July 13, 2011
A Contractual Protest: A Thread to A Can of Worms.
It is rare that a day passes without some headline or other about the affairs of the major players in the fields of information technology (IT), Internet Business (IB) or Social Networking (SN). The cast of players - a revolving door of usual suspects – includes Microsoft, Apple, Google, Facebook etc. The relative harmony that once derived from their clearly differentiated activities – e.g. personal computing, online searching or social networking – is now a thing of the past. Brittle harmony has given way to - shades of the 1990s - blow by blow accounts of smear tactics, strategic protests, general blogfare, and of course, court actions . Why? Because the players are slugging it out in the mush pit which the converging IT/IB/SN arena has become – all for a (bigger) piece of the pie.
The average observer might be daunted by the copious data and convoluted interrelationships typically involved. Close contemplation of contractual details, particularly those undergirding the relentless strategizing, negotiating, and (guarded) cooperation of such parties, is clearly something the average observer does not relish. Yet the nitty gritty of who is doing what to whom, and where, to get to the bottom of what is really going on in a dispute may not be that hard to find. Help is found in unexpected places – even in very contracts that are dauntingly associated with such transactions. Or more precisely, even from the angst created by such contracts.
There is a struggle, you see, between an industry giant, Microsoft, who is determined not to be past its prime, and an equally determined giant slayer, Google, a relative upstart that is notoriously hungry for power. Microsoft is determined to reinvent itself. It is trying to build on its dominant market position to expand beyond the dated server based computing approach. The aim is to become the leader of the emerging ‘cloud based enterprise solution revolution’. All very well. The thing is, however, that Google is eagerly developing competing products in the same field. And Google is striving, mightily, to market those products. So, here is the rub – Google has been having a hard time persuading potential customers, a significant percentage of whom are loyal customers of Microsoft’s email and other office offerings, to make the switch.
This is why Google cried foul, and loudly, when the U.S. govt., through the agency of the Department of the Interior (DoI), issued a request for quotations – an invitation for offers as we know – but allegedly indicated that it would not entertain offers from Google. The DoI subsequently awarded the contract to Microsoft.
Google objected to not being invited to the party by filing a bid protest in the U.S. Court of Federal Claims. In the filing, Google asserted infringements of the Competition in Contracting Act’s policy requirements which mandated that “technology vendor neutrality as far feasibly possible” must be maintained. Google has asked the court to enjoin the DoI from awarding the contract to Microsoft until competitive bidding has taken place.
This dispute between the parties has been anything but straightforward. The DoI has asserted that Google was ineligible for consideration because Google’s products were not certified under the Federal Information Security Management Act (FISMA) at the time. But here’s the thing - it now seems that Google had this certification – or at least for a related product, while Microsoft at the time of the award of the contract, allegedly did not. Microsoft reportedly received the certification after the award, but this disparity is a fierce point of contention.
Google clearly understands that it has a huge task to unseat the Microsoft behemoth. Its hopes of entering into what must be an accelerating volume of contracts required for market viability, if not market dominance, depends on a spreading domino effect. An increasing number of smaller users will need to take their cue (to contractually adopt Google products) from the bigger fish who adopt Google’s applications.
The bigger war for market dominance is not limited to Microsoft and Google, of course. When this slender threat of a bid protest is traced, it leads to a whole other can of worms: cut throat rivalry not only for cloud computing, but voice over IP, mobile tasking, and mobile payment also (to name a few). But that can of worms is for another day……
Dances with Ambiguity
It's hard to believe that Kevin Costner never has appeared on this esteeemed blog...until now. The contract that brings him here was between Costner and an artist involving the sale of...you can't make this stuff up...bison sculpture replicas. Several years ago, Costner planned to build a luxury resort in South Dakota, the entrance to which would feature a field of dreams bronze bison being hunted by Native Americans (inspired, of course, by his experiences in the film Dances with Wolves). Although the resort,The Dunbar, never materialized, the sculptures were completed and later featured by Costner as a standalone tourist site aptly named Tatanka.
In the original agreement between Costner and the artist, Peggy Detmers, Costner was to pay Detmers $250,000 for the sculptures plus a share of the proceeds from future sales of sculpture replicas to wealthy resort visitors. Detmers claims that she charged Costner far less than the sculptures' actual value, which she estimated to be $4 to $6 million, in anticipation of a significant number of replica sales (because, as any wealthy resort visitor knows, who wants a snow globe when you can have bison...14 of them...you know, for your yard). Years later, when resort construction was delayed, Costner agreed to pay Detmers an additional $60,000. The amended letter contract also stated as follows: "[I]f The Dunbar is not built within ten (10) years or the sculptures are not agreeably displayed elsewhere, I will give you 50% of the profits from the sale of the [sculputures] after I have recouped my costs...."
In 2009, Detmers filed suit to enforce that quoted provision, i.e., to make Costner sell the sculptures and split the proceeds 50/50 with her. Costner claimed that no sale was required because displaying the sculptures at Tatanka qualified as them being "agreeably displayed elsewhere." Detmers claimed that she never agreed to that display location. The court thus had to decide how to interpret the arguably ambiguous term of "agreeably displayed elsewhere." Earlier this summer, Circuit Judge Randall Macy decided that the forced sale provision had not been triggered because Detmers had agreed, albeit passively, to have the sculptures displayed at Tatanka. Specifically, Judge Macy stated: "[Detmers's] significant involvement in the Tatanka project and her failure to tell Costner or anyone else that she did not agree with placement at Tatanka indicate she was agreeable to the sculptures' placement at Tatanka for the long term."
I suppose that the lesson for contract drafters is to specify what "agreeably" means or to avoid that kind of ambiguity altogether. Drafters at least should specify how the "agreeableness" is to be recorded in order to be effective, such as "upon written consent," with or without the typical "not to be unreasonably withheld" modifier. The other lesson is to never trust a man who thought that this movie and this movie were 'sure things."
Off to the Hague
As frequent readers of the blog may have noticed, I have been in Cambridge since late June. This weekend, I am taking my students to the Hague, so that we can visit the ICC, the ICJ and meet with one of Radovan Karadzic's attorneys. We are flying Easyjet, which only permits passengers to take along a deck of cards, unless they are willing to pay to check bags. As a result, I will be without my computer and out of commission for the rest of the week.
There might not be a whole lot going on in this space for the next few days, but you can look at these pictures and contemplate the wonders of . . . contracts.
July 11, 2011
Weekly Top Tens from the Social Science Research Network
Uninsured Motorist Coverage Construed in Alabama
Lou Ann and Delbert Downey were on their motorcycle in April 2007 at a stoplight when they were hit from behind by Wyndell Thompson. At left we have an image of a motorcycle helmet, evidencing how it protects you from having your face scraped off by asphalt if you happen to have an accident like the Downeys had. So PLEASE! Wear helmets!!!
Anyway, Thompson had a liability policy of $10,000 through First Acceptance Insurance Company. The Downeys had uninsured/underinsured motorist insurance through Travelers Casualty Insurance on three vehicles but the policy did not mention the motorcycle. Downeys’ policy included the following provisions:
A. We do not provide Uninsured Motorists Coverage for ‘bodily injury’ sustained by any ‘insured’:
1. If that ‘insured’ or the legal representative settles the ‘bodily injury’ claim without our consent.
In July 2008, the Downeys, represented by counsel, settled with Thompson and his insurance company for $10,000 without notifying Travelers of the accident or the settlement. The following year, the Downeys, represented by different counsel, notified Travelers of the accident and made a claim for underinsured motorist benefits. Travelers denied this claim because of the settlement exclusion to the policy.
In Downey v. Travelers Casualty Insurance Company, the Downeys sued Travelers for breach of contract in Alabama State Court. Travelers had the case transferred to the Federal District Court which certified the following question:
Under Alabama law does the failure of an insured to give prior notice to his or her insurer of a proposed settlement and release of an alleged tortfeasor cause the insured to forfeit underinsured motorist coverage regardless of the insured’s actual knowledge of said coverage and regardless of prejudice to the insurer if the insured has possession of the policy which provides coverage?
The Alabama Supreme Court looked to Lambert v. State Farm Automobile Insurance Co., 576 So.2d 160 (Ala. 1991) which set out a framework for consent-to-settle cases including:
- Insured needs to immediately notify the insurance company of a proposed settlement with an uninsured/underinsured tortfeasor.
- At the time the insured notifies the insurance company, the insured needs to tell the company whether they intend to file a claim for uninsured motorist benefits. The company must investigate the claim within a reasonable time following.
- The insured should not settle without first allowing the company a reasonable time to investigate.
It is well settled under Alabama law that uninsured motorist coverage attaches to a person and not a vehicle. In addition, as the Downeys were represented by counsel at all stages of the settlement and litigation process, their failure to read their policy is no excuse for their lack of awareness of its coverage.
The Court determined that by settling the case with Thompson, the Downeys had forfeited their right to seek further recovery.
[JT & Katherine Freeman]
July 10, 2011
Second Circuit Issues Summary Order on Remand from SCOTUS in U.S. ex rel. Kirk
We have covered this case, United States ex rel. Kirk v. Schindler Elevator Corp., before, most recently here. Here's our recitation of the facts and history up to the Supreme Court's decision in May:
Daniel Kirk, a Vietnam War veteran, worked at Millar Elevator Industries beginning in the late 70s. In 2002, Millar's operations were integrated into those of the Schindler Elevator Company. In 2003, Millar was demoted and resigned. Eight months later, Kirk sued, alleging that he had been fired in violation of VEVRAA, the VIetnam Era Veterans Readjustment Assistance Act. That claim was dismissed and the dismissal was affirmed last year.
Meanwhile, Kirk brought suit under the False Claim Act in the name of the U.S. government. In 2007, the government elected not to intervene and Kirk pursued his claim as a relator. His suit alleged that Schindler had entered into hundreds of contracts subject to VEVRAA requirements but that Schindler had failed to comply with those requirements. Among other claims, Kirk alleged that Schindler failed to submit required VETS-100 reports in some years and had filed false VETS-100 forms in others. The district court dismissed the action finding, among other things, that the claim was bared under the FCA, 31 U.S.C. s. 3730(e)(4), which provides that information that has been publicly disclosed cannot be a basis for a FCA claim. The information at issue here related to the allegedly missing and/or falsified VETS-100 forms that Mr. Kirk had discovered through FOIA requests.
The relevant section of the FCA provides:
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
The Second Circuit vacated and remanded. There was no question that Mr. Kirk was not the original source of the information, so the only question whether a FOIA request counts as "public disclosure" for the purposes of the statute. The Third Circuit answered that question in the affirmative. The Ninth Circuit concluded that only a FOIA request that results in the production of an "enumerated source;" that is, one of the types of sources expressly named in the statute, creates a jurisdictional bar to an FCA claim. The Second CIrcuit followed the Ninth. It was supported in its position by the U.S. government as amicus curiae.
In the U.S. Supreme Court, the 5-3 majority (opinion by Justice Thomas) held that a government agency's response to a FOIA request constitutes a "report" and thus falls within the FCA's jurisdictional bar. Justice Ginsburg wrote a short dissent, basically endorsing the Second Circuit's approach. The opinion can be found here.
Last week, the Second Circuit Revisited the case. On its first pass on the case, the Second Circuit had left unresolved the following issues:
(1) whether the Department of Labor's FOIA responses indicating that reports were not found for certain years disclosed “allegations or transactions,” (2) whether Kirk’s failure-to-file claims were “based upon” any such disclosed “allegations or transactions,” or (3) whether Kirk qualifies as an “original source” of the relevant information underlying the failure-to-file claims.
The Second Circuit concluded that "Kirk’s failure-to-file claims were 'based upon' the 'allegations or transactions' disclosed in the FOIA responses and that Kirk does not qualify as an 'original source.'" The Second Circuit thus affirmed the District Court's dismissal of Kirk's failure-to-file claims. However, the Second Circuit left unchanged its earlier decision to vacate the District Court's dismissal of Kirks false reports claims, which were premised on Kirk's personal knowledge and thus did not run afoul of the FCA's jurisdictional bar.
The most recent Second Circuit order can be found here.