personnel. Thus, the inherent intimidation or duress experienced as a result of the very nature of this at-will contract cannot rise to the level of improper methods necessary to establish a cause of action for tortious interference with contract expectancy. 

In short, although Lewis-Gale's administrators' conduct was "harsh " and "unsavory," it was not actionable.  The Supreme Court therefore reversed the trial court's judgment affirming the jury verdict and entered a final verdict in favor of Lewis-Gale.  

No doubt, there is more here than meets the eye, but based on this opinion, it seems that Dr. Allredge could have been fired for doing nothing other than listening sympathetically to the nurses' complaints about their working conditions.  

[JT]

June 24, 2011 in Recent Cases | Permalink | Comments (1) | TrackBack (0)

Thursday, June 23, 2011

Wisconsin Supreme Court on the Stand-Alone Claim of Breach of the Duty of Good Faith

In an issue of first impression for the Wisconsin Supreme Court, Wanda Brethorst sued Allstate Insurance for first party bad faith without a breach of contract claim reports the State Bar of Wisconsin.

Wisconsin_welcome_sign

In December 2006  Brethorst was injured in a collision caused by an uninsured motorist driving under the influence.  Brethorst's Allstate policy covered injury by an uninsured motorist as well as $5,000 in medical expenses.  However, when the claim was submitted for the nearly $10,000 in medical bills Brethorst had incurred due to the uninsured motorist, Allstate offered a settlement well below $10,000. Brethorst filed a suit against Allstate for first party bad faith.  Allstate asserted that the bad faith claim should be stayed until all other claims are resolved and filed a motion to bifurcate the breach of contract claim from the bad faith claim.  In response to this, Brethorst alleged that there was nothing to bifurcate because she had only asserted one claim, bad faith. The circuit court denied the motion, stating that bifurcation is not necessary when the parties elect to bring only bad faith claims.

The Supreme Court of Wisconsin was charged with deciding whether a party must prove breach of contract prior to moving forward with a bad faith claim in a suit against an insurer even if that party is not claiming breach of contract.  The opinion can be found here.  The issue is important because a plaintiff can get extensive discovery on a bad faith claim that might not be available on a straight breach of contract claim.

The Court set forth its conclusions as follows:

(A) Some breach of contract is a fundamental prerequisite for a first-party bad faith claim against an insurer.

(B) Breach of contract and first-party bad faith are separate claims.

(C) An insured may file a bad faith claim without also filing a breach of contract claim. The policies articulated in Dahmen v. American Family Mutual Insurance Co., 2001 WI App 198, 247 Wis. 2d 541, 635 N.W.2d 1, which require bifurcation when both bad faith and breach of contract claims are brought together, are only partially applicable when a party has chosen to plead only a bad faith claim.

(D) The insured may not proceed with discovery on a first party bad faith claim until she has:

(1) pleaded a breach of contract by the insurer as part of a separate bad faith claim, and

(2) satisfied the court that she has established such a breach or will be able to prove such a breach in the future.

(E) In this case, Brethorst has supplied the insurer and the court with sufficient evidence of a breach of contract by the insurer that she may proceed with discovery on her bad faith claim. On the facts before us, Brethorst has shown uncontradicted evidence that she incurred $9,789 in medical expense for treatment from injuries she suffered in an automobile accident caused by an uninsured motorist. The insurer's failure to pay all these expenses without submitting any reasonable basis in law or fact (as opposed to theory) for its failure to do so justifies Brethorst going forward with discovery on her bad faith claim.

In reaching this conclusion the Court began by looking to the history of bad faith claims in Wisconsin which have long recognized that bad faith is a tort theory separate and distinct from breach of contract. In analyzing this issue of first impression, the Court looked to the question of whether a court can allow discovery under a bad faith claim without any showing by the plaintiff that the insurance company wrongfully denied benefits due under the contract.  

The Court concluded that breach by an insurer is a fundamental prerequisite for first-party bad faith claims of this type. Therefore, an insured person must plead that she was entitled to payment under the contract and there was no reasonable basis for not honoring the contract to allege the separate claim of bad faith.

As applied to the facts of the case, the Court determined that Brethorst had pleaded breach of contract, and the Circuit Court had not abused its discretion in determining the claims did not need to be bifurcated. 

Two Justices concurred, stating that they would simply have followed the reasoning of the Circuit Court.  Allstate sought to bifurcate the case, but there is only one claim, so there is nothing to bifurcate.  The concurring Justices criticized the majority for departing from established case law and for needlessly complicating the pleading standards for the tort of bad faith.

[JT & Katherine Freeman]

June 23, 2011 in Recent Cases | Permalink | Comments (2) | TrackBack (1)

Wednesday, June 22, 2011

New York City Police on Consent

Livery
Today's New York Times has an interesting story about passengers of livery car services who have been pulled out of the cars and searched by police.  According to the Times, the practice is a product of the Taxi/Livery Robbery Inspection Program.  That program permits drivers to join the program and thus to allow police to "inspect their car at anytime in order to ensure the driver’s safety."  Drivers indicate their participation in the program by affixing a decal to their rear and side windows.

When passengers asked why they were being instructed to step out of the back seat of their livery or cab and be searched, the police informed them, according to the Times, that they had consented to be searched when they got into a car displaying decals indicating that the driver was part of the Inspection Program.  The Times story focuses on the question of whether the police were acting within the law in searching passengers -- and also searching their bags -- when the purpose of the law seems to be driver safety.  If the latter is the purpose, the police might take the more direct route of inquiring whether the driver felt threatened by the passenger and then doing whatever was necessary to neutralize the threat.  One such passenger was informed that he was searched because he fit the description of a person wanted in connection with a series of robberies.  The man in question, who is a 6'5", 280-pound African American, may well fit the description of a number of suspects, but if that is all the police have to go on, we are getting close to pulling people over for taking a cab ride while black.  

In any case, as a contracts blog, we are most concerned with the notion of consent deployed by the police in this context.  The decals displayed on the cabs that join the inspection program signal only that the drivers have consented to having their cars searched by police.  The decals do not provide notice to passengers that they have consented to anything.  We have reported before on restaurants that try to bind all customers to arbitration by posting a sign to that effect on their doors.  The enforceability of such notices is subject question.  What would it take to put passengers sufficiently on notice in this case?  I would think the decals should have language something like this:

WARNING: BY ENTERING THIS CAR, YOU KNOWINGLY FORFEIT YOUR RIGHTS UNDER FEDERAL AND STATE LAW TO BE FREE FROM UNREASONABLE SEARCHES

Ian Ayres has suggested that consumers sport the LiabiliT, which reads: 

Any disclaimer of liability notwithstanding, management, by serving me, accepts legal responsibility for any losses to my person or property that result from my use of this establishment. 

One could design a similar T-shirt for cab passengers:

WARNING: NOTWITHSTANDING ANY AGREEMENT BETWEEN THE DRIVER OF THIS CAR AND ANY LAW ENFORCEMENT AGENCY, FEDERAL AND STATE LAWS STILL PROTECT MY RIGHT TO BE FREE FROM UNREASONABLE SEARCHES

[JT]

June 22, 2011 in Commentary, In the News | Permalink | Comments (0) | TrackBack (0)

Must See TV: Hot Coffee Premieres on HBO on Monday 6/27

Trust me when I tell you that it is very difficult to get friends, family, students and acquaintances engaged in a meaningful discussion of "mandatory arbitration."  Trust me further that there is now a wonderful documentary that manages to make this and other civil justice topics interesting and engaging for everyone.  (Indeed, my viewing companion, proudly not a lawyer, turned to me at one point in the movie and whispered "didn't you write a paper about something like that?")

Last night, I was fortunate enough to invite myself via twitter get invited to a screening of Hot Coffee at HBO.  Hot Coffee is a must see documentary about the way that business interests, "tort reform," judicial elections and "mandatory arbitration" have systematically worked in concert to deny plaintiffs access to civil justice.  It is the work of the energetic and passionate director Susan Saladoff who spent 25 years as a trial lawyer before becoming a filmmaker.  The documentary is well-conceived and thought provoking.  It takes some very complex topics and organizes them and presents them through compelling personal stories.  

The title "Hot Coffee" refers to the iconic case that is ubiquitous in pop culture as a symbol of the frivolous lawsuit: the woman who sued McDonalds because she was served a coffee that was too hot.  The film starts very strong by retelling this story through interviews with the plaintiff's family.  This challenged me (and from the gasps in the theater, I suspect everyone else viewing the film) to see the case in an entirely different light.  With that strong start, the viewer is engaged and ready to hear about damage caps, judicial elections and mandatory arbitration in consumer and employment contracts.

Here's the trailer:

After the film, there was a Q&A session moderated by Jeffrey Toobin.  He appeared to receive the movie very favorably, noting that the fine print in a cell phone contract is not one of the sexy topics that CNN hires him to discuss on the evening news segments (which reminded me of this Dahlia Lithwick piece in Slate, which seemed to begrudgingly report on AT&T v Concepcion).  

Toobin did mention one frustration, which could be leveled as a critique of the film -- that it only presents one point of view.  Notably absent and/or unwilling to participate were voices from the "other side," i.e., those in favor of damage caps and mandatory arbitration.  Saladoff's response, I thought, hit the nail on the head: in so many words, she said that she wanted to tell this side of the story, and the voices in favor of these reforms already had a well-financed platform (and, indeed, overtaken the public consciousness).  Perhaps I am partial to her response because her film paints a picture in line with my world view, and I am just so thrilled to finally see an engaging and accessible presentation explaining the systematic erosion of civil justice at the behest of corporate interests.

Our students come to law school generally ignorant of or misinformed about tort reform, mandatory arbitration and many of the other topics presented in this film.  However, they do at least know of handful of cases -- OJ, Bush v Gore and, of course, the hot coffee case.  I have no doubt that this film will be used in the classroom.  It is masterfully done and captivates those uninitiated with these topics as well as those who have studied them (and even includes a few clips of interviews with George Lakoff).  Please tune in to HBO on Monday night.

[Meredith R. Miller]

June 22, 2011 in Current Affairs, Famous Cases, Film, Film Clips, Law Schools, Miscellaneous, Teaching, Television | Permalink | Comments (0) | TrackBack (0)

New in Print

Tuesday, June 21, 2011

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  

April 21, 2011 to June 20, 2011

RankDownloadsPaper Title
1 793 Economic Analysis of Claims in Support of the ‘Durbin Amendment’ to Regulate Debit Card Interchange Fees 
David S. EvansHoward H. ChangMargaret Morgan Weichert
2 377 What Lessons for Economic Development Can We Draw from the Champagne Fairs? 
Jeremy EdwardsSheilagh Ogilvie
3 284 FCPA Sanctions: Too Big to Debar? 
Drury D. StevensonNicholas J. Wagoner
4 199 Res Judicata in International Arbitral Awards 
Luca G. Radicati di Brozolo
5 179 The Morality of Jingle Mail: Moral Myths about Strategic Default 
Curtis BridgemanFlorida State Univ. Submitter
6 140 The Myth of Efficient Breach: New Defenses of the Expectation Interest 
Daniel MarkovitsAlan Schwartz
7 126 Dead Contractors: The Un-Examined Effect of Surrogates on the Public’s Casualty Sensitivity 
Steven L. SchoonerCollin D. Swan,
8 91 Fixing Unfair Contracts 
Omri Ben-Shahar
9 83 Techniques to Teach Substance and Skill in Contract Drafting: In-Office Meetings and Analytical Memos 
Lyman Johnson
10 79 The Impact of Human Rights Law on Contract Law in Europe 
Hugh Collins

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

April 21, 2011 to June 20, 2011

RankDownloadsPaper Title
1 140 The Myth of Efficient Breach: New Defenses of the Expectation Interest 
Daniel MarkovitsAlan Schwartz
2 138 Property Law as the Infrastructure of Democracy 
Joseph William Singer
3 91 Fixing Unfair Contracts 
Omri Ben-Shahar
4 65 The Promise Principle and Contract Interpretation 
Juliet P. Kostritsky
5 57 The Sacred and the Profane Contracts Machine: The Complex Morality of Contract Law in Action 
Jean Braucher
6 56 Off Contract Harms: The Real Effect of Liberal Rescission Rights on Contract Price 
Michael Aikins
7 50 The Public Speaks: An Empirical Study of Legal Communication 
Christopher R. Trudeau
8 50 Too Big to Exist 
Barak OrbachGrace E. Campbell
9 46 Rethinking the Laws of Good Faith Purchase 
Alan SchwartzRobert E. Scott
10 34 Cross Purposes & Unintended Consequences - Karl Llewellyn, Legal Realism and the Limits of Social Transformation 
Danielle Kie Hart

[JT]

June 21, 2011 in Recent Scholarship | Permalink | TrackBack (0)

Monday, June 20, 2011

Contracts Law and the Ethicist

The New York Times Magazine's "The Ethicist" column is occasionally the source of blog fodder.  This week, both entires in the column raise potential contracts issue.  The Times' Ethicist is now Ariel Kaminer, and she does a fine job of not confusing legal and ethical rules.  Still, in these two cases, it is interesting to ponder whether law and ethics do and should correspond.

The first letter to which Kaminer responds is from a patient who is required by a physician to wait 30 minutes after receiving an injection before leaving the clinic.  This requirement is the product of new guidelines, apparently related to concerns over a potentially fatal side-effect of the injection that necessitates a ready dose of epinephrine.  The letter-writer thinks the doctor is being coercive by enforcing the new guidelines.  The situation is basically "stay here for 30 minutes or you cannot receive this injection that you need."  Kaminer has no difficulty determining that it is not unethical for the doctor to enforce the guidelines, as the doctor is also bound by the same guideline whether or not he sees the need for it.  

Times The law would undoubtedly concur in this case, as being required to wait in a clinic for 30 minutes after receiving a treatment for a chronic medical condition does not rise to the legally cognizable level of coercion.  But it is interesting to tweak the hypo a bit.  One obvious alternative comes to mind: Imagine a doctor who is required by her legislature to inform her patients of the psychological consequences to the mother of abortion.  Imagine that the doctor, having read all the relevant studies, does not believe that there are demonstrable psychological consequences or that those consequences are far less significant than the psychological harms associated with, for example, becoming a mother at age 15.  Assuming a paramount ethical duty for a doctor to give sound medical advice, it seems like the tension between ethics and law is quite clear in this case.  It would be interesting to imagine actual situations that doctors could face where the relationship between legal and ethical requirements would be more ambiguous.

The second letter is from a tenant/roommate who wonders whether s/he can withhold rent after being informed that her landlord/roommate has decided to default on the mortgage.  Kaminer says the answer is probably no.  The landlord's decision to breach his agreement with the lender has no bearing on the separate agreement between landlord and tenant.  So far, so good on the contracts side as well.  Kaminer then explores the possibility that the purpose of the rent was to defray the costs of the mortgage, and if that were the sole purpose of the rent, the tenant might be off the hook as an ethical matter.  However, Kaminer concludes that there are likely other costs associated with the residence to which the landlord remains subject and hence the ethical duty to pay rent continues.

Here again, the contracts analysis and the ethical analysis seem to correspond.  The agreement in question is described an "informal."  If there were some express, formal arrangement linking the payment or rent to the mortgage obligation, one might have an argument that the purpose of the agreement had been frustrated by the landlord's decision to stop making mortgage payments.  But given that the arrangement was open-ended, the landlord would have equal grounds to evict the tenant.  The landlord might have reasoned thus: I took your rent to help defray the costs of the mortgage.  Now I have no mortgage, and I just prefer to have my space, so get out.  

Of course, evictions do not occur at the snap of the fingers.  However, from a legal perspective, if the consideration was tied to the existence of a mortgage, and the mortgage ceased to exist, it is hard to see why the result should be a free room rather than an empty one.

[JT]

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