ContractsProf Blog

Supreme Court of Ohio Holds that Woman Injured by Tree is Not a Third-Party Beneficiary of Contractor

Dust off Restatement (2d) of Contracts § 302....

Lisa Huff was out walking during a heavy thunderstorm in Hartford Township, Ohio, when she was seriously and permanently injured by the limb of a tree.  A large sugar maple tree split in two and the limb fell and struck her.  While Ohio Edison Company did not own the property where the tree was located, the tree was 20 feet from utility lines that it owned and maintained.  Ohio Edison had hired Asplundh Tree Expert Company to inspect and maintain the trees along its power lines in that area.  Huff sued Ohio Edison and Asplundh on the theory that they “failed to inspect, maintain and remove the tree or to warn the landowner of the public danger raised by the tree.” 

So far it sounds like one for the torts anthology; indeed, Ohio Edison and Asplundh argued that they owed no duty to Huff.  However, Huff responded that Ohio Edison had contracted with Asplundh to inspect and maintain the trees and she was a third-party beneficiary of that contract. 

The contract specifically provided that Asplundh “shall plan and conduct the work to adequately safeguard all persons and property from injury.”  Nevertheless, the Supreme Court of Ohio held that Huff was not an intended beneficiary.  In reversing the intermediate appellate court, Judge Lanzinger reasoned:

When this statement is placed in context, however, it is unambiguous that neither Ohio Edison nor Asplundh intended to make the Huffs third-party beneficiaries under the contract. The contract was not entered into for the general benefit of the public walking on public roads. It was designed to support the electrical service offered by Ohio Edison. The contract states that it applies to work, consisting of “tree trimming, tree removal, clearance of rights-of- way using either manual or chemical methods, and disposal of trees and brush,” completed by Asplundh on behalf of Ohio Edison. The purpose of the contract, then, is to ensure that Ohio Edison’s equipment and lines are kept free of interference from trees and vegetation. The remainder of the contract sets forth how this work is to be carried out, such as the standards by which Asplundh is to perform its work, the limits on liability for the performance of thework, and the necessary qualifications for the Apslundh employees who were to perform the work. The contract contains no language establishing an ongoing duty to the general public on behalf of either Ohio Edison or Asplundh.

In a concurring opinion, Judge O’Donnell agreed with the result but not the majority’s statement of law insofar as it “create[d] a new requirement that the intention to benefit a third party must be indicated in the terms of the contract.”

Huff v. FirstEnergy Corp, et al., Slip Op No. 2011-Ohio5083 (Oct. 5, 2011).

[Meredith R. Miller]

Federal Circuit Rejects $50 Million Claim for Breach of a Psychic Services Contract

Last week, the Federal Circuit affirmed the Court of Federal Claims dismissal of a $50 million law suit brought against various leading politicians and the U.S. government.  The case is Bussie v. United States.  Plaintiff alleged that he had not been compensated for psychic services he performed in assisting the government in its pursuit of "high value targets" including the "masterminds" behind 9/11.  The suit named President Obama, former President George W. Bush and Fox News analyst Sarah Palin, among others as defendants.  The Federal Circuit affirmed the Court of Federal Claims' finding that it had no jurisdiction under the Tucker Act to hear claims against individuals.

As plaintiff was proceeding pro se, the Federal Circuit construed his complaint generously as seeking damages from the United States.  However, the court found that the Court of Federal Claims had correctly concluded that plaintiff had not alleged facts sufficient to sustain a claim for an implied-in-fact contract.

The Federal Circuit opinion is very short.  Further details can be found in the Court of Federal Claims opinion here.  

The complaint raises interesting possibilities.  Has the government in fact been hiring psychics to try to track down terror suspects?  Is that so implausible?  After all, didn't Nancy Reagan consult an astrologer in order to make certain the heavens were aligned properly with President Reagan's schedule?  If the government has not been hiring psychics, why not?  They are likely at least as effective as waterboarding.

[JT]

Occupy Wall Street and why it's all contracts fault....

The Occupy Wall Street movement has gained momentum as it spreads to affiliate movements across the country, including in San Diego (Usha Rodrigues has a post about the protest in Athens, GA, and Frank Pasquale has thoughtful observations about the movement in general here). As I alluded briefly in a prior post,the movement highlights some of the difficulties in mobilizing disparate individuals into collective action. You may not have thought the Occupy Wall Street movement was about contracts, but I think it is, at least in part.

Many of the problems arising from the financial crisis and the mortgage crisis (which are mentioned in the movement’s first official declaration ) originated from contracts – contracts that were hard to understand, contracts that were too long, contracts that contained aggressive and surprising terms. Contracts conferred legitimacy on transactions that later turned out to be problematic.Contracts were and are part of the problem in another way. The growing anger and frustration exhibited by the Occupiers of Wall Street stem from a general feeling of helplessness.

Contracts contribute to that feeling. Consumers have given up reading contracts – there are too many, and they are too long and convoluted. If all consumers actually read each contract they “agree” to, the economy would grind to a halt. Imagine– every time you download music, log on to Facebook, rent a car, check your bank balance. You’d never get anything done. Can you imagine if everyone who bought a house read all the paperwork that they signed? It takes an hour just to sign through all the different documents. The lender and the broker and all the various drafting parties don’t actually want you to read the documents – they just want you to sign them. (Heck ,the lenders don’t even read their own documents if the robo-signing controvery is any indication).

Some contracts scholars defend standard form contracts by stating that if the majority of consumers don’t like certain terms, they will push back. It’s the familiar, the “market will respond” argument. The assumption is that if enough consumers really don’t like terms, we will eventually hear about it. The problem is that, given the coordination problems associated with mobilizing individuals who are strangers to each other and dispersed across the country, we may not hear a clear, unified message. More troubling, we won’t hear about mass scale dissatisfaction until mass scale societal harm has already occurred. The “market will respond” argument is a regressive argument, not a progressive, improving one. The Occupy Wall Street Movement is a reaction, not a preventative movement (and David Brooks of the NYT thinks it is a weak one because of it).

But, you might ask, in a free society and in a free market,shouldn’t we respect what two parties voluntarily agree to do? To a certain extent, yes. But it depends. It depends upon the meaning of the word voluntarily. It depends upon the meaning of the word agree. And it depends upon whether (and how and how much) what the contracting parties agree to do impacts the rest of society. Contracts are the vehicle through which banks and other financial institutions carry out their business. They were the tools that lent legitimacy to socially harmful practices. The agreement of two private actors shouldn’t be enforced if it threatens the well-being of society, violates important policy principles, and cripples the economy.

[Nancy Kim]

New in Print (Including New or New Editions of Contracts Casebooks from Lexis/Nexis)

Jaime, Dodge, The Limits of Procedural Private Ordering, 97 Va. L. Rev. 723 (2011)

Stewart Macaulay, Jean Braucher, John A. Kidwell, William Whitford, Contracts: Law in Action (Volume II: The Advanced Course) (Third Edition, 2011) 

John Edward Murray, Jr., Murray on Contracts (Fifth Edition, 2011)

William J. Woodward, Jr., Candace Zierdt, Skills & Values: Contracts (2011)

[JT]

Derrick Bell

The legal academy lost a giant with the passing of Derrick Bell, who pioneered the Critical Race movement and changed the way many academics think about how the law works. I think Bell's theories apply widely to different doctrinal areas of the law, including contract law. For example, I think we are seeing Bell's interest convergence theory in action in that many of the predatory lending (and contracting) practices that wreaked so much havoc on the economy were first targeted toward racial minorities. The government didn't act, however, until the interests of majority homeowners converged with minority homeowners - not just in terms of the lending practices becoming widespread, but the foreclosures that have a contagion effect.

R.I.P. Professor Bell.

[Nancy Kim]

"Disappeared Contractors": David Isenberg on Steven Schooner on Contractor Deaths in Iraq & Afghanistan

David Isenberg, author of Shadow Force: Private Secuity Contractors in Iraq has a provocative new piece on HuffPo in which he argues that private military and security contractors (PMSCs) are like the "disappeared" victims of dictatorial rule.  This is not of course literally true, in that the bodies of PMSCs who are killed abroad are returned so that families can mourn and bury their dead.  However, Isenberg finds the analogy fitting because we do not recognize or track the extent to the which PMSCs are bearing the burden on the on-going War on Terror.

He relies on the scholarship and testimony of Geroge Washington University Law School Professor friend-of-the-blog Steven L. Schooner.  Professor Schooner has written about this topic in an article co-authored with GWU law student Collin D. Swan, called "Dead Contractors: The Unexamined Effect of Surrogates on the Public's Casualty Sensitivity," about which we have previously blogged here.

The Isenberg piece provides extensive quotations from Professor Schooner's testimony before the congressionally mandated Commission on Wartime Contracting.  The gist of the exerpted portions is that we now have more PMSC casualties than military casualties in Iraq and that trend is spreading to Afghanistan as well.  These deaths are not reported in the way military deaths are.  PMSC deaths thus impose a lower cost in terms of public tolerance for continued war than do military deaths.  Professor Schooner also notes, without allocating blame, that the government does more to protect members of the military than it does for PMSCs.

[JT]

Weekly Top Tens from the Social Science Research Network

RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal
August 10, 2011 to October 9, 2011

Rank	Downloads	Paper Title
1	279	The Reasonable Person Alan D. Miller, Ronen Perry, University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2	270	Managing Disputes Through Contract: Evidence from M&A John C. Coates, IV, Harvard Law School
3	199	Subprime: Why a Free and Democratic Society Needs Law Joseph William Singer, Harvard Law School
4	151	The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration Thomas Stipanowich, Pepperdine University School of Law
5	150	The Foreign Corrupt Practices Act & Government Contractors: Compliance Trends & Collateral Consequences Jessica Tillipman, The George Washington University Law School
6	107	Remoteness Re-Invented? David McLauchlan, Victoria University of Wellington - Faculty of Law
7	93	Lochner and Constitutional Continuity David Bernstein, George Mason University - School of Law, Faculty
8	91	To Perform or Pay Damages Gregory Klass, Georgetown University - Law Center
9	87	Why There is No Duty to Pay Damages: Powers, Duties, and Private Law Nathan B. Oman, William & Mary Law School
10	72	Preemption and Choice-of-Law Coordination Erin A. O'Hara O'Connor, Larry E. Ribstein, Vanderbilt University - Law School, University of Illinois College of Law

RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of LSN: Contracts (Topic)
August 10, 2011 to October 9, 2011

Rank	Downloads	Paper Title
1	279	The Reasonable Person Alan D. Miller, Ronen Perry, University of Haifa - Faculty of Law, University of Haifa - Faculty of Law
2	270	Managing Disputes Through Contract: Evidence from M&A John C. Coates, IV, Harvard Law School
3	151	The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration Thomas Stipanowich, Pepperdine University School of Law
4	90	To Perform or Pay Damages Gregory Klass, Georgetown University - Law Center
5	85	A New Tortious Interference with Contractual Relations: Gender and Erotic Triangles in Lumley v. Gye Sarah Lynnda Swan, Columbia University - Law School
6	62	Bringing Order to Contracts Against Public Policy David Adam Friedman, Willamette University College of Law
7	51	Is Private Law Meaningless? Steve Hedley, University College Cork (UCC)
8	47	Restitution and Relationships Hanoch Dagan, Tel Aviv University - Buchmann Faculty of Law
9	45	The General Principles of Civil Law: Their Nature, Roles and Legitimacy Martijn W. Hesselink, University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
10	43	The Law of Contract: An Introduction Jan M. Smits, Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)

[JT]

Some Thoughts on Steve Jobs, Apple and Contracts

Steve Jobs made quite an impact on the world, rethinking the way people use technology and introducing beautifully designed, innovative products. Because this is a contracts blog, I want to discuss the interesting way his company, Apple, uses contracts in its business. Before iTunes, most music was sold to consumers on CDs. Apple is not the first or only company to license rather than sell digital music, but it is the most popular. Because of the enormous popularity of the iPod and iTunes, Apple made it acceptable to license rather than sell music - a concept that at one time seemed strange and somewhat outrageous. The way Apple uses contracts is closely tied to the nature of its innovative products and services (which meld the tangible and the digital), the way they are delivered to the customer, and Apple’s business model. Apple markets itself as more than a purveyor of technology products. Its customers don’t buy a product, they enter into a relationship. Apple reminds customers that they have a relationship, not a one time transaction, and they remind them via contracts. Apple has its customers click each time they purchase a song and each time they download an updated version of iTunes. It's mass consumer relational contracting. (Other companies may do this, too, but I can't think of one offhand that does it the way Apple does). Apple also closes the gap between offline and online contracting. When I bought my iPad not long ago, after I had paid for it, the salesperson (aka the “Genius”) had me click “I agree” to the terms of an agreement on my new iPad before he would hand it over. It made me wonder, will we see more rolling clickwraps? Will clickwraps replace paper contracts in the mass consumer setting? As products become more digital than tangible, will we see more licenses and fewer sales? (I think the answer is yes). As products incorporate more software than hardware, will they no longer be considered “goods”? What types of innovative contracting forms might we expect to confront in the future?

[NK]

Southern District of New York Rejects Monsanto's Government Contractor Defense in Agent Orange Case

On September 28, 2011, District Judge Paul Gardephe issued his opinion and order denying defendants' motion for partial summary judgment in Spaulding v. Monsanto Company.  Plaintiffs alleged that Monsanto engaged in negligent waste disposal practices at its plant in Nitro, West Virginia between 1949 and 1970.  The waste at issue were biproducts from the manufacture of a key component in Agent Orange.  

In its motion, Monsanto attempted to rely on the govenrment contrator defense, since for part of the time that it was manufacturing the product in question, it was doing so, at least in part, for government use.  The standard for determining the applicability of the defense comes form Boyle v. United Techs. Corp. 487 U.S. 500, 512 (1988), in which the court explained as follows:

Liability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.

 In this case, the Court concluded that Monsanto had not satisfied the requirements for the defense because the record did "not demonstrate . . . that U.S. Government representatives made an 'express determination' regarding Monsanto's alleged waste disposal practices."  Nor was there any evidence that the Government had "exercised consistent oversight over Monstanto's waste disposal practices."  The Court came to the same conclusion with respect to air pollution.  Because the defendants had not demonstrated that the complained-of activity was conducted "pursuant to reasonably precise government specifications," the District Court denied their motion based on the government contractor defense.  

[JT]