March 4, 2011
Finding a Diamond--and a Good Anticipatory Repudiation Case--in the Rough
Whenever possible, I like to point students toward a very recent case that illustrates a concept we addressed via older cases. This week, a student pointed me to the UK case of De Beers v. Atos Origin to illustrate how anticipatory repudiation applied in a more modern context. In this case, Atos Origin, a large European IT services company, agreed to assist De Beers, the famous diamond distributor, with its supply-side management system in Botswana. Unfortunately, contracts are not forever. Although the contract called for the parties to cooperate closely, the relationship later soured, and each side blamed the other for the break up (not-so-subtle pun intended). More specifically...Atos argued that De Beers had repudiated by withholding a progress payment and by trying to expand the scope of the project. De Beers argued that Atos had repudiated by refusing to continue to perform unless the contract was renegotiated. According to this report, the Court found that De Beers's witholding of a payment was not repudiation but that Atos's refusal to continue was repudiation. In the words of the case we often use in class, Atos's conduct was a "clear and unequivocal" refusal to perform while De Beers's conduct was not. Or, in the words of UCC 2-610 comment 1 (should this contract have involved a sale of goods, which it did not), Atos's refusal "demonstrat[ed]...a clear determination not to continue with performance," while De Beers's conduct did not. Sadly, the Court never directly declared that De Beers no longer was Atos's best friend. Nor did the Court conclude that damages amounted to approximately two months' salary. But it would be a lot funnier if it did.
[Heidi R. Anderson, hat tip to Zachary Ritz]
Question for Natalie Portman and Dior: Do Morals Clauses Cut Both Ways?
Big news from the Oscars involving Natalie Portman (pictured)! No, the news is not about what she won. Nor is the news that she did not laugh awkwardly during her acceptance speech, although this time the moment provoked tears rather than laughter. No. The news is that she wore a Rodarte dress despite her contractual relationship with Dior and endorsement of its Miss Dior Cherie fragrance. Sidebar: the consensus is that she looked ***faaaabulousss!***
It is not clear that her choice of attire was related to her recent denunciation of Dior's chief designer, John Galliano, for an anti-Semitic rant -- or perhaps for a series of them. While some reports suggest that Ms. Portman has severed her ties with Dior, the New York Times provides the more sober assessment that it is not clear what effect her statements relating to Mr. Galliano will have on her contract with Dior. Dior has already terminated Mr. Galliano's employment, despite what has been characterized as an apology for his comments. It's not clear what Galliano is apologizing for, since he denies the allegations and stresses his opposition to all forms of prejudice.
In any case, the controversy raises an interesting theoretical possibilty. We have been posting a bit recently about morals clauses. This situation raises the question of whether an athlete or celebrity who has agreed to endorse a product can opt out of the contract based on the conduct of the endorsee or one of its agents. In this case, the possibility is remote, given Dior's actions in terminating Mr. Galliano's employment, but what if Dior had accepted his pseudo-apology and kept him on, subject to his agreement to seek counseling? Although we don't know the specifics with respect to Ms. Portman's contract, let's assume that it includes a morals clause. Could a court imply that the clause must be reciprocal?
If the purpose of such clauses is to protect the endorsee from being sullied with the moral taint associated with a falled endorser, is there any danger of its working in reverse? If Al Gore had signed up to promote the pre-spill BP as an environmentally friendly power company, he might want to opt out post-spill. But could Ms. Portman, who has described herself as "an individual who is proud to be Jewish," really be tainted by her association with a Dior fragrance, based on the now-disavowed views of one prominent Dior employee?
March 3, 2011
The Suez Canal and Impracticability - A Video Clip for Class
Given the current political turmoil in Egypt, a discussion of the Suez Crisis and impracticability may actually meet with fewer yawning students this year. In preparing to present a hypothetical based on the cases (e.g., American Trading and Production v. Shell Int'l Marine Ltd, 453 F.2d 939 (2d Cir. 1972), I discovered some newsreel footage from 1956, which may help tell the story:
There are many other clips, but this one seemed like just the right length for class. Coincidentally, today, Reuters reports that Egypt's Suez Canal Authority announced that it will leave transit fees unchanged until the end of 2011.
[Meredith R. Miller]
Should the Mets Leave the Concession Stands at CitiField to an “Even Higher Authority”?
The owners of the Mets have a $300 million Madoff problem, but that hasn’t distracted them from attempting to ban a kosher concession stand from selling food at CitiField during the Sabbath.
Kosher Sports has a 10-year contract to sell hot dogs at the stadium and it sued the Mets last summer after being told it could not operate on Friday nights and Saturdays. In August, Judge Jack Weinstein ordered the Mets to stop banning the company’s sale of food during the Sabbath. At the time, he said with a smile, “I cannot get involved in (a dispute) over rabbinical law.”
Perhaps that is why the case ended up before Magistrate Judge Andrew Carter. But, he recused himself earlier this week because a Kosher Sports lawyer spotted him wearing a Mets hat outside the courthouse.
I imagine that this is a dispute about what the word “kosher” means in the 10-year contract. The Mets say the food isn’t “kosher” if the stand operates during the Sabbath. Kosher Sports begs to differ, and (likely) adds that the contract does not expressly restrict Sabbath sales. What’s the answer? What’s “kosher”? Apparently, whether a purveyor can sell food on the Sabbath and retain kashrut status is very complicated under Jewish Law. Some won’t allow it at all; some will allow it with particular conventions followed (conventions which are difficult to follow in a stadium on a Saturday because they require proper supervision and the qualified supervisors are prevented from stopping by on the Sabbath).
No wonder Judge Weinstein did not want to get involved, there’s an even higher authority involved in this dispute:
Certainly, this could be handled with more precise contract drafting in the future. Though, the inability to operate a concession stand on Friday nights and Saturdays (when, I imagine, the stadium has the highest turnout for games), could make it a losing proposition. Which, in the end, could mean no kosher option at all (whatever that means).
[Meredith R. Miller]
March 2, 2011
Boeing Wins [Final?!?] Round in 10-Year Battle over Air Force Contract
Stage 2: Get home
When the Muse sings into the ear of Boeing's Homer, he will record that as of 2011 Boeing's epic battle with EADS was finished. But already storm clouds are gathering as EADS murmurs darkly of legal challenges to come. And will the hero manage to complete the voyage and return home by issuing rich dividends to its shareholders?
After much controversy and two unsuccessful tries, The New York Times reports that Chicago-based company Boeing received a $35 Billion contract from the Air Force last week. Boeing beat out favored European Aeronautic Defense and Space Company (EADS) for the opportunity to build 179 aerial fueling tankers. The contract is for $35 billion, but it could eventually balloon to $100 billion. This award comes after years of trying to replace aging fueltankers, some of which have been around since the Eisenhower administration.
We've recounted the backstory before here and here. Long story short: U.S. awards $35 billion contract for about 180 aerial-refueling tanker aircraft to European company (EADS) working with U.S. corporation. Other U.S. corporation (Boeing) cries foul and challenges the bid process. U.S. calls for a do-over and this time Boeing wins.
Forbes's Loren Thompson explains how Boeing did so here. In sum, both bidders had established that they could get the job done, but Boeing offered a smaller plane at a lower price. Thompson is eating crow because he had predicted that EADS would win, but that was because he assumed that EADS would lower its prices with the help of government subsidies as it had done in the past. It didn't happen this time, and so it will be Freedom Fries on all U.S. refueling flights from here on in.
The Pentagon (pictured) determined that Boeing’s bid was more than 1% below EADS after weighing factors such as bid price, cost to operate the tankers over 40 years, and how each model met their wartime needs. EADS, who contends to have the bigger and better plane to Boeing’s “high-risk concept aircraft,” had 10 days from the award to appeal the decision with the Government Accountability Office. However, the Wall Street Journal reports that after meeting with the Pentagon on Monday to debrief, EADS is still “evaluating.” They better get a move on- they have until this Saturday
Whether or not EADS can challenge the award will turn on how successful the government was in creating a bulletproof bid process. Because this contract fight was so vexed and because the U.S. needs the new tankers so badly, it designed a rigorous bid process designed to remove any possible claim of bias. Bear in mind, resourceful Boeing and patient U.S. Air Force, Zeus does not bring all men's plans to fulfillment.
The contract is a victory for Kansas and Washington State, where Boeing manufactures and assembles its planes. However, states such as Alabama, where EADS was to build the tankers under its bid, feel cheated by the decision, with one Alabama lawmaker chalking it up to “Chicago politics.” This bid could also irritate European leaders, and derail any efforts to get European companies to bid on defense and other contracts.
Another loser in this deal could be the American people. While this is a victory for many Americans in terms of employment, is the Department of Defense really fueling planes with 50s era tankers? The bidding process for this has taken 10 years with three failed attempts only extending our use of these tankers. The Boeing contract will not provide all the 179 new tankers until 2017. In 2017 many of the existing fueling tankers will be approaching 70. Since the tankers are extremely important to U.S. Air Force operations, further delays in the contracting process could compromise U.S. national security.
[Katherine Freeman & JT]
Cleveland-Marshall Global Business Law Review Symposium
Cleveland State University Cleveland-Marshall College of Law’s Global Business Law Review proudly announces its 2nd Annual Symposium to be held on April 1, 2011. This year’s symposium is titled International Arbitration: Practice and Modern Developments and will feature internationally respected scholars and practitioners.
Joshua Fellenbaum, Associate, Mannheimer Swartling – Overview of Investment Arbitration
Ken Adamo, Partner, Jones Day – Overview of International Arbitration in an Intellectual Property Context
Mitchell L. Lathrop, Member, Mintz, Levin, Cohn, Ferris, Glovsky, & Popeo – Jurisdictional Issues in International Arbitration
George M. von Mehren, Partner, Squire, Sanders, & Dempsey – Is International Arbitration Becoming too American?
Thomas Carbonneau, Professor of Law, Penn State Dickinson School of Law – The Impact of Judicial Supervision on the Destiny of International Commercial Arbitration
While visiting the site, you are invited to view last year’s symposium edition and to check back later this spring for our upcoming edition.
New in Print
Oren Bar-Gill & Lucien Arye Bebchuk, Consent and Exchange, 39 J. Legal Studies 375 (2010)
Yair Listokin, Bayesian Contractual Interpretation, 39 J. Legal Studies 359 (2010)
Lynn C. Percival, IV, Public Policy Favoritism in the Online World: Contract Voidability Meets The Communications Decency Act, 17 Tex. Wesleyan L. Rev. 165 (2011)
March 1, 2011
NY Appellate Court Holds That E-Mail May Satisfy the Statute of Frauds
Recently, in an action seeking to enforce an alleged right of first refusal to purchase real property, New York's Appellate Division (First Department) held that an email from the seller's broker may satisfy the statute of frauds. Not too shocking in the 21st century. Perhaps the real shocker is that the New York Times covered the case in last Sunday's Real Estate section. The article begins:
BE careful when clicking “send.” That is essentially the message to brokers and their clients from a state court, which ruled recently in a real estate dispute that e-mails can carry the same weight as traditional ink-on-paper contracts.
“Given the vast growth in the last decade and a half in the number of people and entities regularly using e-mail,” handwriting and e-mail should now basically be considered one and the same, according to the decision in Naldi v. Grunberg, which was handed down on Oct. 5 by the Appellate Division, First Department of State Supreme Court in Manhattan. The ruling, which attracted little public notice when it was announced, was appealed on Monday to the Court of Appeals, the state’s highest court.
“As much as communication originally written or typed on paper, an e-mail retrievable from computer storage” is proof of a deal, according to the court’s opinion, which was written by Associate Justice David Friedman.
Though the case involved accusations of breach of contract in a commercial real estate transaction, the decision applies to residential deals as well. Lawyers says the ruling expands the state’s Statute of Frauds, a law with roots in 17th-century England that requires all property deals to be agreed to in writing.
True, real estate brokers (or anyone, really) should be careful what they write in an email because it may later serve as proof of a contract. But, with all due respect to the Gray Lady, the more interesting part of Naldi v. Grunberg is the formation issue. The court held that the email may satisfy the writing requirement of the statute of frauds; however, it nevertheless dismissed the plaintiff/buyer's breach of contract action because "the complaint itself, together with plaintiff's admissions and undisputed documentary evidence in the record, establish, as a matter of law, that there was never a meeting of the minds between the parties on the terms of the proposed right of first refusal set forth in the . . . e-mail sent by . . .defendant's broker." The court explained:
[T]he [seller's] e-mail, in response to plaintiff's prior offer to purchase the property for $50 million, made a "[c]ounteroffer" to sell the property for $52 million and, during the period of plaintiff's anticipated pre-contractual due diligence, to subject the property to a "first right of refusal on any legitimate, better offer during a 30 day period" (emphasis added). Thus, the offer of a right of first refusal was inextricably linked to the proposed purchase price of $52 million; without at least an agreement in principle on price, the words "better offer" would be meaningless.
In essence, the court held that the parties were still negotiating price and, therefore, no contract was formed. We'll keep an eye out for the Plaintiff/Buyer's motion for leave to appeal to the N.Y. Court of Appeals.
Naldi v. Grunberg, 80 A.D.3d 1 (N.Y. App. Div. 1st Dep't Oct. 5, 2010).
[Meredith R. Miller]
Weekly Top Tens from the Social Science Research Network
Pujols' Future in Doubt: It Is the Duty of Every Citizen to Remain Calm
The deadline set by Albert Pujols to negotiate a contract extension with the St. Louis Cardinals passed at noon et on Wednesday February 16, and his future with the team remains uncertain. According to mlbtraderumors.com, Pujols declined multiple offers from the Cardinals, the last one reported to be for 9 years and over $200 million. According to ESPN.com, Pujols is looking for an extension of 10 years that would make him one of the highest paid players in the Major Leagues. It is likely that he is looking for a contract comparable to Alex Rodriguez at 10 years for about $28 million a season. We have pondered the imponderables of such contracts in the past here and in passing here and here.
The passage of the deadline does not automatically means that Pujols is destined to become a free agent. MLBtraderumors.com explains that the Cardinals will have a five day exclusive window to negotiate with him at the end of the upcoming season. If the two sides are unable to reach an agreement in that window of time then he would become a free agent and able to sign with any team he wanted including St. Louis.
Mlbtraderumors.com explains that the Cardinals may have trouble financially signing their star because of money that they have committed to other players. This means that the team may have to get creative in order to keep their star. This could mean that the team could ask other players to defer some of their contract salary in order to allow the team to sign their star. Cardinals All- Star Matt Holliday has hinted that he would be willing to defer some of his large contract in order to allow Pujols to sign. The team may also have to explore the option of trading some other players with large salaries in order to free up money under their budget.
Another interesting option that the two sides may be able to explore is having Pujols himself sign a contract in which he is paid considerably more per year near the end of the contract than the beginning. Since baseball contracts are guaranteed, this is an option that both sides may consider. That is, Pujols could potentially be paid tens of millions of dollars to sit on the bench if he is incapacitated by what everyone knows to be a career-ending injury.
[Jared Vasiliauskas & JT]
February 28, 2011
The Sheen Has Worn Off.
Charlie Sheen’s antics, documented virtually everywhere, have kept the public agog for months. As the seriousness of his scrapes escalates, questions swirl about how this will all end. As parents caution a hyperactive child obviously heading for a fall that “it will all end in tears”, I am rooting for a happy ending, despite all indications. I am hoping, as I watch this awful drama unfold, that it will not culminate in a tragic end.
It was only a few weeks ago that Charlie Sheen reportedly announced that his contract for Two And A Half Men has no morality clause. It was alleged that he proudly asserted that he could do as he pleased, because he had not given the powers that be the contractual power to ‘dominate and totally interfere with my personal life’.
The unfolding drama raises contract questions galore. Is it true, for instance, that there is no moral clause in his contract? Really? It almost makes you want to incredulously ask who wrote the thing, until you realize that morality clauses are no longer de rigueur – at least not in entertainment contracts. He may even have such a clause in his contract - some accounts have him confirming the existence of such a clause but admitting that he hasn’t read it.
Clause or not, good luck Charlie; in the past a mere whiff of scandal could be the kiss of death for a career – yet this has not happened to Charlie - yet. A conceptual pair of reins over his scandalous behavior would do him some good, I think. A morality clause, and a carefully crafted artistic control clause, for example, could do some good. Regarding contractual control over his artistry however, this may depend on where performing ends and true life starts for Charlie. The two may have blurred into one. It almost seems like he was hired to play himself. (Does that make anything he does off set a spin-off? One might be forgiven for thinking so by his behavior).
It seems, in any case, that artistic authenticity is important to Charlie. Charlie wants to be true to self . The tragic thing about this is that he allegedly believes that authenticity precludes sobriety - at least for him. This brings to mind a pantheon of tormented stars that departed before their time. It makes you want to shake the guy saying “Snap out of it man – you’re not doomed. It doesn’t have to end this way".
Did he ever take the time to read the contract? We can safely presume that he signed it or that it was signed on his behalf, but he allegedly claims to not have read it. Perhaps he is no different from the large number of people who routinely sign before reading. Or perhaps he has not read it because he feels that is what he pays his legal team for. It’s hard, admittedly, to imagine Charlie Sheen taking the time to read a how-many-pages-long contractual document of carefully worded clauses at this point. Perhaps he once did – during that awful five years of sobriety a long time ago.
Maybe he enough patience for his legal team to give him only the nitty gritty of his contract i.e. what behavior will get him fired. He certainly seems confident that he has a long string to play with. Although he comes across as cocky, I suppose he has some reason for this – he is not known as ‘Teflon Charlie’ for nothing.
So here’s another question – what makes it so difficult for the reputational mud to stick to Teflon Charlie? Does he have a super slick contract assisting his PR agent? If so, what might be the ingredients for the slickest contractual Teflon – a tepid moral clause and wide discretion? The right to engage in ‘artistic expression’ so long as that bargain, and its expression, remain on the right side of public policy? Maybe being liked in the industry pragmatically translates to Teflon? Or is it just a good old double standard at work?
It’s hard to believe a party the size and sophistication of the CBS TV/Warner Joint Venture would leave itself contractually vulnerable to the antics of a Teflon profligate. CBS/Warner is surely working through its arsenal of options. That would include termination – firing Charlie – although the CBS/Warner has stopped short, for now, of doing so.
Another option, of course, would be to stand by Charlie - with gritted teeth. The show’s ratings have not been harmed by his troubles. It is likely, in fact, that his antics have helped the ratings. The show has performed so strongly, that if no more epsodes are made, the CBS/Warner will still profit handsomely from syndication which likely would go on for years. That’s good news and bad news for Charlie. It's good news if he gets a percentage cut of profits. Onthe other hand, the fact that he is no longer indispensible may be a bad omen for his continued antics as a CBS-Warner star.
CBS-Warner has undoubtedly weighed its choices every step of its turbulent journey with Charlie. So far the preference has been to put a good face on things. After his latest antic however - savaging the hand that fed him – it will be understandable if the CBs/Warner decides it’s time for the gloves to come off.
Before things turn really nasty, before the last straw breaks the camel’s back, might a point be reached when it becomes immoral – contractually speaking - to stand by and watch an actor, no matter how profitable, implode? It’s one thing to condone the omission of a morals clause – big boys are allowed to live out the bargains of their choice after all, but when does standing by and watching a train wreck become permissible? When does benefitting from the fast motion slide of a rakishly cute actor morphing into something less cute – though compelling viewing - become a breach of the duty of good faith and fair dealing? “All publicity is good publicity” the show biz adage goes – but might there be a point where standing by an out of control star begins to seem a cynical enablement of that actor’s race to self destruction?
He’s a big boy you may say – he knows when to say no – but does he, really? The ability to say no to poor choices is playing a starring role in this whole drama. His family is concerned and has asked the public to pray. Allegedly plagued by all manner of addiction issues, it is becoming harder after his latest rant to argue that Charlie’s ordinary judgment, let alone his contractual ability is intact. He may even think that HE is a contract. Concerned contemporaries and celebrity doctors are predicting that things will end badly if he does not get help now.
Let’s say hypothetically that the acceptance of an offer to make another season of a hugely popular show could be convincingly shown to be more likely harmful than beneficial to a random troubled star. Addicted not only to substances, but to public attention, the hypothetical star accepts the offer in a snap. Establishing that the hypothetical contract is voidable - because the hypothetical star, due to his substance induced intoxication was either unable to understand what he was getting into (unlikely) or act reasonably in relation to the bargain (more likely) , and hence a bad deal for him - could be a step toward establishing a lack of good faith on the part of the Network. Entering into a contract ,knowing the star has addiction issues, and then standing by while the star self-destructs amid skyrocketing ratings could arguably qualify if, for example, the contract obliges the Network not only to provide employment, but employment that is reasonably likely to enhance or benefit to the star's image. Though unlikely in an ordinary employment contract, this makes sense in an agreement for the employment of an actor - as an independent contractor - to whom image building is of primary importance. The act of facilitating the self destruction of a known addict would be deemed detrimental to that actor, one would hope. The chances of success will be stronger where the argument that the Network callously failed to intervene to wring out maximum profits is credible on the facts. The omission of a morality clause from the hypothetical star's contract could cut both ways. While freeing the star from the moral control of the network, it could also release the network from the already minimal responsibility the network might have for the hypothetical star's poor choices.
CBS/Warner Bros may be in the early process of disassociating itself from the imploding soap opera that has become Charlie’s life. The discreet cancellation of the rest of the season first, and then what? You can be sure of this – Charlie will not go quietly. He is not happy about the cancellation of the remainder of the season, and he wants the world to know it.
So, now what? Time to activate some Teflon abrasive – the moral clause (if there is indeed one in his contract) or a close equivalent? Perhaps another clause might have the bite of a moral clause? A moral clause is a glorified termination sub clause, in one sense, and as we all know, a termination clause is the emergency escape chute. If there is no moral clause, check the wording of the termination clause next. Actions such as consistently failing to be in a fit condition to work, bringing the network into disrepute (a.k.a making the boss look bad), or being charged with a serious felony, could easily fall within the terminations clause of an entertainment contract.
More details will definitely seep out in ensuing weeks. We will discover whether termination is on the cards for Charlie Sheen - and whether Charlie is really going to sue. Should CBS/Warner get to the point of pulling the plug – and it’s not a given that it will, it will certainly be interesting to see what finally is deemed grounds to terminate the contract rather than merely exercising the option to cancel a season.
Eniola O. Akindemowo.
Air Force Found Liable for $1.2 Million for Breach of Confidentiality Agreement
On February 14th, the Court of Federal Claims unsealed its opinion in Spectrum Sciences and Software, Inc. v. U.S., in which it found on behalf of Spectrum to the tune of $1.2 million on its breach of contract claim. In October 2000, Spectrum entered into a cooperative research and development agreement (CRADA) with the Air Force, designed to facilitate the sharing of information between the parties and to help improve conveyor technology that the Air Force used for the assembly of aerial bombs. In a prior opinion, the Court held that the Air Force had violated the CRADA through the unauthorized release of Spectrum's proprietary information to third parties, including some of Spectrum's competitors. See Spectrum Sciences & Software, Inc. v. United States, 84 Fed. Cl. 716 (2008).
The parties worked together in 2001, and in 2002, Spectrum offered to produce four redesigned munitions assembly conveyors (MACs) per month. The Air Force instead put together its own procurement team, which included people who had access to Spectrum's proprietary information disclosed through the CRADA, to design a new generation of MACs. The Air Force then used information gathered by Spectrum to put out a Request for Proposals (RFP) for new MACs. Based on Spectrum's research, but without attribution, the RFP suggested improvements to the old MAC system. Although Spectrum submitted its proposal, the contract was awarded to a rival, D&D Machinery. After trial, the court reached what it called the inescapable conclusion that "that the Air Force repeatedly breached its confidentiality obligations under the agreement." Following further discovery, a second trial was held in January 2010 on the subject of damages.
Spectrum sought damages equal to the value of its lost income-producing asset – the proprietary information regarding the MAC – as of the time of the breach. The government tried unsuccessfully to characterize plaintiff's theory of damages as an attempt to collect lost profits on contracts it might have had if its proposal had been selected or with third parties. The court rejected this characterization. The case is about a lost asset, not about lost profits, and the court's task is to determine what a third party would have paid for Spectrum's proprietary information at the time of its improper disclosure. The harm attendant to the breach was clearly foreseeable to the parties at the time they entered into the CRADA and was in fact the purpose of that agreement's confidentiality provisions.