Wednesday, May 29, 2013
As many of you may already have noticed, Blog Emperor Paul Caron has announced a signfiicant change at the Law Professor Blogs Network, of which the ContractsProf Blog is a part. Here is the announcment:
Law Professor Blogs LLC announces today that co-founder Paul L. Caron has purchased the 50% interest of co-founder Joseph A. Hodnicki and now owns 100% of the company.
Paul Caron: "I will always be grateful to Joe for partnering with me nine years ago to launch TaxProf Blog and shortly thereafter the Law Professor Blogs Network. TaxProf Blog and the Law Professor Blogs Network would not exist today had Joe not partnered with me in their conception, design, and operation. I am delighted that Joe will continue to serve as the Co-Editor of Law Librarian Blog, one of the most influential law librarian blogs in the country."
Joe Hodnicki: "When Paul and I first ventured into this web publishing space we had no idea where it might take us. It certainly has been an interesting experience for both of us as we worked to develop the Law Professor Blogs Network. The legal blogosphere has matured over the years. It is now recognized as an acceptable communications medium for law professors, something it was not when we launched the Network. While I must scale back my involvement in the Network’s affairs, by selling my interest to Paul I am confident the blogs we have published will continue to be some of the best law-related blogosphere destinations for news, analysis and commentary on the topics they address. I look forward to forthcoming Network developments under Paul’s leadership."
Law Professor Blogs LLC is the nation's only network of legal blogs edited primarily by law professors. Law Professor Blogs LLC owns and operates over 40 legal blogs, edited by over 100 law professors, law librarians and practitioners. Editors include leading scholars and educators who are committed to providing the web destination for law professors, practitioners, government and nonprofit lawyers, legal information professionals and students in their respective fields.
This blog owes its existence to Paul and Joe's vision, and both have intervened at times to help us with behind-the-scenes technical issues beyond our abilities. The announcement reflects the fact that we are here dealing with two class acts.
And so, thanks to Joe for all of his support over the years, and we look forward to our continued collaboration with Paul.
This is the sixteenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Guy A. Rub is an Assistant Professor of Law at the Ohio State University Moritz College of Law.
Those who have not read Professor Radin’s book, Boilerplate, might be tempted to believe that they are fully familiar with the problem of boilerplate provisions in standard form agreements. While the problem of consumers who accept agreements they did not read is well documented, Radin’s masterpiece is so comprehensive, and analyzes the issues that boilerplate provisions raise so thoroughly, and in many instances from a novel angle, that it makes us stop and re-think about this reality and its implications. The reader is challenged to reconsider the effects of these standardize arrangements on our democratic process, our autonomy, and our legal system as a whole.
One of the strengths of the book, and there are many of them, is that while it identifies and lucidly analyzes these problems it also acknowledges some of the advantages of mass-market standard form agreements and therefore includes a broad discussion of possible remedies to the identified problems.
One such suggested remedy is a market solution. Market solutions, if feasible, are in many respects superior to other solutions. First and foremost, they do not require a central decision making process, which turns out to be extremely hard in this context. Indeed, if market participants can effectively shop for efficient or fair contractual terms, then society probably does not need to make certain difficult decisions: for example, society might not need to decide whether consumer class actions are an effective mechanism to rein in large corporations (and therefore maybe the right to bring such claims should not be waivable) or mainly a vehicle for filing frivolous and expensive claims. Market solutions might also eliminate the need of a centralized entity to collect information on individuals’ preferences in a diverse world. Thus, if consumers effectively shop for better terms, society might not need to collectively decide the proper scope of a warranty; a question that might have different answers with respect to different products, different markets, and even different consumers.
Are market solutions feasible? Professor Radin, I believe, is somewhat skeptical and I am at least as pessimistic. It is well documented that consumers do not read standard form agreements and that regulatory schemes that are designed to give them the opportunity to read have little effect on their decision making process. See, e.g., Florencia Marotta-Wurgler, Will Increased Disclosure Help? Evaluating the Recommendations of the ALI’s “Principles of the Law of Software Contracts,” 78 U. Chi. L. Rev. 165 (2001). In a forthcoming article, Ian Ayres and Alan Schwartz suggest, inter alia, that reading might not be required as long as the contract does not include unexpected terms that are worse than the consumers’ expectation, and that a disclosure scheme should focus on these terms. While this might be true that consumers’ awareness of such terms might suffice, one might doubt whether, in most cases, consumers can reasonably be expected to read even a subset of simplified boilerplate terms.
Therefore, if we believe that no regulatory scheme can make a substantial number of consumers read even a subset of the boilerplate provisions, then other solutions must be explored to make consumers shop for contractual terms. Radin explores a few such solutions, including: watchdog groups, seals of approval, rating agencies, and automatic filtering. What is common to these solutions, or a combination of several of them, is that they require a third party to use some judgment to evaluate the desirability of the contractual terms. This is not an unusual way to make shopping decisions. Many of us use websites that rate laptops before we buy one and, at least in some cities, we look at the sanitation “grade cards” on the windows of restaurants before we chose where to eat (notwithstanding Dan Ho’s recent research on the problems in that scheme). It is important to appreciate that currently there are very few comparable systems with respect to boilerplate terms and, as explained below, I am skeptical if more will emerge in the future.
We need to first consider what should be the final product of this evaluation process by the third party evaluating entity. If we believe that consumers, rationally or not, do not bother to read contractual terms as they are too complex, then we should reasonably assume that after this evaluation process the third party must present the consumer with well-dissected and simple information. Indeed, consumers will probably not spend time reading a detailed report regarding the terms of the contract. Making a simplified report, which can be as simple as an A-B-C ranking, or even a binary decision to grant a seal of approval or not, requires the exercising of substantial discretion by the evaluating entity. This ranking process is not trivial. How should one rank an agreement that includes a Virginia choice of law provision and a broad warranty provision with limitations of consequential damages? How should the rating of such a contract be in comparison to a contract that has a choice of venue in Florida, a narrower warranty provision, and no limitations on remedies? How should the evaluating entity evaluate the inclusion of a mandatory arbitration provision? Doesn’t it depend on that entity’s perspective as to the desirability of consumer class actions? But didn’t we try to create a market scheme that avoids delegating these types of decisions from the consumers to a central entity?!
Indeed, it might have been ideal if we could have sketched a scheme in which the consumers drive the process of regulation boilerplate terms. However, the same seeds that lead to the problem in the first place—the consumers’ limited resources, limited rationality, and sometimes pure ignorance—might make such a solution impracticable. Thus, if we believe that the problem of unread boilerplate provisions is severe, other solutions, which are explored in Radin’s extensive book, e.g., regulation through tort law, should be seriously considered.
[Posted, on Guy Rub's behalf, by JT]
This is the fifteenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Cheryl Preston is the Edwin M Thomas Professor of Law at Brigham Young University's J. Reuben Clark Law School.
Professor Radin’s book is a monumental effort to bring together in one place various facets of the seemly intractable problem of non-negotiated standard term contracts and to offer creative insights at each step. This legal problem is not new: Judge Cowen in Cole v. Goodwin, 19 Wend. 251, 273-74 (N.Y. Sup. Ct. 1838), was adamant that a common carrier could not post a notice of its intent not to be liable at the station and claim that each passenger entering the train gave contractual consent to waiving liability. To hold otherwise would change the deal from “give me a due reward [cost of passage], and I will be accountable as a common carrier” to “‘give me the same reward,’ (for the carrier fixes it; it may be less, but it may also be more,) ‘and yet, I claim to throw all risk upon you, or such a degree of it as I please.’” The judicial mindset later changed, and by the early 1900s courts lined up with businesses in generally enforcing such terms. Nonetheless, early courts ran interference with unconscionability and equivalent doctrines. The evolution to multitudes of daily online contracts hidden behind links, without size limitations, signatures, or someone to explain terms, as well as the increasing reluctance of judges to interfere, requires new analysis such as that offered by Radin.
Once the problem is exposed, the more difficult endeavor is framing a feasible solution. By characterizing such contracts as a form of “democratic denigration,” Radin suggests that the fundamental remedy is for legislatures, acting as democratic representatives of the people, to draw limits around powerful economic actors’ ability to override the default rules of enlightened contract doctrine. Radin argues that boilerplate schemes make a “sham” of democratic governance because they take away entitlements given through the democratic process “after extended debate and fierce political struggle.” Democratic ordering “at least give[s] us a voice” because politicians can be voted out if people are unhappy with what they enact.
Returning to the polity for a solution is dubious for three reasons. First, outside of copyright and perhaps employment, it is something of a stretch to say that the democratic process has created protections that such contracts “delete.” The regulatory rules that exist are at best default, subject expressly to the right to contract around them. What we seem to have lost, rather, is a judiciary willing to maintain reasonable boundaries of the kind envisioned by Karl Llewellyn and other Realist scholars.
Second, most consumers seem utterly content to be bound to terms they would not read even if such terms were brought forcefully to their attention, could not understand if read, and could not appropriately evaluate as risks. But the same problem applies to voters. Until consumers are educated or fall victim to such a contract, they will not understand the problem enough to vote out politicians who do not protect them. An unorganized few cannot change elections any more than they can convince firms to change undesirable contract terms.
Third, current legislative bodies seem effectively “influenced” by the same business interests that control consumers by contract. Money buys lobbyists, makes campaign contributions, and spins information, just as it hires the lawyers who draft and defend these contracts and the programmers and marketers who decide how to hide them. In the current political climate, consumers’ ability to influence change with election votes seems more of a stretch than consumers’ ability to unite to demand fairness with economic votes.
While Radin leans toward tort law as a solution, in Chapter 10 she offers a range of interesting possibilities for giving consumers the knowledge to make intelligent choices in contracting. Her suggestions include rating agencies, seals of approval programs, and contract term filter technology. Given the irrationality of reading all form contracts, workable initiatives depend on some surrogate to synthesize contract content and create a basis of comparison that a consumer can digest and act upon in seconds. Without a government mandate, how can consumer power be marshaled to organize and fund such programs? What existing organization has the resources to educate consumers or issue legal standards with sufficient credibility? A Statement of Principles issued by the American Law Institute might be influential, but the painful process of birthing a timid Principles of the Law of Software Contracts, and a failed revision to Article 2, show that the same powers and influences compete in that arena as well.
Until social change is possible, the courts remain the best defense of those unable to evoke sufficient power and money on their own behalf. As law professors, we need to train students to value principles of fairness and balance. As legal scholars, we need to encourage judges and contract drafters to stop exploitation.[Posted, on Cheryl Preston's behalf, by JT]
Tuesday, May 28, 2013
This is the fourteenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Peggy Radin’s book, Boilerplate has got lots of people talking – and blogging, particularly about her argument that boilerplate contracts aren’t contracts at all, and shouldn’t be overseen by contract law. Peggy was expanding on the theme of the apologists for adhesion who argue that the form contract is simply part of the product; you’d pay less, and we’d analyze the transaction very differently if you were buying a used or dented washer, so why shouldn’t we treat the washer with a disclaimer of merchantability the same way? Peggy does a good job in undermining the idea that the benevolent sellers (they would say “licensors”) will share their savings with you by reducing the price, but the bigger objection is from those who are offended by the removal of form contracts from the contracts kingdom. Yet that has been the process throughout the history of products liability, the very area Peggy is pointing to.
The usual starting point of products liability is Winterbottom v. Wright, an 1842 decision of the Court of Exchequer, in which a coachman who had been injured when a defective mail coach “broke down,” attempted to recover from Wright, who had contracted with the Postmaster-General (who had immunity) to supply the coach and keep it in good repair. Lord Abinger, the Chief Baron, took considerable care to support his conclusion that no duties were owed that were not “public duties” or violations of the law of nuisance, unless they were created by contract. Since Winterbottom was not in privity of contract with Wright, Winterbottom had no claim against him for his injuries, though caused by Wright’s failure properly to perform his contractual duties. For nearly seventy-five years, the courts chipped away at this notion that a manufacturer (or, as in Winterbottom’s case, a maintenance contractor) had no tort duty to the ultimate user, until Cardozo, in Macpherson v. Buick Motor Co. destroyed the doctrine, with careful delineation of the caselaw, but really in three sentences: “We have put aside the notion that the duty to safeguard life and limb, when the consequences of negligence may be foreseen, grows out of contract and nothing else. We have put the source of the obligation where it ought to be. We have put its source in the law.”
This worked well when negligence could be shown, but it didn’t help Bertha Chysky, a waitress who had been furnished as part of her lunch a piece of cake containing a nail that punctured her gum and cost her three teeth. She couldn’t prove negligence against the wholesale baker and sued for breach of warranty. The New York Court of Appeals, only seven years after Macpherson, and with Cardozo joining with the majority, reversed a verdict for her because “privity of contract does not exist between the seller and such third persons [like Bertha], and unless there be privity of contract there can be no implied warranty.” Yet in the same era, in other states, courts were focusing on the nature of food to expand liability, until it became the widespread law that implied warranties were not limited to a contractual privity, and until Roger Traynor, in 1944, could use the fact that a Coke bottle contained “foodstuffs” to buttress his seminal opinion in Escola v. Coca-Cola Bottling Co., the well-spring of strict products liability.
By focusing on the subject matter of the transaction rather than the formalities of contract or the assumption that tort is based on fault and wrong, Cardozo, Traynor and many other judges and writers were able to transform the issue to a question of who should bear the cost when a product injures a consumer, regardless of contract, regardless of fault. Similarly, the courts, Congress and state legislatures should look, not at the mechanics of contract, but at the many factors relied upon by Professor Radin, to restrain the power of sellers to deprive consumers of rights that the social system has granted them and that form contracts attempt to take away.
[Posted, on Peter Linzer's behalf, by JT]
This is the thirteenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Charles Calleros is a Professor of Law at Arizona State University's Sandra Day O'Connor College of Law.
Peggy Radin’s new book, Boilerplate, is welcome contribution to the literature precisely because it is sufficiently clearly and plainly written to be accessible to a broad spectrum of educated and intellectually curious readers. It thusly helps to fulfill our obligation to educate not just future lawyers but also members of the general public, who can perform more effectively as consumers, business owners, and citizens if they are exposed to thoughtful presentations of the legal issues of the day, from civil liberties to contractual consent.
Professor Radin’s description of the increasing frequency of attenuated consent in adhesion contracts raises a significant questions: Is World A (agreement), around which much of our first-year teaching is based, fast becoming the exception to the norm of World B (boilerplate), creating a disconnect between our laws and the realities of contracting.
I still hold out hope for a world in which market or legal forces can advance meaningful assent, so – unlike Professor Lieb – I did not detect of “whiff of fetishizing of consent in Radin’s rendering.” Moreover, although I agree with Professor Gold that “not knowing precisely what one has consented to is not a per se bar to consent,” truly voluntary and unconstrained consent of that nature ought to be exceedingly rare.
Of the broad array of possible remedies surveyed by Radin, in my view the most elegant would be market-driven sanctions for abusive clauses – such as loss of reputation and business stemming from negative consumer reviews disseminated on the web – and consumer self-help, such as actually holding up the line and reading the exculpatory clause on a short form and making a reasoned decision about whether to assent (as my wife did when she refused to enroll our child in an otherwise very attractive preschool when the two-page form included an extreme exculpatory and indemnification clause that the school refused to sever). To return to an earlier theme of educating the public about legal rights, our schools and other educational platforms (see, e.g., www.iCivics.org) should teach students in secondary school to be informed consumers and critical readers of forms, so that “holding up the line” is viewed as a responsible act (providing businesses with an incentive to efficiently inform consumers at a different point, so as to keep the line moving).
But, what of contexts in which objectionable clauses are buried in many pages of fine print, dissuading a rational consumer from expending the time and effort to engage in a critical reading, such as when deciding to click “I agree” on a web page without actually reading the terms?
Here, I am intrigued by the possibility of applying the reasonable expectations doctrine to all consumer adhesion contracts in which it would be unrealistic to expect the consumer to wade through a document to discover and understand terms to which the consumer likely would object if they were brought to her attention. See, e.g., Harrington v. Pulte Home Corp. 211 Ariz. 241, 119 P.3d 1044 (Ct. App. 2005) (applying this doctrine outside of the insurance context, although finding the doctrine was not satisfied by the facts).
True, the doctrine would need to be tweaked so that it did not validate highly objectionable clauses simply because consumers have come to expect oppressive corporate behavior and have resigned themselves to the futility of finding or understanding unfair terms. Rather than allowing widespread corporate abuses to define the baseline, consumers should be empowered to expect that adhesive terms in lengthy standard forms will fall within a range that is judged to be objectively reasonable. To firmly establish this baseline, I am drawn to the European model of an administrative agency defining types of clauses that are flatly or presumptively invalid, and to empowering the agency with private attorney general capacity to enforce the norms, even when individual claims are small, although I concede that our legal system is highly unlikely to embrace these mechanisms.
With respect to contract terms that do not fall within a limited list of flatly prohibited clauses, a robust reasonable expectations theory could further and more flexibly exclude terms that are buried in boilerplate and lie outside the boundaries of what consumers should be held to reasonably expect, thus providing an incentive to businesses to highlight and plainly express potentially objectionable terms so as to secure actual assent, perhaps evidenced by separate initialing or signature. For example, on a website that links to terms so lengthy that most consumers are dissuaded from surveying them for objectionable terms, the doctrine would incentivize a business to highlight potentially objectionable terms at the beginning of any reference to the agreement, thus alerting a consumer immediately to the nature and location of clauses that warrant exploration. If sales suffer as a result, businesses may be forced to moderate their terms so that consumers are willing to give actual consent to terms brought to the fore.
[Posted, on Charles Calleros' behalf, by JT]
Monday, May 27, 2013
This is the twelfth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Jean Braucher is the Roger C. Henderson Professor of Law at the University of Arizona.
Peggy Radin in Boilerplate gives a rich, comprehensive account of contract law and theory as applied to standard form terms. For anyone inclined to focus on the common law of contract as the primary way to think about the problem of nasty form terms, this book is an obvious go-to source.
My critique may seem odd for a contracts blog, but here goes: I don’t think the common law of contracts is the right place to focus when thinking about unfair deals, except as a history lesson to understand the origins of regulation that is now more rigorous. Emphasis on the common law tends to put a “freedom of contract” ideological spin on problems that are already regulated otherwise and in more effective ways, based on more sophisticated theory. Radin includes perspectives other than those of standard contract theory, so my objection is a subtle one about emphasis.
We live in the age of the regulatory state and administrative agencies. The theory and practice of this type of regulation are now at the core of the law governing contracts, with judge-made common law playing a minor, residual role. Most important types of contracts are regulated by more than common law. Radin devotes her last chapter to regulatory solutions to overreaching in boilerplate, so she has certainly not missed that regulation matters, but she gives primacy of place to the common law of contracts and its theory. Contracts scholars often do this, but we need to change if we are to theorize about current reality and not give law students the misimpression that the common law provides a nearly complete system of law for contracts, only touched up around the edges with a little regulation. In the 21st century, and after an economic collapse brought on by mass exploitation by contracts, we should be spending less time on offer and acceptance or even unconscionability and more on the vast existing statutory and administrative regulation of the substance of contracts.
Consumer contracts illustrate well the point that statutes, often administratively applied, dominate the law applied to contracts. In her discussion of boilerplate, Radin features many consumer contract examples—Part I of the book is headed “Boilerplate, Consumers’ Rights, and the Rule of Law.” Consumer contracts are governed by thousands of federal, state, and local consumer protection statutes that provide stronger remedies than those of the common law. Some statutes are very specific and others use general standards. When consumers’ lawyers draft complaints, they put common law causes of action at the end, after statutory theories; statutory remedies often could be better implemented (judges sometimes undermine them), but they are already way better than those of contract law. Public enforcement is also more powerful. When the Federal Trade Commission and state attorneys general bring enforcement actions against unfairness and deception, they don’t have to worry about arbitration and forum clauses or class action prohibitions. They aren’t parties to the contract.
So, when thinking about problematic consumer contracts today, two key points bear emphasis: (1) the common law of contracts is typically not the best or first resort for protection of consumers and is therefore residual law, and (2) the Dodd-Frank Act recently gave consumer protection law a huge shot in the arm by creating a new regulatory power to address exploitation of consumer misperceptions in credit contracts. Consumer misperceptions are not limited to form terms but also come into play with salient terms such as price (a point also made by Oren Bar-Gill in his comment for this symposium).
Dodd-Frank created the Consumer Financial Protection Bureau (CFPB) and gave it broad power to regulate not just unfair and deceptive acts and practices (as federal and state statutory law has long done for many consumer contracts) but also abusive consumer credit contracts. (And, by the way, as Radin notes at the end of her book, CFPB also is required to study mandatory pre-dispute arbitration and has power to decide whether it serves consumer interests and regulate if not.)
The powerful behavioral economics theory for the CFPB’s anti-abuse power is likely to suffuse consumer law over time. For a fuller discussion, see my paper Form and Substance in Consumer Financial Protection. This theory, backed up by extensive research by many empirical scholars, is that consumers not only make systematic misperceptions, but also that businesses are forced by competition for investors to study and exploit the patterns of these misperceptions to maximize their returns. Regulation is thus essential both to free businesses from a race to the bottom so that they can be straightforward with their consumer customers and to empower vulnerable consumers to get deals they understand.
The CFPB does not use common law methodology. It addresses exploitative practices through the responsive regulation tool of examination of financial institutions, backed up by enforcement actions. CFPB examiners now pour through the records of financial institutions and consumer complaints for evidence that consumers don’t understand credit products with complex tricks and traps. The power to regulate abusive practices is not limited to those set in boilerplate; it also applies even if the exploitation is in plain sight but consumers do not understand their credit products, including how they will use them. When we think about abuses in consumer contracts, we should start with the theory underlying the CFPB’s new power, not with stale ideas about consent or choice.
Contracts teachers as well as law reformers, such as the American Law Institute in its newly-launched Restatement Third of the Law of Consumer Contracts, should not forget that consumer protection law is the central and most powerful part of the law governing consumer contracts. ALI’s project description shows that it understands that consumer law is heavily statutory and administrative, but the question remains whether ALI will embrace our vast, popular statutory and administrative law of consumer protection or inaccurately try to treat it as incidental to the common law.
Similar points to these concerning consumer contracts could of course be made about the regulation of many other types of contract. The general point is that the law of contracts is much broader than contract law, and the common law is not the primary way to address overreaching in contracts, whether in boilerplate or not. Radin ends in agreement with this policy direction, but her focus on theory underlying common law rather than the theory of regulation makes the analytical journey more difficult than it needs to be. Contract theory needs updating to embrace regulatory theory as part of its core and not as an afterthought or add-on.
Some acknowledgments: Nearly everything worth saying about consumer contracts was said long ago, and much of the above is inspired by earlier work of others. In 1933, based on lectures given in 1928-29, Karl Llewellyn wrote in The Case Law System in America (in German, only published in English in 1989; see at 67-68 for the discussion in the English translation) that case law is inadequate to address the enormous problem of consumer protection. See also Arthur Leff, Unconscionability and the Crowd—Consumers and the Common Law Tradition, 31 U. Pitt L. Rev. 349 (1970) (arguing that common law litigation will not root out unfairness and that administrative regulation is necessary to deal effectively with consumer contracts), and Stewart Macaulay, Bambi Meets Gozilla: Reflections on Contract Scholarship and Teaching vs. State Unfair and Deceptive Trade Practices and Consumer Protection Statutes, 26 Hous. L. Rev. 575 (1989) (noting that consumer protection regulation is more powerful than contract law in providing remedies and that contracts teaching should introduce that key point).[Posted, on Jean Braucher's behalf, by JT]
This is the eleventh in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Professor Radin’s Boilerplate is a pragmatist repudiation of an important social and legal phenomenon. That practice has a number of features: (1) waivers of rights and liability contained in boilerplate are often unknown to the individuals who grant those waivers (2) consumers need to waive common law and statutory rights in order to purchase a wide range of goods and services, many of which are regarded as essential to ordinary American life (3) the waivers in boilerplate govern so many contractual relationships that some rights otherwise granted by law are effectively eliminated for large portions of the consumer population.
Much of the literature on boilerplate focuses on the first feature of boilerplate, above. Radin has an argument about normative degradation and the poor quality of consent to boilerplate. But I think the most important contribution of the book is to highlight features (2) and (3).
The fact that consumers need to waive many rights, including the right to compensation for harm incurred by the negligence of others and the right to pursue legal remedies in courts or by way of class actions, is not important because it renders their consent ineffective. (I would argue it does not.) The fact of necessity is important because it explains feature (3) and suggests that the mass “rights deletion” that Radin observes does not necessarily reflect consumers’ collective preferences.
Whether consumers prefer contracts with or without boilerplate, i.e., whether they are prepared to pay to preserve some rights now usually waived in consumer contracts, depends on the decision mechanism by which that preference is expressed. Because many rights that private individuals have against one another are default rights that individuals are free to alienate, we effectively use the market to sort consumer preferences. The result is that individual consumers decide whether, on the margin, the value they might derive from a legal right is worth the money they save from giving it up, or whether it is worth the value of the good or service to which that waiver is attached.
The deep question that Radin raises in her discussion of democratic degradation is whether markets are indeed the right way to decide the scope of some legal rights. Especially where the frequency or distribution of a right in society has important cumulative effects on legal culture or social practice, we might wish to remove certain rights from the marketplace and decide through collectivized decision-making (i.e., legislative action or inaction) the scope of rights that govern certain private interactions. One of her most compelling examples is the case of copyrights that individuals frequently waive. She persuasively observes that we may have a collective interest in the wide diffusion of copyrights that is underserved by the separate decisions of millions of individuals to waive their copyrights at a small price.
More generally, we need to think about what proportion of our private rights (rights held against other private individuals) should depend on our market power. The idea of a “social wage” refers to the proportion of our material resources that depends on our status as citizens -- as opposed to our market wage, which is the proportion of our income that turns on our performance in the marketplace. Countries differ in their social wage level. For example, countries with national health care or generous unemployment benefits make your material situation somewhat less dependent on your labor market position than in countries without public health care or generous unemployment benefits. The United States has a low social wage as compared to other developed countries of comparable wealth. We probably also have a “low private rights” regime, inasmuch as individuals vary (more than elsewhere) in their ability to preserve legal rights depending on their ability to pay for them. I imagine that whether this outcome is acceptable turns significantly on the particular right at issue. For example, we might reject a regime under which service providers exercise greater caution to avoid bodily injury when dealing with some consumers than with others. Yet we might be comfortable with a regime in which some proportion of the population relies primarily on arbitration for redress. We can thank Radin for highlighting these important social choices.
[Posted, on Aditi Bagchi's behalf, by JT]
For those who missed it, over the last two weeks we posted nine mini reviews of Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law as well as Professor Radin's resposnes to those reviews.
The prior posts can be found here:
- Peter Alces on consent;
- Theresa Amato on proposed solutions to the problems posed by Boilerplate;
- Andrew Gold on the question of whether boilerplate is contractual;
- David Horton on mass arbitration and democratic degradation;
- Ethan Leib on the fetishization of consent;
- Brian Bix on democratic degradation;
- Oren Bar-Gill on consent without reading;
- Daniel Schwarcz on a tort-based approach to standard form contracts;
- Kim Krawiec on contracts as disclosure, Part I and Part II; and
- Margaret Jane Radin's responsesm, Part I and Part II
This week, we will feature posts from the following contracts scholars:Aditi Bagchi teaches Contracts and Labor Law at the Fordham University School of Law, where she is an Associate Professor. Her writing in contract theory challenges classical views of contractual obligation. For example she questions its promissory foundation (Separating Contract and Promise, Promises and Permissions in Contract) and its fully voluntary character (Promises and Permissions in Contract, Normative Triangulation in Contract Interpretation). She has argued that contract may be multilateral and dynamic (Parallel Contract) and has examined considerations of distributive justice in the formation, interpretation, and enforcement of contract (Distributive Injustice and Private Law, Managing Moral Risk: the Case of Contract, Distributive Justice and Contract). She has explored these issues with respect to employment and consumer contracts in particular (The Myth of Equality in the Employment Relation, Unequal Promises, Unions and the Duty of Good Faith in Employment Contracts). Professor Bagchi also has a related interest in the comparative political economy of contract, labor, and corporate law (The Political Economy of Contract Regulation, Varieties of Employee Ownership, The Political Economy of Merger Regulation). For a full list of her publications and current projects, se her Research page.
Jean Braucher is the Roger C. Henderson Professor of Law at the University of Arizona’s James E. Rogers College of Law (Tucson), where she has taught since 1998. Prior to joining the faculty at the University of Arizona, Professor Braucher served as the Gustavus H. Wald Research Professor of Law at the University of Cincinnati College of Law. She has also served as a visiting professor of law at Cornell Law School, University of Texas School of Law and Boston College Law School. Since 2007, Professor Braucher has served as the Distinguished Scholar and Chair of the Wisconsin Contracts Project of the Institute for Legal Studies at the University of Wisconsin Law School. The Project is dedicated to a socio-legal approach to contract law and to revising the Contracts casebook by Stewart Macaulay et al., which Professor Braucher has joined as an author. Prof. Braucher specializes in bankruptcy, contracts and commercial law.
Charles Calleros is a Professor of Law at Arizona State University's Sandra Day O'Connor College of Law. Professor Calleros’ research interests include international and comparative contract law; international conflict of laws; the intersection of free speech with race and gender discrimination; and various issues regarding legal education. At ASU, he teaches Contracts, International Contracts, Civil Rights Legislation, and Legal Method and Writing. At the Universite Paris Descartes, he annually teaches short courses in Common Law Legal Method, Comparative and International Contracts, and International Conflict of Laws. Professor Calleros is a member of the American Law Institute. In addition to earning several teaching awards over the years, he received the ABA’s Spirit of Excellence Award in 2011 and received an award in 2010 from the Arizona State Bar Committee on Minorities and Women in the law for his work in mentoring programs and outreach to youth in the community. Prior to joining the College faculty in 1981, he clerked for Circuit Judge Procter Hug Jr., of the U.S. Court of Appeals. Professor Calleros is past-President of Region XIV of the Hispanic National Bar Association.
Peter Linzer is a Professor of Law at the University of Houston Law Center, where he has taught since 1984. Before going into teaching, Professor Linzer practiced law both as a Wall Street lawyer and as an Assistant Corporation Counsel for the City of New York. Professor Linzer is a member of the American Law Institute. Professor Linzer has served as the Chair of the Contracts Section of the Association of American Law Schools and is a Board Certified civil appellate specialist. He served for nearly a decade on the Pattern Jury Charge Committee of the State Bar of Texas. His principal academic subjects include Contracts; Constitutional Law; Equal Protection; First Amendment; International Contracting; Transactional Clinic; Contract Negotiation and Drafting; Introduction to American Law (for foreign LL. M. candidates); and Torts. Working with experienced practitioners, he pioneered a transactional course in international contracting that sees students negotiate and draft documents in simulated international deals. A list of his publications can be found here.
Cheryl Preston is the Edwin M Thomas Professor of Law at Brigham Young University's J. Reuben Clark Law School, where she has taught since 1989. Professor Preston is a nationally recognized expert in Internet contracts, the contract infancy doctrine, legal protections for minors, and Internet regulation. Professor Preston also publishes on the relationship of law and popular culture images, law and religion, and feminist legal theory. She produced an educational DVD, entitled Fashioning Women in Law. Her DVD won the prestigious Chris Award at the 2003 Columbus International Film Festival. Prior to joining BYU's faculty, Professor Preston served as a law clerk to the Honorable Monroe G. McKay, United States Court of Appeals for the Tenth Circuit and was in private practice for ten years. A list of her publications can be found here.
Guy A. Rub is an Assistant Professor at the Ohio State University Moritz College of Law. Professor Rub is an expert in the intersection between intellectual property law and economic theory. Prior to joining Moritz, he was practicing at Munger, Tolles & Olson LLP in Los Angeles. Professor Rub has studied law on three continents. He completed his studies as an SJD candidate and received an LL.M. degree from the University of Michigan Law School; a master's degree in Law & Economics from the University of Madrid; a European Master in Law and Economics from the Erasmus University in Rotterdam, Netherlands; and a LL.B. degree from Tel-Aviv University. He was a law clerk to the Hon. Rina S. Meshel of the Tel-Aviv Appellate Court. His recent article, Contracting Around Copyright: the Uneasy Case for Unbundling Rights in Creative Works, was published in the University of Chicago Law Review. A list of his publiactions can be found here.
Thanks to all of our contributors. We look forward to an exciting finale to our symposium!
Friday, May 24, 2013
Given all the excitement over boilerplate on this blog, I thought it would be a good time to remind readers of problems that might arise that don't exactly involve (just) boilerplate, It's not just the words in the contract -- the way the contract is presented can create problems, too. I've been meaning for a while to discuss this NYT article about a lawsuit against Dollar Rent a Car. According to the article and the complaint, the plaintiffs were customers who specifically declined the insurance coverage that car rental companies are always pushing (and which is often covered by customers’ personal auto insurance policy and/or credit card). They were then handed a tablet and asked to sign electronically. When they returned the car, they were surprised with a much larger-than-expected bill that included a “loss damage waiver” which, like insurance, “waives” the customer’s liability for loss or damage to the car.
I planned to blog about this last month, but just as I was about to, I received a reprint of Russell Korobkin’s article, recently published in the California Law Review. The title, The Borat Problem in Negotiation: Fraud, Assent and the Behavioral Law and Economics of Standard Form Contracts, sounded intriguing and as I started to read it, I realized that the article addressed a lot of the issues raised by the car rental form contract/electronic signature situation. I thought it might be fun (er, contracts prof style-fun) to view the Dollar Rent a Car problem through the lens of Korobkin’s proposed Borat solution.
According to the article, the Dollar-Rent-A-Car plaintiffs explicitly told the car rental agent that they were declining insurance coverage yet unknowingly signed for it on an electronic tablet. This illustrates one way that contracting form matters –I suspect it was easier for customers to be misled by the “loss damage waiver” language because they didn’t have an easy way to read the surrounding language. While paper consumer contracts are generally adhesive, customers do have the option of declining insurance coverage. While many customers may still have overlooked the meaning of the language, others may have scanned the few sentences immediately before the signature line (this seems particularly true of the plaintiffs, who one of whom is an insurance lawyer).
Sales agents are typically paid a commission to upsell the insurance coverage and each of the plaintiffs paid a hundred to several hundred dollars more than they expected to pay.
I tried to get a copy of Dollar’s rental agreement off their website. While their general policies are posted, which references their rental agreement, the agreement itself is not available. That’s already a strike against them in my book – why not post the rental agreement on your website since you’re going to have your customer sign it anyway? I think it’s because the company doesn’t really expect anyone to read the agreement. Most people don’t read, but that doesn’t mean they wouldn’t if the company made more of an effort to make the agreement accessible and readable.
Without a copy of Dollar’s actual rental agreement, I can only make assumptions about what it contains but my guess is that it contains an integration clause and a no-oral modification or “NOM” clause. The latter may not be enforced but the former brings the contract into the grip of the parol evidence rule. The PER rule won’t effectively block a fraud claim, but fraud claims may be difficult to prove in this context. The other avenue for redress is under a consumer protection statute claiming unfair or deceptive trade practices. But what about contract law – can it do anything here to help the consumers?
Korobkin’s article doesn’t specifically address consumer actions, but he tackles the “Borat Problem” which often occurs in consumer contracting situations. According to Korobkin, the Borat Problem occurs when two parties “reach an oral agreement. The first then presents a standard form contract, which the second signs without reading or without reading carefully. When the second party later objects that the first did not perform according to the oral representations, the first party points out that the signed document includes different terms or disclaims prior representations and promises.”
As readers of this blog are well aware, contractsprofs went through a slight obsessive period with the Borat contract when it first arose. To quickly summarize, several people who were in the 2006 movie, Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan sued the producer, Twentieth Century Fox, claiming that they were misled into appearing in it. Korobkin states that these plaintiffs claimed that the studio obtained their consent using a two part strategy, “false representations followed by standard form contracts that included language designed to contradict or disclaim those representations.”
Sound similar to the Dollar situation? Although the Dollar agent didn’t expressly make false representations, they allegedly acted in a way that misled the plaintiffs into believing they were acting consistent with their wishes, and that the contract they were signing reflected their understanding. Korobkin discusses existing legal remedies to the Borat problem and concludes they are not so satisfying for various reasons. He then discusses the risk of “bilateral opportunism,” meaning that a “pure duty to read” rule leaves nondrafting parties vulnerable to exploitation by drafters and a “no-exploitation rule” leaves drafters vulnerable to opportunistic behavior (i.e. bad faith claims) by nondrafters. He discusses the different ways that each party might take advantage of the other under either rule and throws in a good amount of behavioral economics to back up his arguments – for example, “confirmation bias” makes it difficult for even sophisticated nondrafters to notice when a contract term contradicts a prior representation made by the drafter. Korobkin also discusses the role of trust, specifically that reading a contract may signal that the nondrafter doesn’t trust the drafter. I think trust plays a role (even if small) in the Dollar scenario – afterall, nobody wants to be that jerk in line who challenges the smiling service rep. There's also social pressure in that nobody want to be that jerk holding up the line of foot tapping customers by asking questions about fine print (believe me, I know).
Korobkin’s “Borat Solution” would require specific assent to written terms that are inconsistent with prior representations. This effectively puts the burden on drafters to include a “clear statement” that the particular provision takes precedence over prior representations and “realistic notice” which would generally mean that the parties actively negotiated the term. I like this proposal (and have proposed something very similar to it in the context of online agreements) because it recognizes that drafters have the power to make terms more salient. The notion of blanket assent puts too much of a burden on the nondrafting party instead of the party that has the power to actually communicate the terms more effectively.
So would the Borat solution have changed anything in the Dollar scenario? I think so, but for a different reason than the actual Borat scenario. A clear statement and realistic notice would preclude having customers sign on an electronic tablet without also making immediately visible the relevant provision. In other words, the customer wouldn't be asked to sign without being able to read the waiver provision. Although it's not expressly stated, it seems implied from the NYT article that the contract provision was not viewable on the tablet. If that's the case, that provision would not be enforceable.
So, for those of you planning to research the consumer contracts conundrum this summer, in addition to Margaret Jane Radin’s book, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law and Oren Bar-Gill’s book, Seduction by Contract, I recommend that you add Korobkin’s article to your summer reading list.
A (presumably U.S.) buyer (identified on the web only as "b-thumper") ordered a BMW M3 in "Atlantis Blue with Blue deviated stitching and the Individual Piano trim" and paid for European delivery. "European delivery" allows the buyer to pick up the car at the BMW Museum in Germany and take it for a lap around the Nürburgring.
As recounted over at Jalopnik, the Internets displayed divided sympathy for b-thumper, who, upon arriving in Germany, discovered that the car BMW delivered was Atlantic blue and not Atlantis blue. Seller offered to repaint but buyer wanted a substitute car in Atlantis blue with the customized interior.
Sorry b-thumper, but these are the type of fun facts contracts profs dream about! Assuming we are applying the UCC, does the Atlantis shade of blue substantially impair the value of the BMW? My colleague Jack Graves reminds me that the CISG doesn't apply unless the buyer was purchasing the car for a business purpose. What remedy would German law provide the buyer?
[Meredith R. Miller h/t Shawn Crincoli]
In keeping with our Boilerplate theme, it seemed timely to notify our readers of this recent publication:
Here is the author's summary:
The article’s main contribution is an empirical study of the total number and volume of boilerplate contracts to which a consumer becomes bound in the course of purchasing a computer from a major vendor. The answer: an average of twenty-five different contracts, comprising almost as many words as a Harry Potter novel. (And nine out of every ten of those boilerplate terms arrived late in the transaction, long after the seller had been paid.) I situate these figures within the scholarly literature on consumer contracts and information costs, and I conclude with some suggestions about how to address those costs in the boilerplate context.
In addition, NYU Law's Clayton Gillette was good enough to alert us of this symposium issue of the NYU Law Review, chock full of articles that our readers will find of interest. Contributions include:
Thursday, May 23, 2013
This is the second part of the tenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
In today's posts, our author, Margeret Jane Radin, responds to her reviewers. In the first half, she responded to the reviewers from last week. In this second half, she responds to this week's reviewers.
But don't think that this is the end. We have more reviews rolling in, and they will go up next week, so stay tuned.
Response to Brian Bix:
Thanks for your careful reading of my book, always a great pleasure for an author.
Your caveat on democratic degradation is related to federal law, and specifically to the Court's super-hyper-expansion of the FAA, and (no doubt) the failure of Congress to amend the FAA to rein this in. At the federal level there are other examples to describe as democratic degradation: when an enacted rights regime (such as user rights under copyright law) is not undermined by legislative activity (or failure to act) but rather can be summarily overruled by the expedient of dropping boilerplate on recipients.
But contract is primarily a creature of state law, and so is tort. Democratic degradation is happening at the state level. States should be able to void contracts that are unilaterally infinitely modifiable. States should be able to use democratic processes to protect their consumers via class actions, etc. (What has become of federalism?)
It seems to me that what you call "the lesser side of American political life" --the fact that Congress is owned by special interest money--is indeed also a form of democratic degradation; for example, we now have 90% of the populace supporting legislation that one lucrative industry, though surrogates, can block. This is a point where public choice theory describes the situation, and, as I said in chapter 3, public choice theory seems to be itself a form of democratic degradation. I should have written more about this--and probably will.
Response to Oren-Bar-Gill:
I do think that the oversimplified Chicago approach is still dominant, especially as taught to 1L's by lay economists. Why else is it still so widely asserted that firms that deploy rights deletions must be passing on savings to consumers (rather than pocketing the money), that consumers must be or should rationally be choosing to have the money rather than the rights (rather than having no idea what the
rights are, etc) so there is an efficient price/rights trade off?
Economists who are sophisticated as you suggest must know this depends on several empirical assumptions that cannot be true for all markets, as well as (I hope they would also know) the contestable normative assumptions that all rights are tradeable in nature and that property rules can be turned into liability rules by firms at will. FWIW, I have argued this out primarily in chapter 6, and of course would be delighted if a more sophisticated economist such as yourself would elaborate and refine this argument. (I do wish my friend Prof. Ben-Shahar in his review had chosen to mention said chapter when choosing to restate this blanket argument.) The empirical assumptions have to do with (in each market) the level of competition and the level of information asymmetry as well as whether the firm must charge the same price to all consumers and whether there is at least a well-informed subgroup that can establish demand for all. (Note, for example, that the firm is not charging the same price to all consumers in situations where some consumers can call up and get a better deal after the fact--such as reversal of bank charges-- while others are not in a position to be able to do that.)
So yes, I am sympathetic to a more nuanced economic analysis and empirical approach, including availability/access to information online through sources other than the fine print itself. (See chapter 10 which could provide some rudimentary ideas.) I wish I had written more about open ended unilateral modification, too. At least, I hope this particular 100,000 words has laid some groundwork for further research and thought.
Response to Daniel Schwarcz:
I agree with most of what you say. I am very much concerned with erasure of (certain) legal rights, because of impact on democratic ordering, the rule of law, and equality before the law. The hyper-expansion of the FAA is a special (though very important) case, and maybe Congress will amend the FAA to rein it in (though I am not holding my breath). See my similar comments in reply to Brian Bix.
If you develop a products liability approach to boilerplate which can avoid the pitfalls that worried me in chapter 11, I am sure I will endorse it. It has the virtue of picking up on the economists' insistence that the fine print is part of the product.
I appreciated your comments on democratic degradation, which I cited in chapter 3. Contract is part of the legal infrastructure necessary for markets, and I do support markets. You may have more faith than I do that these particular markets are not plagued by severe information asymmetry which nullifies assumptions of efficient processes. Faith is what it is, since this is an empirical question for each market, and we don't have data to support the faith.
The "take-it-or-leave-it nature of boilerplate" DOES sometimes "harm consumers as a group," even if they have individually "agreed" to rights deletion, if the rights are market-inalienable (see chapter 9); and if consent looks dubious then we might prefer to risk error on the side of market-inalienability if we are unsure, especially in the presence of mass-market deployment.
The ubiquitous overreaching liability waiver poses the question whether individuals, one by one, can waive background rights that are constitutive for civil society, but not salient for individuals. Yes, in the absence of some New Zealand-like solution, I place a high regard on the tort system. (So no, I don't argue for "a substantive regulation," at least not exclusively.) If we are all free to harm each other, and everybody must take care to avoid being harmed by everybody else, we are back in the state of nature. The firm is almost always best cost avoider, and should be the risk-bearer. Firms shouldn't be able to shunt their risk to recipients, and insurers should not be able to force firms to do so.
If you want to say that this will necessarily increase the price of goods and services, then you are making blanket empirical assumptions about competition and information, so please see above.
[Posted, on Margaret Jane Radin's behalf, by JT]
This is the first part of the tenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
But don't think that this is the end. We have more reviews rolling in, and they will go up next week, so stay tuned.
In today's posts, our author, Margeret Jane Radin, responds to her reviewers. In this first half, she responds to the reviewers from last week. In the second half of this post, she responds to this week's reviewers.
Here are her responses to the first week's posts:
Response to Theresa Amato:
Response to Andrew Gold:
Thank you for recognizing the ambiguity in "expectation," and the mischief it causes.
Contract theory supposes exchange of promises, or agreement, Consent is already a conceptual step away from either of these alternative core conceptualizations, because it does not foreground the reciprocity inherent in contract theory. Barnett's consent theory is more radical than he lets on, because it erases this basis of reciprocity.
Coming to "consent" to unknown terms, Barnett argues that the acceptance scenario represented by the sealed envelope hypo is conceptually possible, but he admits that that has little bearing on whether people who click "I agree" are actually doing that. Thank you for saying more clearly that what we mean by clicking "I agree" is not known, and unlikely to have a general answer.
Contract theory is important because it is the justification for the state to enforce certain agreements by forcibly divesting one party of an entitlement and vesting it in someone else. On a deeper level, contract theory is important because, in the standard liberal story justifying the state, the state is necessary in order to implement and maintain a system of contract to enhance freedom of persons by means of making private ordering possible ( i.e., freedom of contract). So, I am actually a conservative about freedom of contract.
a deep question, in my view, regarding how far a practice can deviate from the assumed parameters of its justificatory theory before we must consider it unjustified. I am working in this question, which is a question of "fit" between ideal theory and nonideal practice. Meanwhile, we know that fully informed consent (itself an idealization, not something that happens in real life) fits the contract theory justification, whereas sheer ignorance (at least you and I agree) does not. The contested terrain is between these poles. How far can an allegedly "contractual" practice deviate from the consent/exchange of promises/agreement concepts undergirding the theory before such practice must be held unjustified, that is to use that theory as the basis to divest entitlements through state coercion must be held unjustified?
I am not sure that question can be classified as conceptual, and I don't think it can be classified as empirical, but I'm sure it's the question we need to answer when it comes to money-now-terms-later, or, indeed, clicking "I agree" (or signing something) when the recipient has no viable opportunity to do otherwise, when the recipient does not understand the terms, when the deleted rights should not be subject to relinquishment by individuals, etc. (See also reply [in the next post] to Kim Krawiec.)
Response to David Horton:
Elegantly put, and thank you.
Response to Ethan Leib:
Thank you for the list of ideas I offer. This is just what a review should do (in addition to raising questions and suggesting avenues for further research, of course).
Since consent is the core value concept of contract theory--or at least derived closely from the core concepts of exchange (promises or agreement), I don't think consent can be "fetishized." (Focusing on feet might be "fetish" if we believe the core value is partnership as a whole, but then partnerships as a whole can't be "fetishized." "Commodity fetishism'" for example, was supposed to suggest that overvaluing commodities and turning too many aspects of life into commodities is a distortion of what is valuable in humanity, but if we then insist in valuing humanity, that is not "fetishizing" humanity.)
The problem I think you allude to, however, is a real one: To what extent does a justification for a practice have to fit (accurately describe) instances of the practice? Or to put the question the other way, To what extent may a practice allegedly justified by a theory deviate from the theory before we should regard it as unjustified? (See my reply to Andrew Gold.) I don't have a general theory to address this problem of "fit." There might be many practices that are imperfectly related to the theory (firm-to-firm negotiated deals that are incompletely specified, for example) that on balance are still justifiable under contract theory. I think that mass-market boilerplate of certain varieties is outside the purview of the purported justification under contract. I'll try to say more in later work about the grey area that imperfectly fits the ideal but nevertheless can be considered "close enough," but meanwhile, I think we can say that certain kinds of boilerplate are not "close enough" without dragging the entire practice of contracting into question.
[Posted, on Margaret Jane Radin's behalf, by JT]
Wednesday, May 22, 2013
We interrrupt the highbrow discussion of boilerplate and SCOTUS cases to bring you this breaking news from news.com.au that falls right within the utterly sweet spot of contracts and pop culture:
YOU party at Justin Bieber's house? You tell no one - or it'll cost you $5 million.
After a string of bad press in recent months, the 19-year-old has taken the extreme measure of asking guests to sign a confidentiality agreement before they enter his property.
TMZ claims to have obtained a document that everyone must sign before entering his property for one of the infamous get-togethers.
Entitled a Liability Waiver and Release, the website says the paper states that guests must not make comments or post anything on social media about what happened inside the house.
This reportedly includes the "physical health, or the philosophical, spiritual or other views or characteristics" of Justin and other partygoers.
Anyone in breach of the waiver can be sued for an enormous amount of money.
You blog? $5 million. You tweet? $5 million. You Instagram? $5 million.
While no one knows exactly what goes on inside these parties, the document also warns the get-togethers may include activities that are "potentially hazardous and you should not participate unless you are medically able and properly trained".
The risks involved apparently include "minor injuries to catastrophic injuries, including death".
Justin may be eager to change public perception after hitting headlines for a number of controversial reasons lately.
As well as turning up late for a UK gig and being accused of assaulting a neighbour, the star has now come under fire for "abandoning" his pet monkey.
Here's a copy of the document that TMZ claims is the NDA.
Where exactly was this news story when I needed an exam question? And is this liquidated damages clause a penalty?
[Meredith R. Miller]
blogged about this case before. Since that time, a panel of the Ninth Circuit issued a new opinion that is available here.
The Court agreed to decide whether airline passengers who are removed from a “frequent flyer” entitlement list have a right under state law to sue the airline for alleged violation of a promise that they could continue to enjoy the benefits. The case of Northwest, Inc., v. Ginsberg (12-462) tests whether such legal claims are preempted by federal law governing regulation of commercial air service.
SCOTUSblog also provides this statement of the issue in the case:
Issue: Whether the court of appeals erred in holding, in contrast with the decisions of other circuits, that respondent’s implied covenant of good faith and fair dealing was not preempted under the Airline Deregulation Act because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent-flyer program (the precise context of American Airlines, Inc. v. Wolens ) and manifestly enlarged the terms of the parties’ undertakings, which allowed termination in Northwest’s sole discretion.
We are looking forward to the Supreme Court's ruling (although the tea leaves seem pretty clear), and we hope that they cite to our earlier post as (some kind of) authoirty.
Papers from the American Bar Foundation - The Labor Law Group Conference on The Proposed Restatement of Employment Law
The Proposed Restatement of Employment Law at Midpoint
The Restatement's Supersized Duty of Loyalty Pension
Contingent Loyalty and Restricted Exit: Commentary on the Restatement of Employment Law
Catherine Fisk & Adam Barry
An Excursion Through Strange Terrain: Chapter 6 (Defamation) And 7 (Privacy and Autonomy)
Matthew W. Finkin
What Should The Proposed Restatement of Employment Law Say About Remedies?
Remedies Doctrines in Employment Law: Ready to be Restated, or in Need of Remedial Remedies?
Papers from the Associations of the American Law Schools 2012 Annual Meeting Section of Labor Relations and Employment Law
Introduction: Guaranteeing the Rights of Public Employees
Ann C. McGinley & Kenneth G. Dau-Schmidt
Five Dead in Ohio: Ohio Citizens Overwhelmingly Support Public Employee Collective Bargaining (61 Percent to 39 Percent) in a November 2011 State Referendum Blocking the Implementation of Senate Bill 5
Jeffrey H. Keefe
"Before Wisconsin and Ohio": The Quiet Success of Card-Check Organizing in the Public Sector
Timothy D. Chandler & Rafael Gely
This is the second part of the ninth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
As I stated in my last post, I want to use the example of the travel company liability waiver at left to illustrate the boilerplate phenomenon. And here is where my analysis would differ from Peggy’s, perhaps in important ways. She argues, for example, that many consumers cannot understand the complicated legalese in boilerplate. That may be true with some boilerplate, but these terms are quite simple. Plus, in my experience, the consumers of this kind of adventure travel tend to be fairly sophisticated in terms of their ability to read and understand the kind of document I’ve posted above. Certainly many if not all of these purchasers can understand that the tour company is saying that it is not responsible even if you die through the negligence of its employees.
Peggy also argues that many consumers do not bother to read the boilerplate. That is often true, but my experience suggests that it is not accurate with respect to my fellow adventure travelers. The liability waiver, which the company hounds you to sign prior to departure, is a regular lamentation/good laugh over the group dinners. Finally, Peggy argues that consumers miscalculate the cost of such waivers because we are bad at assessing risk, which she appears to equate with underestimating risk. Again, this is sometimes true, but people are prone to risk overestimation, as well as underestimation, depending on the circumstances. Finally, and this is the lesson from the disclosure literature, famously advanced by Alan Schwartz in the boilerplate context, not everyone needs to read, understand, and act on her preferences in order to effect a change in boilerplate terms. By voting with their feet, consumers (like investors) can, at least in theory, force down the price of products and services accompanied by onerous boilerplate, thus opening up an opportunity for boilerplate entrepreneurs to intervene with terms more palatable to consumers. Yet that has not happened in the adventure travel context. Why not?
Let me offer a few possibilities. One possibility, of course, is that consumers are not actually willing to pay for the ability to hold tour companies liable – they prefer lower prices instead. I’ll return to that possibility in a moment. However, it is also possible that consumers have not fully impounded the information regarding liability waiver into product price. This is not because such consumers are unsophisticated, or don’t read, or are helpless against big bad travel companies, but because the purchase of an adventure travel package is a complex decision, requiring the trade-off of numerous factors affecting the quality and price of the product/service + boilerplate package. And most of us just aren’t very good at that. Consumers are not just weighing the costs and benefits of various liability waivers against price, but a multitude of factors, including the reputation of the company for both fun and safety, the type of travel and activities offered, and even other elements of the contract, such as the cancellation policy and the availability of travel insurance to cover the type of travel and activities in question.
This analysis, if true, is both good and bad for Peggy’s purposes. On the plus side, it supports her fears of market failure, even when consumers are relatively sophisticated and informed. But at the same time, it cautions against the possible efficacy or easy application of her solution. If calculating the optimal trade-offs among price and the numerous other elements of the product/service + boilerplate adventure tour package is decisionally complex for experienced consumers of travel services, then it is difficult for courts and lawmakers as well. Perhaps the legislature was right in crafting a default rule placing liability for negligence on the tour operator, in the hopes of creating incentives for such tour operators to exercise care before putting their clients at risk. And perhaps consumers are mistaken in signing away those rights, thus “deleting” rights thoughtfully granted by the legislature. Peggy places a high value on democratically-generated rules such as these, and demonstrates more faith in such democratic processes than in market ones.
Perhaps she is right. But, perhaps, the legislature simply got this one wrong. Perhaps consumers believe that there are cheaper and more effective mechanisms for differentiating trustworthy and careful adventure tour operators from untrustworthy and negligent ones. Perhaps consumers have quite rationally concluded that firm reputation; their own repeated positive experiences with a particular operator; the prior impressions of friends, neighbors, and other experienced travelers; and third parties, such as travel insurance companies, all have helped them to choose a tour operator whose risk of negligent operation is – if not fully controllable – at least tolerable, given the price paid.
With Boilerplate, Peggy Radin has hit another home run. As with her work on contested commodities, she has forced me to reconsider my priors, and has poked some holes in my assumptions. But in both cases a basic ideological difference -- the extent to which we trust private ordering as compared to public -- prevents a full meeting of the minds.
[Posted, on Kim Krawiec's behalf, by JT]
This is the first part of the ninth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Kimberly D. Krawiec is the Kathrine Robinson Everett Professor of Law at the Duke University School of Law.
Thanks to Jeremy for inviting me to review Peggy Radin’s new book, Boilerplate. Peggy’s work on contested commodities has hugely influenced my thinking about taboo trades, and I suspect that her work on boilerplate will prove similarly influential, so I’m grateful for this opportunity for early engagement.
First, as Peggy defines boilerplate, we are talking about take it or leave it contracts. There is no dickering over terms, no negotiation: if the consumer doesn’t like the offered contract, then the only remedy is to refuse to purchase the packaged product that includes some good or service, along with the accompanying boilerplate. This “take it or leave it” nature of boilerplate does not necessarily harm consumers as a group, however, provided that they have agreed to give up those rights in exchange for a lower purchase price.
This leads to the second relevant insight from the disclosure comparison: there is a large literature regarding the extent to which disclosure can protect (and harm) even consumers who are ignorant of the disclosure, by impacting price. Third, and relatedly, there is a large literature regarding the conditions under which we cannot expect market prices to accurately reflect all of the available information about a product. Fourth, and finally, Peggy does not propose more or better disclosure as the solution to boilerplate, but instead proposes a substantive regulation of contract terms – what is often referred to within securities law as “merit regulation.” Merit regulation forms the basis of many state blue-sky laws, in contrast to federal securities law, which is historically disclosure based. Thus, at least some of the debates between boilerplate “autonomists” and “apologists,” to borrow Omri Ben-Shahar's phrasing, have also been addressed in the numerous debates, dating back at least to the 1930’s, on merit-based versus disclosure-based securities regulation.
Peggy’s contention (to oversimplify, as is so frequently necessary in Blog World) is that we cannot infer from the widespread persistence of a particular boilerplate term that consumers have chosen it through their willingness to buy the product/service + boilerplate bundle at a given price. Instead, we must treat it as a case of potential market failure. So, what might lead to this market failure? I want to illustrate one possibility – and highlight some unanswered questions that I think Peggy and other boilerplate autonomists need to address – using the example of a fairly common exculpation clause used by tour group operators.
If you’ve taken almost any type of organized tour or active vacation and bothered to read the liability waiver that you were almost certainly asked to sign, then you’ve seen an agreement similar to the one I’ve included at right limiting the tour company’s liability for their negligence involving pretty much everything from a bad hotel room to your death from falling into an active volcano. Such waivers are ubiquitous, varying only slightly in their particulars.
And I have signed one every year for over a decade. Why? Well, the simple answer is that I have no choice, given that I want to participate in organized adventure travel and all tour companies have a similar waiver. But that’s too easy. The real question, as Peggy acknowledges, is why, if this is a term that consumers value, a competing adventure tour company has not arisen to offer a similar tour experience without the offending boilerplate language, potentially at higher cost? I’ll venture an answer in my next post.
[Posted, on Kim Krawiec's behalf, by JT]
Tuesday, May 21, 2013