Friday, December 9, 2011
As I write, my students at the DePaul University College of Law are taking my Business Organizations exam. Because I visited at other law schools in Fall 2010 and this Fall, I have not taught contracts in two years. I miss it, but I had a great deal of fun with the DePaul students. They were very accepting of me despite the fact that I now have very long hair (for a business law professor) and I banned all use of laptops and electronic devices during class. As a result, my class had a rather unorthodox look to it, as the picture at right illustrates.
Somehow, a tradition developed in my afternoon class that one of the students would draw a little picture on the attendance sheet. But when I picked up the attendance sheet after the last day of class, there was no picture. I immeidately protested. After class, a student, who would neither confirm nor deny that he had drawn the previous pictures (the outcome of forensic testing is pending), drew a snowman holding a sign. On the sign, he wrote the following:
At first, I thought Telman a kook,
He looks like Jesus and no Facebook
But despite my apprehension
I actually paid more attention.
That Telman's okay in my book.
Thursday, December 8, 2011
Jeremy Telman recently posted about this front page article in the NYT about oil and gas well leases, and the contractual traps for the unwary. This article mentions and explains some common terms in such leases.
There are additional contract issues that were raised by the article having to do with the bargaining process. There's a bargaining imbalance where you have one party with greater financial resources than the other or one with greater financial need. Another bargaining disparity involves knowledge - the oil and gas companies are much more familiar with these types of transactions and more knowledgeable about what could go wrong. It's their business. The landowners, on the other hand, presumably don't enter into these transactions often.
Unfortunately, contract law doesn't usually recognize these kinds of bargaining disparities, especially outside of the consumer context -- at least not to invalidate the contracts. A court might consider them in interpreting ambiguous contractual clauses. In addition, the landowners might be able to raise a lack of good faith argument that might affect the interpretation or construction of some of the contractual clauses or the parties' performance under the contract. For example, one lease cited in the article contained language that said that "preparation" to drill would allow the gas company to extend the duration of the lease. The landowners had negotiated what they considered a bad deal and planned to renegotiate it after it expired. A day before the expiration date, the gas company "parked a bulldozer nearby and started to survey an access road. A company official informed them that by moving equipment to the site, Chief Oil and Gas was preparing to drill and was therefore allowed to extend the lease indefinitely." I don't know about you, but that strikes me as performance that's not in good faith. I hope a judge would agree.
Something else that struck me in reading about these leases was how they highlight the overconfidence and optimism bias in these types of deals. Landowners are likely to focus on the potential upside of these deals - which can be pretty sky high. But things can and do go wrong in any type of transaction. The long term nature of these contracts makes it even more important to think carefully about the risks and not just the upside -- but a long time horizon also makes it harder to evaluate those risks.
And of course, as Jeremy mentioned in his post, there's the Peevyhouse issue. Even if you carefully draft a "clean up" or similar clause, a court may find performance to be economically wasteful and not enforce it. To safeguard against that, the parties might consider putting clean up costs in an escrow account and including a liquidated damages provision.
While this article was about gas well leases, I can see similar issues arising with other long term contracts, particularly those between landowners and energy companies. I predict we'll see a slew of innovative solutions around alternative energy (such as windfarms on private land) which is great - but again, it's important to take a large dose of caution with that optimism, especially if you are representing the "little guy/gal."
Christopher R. Drahozal, and Peter B. Rutledge, Contract and Procedure, 94 Marq. L. Rev. 1103 (2011)
Ryan Griffee, Explaining Adversarial Boilerplate Language in the Battle of the Forms: Are Consequential Damages in the U.C.C. Gap Fillers a Penalty Default Rule? 4 J. Bus. Entrepreneurship & L. 1 (2010)
John Patrick Hunt, Taking Bubbles Seriously in Contract Law, 61 Case W. Res. L. Rev. 681 (2011)
Salina M. Maxwell, Comment. Keep Your Contract to Yourself: Attempting to Balance the Expectations of Signatories in Arbitration Agreements with the Freedom from Contract Rights of Non-Signatories. 2010 Mich. St. L. Rev. 1177
Jim.Moye, Let's Put the Fear in the FERA! Suggestions to Make the Fraud Enforcement and Recovery Act of 2009 a Strong Fraud Deterrent, 35 S. Ill. U. L.J. 421 (2011)
Wednesday, December 7, 2011
A New Baltimore woman is suing a car dealership, alleging employees there failed to tell her the sport utility vehicle she purchased once held a dead body.
Margarita Salais sued Suburban Ford of Sterling Heights, claiming the dealership did not disclose information about a 2006 Ford Expedition she bought in March, says the complaint filed in Oakland Circuit Court.
After Salais bought the car, she noticed a rotten odor. "They bought the car while it was still cold out in March," said Dani Liblang, Salais' lawyer. "The warmer it got, the worse the smell got."
Salais brought the car to the dealership, and someone informed her the smell came from a dead animal, Liblang said. But she wasn't satisfied.
Salais filed a claim with her insurer, State Farm, which hired a biohazard cleanup company to check the car, Liblang said. Clinton Township-based Elite Trauma Clean-up, Inc. determined the odor was of human origin, according to a letter from State Farm in the complaint.
The dealership did not respond to a call for comment Monday and has not yet filed a response to the Nov. 1 lawsuit. The suit was filed in Oakland County because Suburban Ford's offices are registered in Troy.
A man who answered the phone at Elite Trauma Clean-up on Monday said it was determined only that the car smelled of "rotten meat." The man, who wouldn't give his name, said he inspected the car and there was no way to find the origin of the smell without dismantling it.
The car had been stolen and used as a rental car, according to the complaint. The dealership didn't purchase the car until December 2010, so the same cold weather that hid the smell from Salais might have kept it hidden from the dealer, Liblang said.
Salais is suing the dealer and Chief Financial Federal Credit Union, which financed the vehicle, for $25,000 plus fees.
[Meredith R. Miller]
We have shown Sotheby’s the love before on this blog. Perhaps it was the financial difficulties attendant to Sotheby’s onerous SEC obligations that has led the corporation to try to save in other areas. Regardless of the cause, Sotheby’s and its unionized employees have been engaged in a protracted labor dispute. According to the New York Times, art handlers for Sothebys have been locked out since August.
Members of the union decided to up the pressure on the corporation recently by confronting a member of Sotheby’s board, Diana L. Taylor, a/k/a New York City Mayor Michael Bloomberg’s girlfriend. The result was not pretty. According to the New York Times, Ms. Taylor told Sotheby's president and chief executive that if acceded to any of the union's demands, "I will resign from the board."
Here’s the video.
Tuesday, December 6, 2011
Contracts profs love teaching Peevyhouse. We at the blog love Peevyhouse. We have composed songs and poems, we’ve written scholarship about the case. There is even a movie. We just can’t get enough of it. And as if there were not already enough materials available to profs looking to jazz up their Peevyhouse discussion, the New York Times has this big front-page story, which is part of an on-going series of articles, plus the Times has also established an online archive of oil and gas leases.
The Times story relates the experience of Scott Ely and his father, who entered into a lease to allow Cabot Oil and Gas engage in gas drilling on their land. They were left with “toxic drilling sludge stored in large waste ponds” on their property. When the waste seeped out, it contaminated the drinking water on a separate property. Mr. Ely sued. Cabot’s spokesman contends that “the company’s cleanup measures met or exceeded state requirements.”
The Times’ review of 111,000 similar leases suggests that many or most such leases do not provide all of the contractual protections that landowners like the Elys expect.
For more very interesting information on the complications associated with oil and gas exploration in Pennsylvania, we recommend this episode of This American Life.
Monday, December 5, 2011
Frank McCourt may be in the process of suing his former lawyers, Bingham McCutchen, LLP, according to this article in the Wall Street Journal. As you've probably heard, Frank McCourt had a nasty divorce from his wife, Jamie, not too long ago - although it seems like this morning. I tried not to pay too much attention to it (not easy to do when you live in SoCal) until I realized that a major issue in the divorce concerned the marital agreement between the couple which would determine who owned the Dodgers. Apparently there was some confusion about attachments to the original marital agreement, with only some naming Frank McCourt as the sole owner. A drafting error - or was it? Jamie McCourt's attorneys argued that the various copies indicated there was no meeting of the minds. The judge agreed and threw out the agreement. Frank McCourt wasn't happy about that and has filed claims against Bingham that could be worth "hundreds of millions of dollars."
The Department of Health and Human Services (HHS) provides training courses for its employees through HHS University (HHSU). In May 2007, HHS put out a request for quotations (RFQ) to provide grant management courses covering eight topics at HHSU. The Gonzales-McCaulley Investment Group, Inc. (GMIG). GMIG submitted a cover letter ad quote. It referenced "course book" binder that had apparently already been submitted to HHS.
The training program manager at HHS sent an e-mail to GMIG attaching "confirmation of selection to provide training in Grants Management to HHS University" and suggesting further contacts to discuss date for training sessions. Throughout June 2007, the parties exchanged communications setting up dates for the trainings. At that point, Kimberly Hill, HHSU's Manager of the Center for Administrative and Systems Training reviewed GMIG's submissions and compared them with the website of Management Concepts, the organization that had previously been providing services to HHSU, finding them virtually identical. On that basis, Ms. Hill concluded that GMIG had engaged in plagiarism, and she informed GMIG that HHSU would not be using its services. CMIG filed a pretest to the Government Accountability Office (GAO), arguing that GMIG never had an opportunity to defend itself against the charge of plagiarism. When HHS subsequently cancelled the original Request for Quotations (RFQ), the GAO dismissed the protest as "academic."
GMIG persisted, claiming that the decision to rescind the RFQ was pretextual. The GAO recommended that upon reinstating the RFQ, HHSU should give due consideration to all of the responding vendors. HHS instead decided to do all future HHSU training in-house. GMIG sued seeking $900,000 in general and consequential damages, and the suit, originally filed in California, was transferred to the Court of Federal Claims. After some procedural complexities, the Court of Federal Claims heard HHS's motion to dismiss or for summary judgment on the ground that there could be no breach of contract because there had never been a valid acceptance.
In a November 14, 2011 opinion and order, the Court of Federal Claims granted summary judgment to HHS. The court reviewed the elements of a breach of contract and concluded as follows:
“To prove the existence of a contract with the government, a plaintiff must prove four basic elements: (1) mutuality of intent to contract; (2) offer and acceptance; (3) consideration; and (4) a government representative having actual authority to bind the United States.” Hometown Fin., Inc. v. United States, 409 F.3d 1360, 1364 (Fed. Cir. 2005). Here, at a minimum, there was no offer and acceptance.
Since the federal rules do not consider a quotation to be an offer, the issuance by the government of an order in response to a quotation cannot establish a contract. But if GMIG's quotation was not the offer, perhaps the order was the offer, which was accepted through the exchange of e-mails. Unfortunately for GMIG, according to the court, the resulting e-mails merely discussed tentative dates and never amounted to an agreement. In the post-Iqbal and Twombly atmosphere, GMIG's inability to point to a "particular order and acceptance in its pleadings" is fatal to its claim.