December 15, 2011
Employees Cannot Rely on Arbitration Clause, 11th Circuit Rules
In Jim Walter Resources Inc. v. United Mine Workers of America, plaintiff Jim Walter Resources (Jim Walter) alleged that the defendant Union had conducted a work stoppage in violation of the parties' collective bargaining agreement (the Agreement). The District Court had dismissed Jim Walter's claim, holding that the dispute was subject to arbitration under the terms of the Agreement. The Eleventh Circuit reversed and remanded the claim of back to the District Court for trial.
The Agreement permitted the Union to designate "memorial periods" for legitimate purposes not exceeding a total of ten days during the term of the Agreement. The Union did so on October 14, 2008 and again on October 28, 2008. The Union justified the memorial days based on the workers' desire to attend local hearings of the Department of Labor, Mine Safety and Health Administration. Jim Walter countered that the justification was pretextual, and that the memorial days constituted improper work stoppages as a protest in connection with disputes at one of the mines. Jim Walter sued and sought damages.
The Union argued that the Agreement provided a "settlement of disputes" mechanism designed to avoid resort to the courts. Jim Walter countered that the contract did not "contemplate or provide for . . . the arbitration of any claim or grievance asserted by the employer." Drawing on caselaw from the old 5th Circuit, which included the states now comprising the 11th Circuit and is therefore binding on the 11th Circuit, the Court adopted the rule that an employer is not bound to arbitrate a claim for damages flowing from an alleged breach of a collective bargaining agreement where “the contractual grievance machinery is wholly employee oriented." The Court noted similar rules adopted in the 1st, 3rd, 7th and 9th Circuits, while conceding that decisions from the 2nd, 3rd and 4th Circuits are arguably to the contrary. The District Court had relied on the 2nd Circuit's decision in ITT World Communications, Inc. v. Communications Workers of America, 422 F.2d 77 (2d Cir. 1970), but the Supreme Court subsequently called that decision into question in Rock Company v. International Brotherhood of Teamsters, U.S., 130 S. Ct. 2847, 2859, n. 8 (2010).
Here, the Court ruled that the grievance procedure at issue was "wholly employee oriented" and thus did not apply to Jim Walter's claim.
December 14, 2011
Firing Bars Enforcement of Non-Compete Clause in Montana
In Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C. the Supreme Court of the State of Montana asked the non-musical question: "Can an employer enforce a covenant not to compete when the employer ends the employment relationship?" Wrigg was a shareholder in JCCS, an accounting firm. The covenant at issue stated the following:
If this Agreement is terminated for any reason and Shareholder provides professional services in a business...in competition with JCCS the Shareholder agrees as follows:
To pay to JCCS an amount equal to one hundred (100%) of the gross fees billed by JCCS to a particular client over the twelve month period immediately preceding such termination, if the client was a client of JCCS within the twelve month period prior to Shareholder’s leaving JCCS’ employment...and the particular client is thereafter within one year of date of termination served by Shareholder’s partners, or any professional services organization employing the Shareholder.
In May 2009, JCCS's CEO notifed Wrigg that her contract would not be renewed when it came up in June. the letter reminded Wrigg of the covenant not to compete. Wrigg had difficulty finding work at another accounting firm, but the covenant made it difficult for her to find work. Eventually, she found employment with Rudd and Company (Rudd), but in order to do so she had to accept a significant cut in salary from $154,000 to $87,000 due to Rudd's concerns about the covenant. Wrigg sought a declaration regarding the enforceability of the covenant. The trial court ruled that the covenant was enforceable because it was reasonable as to time and place, was based on good consideration and afforded reaonable protection without imposing an unreasonable burden on the employer, the employee or the public.
The key issue for the Montana Supreme Court, not addressed by the District Court, was whether the covenant protected a legitimate business interest in a case such as this one. Montana generally disfavors covenants not to compete, and the Supreme Court noted that such disfavor is heightened when the employer chooses to end the relationship. Surveying law from other jurisdictions, the Montana Supreme Court ruled that "an employer normally lacks a legitimate business interest in a covenant when it chooses to end the employment relationship." The Court found immaterial the question of whether Ms. Wrigg's departure was triggered by a termination or simply the expiration of her contract. Either way, she did not leave on the terms usually contemplated in such covenants -- she did not voluntarily leave employment so that she could compete against JCCS.
New in Print
Michael A. Dorelli and Phillip T. Scaletta, Recent Developments in Indiana Business and Contract Law. 44 Ind. L. Rev. 1053 (2011)
Surya Gablin Gunasekara, "Other Transaction" Authority: NASA's Dynamic Acquisition Instrument for the Commercialization of Manned Spaceflight or Cold War Relic? 40 Pub. Cont. L.J. 893 (2011)
Brent A. Little and Cheryl B. Preston, ICANN Can: Contracts and Porn Sites-Choosing "to Play Internet Ball in American Cyberspace." 21 Pac. McGeorge Global Bus. & Dev. L.J. 79 (2008)
Heidi Lynn Osterhout, Maj. U.S. Air Force. No More "Mad Money": Salvaging the Commander's Emergency Response Program, 40 Pub. Cont. L.J. 935 (2011)
Ryan Peterson, Regulating the Global Marketplace: Why the U.S. Government Must Revise the Current Rules on Contracting with Foreign-Controlled U.S. Businesses, 40 Pub. Cont. L.J. 1061 (2011)
Robert E. Scott & Paul B. Stephan, The Limits of Leviathan: Contract Theory and the Enforcement of International Law (Cambridge UP 2011).
Stephen Waddams, Principle and Policy in Contract Law: Competing or Complementary Concepts? (Cambridge UP 2011)
December 13, 2011
Prosecutor's Literary Contract Creates Conflict of Interest
David R. Camm has been twice tried and convicted for the murder of his wife, his son, and his daughter in September 2000. Twice those convictions have been overturned. During the second trial in 2006, Floyd County Prosecutor Keith Henderson, who had served as prosecutor at the second trial, sought a literary agent for a book he planned to write about the case. He found an agent and negotiated an agreement between the end of the trial and sentencing. Three years later, Henderson entered into a contract with Penguin to publish the book "Sacred Trust: Deadly Betrayal" (shouldn't that be a semi-colon?).
When Camm's conviction was reversed for the second time, Henderson wrote to his literary agent. Henderson emphasized his commitment to writing the book but insisted that it could not come out prior to the completion of a third trial. Eventually, the parties agreed to cancel the contract, and Henderson returned his advance. Camm, having learned of the book deal, petitioned for the appointment of a special prosecutor. Henderson issued a press release in which he noted that the publishing contract had been canceled but stressing his desire that "the unedited version of events needs to be told.”
At a hearing on the petition, Dean Emeritus Norman Lefstein of the Indiana University School of Law testified that Henderson's conduct created a conflict of interest under Indiana's Rules of Professional Conduct 1.7 and 1.8(d). The trial court rejected that argument, finding that there was no "clear and convincing evidence" of a conflict.
Camm filed an interlocutory appeal. The Indiana Court of Appeals reversed, finding that Henderson, in signing a contract to write a book about Camm "permanently compromised his ability to advocate on behalf of the people of the State of Indiana" in Camm's third trial. The full opinion can be found here: Camm v. State.
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
October 13, 2011 to December 12, 2011
|1||394||The Corporation as Social Contract
M. Kaptein, Johan Wempe,
Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM), Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)
|2||212||Codification and Flexibility in Private International Law
Symeon C. Symeonides,
Willamette University - College of Law
Ralph C. Nash,
George Washington University - Law School
|4||150||How to Opt into the Common European Sales Law? Brief Comments on the Commission’s Proposal for a Regulation
Martijn W. Hesselink,
University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
|5||140||Bijzondere Overeenkomsten in Kort Bestek (Specific Contracts in a Nutshell)
Alain-Laurent Verbeke, Pieter Matthias Brulez, Nicolas Carette, Nele Hoekx,
University of Leuven, Faculty of Law, Department of Private Law, Unaffiliated Authors - affiliation not provided to SSRN
|6||126||Keynote Address: A Regulatory Framework for Managing Systemic Risk
Steven L. Schwarcz,
Duke University - School of Law
|7||125||A Theory of Redressive Justice
Andrew S. Gold,
DePaul University - College of Law
|8||124||Political Risk and Sovereign Debt Contracts
Stephen J. Choi, G. Mitu Gulati, Eric A. Posner,
New York University (NYU) - School of Law, Duke University - School of Law, University of Chicago - Law School
|9||113||Arbitral Power and the Limits of Contract: The New Trilogy
Alan Scott Rau,
University of Texas at Austin School of Law
|10||109||Endogenous Institutions: Law as a Coordinating Device
Gillian Hadfield, Barry R. Weingast,
USC Law School and Department of Economics, Stanford University - The Hoover Institution on War, Revolution and Peace
Greetings from Netanya...
Greetings from Netanya Academic College, where I will enjoy this symposium tomorrow: Law of Contract or Laws of Contracts (here's the program: Download Symposium). Come join us if you are in Israel!
[Meredith R. Miller]
December 12, 2011
Ticket Pricing Errors and Unilateral Mistakes
A recent letter to the NYT's consumer advocate, the "Haggler," (aka David Segal, who some of us law profs may not love so much anymore since his recent swipe at legal scholarship...) raised some interesting contracts issues. A reader complained that in early September he bought two round trip tickets from San Francisco to Palau for $510 on Korean Air for a trip in February. In the interim, he booked hotels, bought an underwater camera and made plans. Sixty-four days later, he received an email from Korean Air stating that the posted fare was "erroneous" and that his tickets were cancelled. They offered a refund for "travel-related" expenses, including the tickets, and a $200 Korean Air voucher. The reader stated that with the voucher, his new fare would be $360/ticket higher than the fare he had originally booked.
So, what's the price of an average airline ticket to Palau from S.F. in early February? I checked and it's anywhere from $1600 to $2500 for coach. But before you say unilateral mistake -- for didn't the reader check other airlines and know that the quoted rate was so much lower? - I say, Hold on. I realize this is not the first time an airline, or any company, has posted an erroneous fare. The Haggler discussed another incident involving British Airways that arose in 2009 where the company posted fares from U.S. to India for $40. In that case, British Airways covered travel-related costs and gave out $300 vouchers. (One of the issues in an exam I wrote several years ago was inspired by this situation).
But the British Airways case was different from the Korean Air case in several ways. The British Airways fare was so low that I think the purchasers "knew or should have known" about the mistake. The Korean Air price was also low, but given the deals to be found on the Internet and that the tickets were booked so far in advance, it is not evident that the purchaser "should have known" that the fare was a mistake. It's a great deal, but not clearly a mistake. Furthermore, the wrong price was listed for only a few minutes on the British Airways site, whereas the erroneous fare was posted on the Korean Air website for several days ("at least four"). Would it be "unconscionable" to force Korean Air to honor the fare? Maybe. Under Donovan v. RRL Corp., the standard of"unconscionability" for unilateral mistake purposes is lower than required when it's a standalone defense.
There's another issue that was raised in the Haggler column as a potential problem for the purchasers, the "contract of carriage." I checked on the Korean Air website and found the document - all 44 pages of it. It's accessible as a link on the bottom of the Korean Air website, of course. I took a brief glance at the document (necessarily brief b/c of the length). There were some references to Korean Air's ability to cancel for broad and vaguely defined reasons, but I would not have interpreted these as permitting cancellation for posting an erroneous fee - these seemed more appropriately interpreted as allowing cancellation for equipment failure or scheduling or weather complications.
I may have missed it, but I didn't see a provision allowing Korean Air to cancel for posting an erroneous fare after it has confirmed the reservation. To interpret the existing cancellation clauses to mean Korean Air can cancel at will would create mutuality issues. Korean Air would not want to make this argument for while such an interpretation would disadvantage the purchasers in this particular case, it could also mean that the contracts it enters with its other customers are void (and customers could cancel at the last minute).
Another provision I didn't see and just might have missed (although I doubt it) was a choice of law provision with respect to contract claims.
December 11, 2011
"Zip-it" contracts in a brave new world
Last week was a big week for contracts to "keep-your-mouth-shut". The L.A. times had this article about the recent exchange between "The Girl with the Dragon Tattoo" producer, Scott Rudin, and New Yorker film critic, David Denby. It seems that Denby broke his promise not to publish a review of an early screening of the movie. While these "agreements" are common in the film and publishing industry, they are much harder to enforce because of the Internet and the ability to post instantaneously.
On the flip side, more businesses that would otherwise not have considered such agreements are doing so. Paul Levy discusses one type of agreement that has been receiving some attention in the blogosphere, "medical confidentiality" agreements. Dave Hoffman blogged about it as well here. While I can understand, on a personal level, the desire to contain what one considers to be unfair negative reviews on an easily googleable website (not that it's ever happened to me, ahem...), these contracts raise a lot of troubling issues. And while it may seem like bad business for a doctor or dentist to have a patient sign a "zip-it" contract, if these practices are widely adopted, they become standard practice, leaving consumers with no real choice (kind of like the intrusive tracking policies adopted by so many websites which we can't really seem to prevent....).