October 4, 2012
District Court Rules on Paramount's Motion to Dismiss Puzo Estate's Counterclaims
The United States District Court for the Southern District of New York recently awarded a partial win to the Estate of Mario Puzo (author of the popular novel “The Godfather”) when it denied Paramount Pictures Corp.’s (Paramount) motion to dismiss the Estate’s breach of contract counterclaim, which Paramount claimed was preempted by the Copyright Act. The win was indeed partial in that the District Court dismissed the Estate’s remaining counterclaims. The issue at the heart of the parties' dispute, whether book publishing rights to all sequels were among the rights that Puzo sold to Paramount, was not before the court on Paramount’s motion to dismiss.
The Estate's breach of contract claim is based on a 1969 Agreement between Puzo Sr. and Paramount, (the details of which we recently blogged about here), through which Paramount claims that Puzo signed over all publishing rights regarding any sequel to “The Godfather.” Based on some language that the parties left out of the 1969 agreement, the Estate reads Paramount's rights more narrowly and alleges that Paramount repudiated and breached the 1969 Agreement when it interfered with rights allegedly reserved in the Estate. In fact, the District Court noted, the Estate is seeking to characterize as repudiation conduct that simply contradicted the Estate's narrow reading of Paramount's contractual rights. Under New York law, such conduct does not constitute a repudiation unless a party advances an untenable contract interpretation in order to avoid its contractual obligations. The Court hinted that there was no evidence that Paramount had ever sought to escape its contractual obligations and thus seems to have tipped its hand that it sees no merit in the Estate's breach of contract claim. However, as Paramount did not move to dismiss on that basis, the court moved on to the preemption issue.
The District Court rejected Paramount's argument that federal copyright law preempts the Estate's breach of contract claim. The elements required to prove the Estate’s claim differ from those needed to establish copyright infringement. Instead of proof of a valid copyright and copying of protected elements of a copyrighted work, the Estate must establish that Paramount had a contractual obligation not to interfere with its exercise of book publishing rights and that Paramount breached that obligation. Moreover, the Court pointed out, “a copyright is a right against the world,” providing for exclusive rights in the holder. In contrast, the Estate’s claimed right is one that creates a potential liability in Paramount if it should breach. Everyone else can do as they please.
In sum, because the Estate’s claim focuses on a contractual obligation outside federal copyright law, it is not preempted and Paramount’s motion to dismiss the Estate's breach of contract claim on that basis was denied.
[Christina Phillips and JT]
October 3, 2012
New in Print (including Books!)
Ian Ayres & Gregory M. Klass, Studies in Contract Law (8th Ed., Foundation Press, 2012) -- click on the link to watch a video of Gregory Klass describing the virtues of the new edition!
Nathan M. Crystal & Francesca Giannoni-Crystal, Enforceability of Forum Selection Clauses: A "Gallant Knight" Still Seeking Eldorado, 8 S.C. J. Int'l L. & Bus. 203 (2012)
William N. Eskridge, Jr., Family Law Pluralism: The Guided-Choice Regime of Menus, Default Rules, and Override Rules. 100 Geo. L.J. 1881 (2012)
David A. Linehan, Due Process Denied: The Forgotten Constitutional Limits on Choice of Law in the Enforcement of Employee Covenants Not to Compete, 2012 Utah L. Rev. 209
Michael E. Sykuta, The Nature of the Deal in the Post-Crisis Financial Market, 7 Entrepren. Bus. L.J. 27 (2012)
Lisa Tripp, Arbitration Agreements Used by Nursing Homes: An Empirical Study and Critique of AT&T Mobility v. Concepcion. 35 Am. J. Trial Advoc. 87 (2011)
Manuel A. Utset, High-Powered (Mis)incentives and Venture-Capital Contracts, 7 Entrepren. Bus. L.J. 45 (2012)
October 2, 2012
Lawyer Who Forgets About "Offeror is King" Wins, Then Loses, Contest
While teaching the concept of "offeror is king" this semester, I said something like, "I wish I had a crown. One of you should bring me a crown! There might be some participation points in it for you if you do." (It sounded less entitled than that quote but you get the point.) Shortly thereafter, two students brought me a crown--one from Burger King (of course!) and one from a party supply store. The first one was just slipped under my door but the second one had "terms of acceptance" attached. The terms stated that I had to use the crown in class and not disclose the student's name in order to accept. I did both, and my acceptance was deemed substantively valid and timely by the entire class.
Another student recently alerted me to a New York Times story about a lawyer victimized by the "offeror is king" concept. The lawyer, Theodore Scott, reportedly produced a winning video and essay in response to a contest offer from Gold Peak Tea. The contest winner would receive $100,000 to take a year off and enjoy life (presumably over some tea). However, after Mr. Scott's video received the highest number of votes and was declared the grand prize winner, Gold Peak Tea had a change of heart. Apparently, Mr. Scott had requested votes for his contest entry via a crowdsourcing website on which people, well, request votes for things like this. Gold Peak Tea took the position that Mr. Scott's online plea for votes violated the contest rules. Because Mr. Scott accepted in a way other than that specified by the offeror, there was no deal, and a different winner was selected.
As an interesting side note, many folks appear to be bombarding Gold Peak Tea's Facebook page with comments supporting Mr. Scott, the original winner. The Facebook response from Gold Peak Tea reads as follows:
"Gold Peak appreciates input from the community on our Facebook page. The Take the Year Off program was created to reward a Gold Peak Tea fan with the opportunity to refresh, renew and refocus. By devoting more time to his three special needs children and bettering his community with the development of a local equine therapy program, Michael Simpson will take the year off in a deserving fashion. We’d like to address some of the feedback shared about the Take the Year Off promotion and how the winner was determined:
Unfortunately, Theodore Scott was disqualified when it was determined during the verification process that he had attempted to inappropriately induce members of the public to vote for his submission, a violation of Official Contest Rules (http://CokeURL.com/TTYORules).
The House Rules for the Gold Peak Tea Facebook page state that users will not “publish, post, distribute or disseminate any defamatory, infringing, obscene, indecent, misleading or unlawful material or information.” Certain posts addressing the Take the Year Off promotion do not abide by these Rules and have been removed (http://CokeURL.com/HouseRules)."
Gold Peak hopes the members of this community will join us in wishing Michael Simpson well in his year off."
Perhaps the ultimate message, then, is not "offeror is king" but, rather, "read the fine print."
[Heidi R. Anderson, hat tip to Ly Tran]
Weekly Top Tens from the Social Science Research Network
October 1, 2012
Fifth Circuit Finds Oil and Gas Lease Agreement Most Definitely Not Indefinite
Last year, the United States District Court for the Eastern District of Texas when the court determined Chesapeake Exploration, LLC (“Chesapeake”) violated its agreement with Peak Energy Corporation (“Peak”) involving certain oil and gas leases in the Haynesville Shale formation. Chesapeake appealed the district court decision, contending that the agreement at issue was unenforceable under the Texas statute of frauds, was fatally indefinite, and that Peak had failed to tender performance. On September 12th, in Coe v. Chesapeake Exploration, LLC, he Fifth Circuit affirmed the award.
In July 2008, when natural gas prices were soaring, Chesapeake emailed a letter entitled “Offer to Purchase” (the July Agreement) to Peak’s contact, Richard Coe. The e-mail contained offer of a little over $81 million for the oil and gas leases on Peak’s 5,404.74 acres of land in Harrison County, TX, at $15,000 per acre. The offer had to be accepted by 5:00 PM CDT on July 3, 2008, but also described the transaction as a “valid and binding agreement.”
The parties were to close on August 31, 2008. After a few delays on both sides, pushing the closing date to October 9, 2008, Chesapeake requested a further delay and then announced that it was backing out. This decision coincided with the 50% fall of natural gas prices, leaving the leases in question with a value of $3000/acre. Peak and the Coes then filed suit to enforce the July Agreement.
Although Chesapeake claimed that the July Agreement was void under the Texas statute of frauds because it did not adequately identify the property. To satisfy the statute of frauds, a contract for the conveyance of an interest in land must only identify the property to be conveyed with “reasonable certainty,” and a “recital of ownership” is one mechanism for providing such certainty. Since, in the July Agreement, Peak agreed to convey all of its interests in the oil and gas leases, it had provided the requisite recital of ownership and the “reasonable certainty” standard was met.
Further, Chesapeake claimed that the parties had no intent to “bind themselves” by signing the letter and that the agreement lacked material terms. However, the July Agreement stated on its face that it was “valid and binding,” stated plainly that it was an “Offer to Purchase” and placed a time limit on acceptance. In addition, Chesapeake repeatedly assured Peak that it would follow through with the transaction. Chesapeake sought to rely on a confidentiality agreement into which the parties had entered as evidence that the transaction was merely contemplated. The Fifth Circuit affirmed the District Court’s finding that the confidentiality agreement did not alter the substance of the July Agreement and was a standard form routinely used by Peak when providing information in connection with transactional due diligence.
Chesapeake further contended that the terms of the July Agreement were so indefinite as to render the agreement unenforceable. It claimed the agreement did not provide a final lease schedule or a figure regarding revenue interest. The Fifth Circuit found that the first term was not material and the second term was in fact covered in the July Agreement Although Chesapeake claims it requested that the latter term be deleted, “one party unsuccessfully attempting to retroactively change an essential term does not prove that term had not been previously agreed to and included in the agreement.” Chesapeake also claimed the July Agreement lacked terms that would have been included in the final Purchase and Sale Agreement, such as warranties of title, depth limitations, non-compete provisions, and options to purchase additional acreage. The Fifth Circuit rejected these arguments either because they were included in the July Agreement or were not essential terms whose absence would render an agreement indefinite.
In its final attempt to render the July agreement unenforceable, Chesapeake alleged that Peak failed to perform its obligations under the July Agreement when it only delivered 1,645.917 acres instead of 5,404.75. Both parties were aware that the number of acres Peak could deliver was uncertain, which is demonstrated by the language “approximately” and “more or less,” along with an adjustment clause present in the July Agreement. The Fifth Circuit thus found that the District Court did not err in concluding that Peak was willing and able to tender its performance as specified by the July Agreement.
[JT & Christina Phillips]
Contracts Limerick of the Week: Wood v. Boynton
Once again, I have to express my gratitude to Christina Kunz and Carol Chomsky. Because of their casebook, I have finally had the opportunity to teach Wood v. Boynton, which is just a really fun case to teach. The students can relate to it, divide up relatively evenly on each side of the case, and can easily see the trouble with the old common law rule that tried to draw Aristotelian distinctions between mistakes as to essential qualities and mistakes that only go to the value of the consideration.
Mrs. Wood, being in need of cash, returned to Mr. Boynton's jewelry store to see if he was still intersted in purchasing for $1 a rough stone found by her husband. Boynton renewed his offer, and the two made the exchange. The rough stone, which Mr. Wood had guessed was a topaz, turned out to be a diamond. According to Wikipedia, Mr. Boynton sold it to Tiffany's for $850. Some time later, J.P. Morgan bought the diamond, now known as the Eagle Diamond, and gave it to the American Museum of Natural History in New York. It was later stolen and perhaps cut into smaller stones. The Eagle Diamond is no more, but here is a picture of it (from five angles) in its glory:
But to get back to our story. Upon learning that she had sold a diamond, Mrs. Wood sought rescission based on fraud or mutual mistake. There seems to have been no fraud, as Mr. Boynton, though a jeweler, had never seen an uncut diamond before. The court also rejected mistake, as there was no mistake that the thing was a stone. The only mistake, said the court, was as to its value, and such mistakes are not a ground for rescission.
Wood v. Boynton Limerick
Wood found and then sold a rough stone.
Its value was then quite unknown.
Later, she’d holler
Having sold for a dollar
Ere the doctrine “mistake” was full-grown.
I think that, under the test articulated in the Restatement (Second) of Contracts, rescission would have been available.