Tuesday, July 17, 2012
Monday, July 16, 2012
Via @thecontractsguy (aka Brian Rogers, if you don’t already, you should follow him on Twitter) retweeting @yanger_law, I learned of a recent federal district court case from Florida that held that an instant messaging (“IM”) conversation constituted a contract modification.
Smoking Everywhere, Inc., is a seller of e-cigarettes (hey, can I bum an e-smoke?) Smoking Everywhere contracted with CX Digital Media, Inc., to help with online marketing of a free e-cigarette promotion. CX Digital would place the ad with its affiliates to generate web traffic. I am oversimplifying the technology and metrics here, but basically the deal was that Smoking Everywhere would pay CX Digital around $45 for every completed sale that came via a customer clicking on and ad placed with one of CX Digital’s affiliates. The contract limited the deal to 200 sales per day.
After re-coding some pages for Smoking Everywhere, CX Digital believed it could drive more traffic and increase the sales it was sending CX Digital. The following exchange, part of a longer IM chat, occurred between “pedramcx” (Soltani) from CX Digital and “nicktouris” (Touris) from Smoking Everywhere:
pedramcx (2:49:45 PM): A few of our big guys are really excited about the new page and they’re ready to run it
pedramcx (2:50:08 PM): We can do 2000 orders/day by Friday if I have your blessing
pedramcx (2:50:39 PM): You also have to find some way to get the Sub IDs working
pedramcx (2:52:13 PM): those 2000 leads are going to be generated by our best affiliate and he’s legit
nicktouris is available (3:42:42 PM): I am away from my computer right now.
pedramcx (4:07:57 PM): And I want the AOR when we make your offer #1 on the network
nicktouris (4:43:09 PM): NO LIMIT
pedramcx (4:43:21 PM): awesome!
And, awesome!, indeed. CX Digital went from sending around 60-something sales a day to an average of over 1200 sales per day (with a peak of over 2800 sales in one day). Accordingly, CX Digital sent Smoking Everywhere an invoice for two months in 2009 that totaled over $1.3 million. And Smoking Everywhere refused to pay.
Among other issues, the question arose whether the IM conversation modified the existing contract. The district court held that it did:
The Court agrees a contract was formed but clarifies that Touris’s response acted as a rejection and counter-offer that Soltani accepted by then replying “awesome!” “In order to constitute an ‘acceptance,’ a response to an offer must be on identical terms as the offer and must be unconditional.” “A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.” “The words and conduct of the response are to be interpreted in light of all the circumstances.”
Here, Touris’s response of “NO LIMIT” varies from the two specific terms Soltani offered and so acts as a counter-offer. Soltani proposed CX Digital provide 2,000 Sales per day and that CX Digital be the AOR or agent of record, a term of art meaning the exclusive provider of affiliate advertising on the advertising campaign. Touris makes a simple counter-offer that there be no limit on the number of Sales per day that CX Digital’s affiliates may generate and makes no mention of the AOR term. Soltani enthusiastically accepts the counter-offer by writing, “awesome!” and by beginning to perform immediately by increasing the volume of Sales.
Touris testified he could have been responding to something other than Soltani’s offer of 2,000 Sales per day when he said “NO LIMIT.” Touris acknowledged that he had engaged in contract negotiations about “changing the number of leads, changing URLs, deposits, that type of thing,” although he added, “we mainly spoke on the phone. A little bit of email but I had trouble receiving his emails so I mean we used Instant Messaging but you know there was a lot more than what was presented here, last court appearance.” The implication of this testimony was that Touris could have been responding to something else he and Soltani had discussed by phone. But when pressed on just what else he could have been referring to when he said “NO LIMIT,” Touris’s memory failed him. In particular, he denied that “NO LIMIT” was some kind of personal motto.
Indeed, neither Touris nor Taieb ever suggested any plausible alternative interpretation for why Touris wrote “NO LIMIT” to Soltani, nor did they explain the content of the alleged additional negotiations that took place outside of the September 2, 2009 instant messages or what effect those would have had on the apparent agreement the parties reached on September 2nd. Considering Touris’s admission that he was engaged in instant-message negotiations with Soltani about changing the number of leads along with the September 2nd instant-message transcript, directs the conclusion that those negotiations, wherever and however they occurred, culminated with a modification of the [original contract] when Touris and Soltani agreed to “NO LIMIT.”
Smoking Everywhere also observes that a significant amount of time — almost two hours— passed between Soltani’s offer of 2,000 Sales per day and Touris’s counter-offer of “NO LIMIT,” which it suggests adds uncertainty to the meaning of the conversation. However, more than an hour passes before Soltani added that he would like CX Digital to be the AOR; yet this is clearly part of Soltani’s offer. It is then only thirty-four minutes later that Touris responds “NO LIMIT.” Given that Touris testified he would not have approved such an increase without first discussing it with Taieb, one explanation for the time delay, if one is needed, is that Touris was doing just that — asking Taieb for approval.
(citations omitted). There was some ambiguity here and IM is pretty informal, but given the context, it seems like the court made the right call.
I don’t IM because I don’t understand it. Given the expectation of instantaneous communication, rather than IM, I prefer the telephone. [Notable exception: when you are in a space where you can't gossip aloud about colleagues]. But this case suggests, if you do IM, be careful what you type! It could lead to Smoking Guns Everywhere....
CX Digital Media, Inc. v. Smoking Everywhere, Inc. (S.D. Fl. Mar. 23, 2011) (Altonaga, J.).
[Meredith R. Miller]
Lucy Barras, on behalf of herself and other similarly situated plaintiffs, alleged that Branch Banking and Trust Company (BBT) engaged in unfair and deceptive trade practices, breaches of contract and of the covenant of unfair dealing and unconscionability. BBT moved to compel arbitration, relying on a provision in its Banking Services Agreement (the Agreement). Pre-Concepcion, the District Court found the Agreement unconscionable and denied the motion to compel arbitration. Post Concepcion, the Eleventh Circuit remanded the case back to the District Court. On re-hearing, the District Court again denied the motion to compel, finding that BBT had waived its right to raise the issue of unconscionability before the arbitrator by raising it in federal court and again finding that the Agreement was unconscionable because of its fee-shifting structure.
In Barras v. Branch Banking and Trust Company, the Eleventh Circuit, per Judge Rosemary Barkett (pictured), reversed and remanded with instructions to compel arbitration. The Eleventh Circuit first held that the District Court had correctly found that BBT had in fact waived its right to claim that the issue of unconscionability must be decided by the arbitrator. In so doing the Court distinguished this case from Rent-A-Center West v. Jackson, because Rent-A-Center had consistently argued that the issue of unconscionability was for the arbitrator and so did not address the facts of the current case. The Court likewise found no error in the District Court's conclusion that the Agreement's fee-shifting provision, which requires Barras to bear any costs arising out of any dispute regardless of the outcome of that dispute, is applicable to costs arising out of arbitration.
Post-Concepcion, generally-applicable contracts defenses can be a bar to the enforceability of an arbitration agreement, so long as they do not create a scheme inconsistent with the Federal Arbitration Act (FAA). The Court found that under the applicable law of the State of South Carolina, unconscionability is such a generally-applicable contracts defense that is not preempted by the FAA. Applying South Carolina law, which requires a showing of both procedural and substantive unconscionability, the Court found the Agreement's cost-shifting provision to be inconspicuous, one-sided, surprising and unfair. The Court concluded that the cost-shifting provision is unconscionable.
However, rather than invalidating the Agreement's arbitration provision, the Court found the unenforceable cost-shifting provision to be severable from its arbitration provision. The parties may now proceed to arbitration without BBT enjoying the benefit of knowing that, win or lose, its costs would be paid by Barras.
Friday, July 13, 2012
An irresistible law prof favorite: a statute prohibits vehicles in the park. Can you bring in a bicycle? A stroller? Or, as I remember one of my own law profs asking, a wheel chair? Of course, the exercise was all about interpretation. We never mentioned the Americans with Disabilities Act (ADA). Here's a variation on the theme: disabled vets sue New York State Department of Environmental Conservation under ADA because the statute that does not allow "motorized vehicles" in Adirondack Park, preventing them from accessing a number of scenic lakes.
[Meredith R. Miller]
Thursday, July 12, 2012
The Wall Street Journal reported that as part of a settlement with creditors, former partners of belly-up Dewey & LeBoeuf law firm will be asked to give back amounts ranging from $25,000 to $3,000,000. This "clawback" offer doesn't seem to be an offer yet - the creditors haven't signed off on it. Maybe a better way to look at it is as an offer by the firm to the ex-partners which, if accepted, would be offered to creditors. Would it be a conditional offer? Or maybe two separate offers (firm to ex-partners and then firm to creditors?) Maybe a contract/release signed by all three groups? (most likely scenario, but I'll stop obsessing over the contract formation issues now....) The article reports that those ex-partners who fail to sign on to the plan "could end up on the hook for millions of dollars of Dewey's debt." That's a lot of billable hours.
Forest Park Pictures alleges that it created what the industry calls a "series treatment" for a television show called “Housecall,” featuring a doctor who, after being expelled from the medical community for treating patients who could not pay, moved to Malibu, California, and became a “concierge” doctor to the rich and famous. Forest Park presenting this material to USA Network (“USA”) both in writing and in a face-to-face "pitch." Below is the opening scene of Robert Altman's "The Player" illustrating what a pitch is like:
Forest Park alleges an implied agreement by USA to pay reasonable compensation if its ideas were used. Although Forest Park and USA exchanged further communications, discussions ultimately fell off with no formal agreement to produce the show.
About four years later, USA produced and aired “Royal Pains,” a television show suspciously simlar to "Housecall." Forest Park then sued USA for breach of the implied agreement. The district court granted USA’s motion to dismiss on grounds that the Copyright Act preempted the claim and that the contract was too vague to be enforced. On appeal, the Second Circuit Court of Appeals vacated and remanded.
Section 301 of the Copyright Act expressly preempts a state law claim only if (1)” the work at issue comes within the subject matter of copyright and (2) the right asserted is equivalent to any of the exclusive rights within the general scope of copyright.” However, if the state law claim includes an element that supplants or supplements the elements of a copyright infringement claim, there is no preemption. In this case, the Second Circuit found that Forest Park's claim was not preempted because it alleged that USA had promised to pay Forest Park for the use of its ideas, an element that made its claim "qualitatively different from a suit to vindicate a right included inthe Copyright Act." In addition, a copyright grants the owner exclusive rights against the world, whereas a breach of contract claim provides no exclusive rights and asserts rights only against the contractual counterparty.
The Second Circuit then moved on to consider whether Forest Park had alleged a breach of an implied-in-fact contract. California has long recognized that an implied-in-fact contract may be created where the plaintiff submits an idea that the defendant subsequently uses without compensating the plaintiff. Although USA argued that even if the parties were part of an implied-in-fact agreement, the agreement could not be enforced because it lacked a definite price term. However, California courts allow the enforcement of contracts that lack exact price terms as long as the parties’ intentions can be ascertained. Taking into account the industry custom of pitching an idea for payment, the court remanded back to the District Court, giving Forest Park a chance to prove that such an industry standard price exists and that both parties agreed to it.
We learn from Wikipedia that "Royal Pains" was renewed for its fourth season last September.
[JT and Chirstina Phillips]
Tuesday, July 10, 2012
What good is a contributing blog editorship if I can't use it for a little bit of self-promotion?
I've posted a draft of "Party Sophistication and Value Pluralism in Contract" to SSRN. For those of you in attendance at the annual contract law fiesta in San Diego (Thomas Jefferson) back in March, this is the paper that formed the basis of my talk (or, that was the talk that formed the basis of this paper). Here's the abstract:
In a previous article, Contract Law, Party Sophistication and the New Formalism, 75 Missouri L. Rev. 493 (2010), I documented a trend in United States case law and scholarship that fashions a dichotomy between sophisticated and unsophisticated parties. That article set out to explain the trend as a theoretical compromise between formalism and realism in the face of a renewed formalism.
However, as I noted in the previous article, the “new formalism” may not be formalism at all because it retains normative concerns. Indeed, the shift in legal thought may be more appropriately and simply characterized as embracing pluralism. This piece will place observations about party sophistication within recent scholarship discussing pluralist conceptions of contract doctrine and suggest that the focus on sophistication is a means to order contract law’s competing values (e.g., autonomy, efficiency, fairness and equality, certainty and predictability).
With reference to my previous writing on the subject, Section I of this Article addresses the increasing significance of party sophistication. The next section summarizes the argument that party sophistication preserves fairness norms in the face of a resurgence of formalism. Section III provides a brief overview of existing pluralist contracts scholarship. The Article then presents its central claim: the attention to the sophistication of contracting parties fits neatly within a theoretical shift toward pluralism and provides a way to strive for coherence and yet still order the competing values of contract law.
After addressing some case examples in Section IV, this Article concludes that, once the status-based label of “sophisticated” or “unsophisticated” is applied, the law can prioritize values. For sophisticated parties, the supervalues are autonomy and individual liberty, which leads to a rules-driven and a-contextual approach that lends itself to efficiency, predictability and certainty. For unsophisticated parties, the supervalue is a normative one of reasonableness and fairness; it is guided by a contextual and standards-based approach. This allows for a general and comprehensive body of contract law that is both principled and pragmatic, a difficult task given the wide variety of parties and transaction types that contract law serves.
Not shifting any paradigms but definitely fun to write. I welcome any feedback.
[Meredith R. Miller]
Monday, July 9, 2012
reported on Friday, Hallandale Beach made the unusual decision in 2003 to hire a private company to run its lifeguard operation. That company assigns four lifegaurds to patrol an length the size of two football fields. A company rule provides that if any of the lifeguards leaves his assigned area, he must first notify a supervisor so that his area is covered. This protects the company from liability.
But Tomas Lopez noticed a struggling swimmer, he raced to help him, leaving his area without notifying his supervisor. Two other swimmers had brought the drowning man back to shore, but Mr. Lopez helped carry him to the beach and tended to him until the paramedics arrived. He filled out his report and was fired, but Mr. Lopez had no regrets. He had not forgotten the rule; he had chosen to disregard it. Three of his colleagues quit in solidarity; two more were fired for saying they would have done what Mr. Lopez did. Mr. Lopez's employer then offered him his job back, but Mr. Lopez declined.
This leads us to wonder (as we have wondered before) how outsourcing saves governments money. Why is it cheaper to hire a company, that one presumes is trying to make a profit, to operate your lifeguard operation than it is to run that operation yourself? Private companies can be a lot more efficient than government entities in certain ways, but as the focus on liability here suggests, they also have exposures that governments don't and, as this case illustrates, there could be instances in which a private company might do the public safety/economic efficiency analysis differently from how a government, which would likely be insulated from suit by various immunity doctrines, would do it.
Wednesday, July 4, 2012
For those of you who do not follow track and field sports or the Olympics, there was an interesting development in the women's 100 meter final at the U.S. Olympic trials. There was a tie for third. It's actually kind of a nice story. Allyson Felix and Jeneba Tarmoh share a coach and train together. They are friends. Even a photo finish could not determine who came in third.
Unfortunately, a lot rides on the difference between third and fourth. A country can send no more than three competitors for each event. So, nothing's worse than fourth. Both runners have contracts with Nike and those contracts, according to the New York Times, likely include significant bonuses if the runners make it to the Olympics. The situation is apparently unprecedented. There is no official tie-breaking mechanism, and for a time it seemed that the two women would run against one another to determine who goes to London.
But Tarmoh is now re-enacting a Seinfeld episode (see the animated version below), although nobody is claiming she got a head start. Earlier this week, as reported in the New York Times, she announced in an e-mail that she would not run and was conceding her place on the U.S. 100 meter team to Felix.
Tarmoh was initially declared the third place finisher, but that finding was quickly reversed. According to the Times, Tarmoh is refusing to run again because she believes she already won the race, although she did not make use of the available protest mechanisms. Her high school track coach explains that Tarmoh is mentally and physically exhausted due to the stress brought on by the tie. Tarmoh will likely be a part of the U.S. 100 meter relay team, so she should still get a chance to run at the Olympics.
Meanwhile, the sprinters in the Tour de France went at it for the fourth consecutive day. Today's sprint finish was won by Andre Greipel after the favored Mark Cavendish took a nasty spill in the build-up to the sprint finish. Cavendish won the intermediate sprint during the nearly 160 kilometer stage. Despite getting knocked off his bike at speeds likely in excess of 35 mph, I suspect Mark Cavendish will be in the hunt for a stage win tomorrow. He's also supposed to ride for his country in the Olympics about two weeks after completing the 2000-mile, three-week Tour de France.
Tuesday, July 3, 2012
Moshe's post today got me thinking about a recent experience that I had not thought about in contracts terms. I was returning from a conference in Las Vegas (don't ask!) on my favorite airline, Southwest. Because it was Southwest, I know exactly why my flight was delayed.
There was a mechanical problem with a plane bound for San Franciscio. Because that flight had some connections that gave it priority over our flight to Chicago, Southwest decided to pull our plane and give it to the good folks heading off for San Francisco. At first, they told us there would be a two-hour delay while until they could find a replacement jet for us.
As two hours became three hours, passengers became upset. They voiced their anger at the gate attendants who were incredibly patient professional, courteous, and firm. They provided the limited information they had; they acknowledged that the information was incomplete and that the lack of complete information caused the passengers to be justifiably frustrated. They accommodated the needs of passengers, including someone who had checked her medication thinking that she would not need it on a three-hour flight that now was going to take (at least ) six hours. And then, as David Bromberg would put it, they did something so incredible that to this very day I indict my own susceptibilities and reject my own anachronisms.
They called passengers up in alphabetical order and gave us $100 vouchers. Some rejected the offer, saying they would never fly Southwest again. "Who you gonna fly?" I thought, but the Southwest employees, just confirmed that the passengers were rejecting the offer and apologized again for the inconvenience. The passengers responded by complaining that this was the worst travel experience they had ever had. "You don't fly much," I thought but the Southwest emplyoees just apologized again and assured the passengers that they would be departing soon.
Then we switched gates and eventually piled into a plane.
Which wouldn't start. Whatever machine was supposed to start it wasn't working, and then the cart holding the backup to the backup broke, and then the backup to the backup to the backup didn't have enough power. Word. It was 100 degrees outside of course, and without power in the aircraft, it was more than a little uncomfortable inside as well. But there would be no second $100 voucher.
So, Moshe, is $100 a reasonable offer? I mean, there wasn't a corpse next to me, and in fact I didn't expect to get even $100, because frankly getting a sincere apology from an airline is a coup these days. But if Southwest is going to compensate passengers for inconveniences caused by their own faulty equipment, why stop at a $100 voucher?
The remedy of price reduction derives from the action quanti minoris of Roman law. It allows the purchaser to reduce the contract price to what the parties supposedly would have agreed upon had the contract originally been for the purchase of the nonconforming goods. The remedy can be found in most European legal systems today; e.g., Section 1664 of the French Code Civil or Section 441 of the German B.G.B. The remedy is also mentioned in Section 50 of the Convention on the International Sale of Goods. Originally, price reduction was limited to sales contracts, but Section 9.401 of the Principles of European Contract Law proposed extending the remedy to any “tender of performance not conforming to the contract.”
A footnote in my forthcoming article, co-authored with David Elkins, (The Remedy of Price Reduction in Mixed Legal Systems, Stetson L. Rev., forthcoming 2012) recounts the following hypothetical case (derived from Common Frame of Reference and Existing EC Contract Law (Reiner Schulze ed., 2008) 322-323) to illustrate how price reduction might be used in a service contract:
A flies with a ticket for business class. Unfortunately, an economy class passenger dies during the flight. As the economy class is fully booked, the crew decide to transfer the corpse to business class and to tie it to the seat next to the one occupied by A. A may ask for a reduction of price which he or she paid for the flight, because having to sit next to a corpse in business does not conform with the passenger’s legitimate expectations, even if the air operator had no alternative option to solve the problem. In such a case it is difficult to determine a value of the reduction, since there is no market for flights with a corpse placed next to your seat. Possibly the price should at least be reduced to the level of the price for economy class…
Although the case appears to be one of those detached-from-reality hypotheticals that only a law professor could come up with, here’s an excerpt from a recent news story:
Lena Pettersson had just boarded her Tanzania-bound flight at Amsterdam Airport Schiphol when she noticed a man in his 30s looking unwell, the Expressen daily reported. Ms Pettersson, a journalist with Sveriges Radio, told the broadcaster that the man "was sweating and had cramps [seizures]." After the Kenya Airways plane took off, the man died, the Expressen reported. Cabin crew laid out the dead man across three seats and covered him with a blanket - but left his legs and feet sticking out, Ms Pettersson said. For the remainder of the overnight flight, Ms Pettersson was forced to sit near the dead man, with just an aisle separating her and the corpse. "Of course it was unpleasant, but I am not a person who makes a fuss," Ms Pettersson said. After her holiday in Tanzania, Ms Pettersson lodged a complaint with Kenya Airways, eventually receiving a 5000-kronor ($700) refund, half the price of her plane ticket.
Indeed, truth is stranger than (or at least as strange as) fiction.
[Posted on behalf of Moshe Gelbard by JT]
We are always delighted to post contributions from Contracts Profs not currently associated with the blog. Today we are pleased to introduce Moshe Gelbard, whose work may be familiar to some of our readers because of his presentations at the annual Contracts Law spring conferences.
Professor Gelbard teaches at the Netanya Academic College, where he is a Senior Lecturer in the School of Law. This past Spring Semster, he was a Visiting Professor at Touro College's Jacob D. Fuchsberg Law Center. He has two publications forthcoming in U.S. Law Reviews. His co-authored piece with David Elkins, The Remedy of Price Reduction in Mixed Legal Systems, is forthcoming in the Stetson Law Review, and his Pre-dispute Arbitration Clauses in Consumer Contracts, is forthcoming in the Touro Law Review.
His guest post will appear later today.
Monday, July 2, 2012
Because the enforceability of online contracts depends upon "reasonable notice," I often wonder whether we've stretched the term "reasonableness" to unreasonable extremes. Is it really reasonable to expect website visitors to click on hyperlinks? Hyperlinks within hyperlinked text? Because my research focuses on notice of contract terms, I am always interested in how to provide better, more effective notice.
Companies can provide notice with words, but they can also use images or video. Unfortunately, images, like text, can also be ignored. For example, how many times have you actually watched an airline safety video? What most airlines do is put attractive crew members on the screen who recite the basics and hope that people will pay attention. I recently took an Air New Zealand flight that took a very different approach - comedy! The safety video starred Richard Simmons of 80's spandex fame leading the crew through an aerobicized safety routine. One segment had crew members wearing body paint (you need to watch carefully - the paint is very skillfully applied). Several members of the super-popular rugby team, the All Blacks, made appearances - because they appeal to a broad cross section of the population (men, women, children), more passengers were likely to be engaged. The video was very funny and I watched the entire thing, both to and from my destination. I wasn't the only one. It seemed that everyone on the plane was paying attention. The video was just the right combination of humor, safety, and annoying-in-a-good-way (Richard Simmons excels at that). Was it effective? Well, I remembered where the exit rows and my life jacket were. Watch it yourself and just try to tear your eyes away from the screen.