November 25, 2011
The Muppets and Contracts
As you may have heard, the new Muppets movie is out. Yes, your old favorites are back - Kermit, Miss Piggy,Fozzie Bear, the whole gang. You might have also heard that there's a new star in the movie. No, not is-he-a-man-or-a-muppet Walter. It's....a CONTRACT! That's right, the star of the new Muppets movie is a long, scrolled, fine print contract signed by none other than Kermit the Frog. The entire plot hinges on it. Without giving too much away - (c'mon, the Muppets are not about cliff hangers) - a condition in the contract requires the Muppets to raise $10,000,000 by a certain date or else they lose their beloved, but now decrepit and abandoned, theatre. A real live condition - but is it a condition precedent or condition subsequent? In addition, there are issues of nondisclosure (there's oil under the theatre, but the evil Tex Richman isn't telling). Is there a duty to disclose? When did Tex learn about the oil - at the time the contract was formed? Does it matter? Was Kermit tricked? Is the contract unconscionable? And finally, there's the interpretation issue -- the "theatre" is also called a "studio." Is it the same building? Is there possibly a misunderstanding here? Strangely, the Muppets movie doesn't even try to answer these questions. No, they make the movie all about finding love and relevancy in the digital age. But we contracts profs know - as Tex Richman's henchmen point out - the contract is the critical plot point. There would be no movie without it. Keith Rowley - are you listening? Pirates of the Carribean - make way for the Muppets!
Continued Fall-Out from the Supreme Court's "Third Arbitration Trilogy"
There has been a steady stream of interesting and high-profile arbitration law cases following in the footsteps of what Pepperdine Law's Thomas J. Stipanowich has identified as the Supreme Court's Third Arbitration Law Trilogy: Stolt- Nielsen S.A. v. AnimalFeeds International, 130 S. Ct. 1758 (2010); Rent-A-Center, West v. Jackson, 130 S. Ct. 2772 (2010); andAT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).
- In KPMG v. Cocchi, the U.S. Supreme Court granted cert. to review a decision from Florida's Fourth District Court of Appeals. The state appellate court upheld a trial court’s refusal to compel arbitration of respondents’ claims after determining that two of the four claims in a complaint were nonarbitrable. The Supreme Court, per curiam, vacated and remanded the case for a determination of whether the remaining two claims are arbitrable. Because of the emphatic federal policy in favor of alternate disptue resolution, courts must compel arbitration of claims even if the result is piecemeal litigation in which some claims must be arbitrated while others are resolved through the court system. Because the Court of Appeals did not rule on the arbitrability of two of the claims, the Supreme Court vacated its refusal to compel arbitration.
- In Sanchez v. Valencia Holding Company, California's Court of Appeals for the Second District found a way around the Supreme Court's holding in Concepcion by ruling that an entire arbitration provision in a sales contract from a car dealership was unconscionable because it involved oppression and surprise due to unequal bargaining poiwer as well as harsh, one-sided terms in favor of the car dealer. The arbitration provision was substantively unconscionable because its location on the back of the last page in small font with reduced line spacing made it unnoticeable to the buyer. It was substantively unconscionable because of four facially neutral provisions that, practically speaking, imposed an unduly harsh burden on the buyer. The Court of Appeals upheld the trial court's denial of Valencia's motion to compel and the case was cleared to proceed as a class action.
November 24, 2011
New in Print (and Online): Thanksgiving Edition
As we've mentioned here before, this Thanksgiving, there's one thing we can all be thankful for: legal scholarship!
Kenneth A. Adams, Making a Mess of Ambiguity: Lessons from the Third Circuit’s Opinion in Meyer v. CUNA Mutual Insurance Society, Bus. L. Today (the ABA Business Law Section's Online Resource) (Nov. 24, 2011)
Meredith Goldich, Comment. Throwing out the Threshold: Analyzing the Severability Conundrum Under Rent-A-Center, West, Inc. v. Jackson, 60 Am. U. L. Rev. 1673 (2011)
Woodrow Hartzog, Website Design as Contract, 60 Am. U. L. Rev. 1635 (2011)
Kermit A. Mawakana, In the Wake of Coast Federal: The Plain Meaning Rule and the Anglo-American Rhetorical Ethic, 11 U. Md. L.J. Race, Religion, Gender & Class 39 (2011)
Kelly M. O'Bryan, Comment. Mommy or Daddy and Me: A Contract Solution to a Child's Loss of the Lesbian or Transgender Nonbiological Parent, 60 DePaul L. Rev. 1115 (2011)
Christine M. Westphal, Restrictive Covenants in Employment Contracts: Regulating Employee Solicitation. 37 J. Legis. 108 (2011)
November 23, 2011
Let's Dance: Hoffman on Mentoring v Scamming
In a characteristically insightful blog post, Dave Hoffman uses Vokes v. Arthur Murray as a nice launching point to discuss some aspects of the scam-critiques aimed at law schools. Vokes is such a great teaching case, and Dave's post leaves me feeling like I could have done a better job teaching it this year.
There's not much to add to the mix in the scamosphere, as many bloggers, including some of our own here at ContractsProf, have already commented very thoughtfully. In my humble opinion, the law school scam coverage is old news often sloppily reported with the vitriol amps turned up higher. And the coverage of these law school scam stories, at the New York Times in particular, seems completely disproportionate to the coverage of the number of other significant things happening in the world. (You really want cynicism? These stories get linked all over and end up on the most read and emailed list on the newspaper's website, driving page views. Page views drive advertising revenue. So, why not write another law-school-is-a-scam article?).
Anyhow, perhaps ironically in light of the recent spate of "scam" coverage about law schools, it seems that the vast majority of my students had very little sympathy for Ms. Vokes.
[Meredith R. Miller]
The Spring Contracts Conference Will Be in San Diego This Year!
Conference Announcement and Call For Papers
7th International Conference on Contracts
Thomas Jefferson School of Law,
San Diego, California March 2nd – 3rd 2012
The 7th Annual International Conference on Contracts will be hosted by the Thomas Jefferson School of Law in its new state of the art facility in San Diego California on March 2nd & 3rd 2012.
In the fine tradition of previous conferences held at Stetson, UNLV, McGeorge, South Texas, Texas Wesleyan and Gloucester, England, this conference will provide scholars and teachers at all experience levels the opportunity to present, discuss and receive feedback on a wide spectrum of scholarship. Articles recently published, articles-accepted-but-not-yet-published, works-in-progress, not yet fully formed ideas for scholarship or pedagogical innovations are welcome. The conference also provides an eagerly anticipated annual opportunity to network with colleagues, potential collaborators and mentors from the U.S. and around the globe.
Call For Papers and Panels: We invite paper, presentation and panel proposals exploring any aspect of contract law, theory and policy. The topic range is deliberately broad to permit an as full as possible exploration of contractual themes. Past programs have thus included panels on “traditional” contracts topics (e.g. remedies, formation, defenses, etc), on contract-related subjects (insurance, consumer law, commercial law, dispute resolution, family law and restitution), and from a rich variety perspectives (historical, jurisprudential, empirical, institutional, law-and-economics, international and comparative contracting and others). We also solicit volunteers to serve as moderators or discussants for panels that are not “pre-packaged”.
Participation: We will try to accommodate as many presenters, moderators, and discussants as possible. Junior scholars and those working in non-U.S. legal systems in particular are encouraged to propose papers or panels and to volunteer to serve as discussants or moderators. Anyone wishing to attend to enjoy the conference without presenting or serving as a discussant or moderator is also welcome. There is no publication requirement for conference participants. (Experience suggests that individual papers and panels are often published elsewhere).
Proposal Submissions: To propose a presentation or panel, please email a title, brief description, and any supporting materials to (email preferred) firstname.lastname@example.org or to Eniola Akindemowo at the address below by Friday, December 23rd 2011. If your interest is to discuss or moderate, please let us know (indicating your interests and availability) by Friday, December 23rd 2011 also. All proposals received by the December 23rd deadline will be evaluated and we will try to accommodate all requests to discuss or moderate. Proposals and requests received after the December 23rd deadline will be entertained on a space-available- basis.
Registration and Preliminary Schedule: Final details (including the conference hotel, registration details, and a conference website) are being finalized and will be circulated shortly, however we do not expect the registration fee to be more than $250. The registration fee will cover the costs of a continental breakfast, lunch and tea breaks on both days and a reception dinner on the Friday. The conference program will take place between approximately 9:00 am – 5:30 pm on both days.
Proposals and Participation Requests Due: Friday, December 23rd, 2012
Papers and Presentations in Final Form Due: Friday, February 10th, 2012
Conference Begins: Friday, March 2nd, 2012
Conference Ends: Saturday, March 3rd, 2012
Professor of Law,
Thomas Jefferson School of Law,
1155 Island Avenue,
San Diego, CA 92101
Thomas Jefferson School of Law,
1155 Island Avenue,
San Diego, CA 92101
November 22, 2011
Court of Federal Claims Construes "Best Efforts" Clause
There are lots of interesting facts in The Marquardt Co. v. United States for those of us who are not experts in government contracts. The United States agreed to pay The Marquardt Company (TMC) nearly $1.5 million to settle the United States' obligations under 23 contracts with TMC. The agreement included (what to me at least seems) a very strange provision that, while the parties recognized that the Government did not at the time of the agreement have the funds available to pay the $1.5 million, it would use its "best efforts" to get the necessary funds in an expeditious manner. When the Government did not pay up, TMC sued to collect, but the Government moved to dismiss arguing that TMC "must be able to prove that it would have received more money but for the alleged breach of the Government’s best-efforts obligation” and that it could not do so.
The Court ruled that the government misunderstood the relevant burdens of proof in the circumstances. The proper burden on plaintiff here is that "it must show facts, by 'citing to particular parts of materials in the record,' RCFC 56(c)(1)(A), that tend to show that but-for the government’s breach, plaintiff could have been paid additional funds.” The Court therefore concluded as follows:
Making all reasonable inferences from the evidence proffered by TMC, the court concludes that, had the government sought funding from outside the buying commands, as was suggested by its own employees, . . . additional funds could have been made available to pay TMC. Plaintiff has therefore alleged sufficient specific facts to show that “defendant’s action materially increased the risk of the injury that occurred,” Corbin on Contracts § 55.7 n.10, and that but-for the government’s breach of its best efforts obligation, it could have secured additional funds. There is a genuine issue for trial, Celotex, 477 U.S. at 324, and accordingly, summary judgment for defendant is not appropriate at this time.
But what constitutes "best efforts"?
The Government claimed that it had to seek funds from the military agencies with which TMC had contracted, but the language of the agreement contained no such limitation on what constituted "best efforts." TMC contended that the Government was obligated to seek funds from other sources, including the Defense Finance and Accounting Service and the Pentagon. The Court determined that further development of the record was necessary as disputed issues of material fact prevented the Court from determining precisely what constituted "best efforts" in the circumstances.
In a careful and richly detailed exercise in contract interpretation, which we will not attempt to summarize here, the Court also concluded that the Government improperly withheld about $160,000 that had been taken into account when the parties agreed to the $1.5 million settlement.
Weekly Top Tens from the Social Science Research Network
November 21, 2011
Quote of the Day [On Consumer Choice and Pre-Dispute Arbitration]
"It may seem extraterrestrial, but I have lived in a world where people did not have cell phones or the gadgetry we see in our daily lives. Folks did survive."
I happened upon the quote in this piece by Public Citizen in favor of the Arbitration Fairness Act. The reaction to the quote in that article:
"[Schwartz'] comment was obviously puzzling in a modern context, and distracted from the real issue at hand, consumer rip-offs perpetuated by wireless companies, particularly in the fine print of cell phone contracts. Schwartz’s answer to the problems: Give up your mobile device."
To be fair, I will place the quote in its greater context within Schwartz' testimony:
Another commonly employed argument against pre-dispute arbitration provisions is that
they disadvantage consumers and employees because these groups have no bargaining power or
have unequal bargaining power. This argument adds that these arbitration clauses are often
buried in the “fine print” or are in contracts written in “legalese,” leaving many consumers or
employees unaware that these provisions even exist. But, here is the key point mentioned in the
beginning of my testimony. Consumers and employees voluntarily enter these contracts. It may
seem extraterrestrial, but I have lived in a world where people did not have cell phones or the
gadgetry we see in our daily lives. Folks did survive. If consumers balked at these agreements
and refused to buy products or services unless they could litigate disputes, it is my belief that at
least one or more companies would offer a non-arbitration alternative; in fact in many industries
where arbitration is used, some non-arbitration alternatives exist. The argument that consumers
lack bargaining power is a fallacy; consumers gain more bargaining power everyday through
increased competition and more avenues, such as on the Internet, to rate products and services.
So, who has the better side of the debate? Is not participating in consumption a solution? If you don't like pre-dispute arbitration, don't have a cell phone? Would enough consunmers really give up their cell phones to create a market for a "non-arbitration alternative"?
[Meredith R. Miller]
The Real Problem with Legal Scholarship
The legal blogs are afire (see our very own Jeremy Telman's post here, and others here , here and here ) about this article about the impracticability of the law school curriculum. The article takes aim at “chin-stroking scholarship” that supposedly “nobody” reads. I'm puzzled about labeling scholarship as worthless because it's not more widely read - that doesn't necessarily reflect the potential value of the article. The article grossly over generalizes the nature of legal scholarship. Maybe it’s my chosen areas (contracts and cyberlaw), but most of what I read --and yes, I do read a lot of law review articles-- tackles real world, sticky social and legal issues caused by technological developments and contemplates possible solutions based on (surprise!) legal doctrine. Theoretical articles, as we contracts profs know, shed light on the “why” questions and thus help in the application of doctrinal rules to novel situations. The bad rap that scholarship receives seems to come from a handful of articles which are published by a handful of journals that push the envelope and get all the attention of (some) journalists and (some) judges. (I’m not commenting about the articles cited in the NYT piece because, unlike the journalist, I try not to judge an article I haven’t read by its title). I don’t think that’s a problem in and of itself – not all of legal scholarship should be about real world solutions and what might seem like an outrageous, pie-in-the-sky idea now may not seem so outrageous in a few years. (The anti-intellectual criticisms in the article remind me of equally inane arguments about the irrelevance of a humanities curriculum, literary novels, classical music and art). What is problematic is when journalists or judges use a handful of articles as examples of what all law review articles are like. These folks just don’t know the good stuff that’s out there -- many articles do in fact explain doctrine, have at least the potential for practical application or contribute in some way to our understanding of the law. The fact that more articles don't get cited by courts is a shame and may reflect more about the elitist bent of (some) judges than it does about the nature of legal scholarship generally. The real problem with legal scholarship is that it's not more widely read. I think that more judges should read more legal scholarship, and in a wider variety of journals. Maybe then we wouldn’t have short-sighted, doctrinally confused cases like ProCD v. Zeidenberg – a case about which many of us contracts profs have written. Unfortunately, not enough courts seemed to have read those articles. Maybe the state of contract law would be better if they had.
More (Illegal) Fun with TOS
Virginia Supreme Court on Non-Competes
The issue in Home Paramount Pest Control Cos. v. Shaffer was whether a non-compete clause in an employment agreement was overbroad. Mr. Shaffer was an employee of Home Paramount Pest Control (Paramount) for about six months before he resigned and went to work for a rival pest control company, Connor's.
Mr. Shaffer had signed a non-compete clause when he went to work for Paramount which provided that he would not have any involvement in any pest control business in the cities and/or counties in which he worked for a two year period after the termination of his employment with Paramount. Paramount brought suit against Shaffer, alleging breach of contract, and against Connor's, alleging tortious interference. The trial court found the non-compete overbroad and dismissed the suit. The Virginia Supreme Court heard Paramount's appeal.
In Virginia, a non-compete is enforceable if it “is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.” In determining whether or not the test is met, the court considers together three elements: function, geographic scope and duration. On appeal, Paramount argued that the trial court focused on function, especially on the fact that the non-compete at issue prohibited Mr. Shaffer from having any role in a pest control enterprise:
The Employee will not engage directly or indirectly or concern himself/herself in any manner whatsoever in the carrying on or conducting the business of exterminating, pest control, termite control and/or fumigation services as an owner, agent, servant, representative, or employee, and/or as a member of a partnership and/or as an officer, director or stockholder of any corporation, or in any manner whatsoever. . . .
Paramount argued that the relatively narrow geographic and durational components of the non-compete compensated for the potential overbreadth of the fuctional element. Virginia's Supreme Court disagreed: Virginia courts have repeatedly struck down non-competes that purport to prohibit a person from doing anything in an industry, while they uphold non-competes that prohibit a person from engaging in the same sort of activity as she was employed to engage in previously. Since the non-compete at issue here would have prevented Mr. Shaffer from even participating in a pest control business as a passive investor, it clearly was overbroad.
The Court acknowledged that the language of the challenged non-compete was identical to that of a non-compete that the Court declared enforceable in a 1989 case, Paramount Termite Control Co. v. Rector, 238 Va. 171, 380 S.E.2d 922 (1989). The Court ruled that it was not bound by stare decisis in this case, as many subsequent decisions had whittled away at Rector, which the Court now expressly overruled. The Court would not even consider Paramount's evidence that Mr. Shaffer had solicited its customers. Given that the entire non-compete was found to be unenforceable, evidence of a breach of that provision is irrelevant.
Although the Court does not address the issue, it seems that Virginia courts apply a formal approach to non-competes. There is no mention of the "blue pencil test," which would have permitted a court to render the non-compete enforceable by editing out the offensive language relating to function. If, as seems likely, Mr. Shaffer has agreed to perform the same work for Connor's as he did for Paramount (while poaching customers in the process, perhaps in violation of a common-law fiduciary duty -- see Town & Country Serv. v. Newberry), the result here does not seem fair to Paramount. True, it should not be permitted to limit Mr. Shaffer's opportunities to the extent that it sought to do, but it is hard to imagine that both parties did not understand that the non-compete was intended to prohibit precisely the conduct in which Mr. Shaffer engaged.
November 20, 2011
The Value of Law Reviews
For those in the academia with low blood pressure, I recommend reading David Segal's reportage on the current state of law schools (the latest can be found on the front page of Sunday's New York Times) because he can raise your blood pressure in a hurry. And I'm not certain if anybody will really be happy to read what he has to say, because the message is that law schools are running a scam and that anyone who depends on law schools -- students, law firms that have to hire law school graduates, clients -- is a chump. In the end, Segal's angle is great at generating rage but terrible at generating solutions.
The heart of his argument in the most recent article is that law students pay outrageous tuition but get no practical training. His solution, to the extent that he offers one, is that there ought to be stronger skills programs, including clinics, but of course the tremendous growth of clinics, with their small student-to-faculty ratios, is one of the most important reasons for rising tuition. Teaching students the law, legal ethics and practical skills turns out to be an expensive proposition. Law schools in the United States have chosen to try to do all three. If Mr. Segal wants to see legal education that ignores the development of practical skills, he should have a look at legal education in other parts of the world. Nonetheless, given the fluidity of laws and regulations, law schools in the United States have chosen quite sensibly to give students sufficient training in legal reasoning so that they can figure out the rest on their own.
It may well be that students thus emerge from law school ignorant of practical matters, like (taking Mr. Segal's opening anecdote) the steps one has to take to accomplish a merger. I teach business organizations, and I confess that I do not cover the steps necessary to accomplish that goal. However, I am pretty certain that even if I did, my students would forget those humdrum details until reminded of them in practice and that, once reminded by a partner in that practice area, they would have the tools they need to master the process. In Mr. Segal's anecdote, a first year associate confuses a merger with a stock purchase, but that distinction is covered in the law school curriculum. It turns out that it is just very difficult for students to retain all such information through three years of law school, bar preparation and entry into the work force.
In this blog post, I want to focus on one of Mr. Segal's side points, which goes to something like a contractual issue. Mr. Segal argues that law reviews churn up a lot of resources at law schools -- including a big chunk of student tuition -- and result only in wildly impractical navel-gazing. The implication is that not only students but also taxpayers who stand behind student loans are thus paying for something for which they did not bargain. There's a lot to be said about this.
Mr. Segal presents some statistics suggesting that about 40% of law review articles are never cited either by other law review articles or by courts. That suggests that there is quite a bit of useless scholarship out there, but I think the numbers would be quite different if he focused only on scholarship published in the top flagship law reviews and the top specialized journals. Those publications get cited to a lot and they very rarely have subject matters as esoteric as (to take Chief Justice Roberts's example) "the influence of Immanuel Kant on evidentiary approaches in 18th-century Bulgaria." Mr. Segal also ignores the fact that a lot of faculty scholarship involves writing casebooks and treatises and engaging in law reform, the impact of which immeasurably larger (not to say more important) than that of legal scholarship published in law reviews.
But what of the other 40%? Are those resources simply being dumped down the toilet? My answer is no for a lot of reasons, but here I just want to focus on the one reason most relevant to Mr. Segal's critique of law schools. Some of the best training that happens at law schools happens at law reviews. I came to law school with ten years of scholarly experience under my belt, because I had written a doctoral dissertation, published historical scholarship and taught before making the jump to law school. Still, my skills as a researcher skyrocketed in my third year as a law student when I was responsible for overseeing a team of cite and substance editors on a number of review essays that we published in our Review of Law and Social Change. The evidentiary standards for legal scholarship are far more exacting than they are in the humanities and the non-quantitative social sciences. No claim can be made without authority. As a result, I became a far more intrepid researcher, and I unlearned intellectual habits acceptable to my former field of study and adopted intellectual habits essential to successful lawyering.
I know that others have had very different experiences at their law reviews, but my experience is an important reason why every law school has a law review. In fact, when law reviews proliferate so that there may be half a dozen or more at prestigious schools, the impetus for such proliferation comes from the students who recognize, among other things, that the experience of working on a law review will help them develop important, practical lawyering skills as well as a greater appreciation of the theoretical underpinnings of legal doctrine.