July 20, 2012
Ashton Kutcher and Reliance Damages
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]
July 19, 2012
Wicked Good Employment Opportunity
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 email@example.com and firstname.lastname@example.org, with a copy to email@example.com, 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.
The Contract that Neither Party Intends
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.
July 18, 2012
New in Print
Wayne R. Barnes, Social Media and the Rise in Consumer Bargaining Power, 14 U. Pa. J. Bus. L. 661(2012)
Anderson Cao, et al., Recent Developments in Business Litigation, 47 Tort Trial & Ins. Prac. L.J. 95 (2011)
Joshua A.T. Fairfield, "Do-Not-Track" As Contract, 14 Vand. J. Ent. & Tech. L. 545 (2012)
Frances R. Hill, Speaking Truth to the Power that Funds Them: A Jurisprudence of Association for Advocacy Organizations Financially Dependent on Government Grants and Contracts, 15 N.Y.U. J. Legis. & Pub. Pol'y 363 (2012)
Not Enough (Courtney) Love to Go 'Round?
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]
July 17, 2012
First Circuit on UCC Pre-Emption of Common Law Claims
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]
Weekly Top Tens from the Social Science Research Network
July 16, 2012
NO LIMIT: Contract Modification By Instant Message
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]
Eleventh Circuit Weighs in on Arbitration
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.