February 17, 2012
Snyder on How to "Dine and Ditch" Under the UCC
The ABA Journal reports that The Cheesecake Factory will begin posting drink prices in Massachusetts after a lawyer threatened suit. According to the article, the lawyer "threatened to sue under the Massachusetts Consumer Protection Act on behalf of a friend who was charged $11 for a margarita at a Cheesecake Factory in Chestnut Hill. The price was not on the menu and the server was only able to provide a range of drink costs."
The ABA Journal looks to our very own founder, Franklin Snyder, for guidance. Previously, Frank had commented in a New York Times column about Nello. This Manhattan restaurant has (had?) a practice of not mentioning the price of a white truffle pasta lunch special. This practice shocked a recent diner when he turned over a bill charging $275 for the dish. To the New York Times, Snyder commented:
“You might be interested in letting your readers know that a restaurant meal is a ‘sale of goods’ under Article 2 of the Uniform Commercial Code,” he wrote. “The code provides that where the buyer and seller have agreed to a contract but have not agreed on the price, the price is not what the seller subsequently demands. It’s a reasonable price for the goods at issue. Thus a customer has no obligation to pay for anything more than the reasonable price of a pasta meal at a trendy restaurant.”
He continued: “In this circumstance, a customer should make a reasonable offer for the value of the meal, then walk out and wait to be sued for breach of contract. Be sure to leave the restaurant full contact information so they can’t claim that you’re trying to steal something.”
Thanks for the tip, Frank! I'm heading over to Nello for the truffle pasta dish. I hope there isn't a price listed on the menu.
[Meredith R. Miller]
Will M.I.A.'s Next Hit Appear on an SSRN Top Ten List?
In a little-noticed incident, since most people were watching Downton Abbey that night, a British rapper, M.I.A. (pictured left) performing during this year’s NFL Super Bowl halftime show, looked into the camera, uttered an expletive, and flipped the bird to millions of viewers around the world. As a result, in addition to millions of people knowing of her existence, she may be in breach of contract with the NFL.
As reported by Yahoo.com Sports, NFL spokesman, Greg Aiello, maintains that when the league hires the entertainment for the show, the artists are required to sign an agreement containing safeguards concerning artists’ conduct. TMZ.com reports that the agreement between M.I.A. and the NFL contained a clause indemnifying the NFL against any fines that may be imposed by the Federal Communications Commission (FCC) as a result of her behavior during the halftime show. TMZ also reported that the NFL agreed to indemnify NBC against any such fines, because the NFL is responsible for the halftime show’s content. M.I.A. thus may be contractually obligated to pay any fines that the FCC chooses to impose on NBC and the NFL. The news reports do not make clear what other remedies the NFL might have against M.I.A., since the indemnification clause would seem to cover any harms the NFL could suffer as a result of M.I.A.’s conduct.
The FCC sets out the relevant regulatory scheme as follows:
Obscene material is not protected by the First Amendment and cannot be broadcast at any time. To be obscene, the material must have all of the following three characteristics:
- an average person, applying contemporary community standards, must find that the material, as a whole, appeals to the prurient interest;
- the material must depict or describe, in a patently offensive way, sexual conduct specifically defined by applicable law; and
- the material, taken as a whole, must lack serious literary, artistic, political, or scientific value.
Indecent material is protected by the First Amendment, so its broadcast cannot constitutionally be prohibited at all times. However, the courts have upheld Congress' prohibition of the broadcast of indecent material during times of the day in which there is a reasonable risk that children may be in the audience, which the Commission has determined to be between the hours of 6 a.m. and 10 p.m. Indecent programming is defined as “language or material that, in context, depicts or describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory organs or activities.” Broadcasts that fall within this definition and are aired between 6 a.m. and 10 p.m. may be subject to enforcement action by the FCC.
Profane material also is protected by the First Amendment, so its broadcast cannot be outlawed entirely. The Commission has defined such program matter to include language that is both “so grossly offensive to members of the public who actually hear it as to amount to a nuisance” and is sexual or excretory in nature or derived from such terms. Such material may be the subject of possible Commission enforcement action if it is broadcast within the same time period applicable to indecent programming: between 6 a.m. and 10 p.m.
So, FCC fines may result if the FCC determines that M.I.A.'s conduct was either obscene, indecent or profane, as the halftime show aired before 10 PM.
[JT and Christina Phillips]
February 15, 2012
New in Print
Mitchell L. Engler and Susan B. Heyman, The Missing Elements of Contract Damages, 84 Temp. L. Rev. 119 (2011)
Michael Traynor, The Restatement (Third) of Restitution & Unjust Enrichment: Some Introductory Suggestions, 68 Wash. & Lee L. Rev. 899 (2011)
Louis E. Wolcher, Intent to Charge for Unsolicited Benefits Conferred in an Emergency: A Case Study in the Meaning of "Unjust" in the Restatement (Third) of Restitution & Unjust Enrichment. 68 Wash. & Lee L. Rev. 9117 (2011)
W.F. Young, Translocations and Inertia. 68 Wash. & Lee L. Rev. 1335 (2011)
NY Court: Non-Repudiating Party Must Show Ready, Willing and Able to Perform
In a case decided last week, the New York Court of Appeals held that, where a seller has repudiated a contract to sell real property, the buyers must prove they were ready, willing and able to close the transaction. The holding resolved a conflict among the Appellate Division Departments.
Judge Smith wrote for the unanimous court:
The main issue before us is whether a buyer in a damages suit like this one must show that it was ready, willing and able to close the transaction — i.e., that but for the seller's repudiation, the transaction could and would have closed. This issue has divided the Appellate Division departments. The Second Department has held, in a number of other cases as well as in this one, that no such showing is required (e.g., Ehrenpreis v Klein, 260 AD2d 532, 533 [2d Dept 1999]; Karo v Paine, 55 AD3d 679, 680 [2d Dept 2008]). The Third and Fourth Departments, however, have required a "ready, willing and able" showing (Madison Invs. v Cohoes Assoc., 176 AD2d 1021, 1022 [3d Dept 1991]; Scull v Sicoli, 247 AD2d 852, 853 [4th Dept 1998]).
The rule followed by the Third and Fourth Departments is the correct one. It is the rule stated by the leading treatises on contracts (4 Corbin on Contracts § 978 at 924 ; 13 Williston on Contracts § 39:41 ), and applied in several federal cases (Towers Charter & Marine Corp. v Cadillac Ins. Co., 894 F2d 516, 523 [2d Cir 1990] [applying New York law]; United States v Hon, 17 F3d 21, 26 [2d Cir 1994]). Our agreement with that rule is implied by the language we used in Deforest Radio Tel. & Tel. Co. v Triangle Radio Supply Co. (243 NY 283 ), where we held that, when a contract has been repudiated, the non-repudiating party need not actually tender performance. We said:
"Where one party to a contract repudiates it and refuses to perform, the other party by reason of such repudiation is excused from further performance, or the ceremony of a futile tender. He must be ready, willing and able to perform, and this is all the law requires"
(id. at 293 [emphasis added]; see also Bigler v Morgan, 77 NY 312, 318  ["The refusal of the defendant to perform . . . did not dispense with the necessity of showing that the plaintiff was able, ready and willing to perform"]).
The rule requiring non-repudiating buyers to show their readiness, willingness and ability to perform is supported by common sense. It is axiomatic that damages for breach of contract are not recoverable where they were not actually caused by the breach — i.e., where the transaction would have failed, and the damage would have been suffered, even if no breach occurred. The real question is one of burden of proof: Should the buyers be required to show they would and could have performed, or should the seller have the burden of showing they would not or could not? Since the buyers can more readily produce evidence of their own intentions and resources, it is reasonable to put the burden on them.
This allocation of the burden of proof is not inconsistent with our decision in American List Corp. v U.S. News & World Report (75 NY2d 38 ). That case involved the repudiation by a magazine of a contract to rent mailing lists from a list supplier "over a 10-year period" (id. at 39). We held that "[t]he nonrepudiating party need not . . . prove its ability to perform the contract in the future" (id. at 44). In context, this meant that the plaintiff would not be forced to meet the perhaps impossible burden of showing what its financial condition would have been for many years to come. No comparable burden falls on the non-repudiating party in a case like this one. These buyers need only show that they would and could have closed the transaction if the seller had proceeded to a closing as the contract required.
Here, the buyers did submit evidence of their financial condition, but that evidence was not conclusive on the issue of their ability to make the purchases. Whether the buyers were ready, willing and able to close therefore presented an issue of fact, and the buyers' motion for summary judgment should have been denied.
I wonder if this really is the approach "supported by common sense." If Party A repudiates then Party B might stop taking the steps to put itself in a position to be able to perform. Placing the burden on Party B to show readiness and willingness makes sense, but a showing of ability to perform might raise some problems in light of Party A's repudiation.
Pesa v. Yoma Dev. Group, Inc., 2012 NY Slip Op 00856 (Decided Feb 9, 2012).
[Meredith R. Miller]
February 14, 2012
Almost Live Blog of the Simkin v. Blank Oral Argument [Madoff Mutual Mistake Case]
What better way to spend Valentine's Day than to (almost live) blog the Simkin v. Blank oral argument before the New York Court of Appeals? The argument includes a shout out to Rose of Aberlone.
It does not appear that Judge Smith partook. Video should be posted to the web in the next week.
Richard D. Emery (for Blank, appellant):
[Reserves 3 minutes for rebuttal]
Theme: this case is about finality and valuation.
Judge Pigott: Suppose shoe was on other foot and the non-moneyed spouse was rendered destitute -- finality rules? It depends. Here, parties got the benefit of the bargain.
Judge Jones: Wasn't the agreemet based and founded on certain assumptions that turned out not to be so? All agreements are founded on assumptions that turn out not to be true, that is the risk of making an agreement.
Judge Lippman: Is the defining difference between this and other mutual mistake cases that, here, the mistake was about valuation? Yes, mistaken valuation doesn't give rise to mutual mistake case. In fact, account was cashed in at the time.
Judge Graffeo: Is this about value of account at time of agreement? Wasn’t there some withdrawal at the time in order to pay Blank; money was there at time? Yes, shout out to Prof. Siegel’s treatise; don’t fall for pleading ploys. These are conclusory allegations that mean nothing in the context of the actual case.
Judge Graffeo: Was it agreed that there would be a 50-50 split of this account? If so, does that matter? That was not mentioned in agreement all. Many separation agreements will say 50-50 split per account; different situation here - he could have chosen to do whatever he wanted to pay her here (e.g. take loan from Paul Weiss) and he chose to withdraw from account.
Judge Pigott: Isn’t the existence of the account an issue of fact? Court does not have to rollover and counterfactually accept what is obviously not the case. And, account existed. Just not worth what they thought. There was money in it and money paid out of it. At time, Madoff accounts were paying -- so, counterfactual allegation that court need not accept.
Judge Lippman: What happens now with Madoff accounts? There will be no clawbacks; he did get insurance money and tax write offs. Has value now, had value then. Pure valuation case.
Judge Read: So no mutual mistake here? Right - each side got the benefit of the bargain here. Just a mistake in valuation.
Judge Ciparick: Did the parties contemplate as a 5-50 split? No, my client wanted $6 mill plus house, etc and he got the rest.
Judge Graffeo: How is this different than a case where we set aside the agreement for fraud? This is an asset that is not worth what it was thought to be worth -- your decision in Walsh makes plain that the public policy of repose trumps innocent fraud.
Judge Jones: Different if wife knew of the wrongful valuation? Yes, then she would be knowingly getting fruits of fraud - would be a different case.
Judge Ciparick: Is this different than asset valued at a certain sum that later tanks? No different from every single deal where stocks are exchanged.
Judge Ciparick: Should we go with value of account as of date of agreement? Yes.
Judge Graffeo: What about the unjust enrichment claim? We have a valid contract, unjust enrichment claim is superfluous. Window dressing contract claim to attack a valid agreement.
Allan J. Arffa (for Simkin, respondent):
Judge Lippman: How is this different than a valuation case? Why is this not the same as a stock that turns out the be worth less than thought? The thing they thought they had never existed.
Judge Lippman: But isn’t it in essence the same thing – because, here, there was a Ponzi scheme? No. The account didn’t exist; it wasn't the thing they thought it was.
Judge Lippman: Didn’t Simkin draw on the account at the time? Yes, but they didn't know he was actually drawing on other people's money.
Judge Lippman: How could the account not exist? He withdrew the money? It didn't exist in the way he thought it did.
Judge Lippman: What if had stock and turns out fraud relating to business that stock represents. Why different? There you have stock; known thing was stock, it existed.
Judge Read: What if it was Enron stock? Still had stock in a corporation; it had attributes of stock. Here, interest was fictitious.
Judge Ciparick: What if the asset was a house but it turns out the title was bad? That is mutual mistake - if you don't own what you think you own, there is a mutual mistake.
Judge Lippman: How do we draw the line here – why isn’t this just a valuation case? How do we distinguish between the subject matter existing and it not being worth as much as thought? We are on a motion to dismiss. At the time they contracted, they didn’t own an account; they didn’t have securities; the account was a total fiction.
Judge Graffeo: Did they try to cash out in June 2006? Would they have been paid? Paid from proceeds of other investors. Would not have been redeeming account as they thought = stealing.
Judge Pigott: You argue for reformation of this part of the agreement, not the entire agreement? Issue for down the road; what to reform is a remedy issue.
Judge Graffeo: Where is it in agreement that you agreed to split the asset 50-50? It is our allegation that this is what the parties intended. The parol evidence rule and statute of frauds do not apply. Shout out to Rose of Aberlone: in the pregnant cow case, the contract did not say we are selling you a barren cow.
Judge Graffeo: I’m trying to understand, do you want us to set aside the entire agreement? That is a matter of relief; we can discuss whether to reform or rescind later.
Judge Lippman: What about finality? When does a matrimonial case end? Isn’t there a policy argument for finality? Here's the problem: if you say finality trumps, then there is no mutual mistake -- writes doctrine out of the law.
Judge Lippman: But the divorce was 6 years ago, doesn't amount of time matter? It matters regarding relief.
Judge Lippman: What is rule? 10 or 6 or 20 years? Not one mutual mistake case that raises finality. Depends on circumstances.
Judge Pigott: You win the appeal. They answer. Then what? Jury decides? Yes, jury hears testimony; finality gets played into standards for materiality of mistake.
Judge Lippman: Answer Judge Piggott’s question. What exactly does the jury decide here?
Judge Pigott : Does the jury decide whether there was an ccount or not? Existence v. value of account: question of fact or law? Question of fact; these are question of intent.
Judge Pigott: Can you get there if there was no account? If no account existed, aren’t you entitled to summary judgment? If the account did exist, aren’t they entitled to summary judgment? This was a ponzi scheme.
Judge Lippman: With all the attention on Madoff, etc., a jury is going to determine whether this ponzi scheme made account nonexistent? Yes, for jury to decide.
Judge Lippman: What is the significance of time passing here since divorce? This factors into relief but to say we are going to ignore that there was this massive fraud and half assets of this family turned out not to exist -- not fair. On marital cases, equitable principles may trump finality. And, again, we are just at motion to dismiss stage.
Judge Pigott: Say the asset was gold bars in a safe deposit box and it turns out that Uncle Bernie took them; no longer there? Here, did know account was liquid at time of agreement and even took money out of it. And account has value now; Simkin has recovered some money and has tax write offs. Not so worthless he'd give away now.
Closing point: talking about domestic relations. 6 years since divorce; let spouses go off and live their lives. Human thing; not about finality words; about a woman entangled with a husband she wants to get away from.
Judge Pigott: What if we turn the tables? You'd be arguing the opposite for her? No, my client would not have gone after him; she wants nothing to do with him.
[Meredith R. Miller]
Weekly Top Tens from the Social Science Research Network
Non-Competes and Men of a Certain Age
We have recently discovered a wonderful TNT-network series, Men of a Certain Age. Unfortunately, the series was cancelled after its second season. Ray Romano, pictured at left, a co-creator of the show played one of the three main characters. His character, Joe, is a nice guy with a serious gambling problem, so here we show the actual Ray Romano gambling. How's that for irony?!?
In a ContractsProf Blog exclusive, we have discovered what did the show in. It was not the ratings, and it was not the demographic challenges of marketing a show that is not about 20-somethings. Nor was it because of the fact that the show illustrates that middle-aged people do have sex, enjoy it, and can be pretty good at it. Nope. The show's demise was clearly a product of the improbable plot twists involving Andre Braugher's character Owen and his relationship to his father's car dealership.
Owen works at his father's Chevy dealership. He anticipates that he will one day succeed his father as owner and manager, but he never meets his father's expectations. Towards the end of season 1, Owen's father decides to step down, but he appoints a hot-shot salesman to run the operations, and Owen retains his status as a regular salesman. After putting up with the humiliation for a few weeks, Owen bolts to the rival Chevy dealership, where he prospers. His father, duly chastened, offers Owen the dealership, and Owen returns.
So, I don't know for certain that car salesmen have non-compete agreements as a standard element of their contracts, but they certainly ought to, as the show illustrates. A car salesman is not like an attorney in terms of the law's regard for their relationship with their clientele, but the show does indicate that long-term relationships exist with repeat buyers. Accordingly, it would not be a wise business practice for any car dealer to permit salesmen to bolt to a rival and to take their client-base with them. But Men of a Certain Age makes no mention of a non-compete agreement.
And that's what did them in.
You read it here first.
February 13, 2012
Will a Contracts Suit Kill a Reality Star's Career?
At right, we have an image of housewifery form the 19th Century. Times have changed. The Huffington Post reports that the Bravo network may soon replace Real Housewives of Beverly Hills personality Taylor Armstrong, who is being sued by MyMedicalRecords.com for $1.5 million in a breach of contract lawsuit. The suit originally named both Taylor and her husband, Russell Armstrong, as defendants. However, in August 2011 after suit was brought, Russell committed suicide, leaving Taylor to answer the lawsuit alone.
According to HuffPo, Russell was the largest shareholder of MyMedicalRecords.com, which at the time was a privately held company. The company provides “secure Personal Health Records and electronic safe deposit storage solutions.” The company discovered that Russell was misappropriating investor money and also diverting shares of the company. The company removed Russell from the board, and he signed a $250,000 settlement agreement. The settlement required that Russell identify parties to whom he had sold shares of MMRGlobal. When he failed to do so, the $1.5 million dollar lawsuit followed.
Money is not the only thing at stake for Taylor. Co-star Camille Grammer, ex-wife of Kelsey Grammer, told The Huffington Post that chances are good that Taylor will not be asked back for Season 3 of Real Housewives of Beverly Hills. According to Grammer, Bravo executives “are going to start casting, looking for new housewives.” HuffPo speculates that Bravo executives could be deposed in the lawsuit, as MMRGlobal’s attorneys seek information about Taylor’s income and how it might have been disposed of.
[JT and Janelle Thompson]