ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, September 24, 2011

Law Profs, Free Textbooks and $$$

Although this isn’t my first post to the blog, it is the first I’ve written since being officially welcomed (confusing I know, but it has to do with the wonders of time releasing posts…) So, I want to thank Jeremy for the very nice introduction and for the invitation to join my highly esteemed co-bloggers. Now, on to the topic of law profs making extra ca$h!

Over at PrawfsBlawg , Howard Wasserman asks whether a law school may prohibit its professors from reselling courtesy copies of textbooks. I think the answer is that it may as an employment matter, just as it may issue codes of conduct and other rules so long as the prohibition doesn’t run afoul of existing institutional policies, contracts or employment laws (I don’t think any apply to this situation).

What I find more interesting from a contracts prof’s perspective, is whether the publisher may prohibit such resale. As Wasserman notes, "West and Foundation now place stickers on courtesy copies explicitly prohibiting resale." I’m not sure that such a prohibition is valid. As the commenters to his blog post note, the cases in this area are not models of clarity. The critical issue is likely whether the transaction is characterized as a “license or a sale.” If it is a license, the publisher generally can issue restrictions; if it is a sale (i.e. a transfer of title), they probably cannot. With software, courts may permit such restrictions because software transactions are typically viewed as licenses not sales, see Vernor v. Autodesk, for example. (self promotion alert: I disagree – I think it depends upon the transaction, i.e. mass market consumer or customized). With things other than software --notice that I didn’t say goods -- it’s a toss up. A relatively recent case, UMG Recordings v. Augusto, indicates that such a restriction on a label would not be upheld. In that case, the Ninth Circuit found invalid a label prohibiting transfer of ownership of a promotional music CD. The case is at odds with other Ninth Circuit decisions involving software. The ruling in UMG v. Augusto is complicated by the applicability of a federal statute, the Unordered Merchandise Statute, 39 U.S.C. §3009 which provides that mailed unordered merchandise “may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.” Although there was no money exchanged for the CD, the court found that there was a “gift or sale” for the purposes of the first sale doctrine because there was a transfer of title.

Another interesting issue is whether digital books constitute “software” or “other things.” As the hardcover textbook cedes more ground to its digital counterpart, the characterization of ebooks as “books” or “software” gains importance although the key issue will remain whether the digital content is licensed or sold. Publishers of ebooks are likely to use the language of “license” rather than “sale” to prohibit transfers of ebook copies. It’s not clear whether the courts will defer; if they do, it will limit the impact of UMG Recordings v. Augusto.

September 24, 2011 in Contract Profs, Legislation, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Friday, September 23, 2011

Gingrich Modifies His "Contract With America"

At CPAC, Gingrich announced a new "Contract with America," apparently a revision of his original 1994 "contract."  I can't resist: is Gingrich aware of the preexisting duty rule?  Does he understand that freedom to contract also has a corollary freedom from contract?  Maybe he should look to torts for a new metaphor.

[Meredith R. Miller]

September 23, 2011 in In the News | Permalink | Comments (1) | TrackBack (0)

"Real Housewife" Might Owe Real Damages Thanks to Part Performance

Bethenny-frankel-skinnygirl-margarita-475x316 In my Contracts class, we recently discussed how part performance can make an offer irrevocable using cases such as the iconic Carlill v. Carbolic Smoke Ball and the less-iconic but perhaps more instructive, Marchiondo v. Scheck, 432 P.2d 405.  In the latter case, a seller of real estate fires his real estate agent after the agent has done the work to set up a sale but before the sales contract with the buyer actually was signed.  The real estate owner/seller claimed that no commission was due because he was bargaining for performance--a sale--and nothing short of that would do.  Not surprisingly, the agent claimed that his part performance (which likely included showing the property, finding the ultimate buyer, and more) made the seller's offer to pay a commission irrevocable--and therefore entitled him to a commission upon the later finalizing the sale.  

One of my reality TV-watching students noticed a parallel between the Marchiondo case and a somewhat recent dispute involving Bethenny Frankel, the star of the series "Real Housewives of New York City" and its later spin-offs.  In this contractual dispute, Ms. Frankel's agent, Raw Talent (like the agent in Marchiondo), was suing Frankel (like the property owner in Marchiondo) for its commission in a deal that it felt that it brokered between Frankel and a liquor industry veteran, Kanbar.  Frankel and Kanbar's deal was one to develop, market and later sell a company called Skinny Girl Cocktails (whose first product would be SkinnyGirl Margaritas), using Frankel as the company's celebrity endorser.  After the deal between Frankel and Kanbar allegedly was arranged by Raw Talent, but before it was officially finalized via a round of salt-rimmed glasses and contracts, Frankel fired Raw Talent.  In the next two years, Skinny Girl Cocktails drank its competition under the table and ultimately was sold by Frankel and Kanbar for $120 million.  Raw Talent now wants its commission--10% of the $120 million.  I asked my students...under Marchiondo, should Raw Talent get the money?

[Heidi R. Anderson, hat tip to student Brianna Conway]

P.S. And, because no lawsuit is complete without a follow-up, the makers of SkinnyGirl Margaritas now are being sued for false advertising for claiming that the ingredients are "pure" when each bottle allegedly contains a not-so-pure preservative.


September 23, 2011 in Celebrity Contracts, Television | Permalink | Comments (0) | TrackBack (0)

Continuing Coverage of the Julian Assange Book Contract

Assange We reported previously on Wikileaks founder, Julian Assange's forthcoming "unauthorized autobiography."  Like so many contractual arrangements, this one started out like Romeo and Juliet but somehow has ended in tragedy.  As the Manchester Guardian reports, on the day of his autobiography's publication, Mr. Assange has denounced it and exposed the ghost writer who is the actual author of the book.  Assange claims that he holds the copyright on this book that he did not write, and he alleges that the publisher, Canongate, has breached a contract with him by releasing the book without his authorization.

To add insult to injury, Assange complains that his attorneys, whom he accuses of overcharging him, are holding on to his £412,000 advance to guarantee his legal fees.  

Hmmm, £412,000 is not a bad payday for a book you say you didn't write, Julian.  

In an additional wrinke, the Guardian reports that Assange's American publisher, Knopf, has pulled out of its contract with Assange and wants the return of the $250,000 advance that it paid to Assange.  

But the book, which is a self-justifying screed with large sections aimed at the media organizations (including the Guardian) with which Assange previously cooperated and now vilifies, is likely to bring in handsome royalties for Mr. Assange.  It's juicy.  The Guardian provides this taste:

The former editor of the New York Times, Bill Keller, is the target of special ire for his allegedly unco-operative attitude, described as "a moral pygmy with a self-justifying streak the size of the San Andreas fault". Assange writes: "The cock crowed three times and Bill Keller shamelessly denied us."

You have to give Assange credit.  He only compared himself to Jesus; he didn't say he was bigger than Jesus.  


September 23, 2011 in Books, Celebrity Contracts, In the News | Permalink | Comments (0) | TrackBack (0)

Thursday, September 22, 2011

Clickwrap Doesn't Bind Consumer Unless Consumer Did the Clicking

[For the record, I am not trying to scoop Nancy on this clickwrap case -- welcome aboard, Nancy!  It was an irresistible case that came my way via BNA.]  Plaintiff Shaun Marso listed an engagement ring for sale; he found a buyer who agreed to pay $12,000 for the ring, plus shipping costs.  Marso went to a Greensboro, North Carolina UPS store and shipped the ring to the buyer, using C.O.D. service.  UPS delivered the ring and took a cashier's check from the buyer.  It turned out that the buyer's cashier check was fraudulent.

Marso sued UPS on the grounds that it "agreed to collect on delivery the sum of $12,145.00," "guaranteed that collection as a matter of contract," "did not collect the sum of $12,145.00," and thus "materially breached its contractual obligation." UPS moved for summary judgment, pointing to its terms of service, which provide:

[a]ll checks or other negotiable instruments (including cashier's checks, official bank checks, money orders and other similar instruments) tendered in payment of C.O.D.s will be accepted by UPS based solely upon the shipper assuming all risk relating thereto including, but not limited to, risk of non-payment, insufficient funds, and forgery, and UPS shall not be liable upon any such instrument....

UPS' witness averred that terms are presented in a clickwrap agreement on a computer that the customer must use before the shipping label may be printed to send the package.  Once a customer prints out the shipping label, he or she brings the package to a counter for a UPS employee to scan the bar code on the shipping label.

In an affidavit, Marso averred that he never agreed to the clickwrap and never used a computer to print out his shipping label: 

plaintiff "categorically den[ies]" that he used a computer "in any way, shape, or form" when he visited the UPS Customer Center in Goldsboro. Instead, plaintiff asserts that defendant's employee entered the information into the computer, and that "[n]o one advised [plaintiff], orally or in writing, about any UPS Tariff, waybill, or service guide," or advised him that he could request a copy of the same. Plaintiff asserts that defendant's employee at the UPS Customer Center "assured [him] that UPS would collect cash from the purchaser," that "the collection was guaranteed," and that plaintiff "would be getting a check from UPS, not from the purchaser." In other words, plaintiff suggests by his argument that he did not assent to the terms of service identified in the UPS Tariff, which would limit defendant's liability for the fraudulent cashier's check collected by defendant upon delivery of plaintiff's package to Mr. Thompson, and instead asserts that he formed an oral contract with defendant's employee which obligated defendant to be liable to plaintiff for $12,145.00 without limitation. Thus, there appears to be a genuine issue as to whether plaintiff assented to be bound by the limiting terms of the UPS Tariff, and whether defendant presented plaintiff with actual or constructive notice of the terms set forth by the UPS Tariff. 

Therefore, the North Carolina Court of Appeals held that summary judgment was inappropriate.  The parties presented conflicting evidence "regarding the attendant circumstances of the formation and terms of the agreed-upon contract, including whether plaintiff had either actual or constructive notice that he would be bound by the terms."

Marso v. UPS, Inc. (Sept. 20, 2011 N.C. Ct. Appeals)

[Meredith R. Miller]

September 22, 2011 in E-commerce, In the News | Permalink | Comments (2) | TrackBack (0)

Jail time for violating a browsewrap??

In connection with a book I am currently writing on online agreements, I've been thinking a lot (perhaps too much?) about "terms of use" or "browsewrap" agreements. Law professors love to hate 'wrap agreements and bemoan the lack of assent associated with them. But to what extent are these so-called contracts actually problematic? One potential problem is that there are other laws that may interact with and exaggerate the unfairness of calling these terms "contracts." A recent op-ed by George Washington law professor Orin Kerr touches upon one such law, the Computer Fraud and Abuse Act (CFAA). The CFAA was aimed at computer hacking and makes a misdemeanor any computer use that "exceeds authorized access." That's where the lowly, sneaky browsewrap steps in. According to Kerr, "the Justice Department believes that it applies incredibly broadly to include terms of use violations". In other words, if you exceed a website's terms of use - on Facebook, this could mean you failed to keep your contact information "accurate and up-to-date"-- you have exceeded your authorization to use the site. And you haven't only breached a "contract", but you may have committed a crime...?!


September 22, 2011 in Commentary, Current Affairs, E-commerce, Legislation, Web/Tech | Permalink | TrackBack (0)

Wednesday, September 21, 2011

Nice Formation Fact Pattern from a Texas Case

The Court of Appeals of Texas, Fourteenth Distirct, provides a nice fact pattern on intent to be bound in MCRB I, Ltd. d/b/a/ Meridian Technologies v. Southwest Rail Industries, Inc.
Here are the facts as reviewed by the Court of Appeals:
Tank Car

In 2008, Southwest and Meridian discussed the possibility of Southwest's leasing fifteen 23,500 gallon railroad cars to Meridian. The primary negotiations were between Southwest Vice President Jason Huette and Meridian Director of Logistics Trey Walker. On August 20, 2008, Walker sent Huette an email stating, "I want to pull the trigger on 15 of those new 23,500's that you and I spoke about." On August 22, 2008, Huette sent Walker a confirmation letter, a generic master lease, and a credit application. Huette stated that the master lease was "only for review" and asked Walter to respond with any comments or questions concerning the master lease. Huette also requested that Walker print the confirmation letter, providing the company name, town name and the delivering railroad, and then sign and return the confirmation letter to Huette. On August 25, 2008, General Partner Mike Clements complied on behalf of Meridian.
The letter, including the information provided by Meridian, contained the following terms: (1) the type and number of rail cars Meridian was leasing (fifteen 23,500 gallon tank cars with insulation and exterior coils); (2) the monthly charge ($650 per car); (3) the length of the contract (three years); (4) the location where the cars would be delivered (Chusei); (5) the condition in which the cars must be returned (clean and free from residue); and (6) the responsibility for the cost of the cars being placed into service (Meridian's). The letter also contained the following: "Please acknowledge your acceptance below and return by fax to [.] Upon your acceptance of this confirmation letter a formal rider and master lease will be forwarded to you."
On August 29, 2008, Southwest leased fifteen tank cars from CIT group to be delivered to Chusei. In early September, Meridian requested, for its review, a master lease specific to Meridian, in lieu of the generic lease Southwest had previously provided.
Thereafter, Walker and Huette exchanged further emails, with both parties listing proposed changes to the master lease and Huette pressing Walker for a delivery date. In an email dated October 2, 2008, Walker wrote, "Assuming that the attorney's changes are acceptable and neither company have [sic] any other changes or issues needing discussion before we have an agreement, I think that we can look towards the beginning of November to begin the process of shipping the railcars from Mt Pleasant to Bayport." On October 6, 2008, Huette communicated, "Trey, we need to get these cars moving ASAP. I am getting pushed from my supplier and I can't hold them off any more. They are about to place them on rent and start charging me storage as well."
On October 13, 2008, however, Meridian General Manager Rick Billings wrote Huette:
. . . . I regret to inform you that, for reasons completely beyond the control of Meridian, the project involving the use of fifteen SRI railcars to transport tall oil pitch has been shelved, at least temporarily and perhaps permanently. Therefore, we will not be entering into a lease for the railcars in the immediate future.
Notwithstanding your characterization of the 22 August 2008 letter, Meridian has never executed a lease agreement for these railcars and repudiates and will vigorously oppose any attempt on your part to charge Meridian for lease rent or storage on railcars we have not leased.

In March 2009, Southwest sued Meridian for breach of contract.  Southwest subsequently filed a motion for partial summary judgment on two elements of its breach of contract claim, i.e. (1) that a contract existed and (2) Meridian breached it.

Curious to see how things came out?  You'll have to read the case!


September 21, 2011 in Recent Cases, Teaching | Permalink | Comments (1) | TrackBack (0)

Tuesday, September 20, 2011

A non-compete benches a CEO

The WSJ reports an unusual situation created by a non-compete agreement. Johnson & Johnson is apparently preventing a former senior executive, Michael Mahoney, from joining its rival, Boston Scientific, Corp., as its chief executive. Because of a non-compete that Mahoney signed with Johnson & Johnson, Boston Scientific has to wait an entire year before Mahoney can become CEO. During his waiting period, Mahoney will be president but can't work with those businesses that compete with Johnson & Johnson. As the article notes, this situation is markedly different from the one faced by Mark Hurd when he left Hewlett Packard for Oracle. The issue with Hurd was framed as one involving trade secrets, because non-competes are typically unenforceable as such in California. Johnson & Johnson is based in New Jersey, and while the article doesn't expressly state the governing law in the contract between J & J and Mahoney, it was probably New Jersey (or a state other than California....)




September 20, 2011 in Labor Contracts, True Contracts | Permalink | 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 

July 21, 2011 to September 19, 2011

RankDownloadsPaper Title
1 655 How Markets Work: The Lawyer's Version 
Mark C. WeidemaierG. Mitu Gulati
University of North Carolina (UNC) at Chapel Hill - School of Law, Duke University - School of Law
2 230 Managing Disputes Through Contract: Evidence from M&A 
John C. Coates, IV
Harvard Law School
3 204 The Reasonable Person 
Alan D. MillerRonen Perry
University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
4 184 Subprime: Why a Free and Democratic Society Needs Law 
Joseph William Singer
Harvard Law Schoo
5 178 Non-Recourse, No Down Payment and the Mortgage Meltdown: Lessons from Undercapitalization 
Dov SolomonOdelia Minnes
Academic Center of Law and Business, Bar-Ilan University
6 130 Contract Drafting: A Prerequisite to Teaching Transactional Negotiation 
Tina L. Stark
Boston University School of Law
7 107 Skin-in-the-Game: Risk Retention Lessons from Credit Card Securitization 
Adam J. Levitin
Georgetown University - Law Center
8 100 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration 
Thomas Stipanowich
Pepperdine University School of Law
9 90 Remoteness Re-Invented? 
David McLauchlan
Victoria University of Wellington - Faculty of Law
10 79 Why There is No Duty to Pay Damages: Powers, Duties, and Private Law 
Nathan B. Oman
William & Mary Law Schoo

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

July 21, 2011 to September 19, 2011

RankDownloadsPaper Title
1 655 How Markets Work: The Lawyer's Version 
Mark C. WeidemaierG. Mitu Gulati
University of North Carolina (UNC) at Chapel Hill - School of Law, Duke University - School of Law
2 227 Managing Disputes Through Contract: Evidence from M&A 
John C. Coates, IV
Harvard Law School
3 130 Contract Drafting: A Prerequisite to Teaching Transactional Negotiation 
Tina L. Stark
Boston University School of Law
4 100 The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration 
Thomas Stipanowich
Pepperdine University School of Law
5 76 To Perform or Pay Damages 
Gregory Klass
Georgetown University - Law Center
6 68 The Irony of AT&T v. Concepcion 
Colin P. Marks
St. Mary's University School of Law
7 60 A New Tortious Interference with Contractual Relations: Gender and Erotic Triangles in Lumley v. Gye 
Sarah Lynnda Swan
Columbia University - Law School
8 58 Bringing Order to Contracts Against Public Policy 
David Adam Friedman
Willamette University College of Law
9 57 Contracting for Procedure 
Kevin E. DavisHelen Hershkoff
New York University (NYU) - School of Law, New York University (NYU) - School of Law
10 51 Private Regulation of Consumer Arbitration 
Christopher R. DrahozalSamantha Zyontz
University of Kansas School of Law, Searle Civil Justice Institute



September 20, 2011 in Recent Scholarship | Permalink | TrackBack (0)

Monday, September 19, 2011

Sony Adds Class Action Waiver to PlayStation User Agreement

Sony updated its PlayStation Network user agreement with a shiny new class action waiver.  It made the news.  From the New York Times

The update, which has been titled “Section 15,” was buried in the company’s 10,869-word agreement and was not publicly announced by Sony.

The new section requires users to agree that they will not join any class-action suits against Sony in the future, and that if they do file a suit against the company, it will be done only on an individual basis. 

When subscribers attempt to log into the network with their PlayStation consoles, they will be prompted to agree to the revised terms via clickwrap.  If subscribers do not agree, they are denied access to the network. However, according to the New York Times and BBC, subscribers may "opt out" of the class action waiver by sending a written letter to Sony headquarters in the next 30 days requesting not to be included in the agreement. (I would pay to see these letters, if any).  Here is the address, via CNET:

6080 Center Drive, 10th Floor
Los Angeles, CA 90045
Attn: Legal Department/Arbitration

Apparently, the new terms were a response to lawsuits (including some class actions) after the PlayStation Network was "attacked by hackers."

[Meredith R. Miller]

September 19, 2011 in In the News | Permalink | Comments (1) | TrackBack (0)

C'mon, Fordham! Don't Blame It on Contracts!!

Two weeks ago, Meredith Miller shared news of the fate of the Community Shared Agriculture (CSA) organization of which she is a member.  CSA's are in the news again.  Today's New York Times carried this story describing the demise of "Farm to Fordham," an enterprise started early last year by a Fordham law student that brought fresh produce to the urban university.  

Farm to Fordham operates like most CSAs.  Members, which reportedly included Fordham Law's Dean, as well as his predecessor, paid $150/semester for regular delieveries of fresh produce.  As Above the Law points out, Farm to Fordham also tried to do good while doing well: with each delivery, nearly 100 pounds of produce were delivered to a local soup kitchen.  Then, last April, Fordham security refused to open a gate to permit delivery.  The reason for this action is unclear.   

Farm to Fordham founder, Michael Zimmerman, had been notified that his organization needed to apply for a caterer's license in order to continue its operations.  When Zimmerman attempted to do so, he learned that Farm to Fordham was not eligible for such a license because the organization was not a caterer (duh!).  

Soon thereafter received an e-mail from Fordham University's legal counsel stating that the university could not be placed in breach of the law.  But Fordham's own spokesperson had difficulty identifying what law could possibly be breached.  No catering contracts would be breached, as Zimmerman is not running a catering service (and anyway, breach of a private contract is not really the same as breaking the law).  The University also cited concerns about infestations from the produce, but that concern is hardly creditable, given that the produce is distributed outside of any university building.  It may well be true that students bing their produce in to the buildings after collecting it, but unless Fordham is going to institute a ban on all importations of produce into its buildings, it really is not doing very much to prevent such infestations.  

Above the Law provides the following quotation from Mr. Zimmerman:

The University’s most recent rationale for prohibiting community supported agriculture (CSA), nearby construction, is not credible. They came up with that excuse a week ago – six months after first banning the program. Over the intervening months the University has proposed, and Farm to Fordham has disposed with, at least six other rationalizations.

This strongly indicates that the University made its initial determination without a good reason, and has since dug in its heels. We still do not know why the University has chosen to oppose the CSA.

This pattern is all too familiar.  University administrators, like others exercising a form of executive authority, all too often use a shotgun approach, including invocation of sometimes fanciful contractual obligations, in order to shut down an initiative of which they disapprove.  The core reasons for the disapproval remain mysterious for reasons that are themselves mysterious due to a resistance to transparency that is not at all mysterious.

We note that all indications are that the Law School itself has supported Zimmerman and his endeavor to the best of its ability.


September 19, 2011 in Commentary, In the News, Law Schools | Permalink | Comments (0) | TrackBack (0)

Introducing Our New Blogger, Nancy Kim

Kim We are ever so pleased to introduce Nancy Kim, an experienced blogger who will now be a contributing editor to the ContractsProf Blog.  Nancy is a Professor of Law at California Western School of Law in San Diego and also a Visiting Professor at the University of California, San Diego's Rady School of Management.  She joined the California Western faculty in 2004 after working as a corporate associate in a couple of law firms and as Vice President of Business and Legal Affairs of a multinational software and services company.

Nancy has a long list of publications, which are listed on her law school home page linked above, but here's what she's been up to lately:

  • Contract's Adaptation and the Online Bargain, 79 U. CIN. L. REV. 1327 (2011)
  • Expanding the Scope of the Principles of the Law of Software Contracts to Include Digital Content, 84 TULANE L. REV. 1595 (2010) 
  • Reasonable Expectations in Socio-Cultural Context, 45 WAKE FOREST L. REV. 641 (2010)
  • Arbitration's Summer Soldiers Marching into Fall:  Another Look at Eisenberg, Miller and Sherwin's Empirical Study of Arbitration Clauses in Consumer and Non-Consumer Contracts (w/ Chii-Dean Lin), 34 VT. L. REV. 597 (2010)(symposium)
  • Website Proprietorship and Online Harassment, 2009 UTAH L. REV. 993
  • Bargaining Power and Background Law, 12 VAND. J. ENT. & TECH. L. 93 (2009)
  • Imposing Tort Liability on Websites for Cyber Harassment, 118 YALE L. J. POCKET PART 115 (2008) 

We are especially excited to have her join the blog because of her book manuscript (in progress), Wrap Contracts: Mass Consumer Contracts in an Information Society, which is under contract with Oxford University Press. 



September 19, 2011 in About this Blog, Contract Profs | Permalink | Comments (0) | TrackBack (0)

Eighth Circuit Rules on Exclusive Sales Representative Agreement

Last week, the Eighth Circuit issued its opinion in Semi-Materials Co., Ltd. v. MEMC Electronic Materials, Inc.  The case arose as a result of a series of International Sales Representation Agreements (the Agreements) through which Semi-Materials, Inc. (Semi-Materials) was to serve as the exclusive sales representative in South Korea and China for MEMC Electronic Materials (MEMC), a manufacturer of certain gaseous raw materials used in semiconductors chips and solar cells.

The key clause in the Agreements at issue in the case is as follows:

The compensation paid to [Semi-Materials] by [MEMC] will be a percentage of the NET SALES PRICE of PRODUCTS that are purchased from [MEMC] by the user of the PRODUCTS and delivered by [MEMC] to a site within the TERRITORY. The compensation percentage rates are listed in Appendix A.

8th Circuit The Agreements authorized Semi-Materials to "solicit and promote but not consummate sales" of MEMC's products in China and South Korea.  MEMC's sales to end users took place through several different mechanisms, not all of which involved Semi-Materials.  Two such mechanisms were "ex works" and "free carrier" sales.  The former involved MEMC's satisfaction of the end-user's delivery requirements by simply placing the goods at the disposal of the buyer, either at MEMC's factory or at some other location.  The latter involved MEMC's provision of the goods, cleared for export to a carrier selected by the buyer.  MEMC did not pay sales commissions to Semi-Materials for goods provided to the Chinese and South Korean markets through these mechanisms. It claimed that it had no obligation to do so because the risk of loss transferred to the buyer before the product entered China or South Korea and that consequently the products were not "delivered by [MEMC] to a site within the TERRITORY" as required under the Agreements.  The trail court bought this argument and granted MEMC partial summary judgment.  But after trial, the jury awarded Semi-Materials over $200,000 in damages on its remaining claims.

Semi-Materials appealed the partial summary judgment in favor of MEMC, and the latter cross appealed, challenging the trial court's denial of its motion for a judgment as a matter of law on Semi-Material's remaining claims.  In reversing the trial court's grant of partial summary judgment to MEMC, the Eighth Circuit determined that the "delivered by" language in the Agreements was in fact subject to more than one reasonable interpretation.  Moreover, the Eight Circuit noted, "if MEMC’s interpretation of the Agreements prevails, the overall effect of the Agreements would be lost because MEMC could avoid ever paying a commission by simply shipping the goods using 'ex works' or 'free carrier' terms."  Giving effect to MEMC's understanding of the Agreements would thus render the "delivered by" language ineffective, and courts generally attempt to construe contracts so as to give at least some effect to every clause.  

The Eighth Circuit rejected MEMC's cross-appeal of the trial court's denial of its motion for judgment as a matter of law.  MEMC's main argument in its motion was that its global sales manager did not have authority to enter into the Agreements with Semi-Materials.  The Eighth Circuit found that there was ample evidence in the record to support the jury's conclusion that the MEMC's sales manager had (at the very least) apparent authority to enter into the Agreements on behalf of Semi-Materials.



September 19, 2011 in Recent Cases | Permalink | Comments (0) | TrackBack (0)