Wednesday, February 15, 2012
In a case decided last week, the New York Court of Appeals held that, where a seller has repudiated a contract to sell real property, the buyers must prove they were ready, willing and able to close the transaction. The holding resolved a conflict among the Appellate Division Departments.
Judge Smith wrote for the unanimous court:
The main issue before us is whether a buyer in a damages suit like this one must show that it was ready, willing and able to close the transaction — i.e., that but for the seller's repudiation, the transaction could and would have closed. This issue has divided the Appellate Division departments. The Second Department has held, in a number of other cases as well as in this one, that no such showing is required (e.g., Ehrenpreis v Klein, 260 AD2d 532, 533 [2d Dept 1999]; Karo v Paine, 55 AD3d 679, 680 [2d Dept 2008]). The Third and Fourth Departments, however, have required a "ready, willing and able" showing (Madison Invs. v Cohoes Assoc., 176 AD2d 1021, 1022 [3d Dept 1991]; Scull v Sicoli, 247 AD2d 852, 853 [4th Dept 1998]).
The rule followed by the Third and Fourth Departments is the correct one. It is the rule stated by the leading treatises on contracts (4 Corbin on Contracts § 978 at 924 ; 13 Williston on Contracts § 39:41 ), and applied in several federal cases (Towers Charter & Marine Corp. v Cadillac Ins. Co., 894 F2d 516, 523 [2d Cir 1990] [applying New York law]; United States v Hon, 17 F3d 21, 26 [2d Cir 1994]). Our agreement with that rule is implied by the language we used in Deforest Radio Tel. & Tel. Co. v Triangle Radio Supply Co. (243 NY 283 ), where we held that, when a contract has been repudiated, the non-repudiating party need not actually tender performance. We said:
"Where one party to a contract repudiates it and refuses to perform, the other party by reason of such repudiation is excused from further performance, or the ceremony of a futile tender. He must be ready, willing and able to perform, and this is all the law requires"
(id. at 293 [emphasis added]; see also Bigler v Morgan, 77 NY 312, 318  ["The refusal of the defendant to perform . . . did not dispense with the necessity of showing that the plaintiff was able, ready and willing to perform"]).
The rule requiring non-repudiating buyers to show their readiness, willingness and ability to perform is supported by common sense. It is axiomatic that damages for breach of contract are not recoverable where they were not actually caused by the breach — i.e., where the transaction would have failed, and the damage would have been suffered, even if no breach occurred. The real question is one of burden of proof: Should the buyers be required to show they would and could have performed, or should the seller have the burden of showing they would not or could not? Since the buyers can more readily produce evidence of their own intentions and resources, it is reasonable to put the burden on them.
This allocation of the burden of proof is not inconsistent with our decision in American List Corp. v U.S. News & World Report (75 NY2d 38 ). That case involved the repudiation by a magazine of a contract to rent mailing lists from a list supplier "over a 10-year period" (id. at 39). We held that "[t]he nonrepudiating party need not . . . prove its ability to perform the contract in the future" (id. at 44). In context, this meant that the plaintiff would not be forced to meet the perhaps impossible burden of showing what its financial condition would have been for many years to come. No comparable burden falls on the non-repudiating party in a case like this one. These buyers need only show that they would and could have closed the transaction if the seller had proceeded to a closing as the contract required.
Here, the buyers did submit evidence of their financial condition, but that evidence was not conclusive on the issue of their ability to make the purchases. Whether the buyers were ready, willing and able to close therefore presented an issue of fact, and the buyers' motion for summary judgment should have been denied.
I wonder if this really is the approach "supported by common sense." If Party A repudiates then Party B might stop taking the steps to put itself in a position to be able to perform. Placing the burden on Party B to show readiness and willingness makes sense, but a showing of ability to perform might raise some problems in light of Party A's repudiation.
Pesa v. Yoma Dev. Group, Inc., 2012 NY Slip Op 00856 (Decided Feb 9, 2012).
[Meredith R. Miller]
Tuesday, February 14, 2012
What better way to spend Valentine's Day than to (almost live) blog the Simkin v. Blank oral argument before the New York Court of Appeals? The argument includes a shout out to Rose of Aberlone.
It does not appear that Judge Smith partook. Video should be posted to the web in the next week.
Richard D. Emery (for Blank, appellant):
[Reserves 3 minutes for rebuttal]
Theme: this case is about finality and valuation.
Judge Pigott: Suppose shoe was on other foot and the non-moneyed spouse was rendered destitute -- finality rules? It depends. Here, parties got the benefit of the bargain.
Judge Jones: Wasn't the agreemet based and founded on certain assumptions that turned out not to be so? All agreements are founded on assumptions that turn out not to be true, that is the risk of making an agreement.
Judge Lippman: Is the defining difference between this and other mutual mistake cases that, here, the mistake was about valuation? Yes, mistaken valuation doesn't give rise to mutual mistake case. In fact, account was cashed in at the time.
Judge Graffeo: Is this about value of account at time of agreement? Wasn’t there some withdrawal at the time in order to pay Blank; money was there at time? Yes, shout out to Prof. Siegel’s treatise; don’t fall for pleading ploys. These are conclusory allegations that mean nothing in the context of the actual case.
Judge Graffeo: Was it agreed that there would be a 50-50 split of this account? If so, does that matter? That was not mentioned in agreement all. Many separation agreements will say 50-50 split per account; different situation here - he could have chosen to do whatever he wanted to pay her here (e.g. take loan from Paul Weiss) and he chose to withdraw from account.
Judge Pigott: Isn’t the existence of the account an issue of fact? Court does not have to rollover and counterfactually accept what is obviously not the case. And, account existed. Just not worth what they thought. There was money in it and money paid out of it. At time, Madoff accounts were paying -- so, counterfactual allegation that court need not accept.
Judge Lippman: What happens now with Madoff accounts? There will be no clawbacks; he did get insurance money and tax write offs. Has value now, had value then. Pure valuation case.
Judge Read: So no mutual mistake here? Right - each side got the benefit of the bargain here. Just a mistake in valuation.
Judge Ciparick: Did the parties contemplate as a 5-50 split? No, my client wanted $6 mill plus house, etc and he got the rest.
Judge Graffeo: How is this different than a case where we set aside the agreement for fraud? This is an asset that is not worth what it was thought to be worth -- your decision in Walsh makes plain that the public policy of repose trumps innocent fraud.
Judge Jones: Different if wife knew of the wrongful valuation? Yes, then she would be knowingly getting fruits of fraud - would be a different case.
Judge Ciparick: Is this different than asset valued at a certain sum that later tanks? No different from every single deal where stocks are exchanged.
Judge Ciparick: Should we go with value of account as of date of agreement? Yes.
Judge Graffeo: What about the unjust enrichment claim? We have a valid contract, unjust enrichment claim is superfluous. Window dressing contract claim to attack a valid agreement.
Allan J. Arffa (for Simkin, respondent):
Judge Lippman: How is this different than a valuation case? Why is this not the same as a stock that turns out the be worth less than thought? The thing they thought they had never existed.
Judge Lippman: But isn’t it in essence the same thing – because, here, there was a Ponzi scheme? No. The account didn’t exist; it wasn't the thing they thought it was.
Judge Lippman: Didn’t Simkin draw on the account at the time? Yes, but they didn't know he was actually drawing on other people's money.
Judge Lippman: How could the account not exist? He withdrew the money? It didn't exist in the way he thought it did.
Judge Lippman: What if had stock and turns out fraud relating to business that stock represents. Why different? There you have stock; known thing was stock, it existed.
Judge Read: What if it was Enron stock? Still had stock in a corporation; it had attributes of stock. Here, interest was fictitious.
Judge Ciparick: What if the asset was a house but it turns out the title was bad? That is mutual mistake - if you don't own what you think you own, there is a mutual mistake.
Judge Lippman: How do we draw the line here – why isn’t this just a valuation case? How do we distinguish between the subject matter existing and it not being worth as much as thought? We are on a motion to dismiss. At the time they contracted, they didn’t own an account; they didn’t have securities; the account was a total fiction.
Judge Graffeo: Did they try to cash out in June 2006? Would they have been paid? Paid from proceeds of other investors. Would not have been redeeming account as they thought = stealing.
Judge Pigott: You argue for reformation of this part of the agreement, not the entire agreement? Issue for down the road; what to reform is a remedy issue.
Judge Graffeo: Where is it in agreement that you agreed to split the asset 50-50? It is our allegation that this is what the parties intended. The parol evidence rule and statute of frauds do not apply. Shout out to Rose of Aberlone: in the pregnant cow case, the contract did not say we are selling you a barren cow.
Judge Graffeo: I’m trying to understand, do you want us to set aside the entire agreement? That is a matter of relief; we can discuss whether to reform or rescind later.
Judge Lippman: What about finality? When does a matrimonial case end? Isn’t there a policy argument for finality? Here's the problem: if you say finality trumps, then there is no mutual mistake -- writes doctrine out of the law.
Judge Lippman: But the divorce was 6 years ago, doesn't amount of time matter? It matters regarding relief.
Judge Lippman: What is rule? 10 or 6 or 20 years? Not one mutual mistake case that raises finality. Depends on circumstances.
Judge Pigott: You win the appeal. They answer. Then what? Jury decides? Yes, jury hears testimony; finality gets played into standards for materiality of mistake.
Judge Lippman: Answer Judge Piggott’s question. What exactly does the jury decide here?
Judge Pigott : Does the jury decide whether there was an ccount or not? Existence v. value of account: question of fact or law? Question of fact; these are question of intent.
Judge Pigott: Can you get there if there was no account? If no account existed, aren’t you entitled to summary judgment? If the account did exist, aren’t they entitled to summary judgment? This was a ponzi scheme.
Judge Lippman: With all the attention on Madoff, etc., a jury is going to determine whether this ponzi scheme made account nonexistent? Yes, for jury to decide.
Judge Lippman: What is the significance of time passing here since divorce? This factors into relief but to say we are going to ignore that there was this massive fraud and half assets of this family turned out not to exist -- not fair. On marital cases, equitable principles may trump finality. And, again, we are just at motion to dismiss stage.
Judge Pigott: Say the asset was gold bars in a safe deposit box and it turns out that Uncle Bernie took them; no longer there? Here, did know account was liquid at time of agreement and even took money out of it. And account has value now; Simkin has recovered some money and has tax write offs. Not so worthless he'd give away now.
Closing point: talking about domestic relations. 6 years since divorce; let spouses go off and live their lives. Human thing; not about finality words; about a woman entangled with a husband she wants to get away from.
Judge Pigott: What if we turn the tables? You'd be arguing the opposite for her? No, my client would not have gone after him; she wants nothing to do with him.
[Meredith R. Miller]
We have recently discovered a wonderful TNT-network series, Men of a Certain Age. Unfortunately, the series was cancelled after its second season. Ray Romano, pictured at left, a co-creator of the show played one of the three main characters. His character, Joe, is a nice guy with a serious gambling problem, so here we show the actual Ray Romano gambling. How's that for irony?!?
In a ContractsProf Blog exclusive, we have discovered what did the show in. It was not the ratings, and it was not the demographic challenges of marketing a show that is not about 20-somethings. Nor was it because of the fact that the show illustrates that middle-aged people do have sex, enjoy it, and can be pretty good at it. Nope. The show's demise was clearly a product of the improbable plot twists involving Andre Braugher's character Owen and his relationship to his father's car dealership.
Owen works at his father's Chevy dealership. He anticipates that he will one day succeed his father as owner and manager, but he never meets his father's expectations. Towards the end of season 1, Owen's father decides to step down, but he appoints a hot-shot salesman to run the operations, and Owen retains his status as a regular salesman. After putting up with the humiliation for a few weeks, Owen bolts to the rival Chevy dealership, where he prospers. His father, duly chastened, offers Owen the dealership, and Owen returns.
So, I don't know for certain that car salesmen have non-compete agreements as a standard element of their contracts, but they certainly ought to, as the show illustrates. A car salesman is not like an attorney in terms of the law's regard for their relationship with their clientele, but the show does indicate that long-term relationships exist with repeat buyers. Accordingly, it would not be a wise business practice for any car dealer to permit salesmen to bolt to a rival and to take their client-base with them. But Men of a Certain Age makes no mention of a non-compete agreement.
And that's what did them in.
You read it here first.
Monday, February 13, 2012
At right, we have an image of housewifery form the 19th Century. Times have changed. The Huffington Post reports that the Bravo network may soon replace Real Housewives of Beverly Hills personality Taylor Armstrong, who is being sued by MyMedicalRecords.com for $1.5 million in a breach of contract lawsuit. The suit originally named both Taylor and her husband, Russell Armstrong, as defendants. However, in August 2011 after suit was brought, Russell committed suicide, leaving Taylor to answer the lawsuit alone.
According to HuffPo, Russell was the largest shareholder of MyMedicalRecords.com, which at the time was a privately held company. The company provides “secure Personal Health Records and electronic safe deposit storage solutions.” The company discovered that Russell was misappropriating investor money and also diverting shares of the company. The company removed Russell from the board, and he signed a $250,000 settlement agreement. The settlement required that Russell identify parties to whom he had sold shares of MMRGlobal. When he failed to do so, the $1.5 million dollar lawsuit followed.
Money is not the only thing at stake for Taylor. Co-star Camille Grammer, ex-wife of Kelsey Grammer, told The Huffington Post that chances are good that Taylor will not be asked back for Season 3 of Real Housewives of Beverly Hills. According to Grammer, Bravo executives “are going to start casting, looking for new housewives.” HuffPo speculates that Bravo executives could be deposed in the lawsuit, as MMRGlobal’s attorneys seek information about Taylor’s income and how it might have been disposed of.
[JT and Janelle Thompson]
Friday, February 10, 2012
As the ABAJournal reports here, two students have elected not to go gently into that good night but to sue their law school for dismissing them after they failed to maintain a 2.0 GPA at the end of their first year in law school. The culprit, the students allege, was their contracts course, in which they were awarded grades of "D." The kicker -- the course was taught by an adjunct professor.
The offending course was Contracts II, a 3-credit course which accounted for precisely 10% of the students' aggregate GPA for the first year. It is very hard to imagine that this "D" was a significant departure from the students' performance in their other first-year courses.
This brings to mind once again Professors Amar and Ayres' proposal that Law Schools offer to rebate 50% of first-year students' tuition if they will quit after the first year. These two students would benefit from such a system, although one might doubt that bounded rationality would enable the students who, in the long term, would benefit most from such an offer would actually take it.
These are the top vote-getters for the first annual ContractsProf Blog prize for the best contracts law scholarship of the year:
Congratulations to our finalists!
The winner will be notified soon and then announced at the Spring Contracts Conference.
Thursday, February 9, 2012
We have not gotten much use out of our "Labor Contracts" category on this blog, but we've got a big story to report today, about a union really is flexing its muscles. Today's New York Times, reports that the Israeli labor union, the Histadrut, which represents hundreds of thousands of public sector workers, has called a general strike.that started yesterday and has shut down everything from government offices and the stock exchange to hospitals and even the Ben-Gurion national airport.
Ahh, general strikes! Those were the days. The very words are like a madeleine conjuring up images of Rosa Luxemburg and Karl Liebknecht rousing the forces of the Social Democratic and Independent Social Democratic Parties in post-WW I Berlin (see announcement at left). Meanwhile, closer to home, Mitch Daniels has signed legislation making Indiana a "right-to-work" state.
According to the Times, the central issue in the dispute is the government's increasing use of contract workers, whose pay is considerably less than that of Histadrut members. However, as reported here in Ha'aretz, talks are expected to conclude as early today to reach a deal that will end the general strike. The government has apparently agreed to re-classify some of the contract workers as government employees, thus entitling them to higher salaries and benefits. However, that change in status will effect only a few thousand out of approximately 300,000 contract workers.
According to the New York Times, producers Michael Cohl and Jeremiah J. Harris now seek to remove Ms. Taymor from the $75 million Spiderman world going forward. In a 66-page filing, seeking unspecified damages, the producers assert that Ms. Taymor breached her contract after conflicts arose between Ms. Taymor and other creators and producers, causing producers to fire her. The complaint contends that “Taymor refused to develop a musical that followed the original, family-friendly ‘Spider-Man’ story, which was depicted in the Marvel comic books and the hugely successful motion picture trilogy based on them.” Rather, Ms. Taymor insisted on creating Arachne, a villain character, to portray what is referred to as a “dark, disjointed and hallucinogenic musical involving suicide, sex and death.” The filing alleges that Ms. Taymor declared she did not care whether audiences liked her version of Spiderman.
After Ms. Taymor was fired, producers hired Philip William McKinley, circus and theater director. Ms. Taymor, winner of a Tony Award for directing “The Lion King,” denies in her lawsuit that she was resistant to changes suggested by producers. Ms. Taymor’s associates contend that she was attempting to improve Spiderman up until the time producers fired her.
Ms. Taymor originally filed suit in November, asserting that Spiderman used 25% of her original script, yet the producers were not paying her royalties. This copyright claim sought $1 million in damages and future royalties based on the success of the production. In addition, Ms. Taymor sought to have future productions of Spiderman stopped until such claims were settled.
The producer’s counterclaim seeks damages to assist in covering the costs of hiring director McKinley, as well as costs from overrun production. Ms. Taymor’s lawyer, Charles T. Spada, believes the counterclaim to be baseless. He states, “Ms. Taymor will continue to vigorously seek enforcement of her creative rights and will respond to the defendants’ counterclaims as well as their outrageous mischaracterizations and attempts to besmirch her reputation.”
The producer’s filing included e-mail excerpts from several creators of the show, including Bono and the Edge of U2 (composers of the show -- pictured), and Glen Berger a playwright who Ms. Taymor hired to assist her in writing the Superman script. Bono’s e-mail criticizes Ms. Taymor “for shooting down ideas before taking time to understand them.” Glen Berger’s e-mail contains allegations of Ms. Taymor threatening him to stop agreeing with producers ideas, otherwise she would stop working with him.
Previews of the show were canceled for three weeks while McKinley redesigned the show that Ms. Taymor created. Since then, Spiderman has opened and received better reviews than Ms. Taymor’s version. Thus far, Spiderman has grossed $81 million since November 2010.
[JT & Janelle Thompson]
David M. Driesen, Contract Law's Inefficiency, 6 Va. L. & Bus. Rev. 301 (2011).
Christopher C. French, Construction Defects: Are They "Occurrences"? 47 Gonz. L. Rev. 1 (2011/12)
Wednesday, February 8, 2012
In 1978, the Commonwealth of Pennsylvania enacted the Pennsylvania Steel Products Procurement Act (the Steel Act), which requires that, with certain enumerated exceptions, steel products used or supplied in the performance of a public works contracts must be made in the U.S.
Mabey Bridge & Shore, Inc. (Mabey) has been involved in public work projects, including projects for the Pennsylvania Department of Transportation (PennDOT), for over twenty years. In 2009, Mabey subcontracted to provide a bridge for PennDOT. However, in April 2010, PennDOT informed the contractor that because the bridge was considered a “public work,” the Steel Act prohibited use of Mabey’s temporary bridge on the project owing to the fact that Mabey used foreign steel. As a result, Mabey was forced to cancel four contracts for temporary bridges on PennDOT projects, and has been barred from giving future quotes.
Mabey filed suit in the United States District Court for the Middle District of Pennsylvania against Pennsylvania’s Secretary of Transportation, seeking a declaratory and injunctive relief. The District Court granted the Secretary’s motion for summary judgment on all of Mabey’s claims. On its appeal before the Third Circuit Mabey argued that: the Steel Act is preempted by the Buy America Act, 23 U.S.C. § 313 and violates the Commerce Clause; and that PennDOT’s actions violated the Contract Clause and the Equal Protection Clause. In an opinion filed on January 24th in Mabey Bridge & Shore, Inc. v. Schoch, the Third Circuit affirmed the District Court’s grant of summary judgment.
Much of the Third Circuit’s opinion is taken up with issues other than the Contracts Clause. The Third Circuit found that the Buy America Act did not preclude stats from enacting mor restrictive requirements related to the use of domestic steel and thus did not preempt Pennsylvania’s Steel Act. Mabey’s Dormant Commerce Clause claim was more or less precluded by a prior Third Circuit decision, Trojan Techs., Inc. v. Pennsylvania. In any case, the Court found that, as Congress had plainly authorized restrictions of the kind contained in the Steel Act, the Act created no problems under the Commerce Clause. The Court also relied on Trojan Techs. in affirming summary judgment on Mabey’s Equal Protection claim. The Court held applied rational basis scrutiny in upholding the constitutionality of the Steel Act.
The Court noted that Mabey bore the burden to prove that PennDOT’s had violated the Contract Clause by establishing that a “change in state law has ‘operated as a substantial impairment of a contractual relationship.’” The Third Circuit found that Mabey failed to do so, as the Steel Act was enacted in 1978 and was in effect at the time Mabey entered into its contracts. Although Mabey conceded that the passage of the Act itself could not be the “change in law” that impaired its existing contracts, it argued that PennDOT’s change in interpretation met this requirement.
However, the Supreme Court established in Ross v. Oregon that the Contract Clause applies only to the exercise of legislative power. Based on Ross, the Third Circuit found that there is no violation of the Contract Clause when the act in question “investigates, declares, and enforces liabilities as they stand on present or past facts under laws supposed already to exist.” Although Mabey was justified in believing that its bridges were acceptable due to its long relationship with PennDOT, PennDOT’s actions are best characterized as interpretive, not as an exercise of legislative authority.
Moreover, in Fleming v. Fleming, the Supreme Court rejected the argument that the Contract Clause is violated when there is a new interpretation of an antecedent statute. Thus, because PennDOT’s actions interpreted and applied a law that had been in force for over 30 years, it did not exercise legislative authority subject to scrutiny under the Contract Clause, and the Third Circuit affirmed the District Court’s grant of summary judgment to PennDOT.
[JT and Christina Phillips]
Tuesday, February 7, 2012
We've blogged quite a bit about Simkin v. Blank, the Madoff account mutual mistake case now pending before the New York Court of Appeals. Oral argument is scheduled for (when else?) Valentine's Day. It is well-lawyered (Richard Emery for wife and Alan Arffa for husband) and should be a good show. I plan to watch the live webcast, which will also be archived on the New York Court of Appeals website.
Monday, February 6, 2012
Three Arbitration Decisions Part III: Third Circuit Enforces Arbitration Clause Even Though Arbitral Body Is Unavailable
Raheel Ahmad Khan bought a Dell 600m computer in 2004. He alleges that, due to design defects, the computer would overheat and fry its motherboard (non-fried motherboard is pictured above). This happened three times and Dell replaced the computer three times, but after that, Dell told Mr. Khan that he was on his own, as the warranty had expired. Nice. As it turns out, Mr. Khan may be a frequent filer in addition to being a frequent fryer. He filed a putative class action in July 2009, alleging consumer fraud, breach of warranty, common law fraud, negligent misrepresentation and unjust enrichment.
The terms and conditions that came with Mr. Khan’s computer provided for binding arbitration with the National Arbitration Forum (NAF). However, by the time Mr. Khan brought his suit, the NAF had been barred by a consent judgment from accepting consumer arbitrations because it had been found to have engaged in “various deceptive practices.” Dell nonetheless moved to compel arbitration in some other forum. The District Court denied Dell’s motion to compel arbitration and for the appointment of a special arbiter, finding that it could not compel parties to submit to an arbitral forum to which they had not agreed.
In Khan v. Dell, Inc., a split panel of the Third Circuit held that a class of consumers is bound by the arbitration agreement in their purchase agreement even though the arbitral body designated in the agreement is no longer available.
The case turned on Section 5 of the Federal Arbitration Act, which permits a court to appoint a substitute arbitral body unless the named body is “integral” to the arbitration provision. The key contract language provides that all disputes “SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM.” The Court found that language ambiguous, as the word “exclusively” could be read to relate to “binding arbitration” to the NAF or to both. Courts treating the language had split on the intended scope of “exclusively.” Because of the federal policy in favor of arbitration, the Court decided that a tie goes to the runner (from court), in this case Dell.
Judge Sloviter, dissenting, found no ambiguity in the arbitration agreement. To Judge Sloviter, the NAF was the designated exclusive arbitrator, and that should have meant that the court could not dictate to the parties whither to send them for arbitration. Judge Sloviter noted that the NAF is no longer allowed to accept new consumer arbitrations because it had chosen to enter into a consent judgment rather than dispute claims that it routinely appointed anti-consumer arbitrators and discontinued referrals to arbitrators who decided cases in favor of consumers. Having thrown in its lot with the NAF, Judge Sloviter agreed with the District Court that Dell should not get another shot at picking an arbitrator.
Some may find this clip from The Big Bang Theory useful in illustrating some contractual interpretation maxims, including "interpret against the drafter" and "read the contract in a way that gives meaning to the whole." It also addresses the general concept of ambiguity. In the clip, Sheldon accuses his roommate and fellow physicist, Leonard, of violating two terms of their "roommate agreement." The first involves Leonard's denial of access to the bathroom in the event of an "emergency" experienced by Sheldon. Leonard's girlfriend, Priya, rather convincingly argues that the term "emergency" is ambiguous and that it should be interpreted against Sheldon, the agreement's drafter. The second allegedly violated term involves unauthorized use of the shower by more than one person. Priya navigates around this term by arguing that another term of the agreement regarding hot water conservation trumps the "one person per shower" provision, perhaps illustrating the maxim of "specific beats general." (Note: The clip appears authorized by CBS, WB, et. al, as far as I can tell, but I make no warranties on that or, well, anything else I write).
[H.R. Anderson, h/t to student, Ellie Holub]
In BG Group v. Republic of Argentina, the D.C. Circuit vacated an arbitral award, reversing the District Court finding that the award was enforceable. The D.C. Circuit found that the arbitral panel had exceeded its authority by accepting the case when the relevant Bilateral Investment Treaty (the Treaty) between the United Kingdom and Argentina provided that the parties were to resort to arbitration only if the Argentine courts could not address the matter within 18 months of filing. Plaintiff never sought a ruling from the Argentine courts.
The BG Group had acquired a 54.67% stake in Gas Argentino, S.A., which owned 70% of a recently privatized gas distribution company, MetroGAS. BG Group also invested directly in MetroGAS, and by 1998, it held a 45.11% interest in MetroGAS. In 2001, the Argentine economy collapsed. Beginning in January 2002, Argentina implemented a set of emergency economic measures (the Emergency Law), and then in March it issued a new decree that “stayed for 180 days the compliance with injunctions and execution of final judgments in lawsuits brought on account of the Emergency Law’s effect on the financial system.”
In April 2003, BG Group filed its Notice of Arbitration, relying on a statement by the Argentine Minister of Justice that it would take at least six years to resolve BG Group’s claims in the Argentine courts, and also claiming that the requirement that domestic remedies be exhausted was obviated because Article 3 of the Treaty granted most favored nation treatment, and the bilateral treaty with the United States did not require exhaustion.
The Arbitral Panel found the Treaty no bar to arbitration, since the Emergency Law had restricted access to the courts. Because a strict reading of the Treaty would yield an “absurd and unreasonable result,” the panel found that the Emergency Law had rendered the relevant provisions inoperative. Proceeding to the merits, the panel awarded BG Group just over $185 million in damages, which represented the diminution in value of BG Group’s investment as a result of the Emergency Law. The District Court denied Argentina’s motion to vacate the award and granted BG Group’s cross-motion for enforcement.
The key issue before the D.C. Circuit was whether the arbitral body had the power to decide arbitrability. The Court found that the parties had agreed to leave that issue to the arbitrator only after domestic remedies had been exhausted. Prior to that, the Court found that the parties should have expected that a court would decide arbitrability. That intention is explicit, and therefore the public policy in favor of arbitration cannot override the intent of the parties.
In Gore v. Alltel Communications, the Seventh Circuit reversed the District Court and granted Alltel's motion to compel arbitration. In October 2005, Mr. Gore entered into a two-year agreement with First Cellular. He agreed to pay $40/month for four separate wireless lines. His agreement with First Cellular contained no arbitration clause. In May 2006, Alltel acquired First Cellular.
The details are complicated, but in the transition from First Cellular to Alltel, Mr. Gore lost service on some of his wireless lines. In addition, he was offered a choice between a $250 termination fee or a new contract that required him to purchase an Alltel-compatible phone and to pay $109/month for continued service. Mr. Gore chose the latter and then filed a class-action suit against Alltel, as successor in interest to First Cellular, alleging breach of contract, deceptive trade practices, civil conspiracy and unjust enrichment. However, back in November 2006, he had received an invoice that put him on notice that by using the services provided by Alltel, he was accepting new terms and conditions, including an arbitration clause.
Alltel had the case removed to federal court and then moved for dismissal and compelled arbitration. The District Court denied the motion to dismiss pending discovery on the issue of whether or not arbitration was appropriate. Alltel filed an interlocutory appeal. The Seventh Circuit stated the applicable rule as follows:
In cases like this, where the parties enter into two agreements—though only one contains an arbitration clause, and the plaintiff brings a cause of action based, at least in part, on conduct contrary to the agreement that does not have the arbitration clause, the parties can be compelled to arbitrate only if (1) the clause itself is broad enough to encompass their dispute, or (2) the agreement containing the clause incorporates the other by reference.
In this case, the Alltel contract did not incorporate the First Cellular contract by reference, so the case turned on the court's determination of the breadth of the arbitration clause. After a careful review of each of Gore’s claims, the Seventh Circuit found each subject to the arbitration clause. Gore also claimed that the arbitration agreement is unconscionable, but that issue is one for the arbitrator to decide.
Friday, February 3, 2012
NRLB - Last month, a 2-member panel of the National Labor Relations Board held that an arbitration agreement that contains a collective action waiver violates §8(a)(1) of the National Labor Relations Act (NLRA).
Amex - For the third time, the Second Circuit invalidated the class action waiver in American Express' contracts with merchants. The court reasoned that a "careful reading" of both Concepcion and Stolt-Nielsen "demonstrates that neither one addresses the issue presented here: whether a class-action arbitration waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to vindicate their federal statutory rights."
FINRA - The Financial Industry Regulatory Authority (FINRA), Wall Street's self-regulatory organization, sued Charles Schwab. FINRA alleges that Schwab violated industry rules by adding a collective action waiver to customer account agreements.
[Meredith R. Miller]
Thursday, February 2, 2012
As we’ve previously noted here, Jesse Dimmick fled murder charges against him in Colorado and made his way to Kansas. As reported in The Topeka Capital-Journal, Kansas police officers were in pursuit of Dimmick and punctured his tires of the stolen van he was driving using something called "stop sticks" (pictured -- according to Wikipedia the device is also known as traffic spikes, tire shredders, one-way traffic treadles, and stingers and is formally known as a tire deflation device). His van came to a stop in front of the home of a newly married couple, Jared and Lindsay Rowley.
According to Dimmick, he entered the newlyweds’ home and offered them an unspecified amount of money if they would permit him to hide from the police. Dimmick claimed that the Rowleys agreed and that the parties had thus created a legally binding oral contract. However, after Dimmick fell asleep, the Rowleys left their home and contacted the police. When entering the home, the police claim that an officer’s gun accidentally discharged, striking Dimmick in the back.
Originally, the Rowleys filed suit in the Shawnee County District Court against Dimmick seeking damages in the amount of $75,000 for trespass, intrusion and negligent infliction of emotional distress. Dimmick countersued for $160,000, which was the amount of his hospital bills and an additional $75,000 for pain and suffering, alleging that as a result of the Dimmick’s breach of contract he had suffered a gunshot to his back, which almost killed him.
Attorney Bob Keeshan, for the Rowleys, filed a motion to dismiss Dimmick’s suit. Keeshan argued that such a contact would not be legally binding because it was made while the Rowleys were under duress, being held at knifepoint. Last month, Judge Franklin Theis sustained the motion to dismiss.
Dimmick has also filed charges against the city of Topeka and the police officer whose gun discharged. Trial for this case is set for early April. In Colorado, Dimmick awaits his trial for the September 2009 murder of Michael Curtis.
Dimmick may have lost this round, but in another sense, he has already won. His law suit was the runaway winner in the 2011 poll for the most outrageous law suit on the web site, Faces of Lawsuit Abuse.org.
[JT w/ Janelle Thompson]
One year ago, we introduced our first set of ContractsProf Blog interns. That crowd has moved on, so we now welcome a fresh crop. They are (pictured above from left to right): Janelle Thompson, Justin Berggren and Christina Phillips. Janelle and Christina are both first-year students; Justin is a second-year student, all at the Valparaiso University Law School (formerly the Valparaiso University School of Law).
When not performing research assistance related to the scholarly writings of their Dear Leader, the interns will be drafting blog posts, which you will be seeing soon.