Tuesday, July 31, 2012
On January 2, 2008, Staff Seargant Ryan D. Maseth stepped into a shower in his living quarters at the Radwaniyah Palace Complex (RPC) outside of Baghdad and was killed by electrocution caused by a malfunctioning water pump that was not grounded and faulty electical infrastructure. His estate sued Kellogg, Brown and Root Services, Inc. (KBR), the contractor responsible for maintaining the facilities at RPC. On July 13th, the District Court for the Western District of Pennsylvania dismissed the lawsuit, Harris v. Kellogg Brown & Root Services, Inc., finding that the political question doctrine and the combatant activities exception to the Federal Tort Claims Act (FTCA) barred the court from proceeding with the case any further.
The court had previously denied KBR's initial motion to dismiss on the same grounds, but after further discovery and two Circuit Court decisions that relied on the political question doctrine to dismiss torts claims against military contractors, the court reversed itself. While the court had initially assumed that KBR had discretion under its contracts with the military to make decisions about electrical repairs, it is now persuaded that any possible negligece by KBR cannot be divorced from military determinations.
On the political question doctrine, the court summarized its findings as follows:
[F]urther adjudication of this case will require evaluation of the military’s decision to continue to house soldiers in hardstand buildings with hazardous electrical systems even though the military was aware that the buildings lacked grounding and bonding and the military possessed specific knowledge that such electrical deficiencies had resulted in electrocutions to military personnel, causing injuries and even deaths, prior to the events of this case.
In addition, the court concluded that the combatant activities exception to the FTCA also applied and provided a separate grounds for dismissal. Although that exception does not directly address its applicability to government contractors, courts have extended its protections to such contractors. The tough issue was whether or not KBR's activities had a direct relation to combat activities. The court concluded that they did.
Monday, July 30, 2012
In late 2005, James Brown (“Brown) and Stern Oil Co., Inc. (“Stern Oil”), a fuel distributor for Exxon Mobil Corp., executed an agreement regarding fuel supply. When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil filed suit for breach of contract. Brown counterclaimed, alleging fraudulent inducement. The trial court granted summary judgment to Stern Oil moved, and after a trial on damages, it awarded Stern Oil eight years of lost profits in the amount of $925,317 plus attorneys’ fees. On appeal, the Supreme Court of South Dakota reversed, finding the award of summary judgment to have been improper.
Under two Motor Fuel Supply Agreements (“MFSAs”) the parties established a maximum annual amount of fuel that Stern Oil was obligated to sell to Brown each year. For each year thereafter, the maximum was adjusted according to sales. Brown was obligated to purchase at least seventy-five percent of the annual maximum, and if he failed to do so, Stern Oil had the option to terminate the agreement or to refuse to renew.
In addition, the MFSAs stating that “unless otherwise specified, all prices shall include applicable taxes, and are subject to change by Stern Oil at any time and without notice.” Further, under a brand incentive program (“BIP”), Brown and Stern executed a Repayment Agreement wherein Stern Oil would reimburse Brown for certain improvements such as equipping the stations with Exxon Mobil-approved fuel dispensers and payment systems, but provided Stern Oil with the option of reimbursement in the event Brown breached or defaulted.
In his Counterclaim, Brown alleged that Stern Oil fraudulently induced him to enter in the MFSAs and the BIPs by orally “guaranteeing a five-cent profit on every gallon of fuel he sold,” evidence that the circuit court found to be barred by the parol evidence rule. However, the Supreme Court noted that, as the MFSA’s deal primarily with goods, South Dakota’s version of the UCC governs. The UCC which allows for the introduction of parol evidence to establish fraud as a ground for rescinding a contract. Whether or not the parol evidence is ultimately credited will turn on questions of credibility, which are best left to a jury.
Brown challenged the MFSAs’ enforceability on the ground that they do specify the price of the fuel Brown was to purchase. Open price term contracts are permissible under South Dakota’s version of the UCC, but only where the parties possess the requisite intent to enter such an agreement. Here again, the Supreme Court found that the trial court’s erroneous exclusion of parol evidence rule regarding the alleged five percent profit guarantee, prevented it from recognizing a material issue of fact relating to the parties’ intent to enter into an open price term contract.
Moreover, the MFSAs state that “all prices shall include applicable taxes, and are subject to change by Stern Oil at any time and without notice.” Such language gives Stern Oil practically unlimited power to fix the fuel prices. Thus, whether Stern Oil set these prices in good faith also remains a question of fact.
[Christina Phillips & JT]
Ann Gove filed suit against Career Systems Development Corporation (CSD) alleging that she was denied a position with CSD because of her gender and her pregnancy at the time she applied. CSD moved to compel arbitration, but the District Court found that the arbitration clause was ambiguous as to applicants whom CSD did not hire. In a split decision, the First Circuit affirmed that denial of CSD's motion to compel.
Gove filled out an online application to work at CSD. The last provision of that application read as follows:
CSD also believes that if there is any dispute between you and CSD with respect to any issue prior to your employment, which arises out of the employment process, that it should be resolved in accord with the standard Dispute Resolution Policy and Arbitration Agreement ("Arbitration Agreement") adopted by CSD for its employees. Therefore, your submission of this Employment Application constitutes your agreement that the procedure set forth in the Arbitration Agreement will also be used to resolve all pre-employment disputes. A copy of that procedure is on display in our employment office and a copy [of the] Arbitration Agreement setting forth that procedure will be provided to you.
If you have any questions regarding this statement and the Arbitration Agreement, please ask a CSD representative before acknowledging, because by acknowledging, you acknowledge that you have received a copy of the Arbitration Agreement and agree to its terms. Do not check the Accept box below until you have read this statement.
During her subsequent interview, Gove was asked about her pregnancy and whether she had other children. When she was not hired and the position remained open, she brought a claim through the Maine Human Rights Commission (MHRC). When the MHRC was unable to resolve her dispute with CSD, Gove brought suit. The District Court found that it was unclear whether the provision quoted above applied to applicants like Gove who were never hired.
On appeal, the First Circuit Majority limited its analysis to questions of state contracts law to determine the narrow question of whether or not CSD's arbitration clause was binding against an applicant who had not been hired. It did not address questions of federal policy favoring arbitration because CSD did not brief those issues on appeal. In its analysis of state contracts law, the Majority relied on Maine's bedrock principle that ambiguous contracts are construed against the drafter. While CSD made clear that the arbitration provision applied during "pre-employment," it makes no reference to the provisions applicability to applicants who are never employed. The Majority found persuasive Gove's argument that someone who is never employed never engages in a pre-employment process and that there is no period "prior to [the] employment" of someone who is never employed. The Majority observed that adherence to Maine's contra proferentem doctrine is especially appropriate in these circumstances given the inequality of bargaining power and the fact that Gove was presented with a "take it or leave it" proposition. She could not bargain her way out of the arbitration provision or demand clarification before her interview.
In a dissenting opinion, Judge Torruella argued that CSD had not in fact waived its right to argue for arbitration based on federal policy considerations. Applying the law relating to such considerations, Judger Torruella had no difficulty in concluding that the presumption in favor of arbitration trumped any considerations of state law.
Friday, July 27, 2012
Your tax dollars at work. Here's the story from the Wall Street Journal:
Six years after the Pentagon fostered consolidation of its largest rocket makers, Boeing Co. now claims Air Force officials reneged on promises to reimburse the company for hundreds of millions of dollars in development expenses.
Accusing Defense Department officials of violating basic principles of "good faith, fair dealing and cooperation," Boeing is pursuing a federal lawsuit seeking reimbursement of more than $380 million the company spent on rocket development years before it formed a joint venture with Lockheed Martin Corp.
The Pentagon encouraged its two largest rocket contractors, each struggling to recoup major investments in next generation boosters, to create a joint venture, promising to reimburse certain Boeing expenditures that predated the venture. Then, the lawsuit alleges, amid eroding commercial orders and rising launch costs, the Pentagon retroactively decided those commitments weren't binding.
The scuffle highlights the challenges of trying to control escalating costs of launching U.S. defense and spy satellites amid anticipated leaner budgets. Some military satellite launches cost around $200 million, substantially more than the joint venture initially was projected to charge.
The suit, filed last month in the U.S. Court of Federal Claims in Washington, D.C., alleges that Pentagon brass and high-ranking Air Force program managers reneged on assurances that Boeing would be able to recoup investments made prior to 2006 on the Delta IV rocket, the U.S. military's most powerful launcher. Military contractors rarely suggest Pentagon officials tricked them.
The courtroom fight comes after years of quiet disputes and sometimes public clashes over the issue, including a 2008 Senate committee hearing that raised questions about Boeing's earlier financial practices.
By squaring off against its biggest military customer, Chicago-based Boeing is spotlighting arcane legal issues that entail significant financial and public-perception risks for both sides. The suit comes amid heightened Pentagon worries that current satellite and rocket budgets won't fit into slimmed-down Pentagon spending plans.
According to Boeing, Pentagon officials have contended those earlier agreements aren't legally binding. Boeing has said that if its arguments fail, it could result in a loss attributed to the venture and a payment of "up to $317 million" to the joint venture.
Spokesmen for the Air Force and the Justice Department declined comment on the litigation. A Boeing spokesman said "we negotiated in good faith," adding that the original reimbursement terms "are valid and we hope this gets resolved." But he declined to elaborate on specific points raised in the suit.
* * *
The suit alleges that Boeing initially agreed to modify its Air Force contracts and then opted to create the joint venture, which was championed by the Pentagon, based on commitments that it would be able to gradually recover expenditures it made between 1998 and 2006.
The joint venture is in the running to launch manned capsules for the National Aeronautics and Space Administration later in this decade.
The consolidation was considered essential because it allowed both financially struggling rocket systems to stay in production in order to provide the Pentagon assured access to space. The companies haven't disclosed their total losses on the two programs.
Boeing and Lockheed Martin together spent several billion dollars to develop the rockets starting in the mid-1990s, with the Pentagon contributing about $500 million in seed money to each program. But as costs soared and the outlook for commercial launches eroded by 2006, it became clear that they couldn't recoup all of those investments. A 50-50 joint venture was created to reduce overhead while keeping both rockets in production.
Boeing's earlier expenditures became a major topic of negotiation as early as 2005. In the suit, Boeing stresses that it "clearly and repeatedly conditioned its willingness" to follow the Pentagon's lead based on the government's pledges to reimburse the company's investments in hardware, personnel, program management and certain fixed costs.
In the court filing, Boeing said its "ability to recover its inventoried costs was a precondition" to continued participation in the rocket program.
But Boeing argues that after starting the reimbursement process, the Defense Department in 2008 reversed course and turned down all subsequent reimbursement requests.
The lawsuit, which also lists the joint venture as a plaintiff, suggests the change of heart was prompted by a Pentagon inspector general's review. An Air Force contracting officer ordered payments suspended in the fall of 2008, the day after the inspector general formally recommended such action.
If I am able to obtain a copy of the complaint, I will post it. I am interested to see the "arcane legal issues" that Boeing "spotlights." In the interim, some of the article comments over at the WSJ are actually worth reading.
UPDATE: Here's the complaint: Download BoeingPentagonComplaint.
[Meredith R. Miller]
Thursday, July 26, 2012
Talent management company D/F Management, (D/F) has filed this complaint in the Superior Court of California against actress Julianna Margulies, alleging breach of an oral contract. D/F alleges that in early February, 2009, Margulies agreed that in consideration for D/F’s services to her, she would turn over 10% of all gross revenue earned through Margulies' employment in the entertainment industry.
According to the Complaint and attached lovey-dovey e-mails, the parties got along swimmingly, with D/F assisting Margulies in landing the lead role in The Good Wife and a contract to promote L’Oreal cosmetics. However, in April 2011, Margulies terminated her relationship with D/F and stopped paying the 10% commission. D/F contends that, under industry custom, Margulies remains responsible for ongoing payment of 10% of her gross from industry work that D/F helped her get. D/F seeks damages of no less than $420,000 and declaratory relief entitling D/F to 10% of Margulies earnings on from The Good Wife and L’Oreal going forward.
An interesting aside. The Complaint quotes an e-mail that Margulies allegedly sent to D/F in happier times. As quoted, the e-mail reads as follows:
I'm tryng [sic] to figure out the situation [with my entertainment attorney] who I love, but I've been paying him a lot of money my whole career, he gets 5% of everything I do, but really only works once every blue moon for me, and I am finding that actors don't do that with lawyers anymore, they all do flat rates. With the 3rd year coming up, (i'm [sic] talking about the syndication deal etc....) it feels like too much money going out for such minimal work and I just want to see what other clients are doing . . . .
As to this, we have two comments. First, it looks like Margulies might soon be getting her money's worth out of her attorney. Second, who puts "sic" in a quoted e-mail?!? And why put a "sic" after "tryng" and "i'm" while ignoring, e.g., all of the comma splices, not to mention the questionable choice of "who" over "whom" in "who I love"? If you "sic" some things but not others, aren't you endorsing all mistakes that escaped your pedantry?
The really surprising thing about all this is that there is no written contract. D/F refers to an “oral management agreement” that incorporated the “industry custom” of a 10% fee to D/F. So, while we do not claim any expertise in California law, general contracts principles suggest that if this case proceeds, there will need to be factual determinations as to whether there is indeed such a custom that continues after the termination of the relationship and whether Margulies knew or should have known of it.
In addition, there would seem to be a Statute of Frauds issue here, since on D/F's view, the contract may not be performable within a year if, for example, Margulies entered into multi-year agreements with either CBS or L'Oreal.
Stay tuned to see how Margulies answers.
[Christina Phillips & JT]
Wednesday, July 25, 2012
Bratz dolls are no stranger to the blog - we've previously blogged about the Bratz' travails with Barbie. For those uninitiated, in a previous post, our editor D. A. Jeremy Telman described Bratz as barbies that "dress like prostitutes" (or, his sister did). Anyway, Bloomberg now reports that Bratz his initiated a contract suit against Lady Gaga (really, her management company). From Bloomberg:
Pop star Lady Gaga and her management company were sued by MGA Entertainment Inc., the maker of Bratz toys, for failing to approve a line of dolls in her image.
The Van Nuys, California-based company, alleging breach of contract in New York state court, is seeking more than $10 million in damages from the pop star, her management company, Culver City, California-based Atom Factory, and Los Angeles- based Bravado International Group, a merchandising company that works with musicians and music groups.
MGA Entertainment says in the complaint that it agreed to produce dolls in Lady Gaga’s image in December 2011 at Bravado’s “request and insistence” and paid the company a $1 million fee in anticipation of shipping the products to retailers this summer in time for the holiday selling season.
In April, Bravado’s Chief Executive Officer, Tom Bennett, told MGA’s chief executive officer, Issac Larian, that Lady Gaga wanted to delay production and shipping of the dolls until her new album is released in 2013, according to the complaint. MGA says the defendants have continued to withhold final approval in order to delay marketing the dolls until next year and instead sell a licensed Lady Gaga perfume called “Fame.”
“Defendants’ conduct is egregious, in bad faith and is pretextual, especially in light of the fact that MGA has, among other things, paid Bravado a $1,000,000 advance, agreed to an excessively generous royalty rate, invested millions in the preproduction of the Lady Gaga dolls and put its reputation and goodwill on the line in order to secure distributors and retail shelf space,” MGA Entertainment said in the complaint.
Amanda Silverman, a spokeswoman for Lady Gaga, said the singer hasn’t seen the complaint and has no comment.
“This is a dispute between Universal Music Group’s merchandising company and MGA,” Silverman said in an e-mail. “There was no legitimate reason for dragging Lady Gaga into that dispute. Lady Gaga will vigorously defend MGA’s ill- conceived lawsuit and is confident that she will prevail.”
Peter Lofrumento, a spokesman for Vivendi SA’s Universal Music Group, the parent company of Bravado, said in an e-mail that the claims in the suit are meritless and the company will vigorously defend itself in court.
A telephone message left at the headquarters of Atom Factory wasn’t immediately returned.
[Meredith R. Miller]
Yesterday, the cast of ABC's hit sitcom, Modern Family, filed a Complaint for Declaratory Relief against the show's production company, Twentieth Century Fox. (Ed O'Neill, previously of Married...with Children fame, who is compensated differently than his co-stars, has not joined the lawsuit but plans to do so, according to The Hollywood Reporter). The stars apparently were negotiating pay increases for future seasons 4 through 9 but were not satisfied with the offers they were receiving. Twentieth Century Fox (and ABC, the network on which the show airs) reportedly offered to increase each cast member's per-episode compensation from around $65,000 to $200,000 for the next few years. As negotiations broke down, the stars filed suit.
The named plaintiffs (including Sofia Vergara, Jesse Tyler Ferguson, Eric Stonestreet, Julie Bowen and Ty Burrell) are relying on an interesting legal strategy. They claim that their employement agreements are "personal service contracts" that are "illegal and void under California law" because they violate the "Seven-Year Rule." The Seven-Year Rule is codified in California's Labor Code section 2855(a), copied below:
"Except as otherwise provided in subdivision (b), a contract to render personal service, other than a contract of apprenticeship as provided in Chapter 4 (commencing with Section 3070), may not be enforced against the employee beyond seven years from the commencement of service under it. Any contract, otherwise valid, to perform or render service of a special, unique, unusual, extraordinary, or intellectual character, which gives it peculiar value and the loss of which cannot be reasonably or adequately compensated in damages in an action at law, may nevertheless be enforced against the person contracting to render the service, for a term not to exceed seven years from the commencement of service under it. If the employee voluntarily continues to serve under it beyond that time, the contract may be referred to as affording a presumptive measure of the compensation."
The complaint itself does not quote from the code section. It merely cites the code section and adds this parenthetical: "(personal service contracts are barred from having terms beyond seven years)." The complaint also does not explain how the law applies to a contract of a shorter duration that provides the employer (Twentieth Century Fox) with the option to extend it beyond seven years. Without citing any cases, it's hard to tell how this law would be interpreted to apply to the cast employment agreements. However, I am not a California lawyer so I should not go further without doing more research. Anyone know anything about this law?
If I never look into it more deeply, I at least hope to use this case as an example of the importance of researching individual state law rather than thinking, "All I really need to know I learned in Contracts class."
[Heidi R. Anderson]
We hoped this case might be a more up-to-date version of Hoffman v. Red Owl Stores. No dice. Another commercial promissory estoppel claim bites the dust.
After defaulting on a commercial loan, co-founders and sole shareholders of Environamics, Inc. (“Environmanics”), Robert Rockwood (“Rockwood”) and Roxanna Marchosky (“Marchosky”) were thrilled when SKF USA, Inc. (“SKF”) expressed interest in acquiring Environamics. However, when negotiations fell through leaving Environamics in a bigger hole, Rockwood and Marchosky brought suit in the District Court of New Hampshire claiming that they had relied on SKF’s promise to purchase the company in personally guaranteeing a $3 million loan needed to keep up the day-to-day operations of Envrionamics. The District Court granted SKF’s motion for summary judgment, so Rockwood and Marchosky appealed to the United States Court of Appeals for the First Circuit, which affirmed.
On January 14, 2004, Rockwood and Marchosky (collectively “Appellants”) entered into a $9 million plus royalties “Option Agreement” with SKF that gave SKF “an irrevocable option to purchase all, but not less than all, of the outstanding shares of stock” in Environamics. The parties also implemented a “Buy-Sell Agreement” that made SKF the “exclusive marketer and reseller” of Environamic’s pumps and related products. The Option Agreement was to last fifteen months and allowed the parties to negotiate a nine month extension. After the parties signed the Option and Buy-Sell Agreements, SKF paid Environamics $2 million. Environamics needed more money to sustain its day-to-day operations. At SKF's urging, Wells Fargo agreed to extend a $3 million line of credit to Environamics providing Rockwood and Marchosky personally guaranteed the loan. Rockwood and Marchosky were reluctant to agree to those terms but claim that they did so after receiving assurances that SKF would buy Environamics under the terms of the Option Agreement.
In October 2004, SKF, disappointed in its sales of Environamics products, announced that it would not exercise its option to purchase Environamics. Rockwood and Marchosky filed suit alleging promissory estoppel in that they took out the Wells Fargo loan in reliance on SKF’s alleged promise to exercise its option. They survived a first motion for summary judgment based on affidavits alleging that specific promises had induced them to agree to the personal guarantee. After Rockwood and Marchosky amended their complaint to omit any specific references to such promises, the District Court granted SKF’s second motion for summary judgment.
The First Circuit ruled (oh the irony!) that the doctrine of judicial estoppel now precluded Rockwood and Marchosky’s promissory estoppel claim. The First Circuit found that the two conditions for judicial estoppel had been met: (1) Rockwood and Marchosky's two summary judgment affidavits contradicted each other, and (2) Rockwood and Marchosky had convinced the District Court to accept their earlier position. Having determined that no specific competent evidence suggested that Rockwood and Marchosky had reasonably relied on any SKF promise to buy Environamics on terms other than those of the Option Agreement, the First Circuit affirmed the District Court’s ruling.
[Christina Phillips & JT]
Tuesday, July 24, 2012
The newly formed LSU Journal of Energy Law and Resources (JELR) at the Louisiana Sate University Paul M. Hebert Law Center invites submissions of articles for the Journal’s companion blog, The LSU Law Energy Blog. The blog will launch in August 2012 and will continue to publish pieces on a rolling basis. JELR is a student-edited journal devoted to the promotion of legal scholarship in energy law. The Journal is committed to publishing a variety of topics within the purview of energy law, including interdisciplinary pieces. The LSU Law Energy Blog will supplement the Journal by providing shorter articles on recent developments in energy law and the surrounding fields published by students, practitioners, and professionals in these fields.
Submissions: To be considered for publication on The LSU Law Energy Blog, please submit an entry on a current, relevant energy law topic or a case note on a major energy law case. Topical entries should be around 500 words and case notes may be longer. The deadline for submissions is quickly approaching—July 31. Please email these entries or requests for deadline extensions to email@example.com.
On June 22, 2012, Paisano Publications (“Paisano”), publisher of Easyriders Magazine, filed a complaint against KSLB&D, owners of the popular Sturgis, South Dakota bar and restaurant, Easyriders Saloon (the “Saloon”) in the Superior Court of Los Angeles. The Complaint alleges breach of a licensing and vendor agreement. Paisano alleges that KSLB&D was granted the right to operate the Saloon under the name “Easyriders Saloon” via a License Agreement under which Paisano was entitled to royalties from sales of food, beverages, and merchandiseat the Saloon.
In addition to the License Agreement, the parties also had a Vendor Agreement wherein KSLB&D engaged Paisano to act as its “exclusive agent of the sale of vendor space” adjacent to the Saloon surrounding the annual motorcyclist rally held in Sturgis (the "Sturgis Event"). The Vendor Agreement permitted either party to terminate upon ten days notice.
Paisano alleges that KSLB&D sent Paisano a Notice of Termination claiming that Paisano had materially breached the Vendor Agreement in failing to sell sufficient vendor space in advance of the approaching 2012 Sturgis Event and that KSLB&D had begun selling the remaining available vendor space on its own. Although the Saloon has now rebranded itself “The Saloon & Steakhouse,” Paisano contends that KSLB&D continued to sell merchandise featuring the Easyriders mark without approval.
Paisano contends that it did not breach the agreement and accuses KSLB&D of attempting to avoid royalty and commission obligations under the Vendor and License Agreements prior to the 2012 Sturgis Event. Paisano further accuses KSLB&D of breaching the implied covenant of good faith and fair dealing in connection with both the License and the Vendor Agreement.
Paisano seeks damages in excess of $2,000,000, along with attorney fees and costs of the suit, It also seeks declaratory and Injunctive relief barring KSLB&D from covering and otherwise obscuring the signs in and around the Saloon, and from identifying or advertising itself as “The Saloon & Steakhouse.”
[Christina Phillips & JT]
Monday, July 23, 2012
As reported in the New York Times, DirecTV and Viacom ended their nine-day blackout of cable channels after Jon Stewart, whose Daily Show is broadcast on Comedy Central, one of the channels at issue, asked rhetorically, "Viacom, what are you China?" The remark related to Viacom's attempt to prevent viewers from watching its programming commercial free on the Internet. As Stewart noted, young people know all sorts of ways to watch pirated programming commercial free on the Internet. Stewart informed his corporate overlords, "[Y]ou're only blocking the old people from watching the show."
The dispute between the DirectTV and Viacom started out as the usual squabbling between service providers and programming providers over how much consumers should be charged for a bundle of two channels that they watch and seven that they don't. And as often happens in such cases, in order to increase pressure on DirecTV, Viacom blocked DirecTV from airing its programming, leaving viewers unable to quench their insatiable desire to know, inter alia, who had hooked up with whom in Jersey Shore and why anybody would watch any show on Comedy Central other than The Daily Show and The Colbert Report.
But DirecTV upped the ante by encouraging viewers who could not watch Viacom programing via satellite to just watch episodes on Internet sites such as Hulu. Now order has been restored, as the two parties have worked out a deal that will provie free Internet access to Viacom-owned shows but only for DirecTV subscribers. Ultimately though, it seems that time is running out for the conventional models on which companies like Viacom and DirecTV rely. Viewers increasingly find their content on the Internet, and the companies can only keep their fingers in the dam for so long.
On May 10th, Ellen Pao, a junior partner at Kleiner Perkins Caufield & Byers (Kleiner) filed a complaint in California state court. In her complaint, Pao alleges that Kleiner discriminates against female employees in their advancement and compansation based on gernder. She also alleges that Kleiner retaliated against her after she reported sexual harassment by Kleiner management.
At this point, the issue in the case is whether or not the case will go to arbitration. Kudge Kahn of the San Francisco Superior Court found that it should not. As the New York Times reported over the weekend, Judge Kahn commented on Kleiner's papers submitted in connection with its motion to compel arbitration as follows, "[A]ll of your papers were terrific and I disagreed with all of them.' Apparently, Pao had an arbitration agreement with Kleiner funds but not with the firm itself.
The Times interviewed Melinda Riechert, an attorney who represents employers. She explained the value of arbitration clauses in employment contracts: "People who want to keep cases out of hte press and the blogosphere should seriously consider arbitration agreements."
Yes, fear the blogosphere!
Sunday, July 22, 2012
Kevin Costner, Usual Suspect of ContractsProf Blog, Beats Actual Usual Suspect, Stephen Baldwin, in Contract Suit
Earlier this month, a federal district court rejected Stephen Baldwin's request for a new trial in his dispute with Kevin Costner. In the suit (amended complaint here), Baldwin and another party claimed that agreements they entered into with Costner and others were invalid due to fraud, misrepresentation, and/or mistake. It appears that Baldwin, Costner, et al. once held varying levels of interest in a closely-held company, Ocean Therapy Solutions, that had developed a special oil cleanup technology. As part of some internal restructuring, cash infusions, and other maneuvering, Baldwin sold his interest in the company to Costner's group for a mere half million in a Transfer Agreement. Shortly thereafter, Ocean Therapy Solutions announced a $52 million dollar deal with BP. Baldwin sought to have the Transfer Agreement-as well as the associated release--declared uneforceable due to fraud.
In an order rejecting an earlier motion for summary judgment by Costner, the district court stated as follows:
"The plaintiffs assert that the defendants' alleged misrepresentations in the days leading up to the sale of their shares in OTS constitute the kind of fraud that, if proved, is sufficient to vitiate the release agreements. The Court agrees. The plaintiffs have maintained since the beginning of this lawsuit, that had they known about the completed deal with BP...they would not have sold their interests. This is not to say, of course, that plaintiffs have met their burden on these questions, but, rather, to suggest that summary relief is not appropriate on this record."
That opinion also contains a nice discussion of how a release agreement may be innvalidated due to fraud under Louisiana law, the civil law system oft-neglected by law professors outside of Louisiana (see pages 11-15). Athough Baldwin survived summary judgment, his side later lost at trial, and, as noted above, also lost a bid for a new trial.
[Heidi R. Anderson]
Friday, July 20, 2012
In his first appearance on ContractsProf blog, Ashton Kutcher was noted for his replacement of Charlie Sheen, famous for violating an alleged morals clause in his contract with the producers of the CBS television series, Two-and-a-Half Men. In this appearance, his company possibly provides a good example of a party seeking reliance damages.
Kutcher's company, Katalyst Media, reportedly had a contract with the California DMV (yes, that DMV) to provide access and content for a reality show about "the variously humorous, emotional, dramatic, moving, humanizing and entertaining situations that arise [at the DMV] on a daily basis." According to the complaint, the DMV later attempted to cancel the arrangement. In addition to other claims, Kutcher claims that the attempted contract cancellation came after his company had spent money in reliance. Specifically, the complaintstates:
"In direct reliance upon DMV's promises and commitments...Plaintiffs entered into an agreement with cable television station TruTV....Also in reliance on DMV's promises and commitments...Plaintiffs spent literally hundreds of thousands of dollars in pre-production for the Series, including with respect to casting, hiring of personnel, preparing budgets, negotiating contracts, and other pre-production activities."
The case is particularly interesting because the facts somewhat parallel those in the case I use to teach reliance, Hollywood Fantasy Corp. v. Gabor. In Gabor, the organizer of fantasy acting camps sued Zsa Zsa Gabor for backing out of one of the camps and allegedly causing all sorts of damages (including, perhaps, the bankrupting of the entire company). The plaintiff, Leonard Saffir, also alleged that he lost anticipated profits from a "bloopers" show he was planning to sell to a television network based on outtakes from the fantasy camps. Although Saffir's damages were too uncertain to recover under a traditional expectation-based lost profits theory, he was able to recoup his expenses (such as brochures, advertisting, etc.) incurred in reliance on Ms. Gabor's promise to appear.
I suppose the modern day equivalent to a bloopers show would be some current reality TV shows, including Kutcher's own prior series, Punk'd. So, from now on, whenever I run across an Ashton Kutcher re-run, I'll automatically think of Leonard Saffir--and reliance.
[Heidi R. Anderson]
Thursday, July 19, 2012
SUFFOLK UNIVERSITY LAW SCHOOL in Boston invites applications for several tenure- track positions starting in the 2013-2014 academic year. We seek entry-level and lateral candidates with strong academic records and a demonstrated commitment to excellence in teaching and scholarship. We have particular curricular teaching needs in first-year contracts and first-year property, together with upper-level courses with a focus on health law, business or financial services. We also have foreseeable needs in criminal law and international law. Consideration may also be given to relevant practice experience and community involvement. Suffolk University is an equal opportunity employer. We encourage applications from women, persons of color, sexual orientation minorities, and others who will contribute to the diversity of the faculty. Interested candidates should contact Professors Jessica Silbey and Robert Smith, Co-Chairs, Faculty Appointments Committee, at firstname.lastname@example.org and email@example.com, with a copy to firstname.lastname@example.org, or mail their materials to the Co-Chairs of the Appointments Committee, c/o Janine LaFauci, at Suffolk University Law School, 120 Tremont St., Boston, Massachusetts 02108-4977.
I've just returned from a semester in New Zealand, teaching an advanced contracts course at the beautiful Victoria University of Wellington. One of the best things about teaching at the law school was having David McLauchlan as a colleague. As many contracts profs know, David is an impressive and prolific contracts scholar and a highly respected expert on contract law. Some of his writings can be found here. During my visit, I had the privilege of hearing David present a paper with the intriguing title, “The Contract That Neither Party Intends.” In his paper, he tackles the issues of interpretation and responded to a recent New Zealand case which endorsed our very own Holmes' strict views regarding the objective approach to contract formation and interpretation. Professor McLauchlan offers several compelling reasons why that view should be rejected in favor of (also our very own) Corbin’s less stringent version of objectivity. The paper is a spirited discussion of interpretation issues ("promisee objectivity" v. "detached objectivity" aka "fly on the wall" theory) and discusses cases that are classics in American casebooks (such as the Peerless case) as well as New Zealand and Australian cases that may be unfamiliar to U.S. contracts profs. It goes to show that while contract law may be local, contract law issues are universal.
Wednesday, July 18, 2012
Courney Love is no stranger to ContractsProf Blog. I am beginning to think I could teach the whole course through her legal escapades. Here's a new contracts story from Celebuzz (venerable site of celebrity exclusives):
Courtney Love has found herself wrapped up in legal woes after her former assistant filed a wrongful termination, nonpayment of wages and breach of contract lawsuit last week. But the tables may soon be turned.
Not only has Love’s camp disputed Jessica Labrie‘s claims as “completely unfounded,” but it now asserts that the former employee could find herself in hot water for the suit.
What did Labrie do wrong?
“Miss Labrie signed a very solid confidentiality agreement,” the former Hole frontwoman’s rep, Steve Honig, exclusively tells Celebuzz. “If she has decided to breach that agreement by releasing privileged information covered within that agreement, she could find herself in serious legal jeopardy.”
In a series of voice messages left for Labrie, the “Pretty on the Inside” artist — the widow of iconic Nirvana frontman Kurt Cobain — said she was in deep debt and could not shell out the woman’s wages.
“What am I supposed to do? Not eat? Live on the streets?” Love bemoaned.
Between the leaked Love tapes and Labrie’s confidentiality contract, the conflict seems to be heating up to a contentious court battle.
Believe it or not, this is relevant to something I am currently researching. I'm in the early stages of a paper on confidentiality agreements and what exactly they are good for beyond an in terrorem effect (I mean, once the secret is out, it is no longer a secret and how do you prove damages?). One of the things they are good for is exemplified here: to use defensively. Assistant sues Courtney Love for breach of contract and Love defends (or countersues) by alleging breach of a confidentiality agreement.
If you are interested, Celebuzz has actually posted the complaint. If I represented Love, in her papers somewhere, I would write: "Go on, take everything, take everything, I want you to...":
[Meredith R. Miller]
Tuesday, July 17, 2012
In May of 2009, Patco Construction Company’s (“Patco”) internet banking account was hacked, and $588,851.26 was withdrawn. Although Ocean Bank (a branch of People’s United Bank) flagged the transactions as inconsistent with Patco’s previous activity, it failed to notify Patco and allowed the payments to go through. Patco brought suit against the Bank in the United States District Court in Maine claiming that the bank should bear the loss because its security system was not commercially reasonable under Article 4A of the UCC, and also alleging negligence, breach of contract, breach of fiduciary duty, unjust enrichment, and conversion. Both parties filed motions for summary judgment. The District Court affirmed the Magistrate’s grant of the Bank’s motion and denied Patco’s. On appeal, the Court of Appeals for the First Circuit reversed the District Court’s grant of the Bank’s notion for summary judgment and remanded, while also encouraging the parties to settle.
The First Circuit first concluded that the Bank’s security system was commercially unreasonable, but it did not therefore grant summary judgment to Patco on its UCC claim. Rather, the Court remanded for further briefing on the issue of “what, if any, obligations or responsibilities are imposed on a commercial customer under Article 4A even where a bank’s security system is commercially unreasonable.
In the part of the opinion that concerns us at the ContractsProf blog, the First Circuit found that UCC Article 4A does not preempt Patco’s common law claims for breach of contract and breach of fiduciary duty. The First Circuit relied on the official comment to Article 4A in finding that Article 4A “embodies an intent to restrain common law claims only to the extent that they create rights, duties, and liabilities inconsistent with Article 4A.” The Court then found that Patco’s breach of contract and breach of fiduciary duty claims are not inherently inconsistent its Article 4A claim, as there could be, at least in theory, higher standards imposed on the Bank, either by contract or through assumption of fiduciary duties. The Court referenced other rulings in which plaintiffs were permitted to rely on common law remedies to seek redress for alleged harms arising from funds transfers where Article 4A did not protect against the underlying injury or misconduct alleged.
[JT and Christina Phillips]