May 14, 2012
UC Davis Sues US Bank (As a Negotiating Tactic)
Law suits can often be sources of information for parts of the economy that are usually hidden. The suit that the University of California at Davis (UC Davis) just filed against U.S. Bank is an eye-opening example. According to this report in The Chicago Tribune, U.S. Bank and UC Davis entered into a ten-yeat contract in 2009 that permitted the Bank to open the first-ever on-campus bank branch in return for annual payments ranging from $130,000 to $780,000, depending on how many new accounts the branch activtated.
But on-campus protests disrupted the branch's operations in January and February and so now it wants out of the agreement. We're not sure what the disturbances in January and February were about, since the infamous pepper spray incident (below) occurred in November.
In any case, US Bank is claiming that the occupy movement's conduct qualifies as a "constructive eviction" from its campus branch, because employees were held prisoner inside the branch and customers could not get in. The bank closed its branch in March saying it refused to put its customers and employeees at risk." Apparently, twelve people (eleven students and a professor) blocked the entrance to the bank and are now facing charges for that act. It is not clear what risk they posed to the bank's employees or customers.
US Bank and the university were in discusisons that were designed to wind down the branch's operations in a manner that was as smooth as possible. According to the university, the purpose of the lawsuit it to "simply nudge the bank to return to the table and continue talking. If it's going to be a wind-down, we'd like to wind it down cordially, amiably and with the least amount of friction." The Bank claims to be surprised by the lawsuit and will fight it. The university, for its part, claims that the suit is part of its effort to look out for the interests of UC Davis and the taxpayers who fund it. The university claims that it stands to lose up to $3 million in expected revenues over the course of the ten-year agreemetn with US Bank.
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How can an outside agent (protestors) causing a disruption in the service, be a breach (constructive eviction) of the agreement. Isn't that what a force majeure clause is for? Apparently there wasn't one. It is a hard argument to make that students and non-students arriving on a compus and protesting were the action of the university. US Bank better negotiate a settlement.
Posted by: gavin | May 14, 2012 6:19:03 AM