Friday, August 16, 2013
We begin our online symposium inspired by Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical (Jean Braucher, John Kidwell, and William C. Whitford, eds., Hart Publishing 2013) with four posts next week. In addition to helping edit the book Jean Braucher has also been instrumental in recruiting participants and shaping this symposium. So we at the blog are all very grateful to her.
This post will serve to introduce next week's guest bloggers.
Jay Feinman is Distinguished Professor of Law at Rutgers School of Law‒Camden. He writes and teaches in contracts, insurance law, and torts. His books include Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claims and What You Can Do About It; Law 101: Everything You Need to Know About American Law; and Professional Liability to Third Parties. His contracts scholarship includes articles on relational contract theory (“The Insurance Relationship as Relational Contract and the ‘Fairly Debatable’ Rule for First-Party Bad Faith,” 46 San Diego L. Rev. (2009); “Relational Contract Theory in Context,” 94 Nw. U. L. Rev. 737 (1999), critical legal studies (“Critical Approaches to Contract Law,” 30 UCLA Law Review 829 (1983)), and formation doctrine (“Is an Advertisement an Offer? Why It Is, and Why It Matters,” 58 Hastings L.J. 61 (2006)). In the AALS, Feinman has served as chair of the Section on Contracts and chair of the planning committee for the contracts conference. At Rutgers, he has served as Associate Dean and Acting Dean of the law school and a member of the Rutgers Center for Risk and Responsibility, and he has received every teaching prize awarded by the university.
Links to many of Professor Feinman's publications can be found here.
Alan Hyde is Distinguished Professor and Sidney Reitman Scholar at Rutgers University School of Law, Newark, where he writes mostly about labor, employment, and immigration law. He is a member of the American Law Institute and consultant to the Restatement of Employment Law. He also teaches contracts and discusses contracts in his books Bodies of Law (1997), Working in Silicon Valley (2003), and articles on covenants not to compete and employment contracts that contracts teachers do not read.
Links to many of Professor Hydes publications can be found here.
Kate O'Neill's principal interests are contracts, copyright, legal rhetoric, and law school teaching. She shares the following biographical details:
I am a professor at University of Washington School of Law. I have been teaching Contracts for about 15 years. I started out, copying my colleagues, by using the Dawson casebook. I had first encountered contracts as a student with a much earlier edition of the same book. I embarrassed to admit that I began teaching contracts without much insight into the subject, and I can’t remember exactly when I first discovered Macaulay and relational contracts theory. I certainly had not encountered them in my own legal education, although my four years of commercial practice did perhaps make me susceptible to their insights. But what a relief they were! I have been teaching from Macaulay, et al., contracts: law in Action for many years now.
If you are interested in why we teach contracts as most of us do, you might enjoy a piece I wrote about Richard Posner’s effect on casebooks and law teaching. Rhetoric Counts: What We Should Teach When We Teach Posner, 39 Seton Hall L. Rev. 507 (2009).
Links to many of Professor O'Neill's publications can be found here.
Deborah Post is Associate Dean for Academic Affairs and Faculty Development and Professor of Law at Touro College Jacob D. Fuchsberg Law Center. She began her legal career working in the corporate section of a law firm in Houston, Texas, Bracewell & Patterson, now renamed Bracewell & Guiliani. She left practice to teach at the University of Houston Law School and moved to New York to Touro Law Center in 1987. She has been a visiting professor at Syracuse Law School, DePaul Law School, and State University of New Jersey Rutgers School of Law Newark. She also has taught as an adjunct at Hofstra Law School, UMass Dartmouth and St. Johns University School of Law. Professor Post has written for and about legal education. Among her most notable publications are a book on legal education, Cultivating Intelligence: Power, Law and the Politics of Teaching written with a colleague, Louise Harmon and a casebook in Contract, Contracting Law, with co-authors Amy Kastely and Nancy Ota. She has been a member of the Society of American Law Teachers Board of Governors for ten years and was co-president of that organization with Professor Margaret Barry from 2008-2010.
Links to many of Professor Post's publications can be found here.
We look forward to an engaging first round of posts.
Thursday, August 15, 2013
The WSJ had an interesting article about the effects of noncompete agreements on entrepreneurship. The article quotes contracts prof Alan Hyde of Rutgers University School of Law who notes that while non-competes benefit employers, jurisdictions that enforce them have "slower growth, fewer start-ups, fewer patents and the loss of brains to jurisdictions that don't enforce" them. In California, these non-competes are generally not enforceable unless they are in conjunction with the sale of a business or partnership. Confidentiality agreements, on the other hand, are enforceable. That's why it's puzzling that those who favor noncompetes argue that they are necessary to protect valuable trade secrets. Since most employees have to sign confidentiality agreements anyway as part of their employment - and would likely be prevented from using company trade secrets under state law even if they didn't - it seems that noncompetes are providing a different function which is to make sure that employees, well, don't compete. It's not surprise then that non-competes would have an adverse effect on innovation and entrepreneurship. Most would-be entrepreneurs don't relish the thought of an expensive lawsuit with a former employer. The article states that employers are less likely to bring trade secret misappropriation claims than they are non-compete ones because they are more costly. I think their "costliness" is why confidentiality agreements are a more desirable mechanism for protecting trade secrets than non-competes. Many believe that one of the reasons Silicon Valley exists in California - and not Florida, for example - is because non-competes are not enforceable. I think this is definitely one factor (other reasons include the awesome computer science and engineering departments at UC Berkeley and Stanford, immigration, proximity to the Pacific Rim, the less formal cultural environment in California generally, and a type of historical path dependence).
This symposium marks the publication of Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical (Hart Publishing 2013), a volume edited by Jean Braucher, John Kidwell, and William C. Whitford. Starting next week and continuing for several weeks, this blog will publish entries both by contributors to the book and by others who have engaged with Macaulay’s work in the field of contracts.
Fifty years ago, the American Sociological Review published Macaulay’s Non-Contractual Relations in Business—A Preliminary Study, an empirical examination of the use and, more strikingly, the non-use of contracts in business. One of the 20 most cited articles in the history of ASR, its influence has grown with each passing decade. Macaulay (pictured) has produced an impressive number of other significant articles in contract law, as well as influential work in law and social science, and is the lead author of the casebook, Contracts: Law in Action, Vol. I and II (LexisNexis 3rd Ed. 2010/2011), co-authored by Braucher, Kidwell, and Whitford (introduction available here).
“Bill Whitford, the late John Kidwell, and I wanted to celebrate Macaulay’s contributions to contracts scholarship, particularly his use of law in action and relational perspectives,” explains Jean Braucher, Roger C. Henderson Professor of Law at the University of Arizona. “We were extremely pleased that leading and rising scholars contributed 15 original chapters to the book, everything from theoretical essays to new empirical work to relational critiques of legal doctrine.” Braucher adds that Kidwell, who died in 2012, participated fully in the development of the book and edited several of the chapters.
Kidwell, Whitford, and Macaulay all served for many years on the faculty at the Wisconsin Law School, where the law in action approach is a tradition. Whitford and Macaulay are both emeritus professors there. Macaulay, who joined the Wisconsin law faculty in 1957, has held two named professorships there, serving as the Malcolm Pitman Sharp Professor and Theodore W. Brazeau Professor of Law.
Revisiting the Contracts Scholarship of Stewart Macaulay begins with Non-Contractual Relations in Business, reproduced in full, and then provides extended excerpts from two other significant articles by Macaulay, Private Legislation and the Duty to Read—Business Run by IBM Machine, the Law of Contracts and Credit Cards (1966) and The Real Deal and the Paper Deal: Empirical Pictures of Relationships, Complexity and the Urge for Transparent Simple Rules (2003). The book also includes 15 chapters written by other scholars, Brian H. Bix, David Campbell, Jay M. Feinman, Robert W. Gordon, Claire A. Hill, Charles L. Knapp, Ethan J. Lieb, Li-Wen Lin, Deborah Waire Post, Edward Rubin, Carol Sanger, Robert E. Scott, D. Gordon Smith, Josh Whitford, John Wightman, and William J. Woodward, Jr. The book’s table of contents and preface are available here (giving the title and author of each chapter, briefly describing each chapter, and providing an overview of Macaulay’s career and contributions to contracts teaching).
According to Ken's post, he offered his services as a drafting instructor to two prestigious law schools (Ken has been teaching drating courses every Fall since 2005) and was told that those schools don't offer stand-alone contracts drafting courses. Rather, they teach contracts drafting in the context of courses on "Deals."
Ken has eloquent arguments in favor of stand-alone contracts courses, and the comments sections add further support for his position. He will get no argument here. I agree with Ken that drafting should be a stand-alone course, and I suspect that it is at most law schools. Still, I think there are reasons for teaching drafting as part of a substantive course that Ken does not consider, so I throw them out there:
One of the knocks on contemporary legal education (see, e.g. The Carnegie Report and Best Practices) is that the components of legal education (doctrine, practical skills, ethics) have been compartmentalized such that the students do not learn how to become lawyers in the proper contexts and have difficulties translating theoretical constructs into the actual practice of law. So, in an ideal world, one would learn contracts drafting in the context of a substantive course in which one also learned about the legal and business environments in which real contracts are drafting. Such a course would (again, in an ideal world) also include simulations in which students could learn other practical lawyering skills (client counseling, negotiation, etc.), as well as confront ethical challenges.
In a previous post, we called attention to Deborah Zalesne and David Nadvorney's Teaching to Every Student: Explicitly Integrating Skills and Theory into the Contracts Class, which can be used in a course that covers both doctrine and skills. So, I think the sort of integrated approach that certain, unnamed, prestigious law schools are attempting has its theoretical appeal. For my part, since I have only four credits and fourteen weeks to take studens from zero to Llewellyn, I am grateful that my law school has a separate contracts drafting course that students can take in the second year. That doesn't mean that practical exercises have no place in a first-year contracts course, but given everything else we try to accomplish in that course, we can only offer a taste of drafting in the first year.
Wednesday, August 14, 2013
Joyce Green alleges that two companies doing business as "The Cash Machine" violated the Truth in Lending Act (TILA) by misstating the interest rate on her pay-day loan. Her loan agreement provided for binding arbitration "under the Code of Procedure of the National Arbitration Forum." Although the agreement dates from 2012, the National Arbitration Forum (NAF) had ceased taking consumer cases in 2009, when a district court found it biased it in favor of merchants. When defendants moved to compel arbitration, the Distirct Court found the non-existence of the named arbitral body fatal to the arbitration provision, which it struck. The Distirct Court denied defendants' motion to compel arbitration.
In Green v. U.S. Cash Advance Illinois, LLC , decided July 30, 2013, the Seventh Circuit reversed the Distirct Court and compelled arbitration by a 2-1 vote. Chief Judge Easterbrook, writing for the majority, notes that the arbitration agreement provides only that the arbitration will be governed by the rules of the NAF (the Rules), not that arbitration be in that forum. Those Rules provide for severability -- that is, if any provisions of the Rules are found to be unenforceable, the remainder of the Rules remain in effect. The Rules also contain the following provision:
If Parties are denied the opportunity to arbitrate a dispute, controversy or Claim before the Forum, the Parties may seek legal and other remedies in accord with applicable law.
Judge Easterbrook reads that provision as permitting a judge to appoint an aribter pursuant to the Federal Arbitration Act, 9 U.S.C. § 5. In support of this reasoning, Judge Easterbook cites opinions from the 3rd and 11th Circuits, both of which held that the identity of the arbitral forum is not integral to an arbitration agreement. A court may thus reform an arbitration agreement by appointing an aribter under § 5, which permits a judge to appoint an arbiter if none is specified in the agreement. On Judge Easterbrook's reading of the agreement, that is the case here. Moreover, it would make no sense to conclude, based on the unavailability of the NAF, that the parties had agreed to litigate rather than arbitrate their disputes. It is far more reasonable to construe the agreement as continuing to evidence the parties' consent to arbitration.
Judge Hamilton wrote a long and passionate dissent, which begins:
Despite the surface simplicity of its logic, the majority has actually made an extraordinary effort to rescue the payday lender- defendant from its own folly, or perhaps its own fraud.
The majority’s reasoning departs from the contractual foundation of arbitration. It puts courts in the business of crafting new arbitration agreements for parties who failed to come to terms regarding the most basic elements of an enforceable arbitration agreement. Section 5 of the Federal Arbitration Act need not and should not be read to authorize such a wholesale re-write of the parties’ contract. It certainly should not be read to rescue an arbitration clause on behalf of the clause’s author when the author knew or should have known that its designated arbitrator was unavailable.
In dissenting, Judge Hamilton relies on the Second Circuit's reasoning in In re Salomon Inc. Shareholders’ Derivative Litigation, 68 F.3d 554 (2d Cir. 1995), which leaves the parties in the court system when their arbitration agreement "utterly fails." Here, for Judge Hamilton, the arbitration agreement fails because defendants were either being negligent or deliberately deceptive in invoking an arbitral forum that had been shut down three years earlier for consumer fraud. Judge Hamilton gives little weight to Joyce's alleged "agreement" to the arbitral forum because:
The payday loan agreement that Green signed was certainly a contract of adhesion. Green had no bargaining power over its terms, including the arbitration clause. The idea that she actually agreed, in a subjective sense, to any arbitration clause at all therefore requires some rather heroic assumptions.
Judge Hamilton is unimpressed with the Majority's reading of the arbitration provision. By invoking the Rules, the parties could only have intended to identify NAF as the forum for arbitration since Rule 1(A) states, “This Code shall be administered only by the National Arbitration Forum or by any entity or individual providing administrative services by agreement with the National Arbitration Forum.” [emphasis added] Judge Hamilton reads Rule 48(D) as similarly requiring arbitration either in the NAF or nowhere. The Majority ignores these provisions based on the Rules' severability provision, but severability arises only where specific provisions are found to be unenforceable, and there is no reason not to enforce either Rule 1(A) or Rule 48(D) as between these parties.
As for the Majority's reasoning on Section 5 of the FAA, Judge Hamilton notes that, while Circuit Courts have split on its scope, no court has gone so far as to find "a correctable lapse where a drafter has at least negligently named an arbitration forum that was never available." Judge Hamilton again invokes In re Salmon, in which the Second Circuit refused to name a substitute forum for arbitration when the forum to which the parties had agreed was unavailable. Judge Hamilton rejects the Third Circuit's ruling in Khan v. Dell, Inc., 669 F.3d 350 (3d Cir. 2012), on which the majority relies, as both poorly reasoned and distinguishable. Khan also involved a challenge to NAF arbitration. The case is poorly reasoned, according to Judge Hamilton, because the court ignored clear language in the arbitration agreement that provided that the (unavailable) NAF was to be the exclusive forum for arbitration. The case is distinguishable because there at least the NAF was available in 2004 when the parties entered into their arbitration agreement.
There is more to Judge Hamilton's dissent, and it is all very interesting, but this post is already very long and people interested in the case should read it for themselves. As there is a Circuit split, courts are likely to return to this issue in future cases.
Tuesday, August 13, 2013
After an ugly three-car accident, plaintiffs sued the other drivers, one driver’s employer (Xerox) and a corporation that owned one of the cars (Gelco). Gelco moved for summary judgment dismissing the complaint. That same day, the parties held a mediation that did not resolve the lawsuit. Thereafter, Brenda Greene, the adjuster for Gelco’s insurer called plaintiffs’ counsel to revive settlement negotiations. After a few days of negotiating, plaintiffs’ counsel orally agreed to settle the case. Greene sent a confirmation email message to plaintiffs’ counsel, it read:
Per our phone conversation today, May 3, 2011, you accepted my offer of $230,000 to settle this case. Please have your client executed [sic] the attached Medicare form as no settlement check can be issued without this form.
You also agreed to prepare the release, please included [sic] the following names: Xerox Corporation, Gelco Corporation, Mitchell G. Maller and Sedgwick CMS. Please forward the release and dismissal for my review. Thanks Brenda Greene.
Plaintiffs signed a release on May 4. On May 10, plaintiffs’ counsel sent that release and a stipulation of discontinuance to Gelco. That same day, Gelco’s attorney received an email alert that the court granted Gelco’s motion for summary judgment dismissing the complaint. Gelco’s counsel faxed and mailed a letter to plaintiffs’ counsel "rejecting" the release and stipulation. Gelco’s attorney stated: "there was no settlement consummated under New York CPLR 2104 between the parties, we considered this matter dismissed by the court's decision…dated May 10..."
The issue before the appellate court was whether the email message satisfied the criteria of CPLR 2104 so as to constitute a binding and enforceable stipulation of settlement. Where a settlement is not made in open court, CPLR 2104 provides: "An agreement between parties or their attorneys relating to any matter in an action…is not binding upon a party unless it is in a writing subscribed by him or his attorney."
The appellate court held that the email counted as a writing and a subscription by Gelco’s representative, binding the parties to the settlement. After holding that Greene had apparent authority to bind Gelco to the settlement, the court reasoned:
It is, of course, axiomatic that a letter can be considered "subscribed," since letters are usually signed at the end by the author thereof. However, email messages cannot be signed in the traditional sense. Nevertheless, this lack of "subscription" in the form of a handwritten signature has not prevented other courts from concluding that an email message, which is otherwise valid as a stipulation between parties, can be enforced pursuant to CPLR 2104. * * *
Morever, given the now widespread use of email as a form of written communication in both personal and business affairs, it would be unreasonable to conclude that email messages are incapable of conforming to the criteria of CPLR 2104 simply because they cannot be physically signed in a traditional fashion (see Newmark & Co. Real Estate Inc. v. 2615 E. 17th St. Realty LLC, 80 AD3d 476, 477-478 ["e-mail agreement set forth all relevant terms of the agreement…and thus, constituted a meeting of the minds"]). Indeed, such a conclusion is buttressed by reference to the New York State Technology Law, former article 1, "Electronic Signatures and Records Act," which was enacted by the Legislature in 2002. In the accompanying statement of legislative intent, the Legislature stated in part:
"[This act] is intended to support and encourage electronic commerce and electronic government by allowing people to use electronic signatures and electronic records in lieu of handwritten signatures and paper documents" (L 2002, ch 314, §1).
Section 302(3) of this statute states that an "'[e]lectronic signature' shall mean an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record." Section 304(2) of the statute states that "an electronic signature may be used by a person in lieu of a signature affixed by hand [and] [t]he use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand."
In the case at bar, Greene's email message contained her printed name at the end thereof, as opposed to an "electronic signature" as defined by the Electronic Signatures and Records Act. Nevertheless, the record supports the conclusion that Greene, in effect, signed the email message. In particular, we note that the subject email message ended with the simple expression, "Thanks Brenda Greene," which appears at the end of the email text. This indicates that the author purposefully added her name to this particular email message, rather than a situation where the sender's email software has been programmed to automatically generate the name of the email sender, along with other identifying information, every time an email message is sent (cf. DeVita v. Macy's E., Inc., 36 AD3d 751). In addition, the circumstances which preceded Greene's email message, and in particular, the face-to-face mediation at which settlement was attempted and the subsequent follow-up telephone calls between Greene and the plaintiff's counsel, support the conclusion that Greene intended to "subscribe" the email settlement for purposes of CPLR 2104 (see Newmark & Co. Real Estate Inc. v. 2615 E. 17th St. Realty LLC, 80 AD3d at 477 ["e-mail sent by a party, under which the sending party's name is typed, can constitute a writing for purposes of the statute of frauds"]; see also Naldi v. Grunberg, 80 AD3d 1, 6-13).
Accordingly, we hold that where, as here, an email message contains all material terms of a settlement and a manifestation of mutual accord, and the party to be charged, or his or her agent, types his or her name under circumstances manifesting an intent that the name be treated as a signature, such an email message may be deemed a subscribed writing within the meaning of CPLR 2104 so as to constitute an enforceable agreement.
Forcelli v. Gelco Corp., 27584/08, NYLJ 1202612381868, at *1 (App. Div., 2d, Decided July 24, 2013)
[Meredith R. Miller]
The ever-vigilant Miriam Cherry has turned up another news item for our amusement. We have had reason to comment previously on the Seinfeld episode in which the character "Jerry Seinfeld," played by Jerry Seinfeld (pictured), tries to return a jacket "for spite," explaining that he didn't care for the salesman who sold it to him. But our previous post was a stretch compared to this story from Slate, which is spot on.
According to the report, Patricia Walker sought to return $1.4 million worth of merchandise allegedly purchased at the store by Ms. Walker's now-ex-husband. She alleged that her ex was having an affair with the Neiman Marcus salesperson who sold him the mercandise and that this other woman earned significant commissions from the sales. In seeking to return the goods, Ms. Walker cited spite and Neiman Marcus's generous return policy. When the company balked, she sued and won a settlement, according to Slate.
A gloriously detailed account of the litigation can be found on the Dallas News website here.
RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal
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Russian Presidential Academy of National Economy and Public Administration (RANEPA)
|2||152||Ice Cube Bonds: Allocating the Price of Process in Chapter 11 Bankruptcy
Edward J. Janger, Melissa B. Jacoby,
University of North Carolina (UNC) at Chapel Hill - School of Law, Brooklyn Law School
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Howard M. Wasserman, Dan Markel, Michael McCann,
Florida State University College of Law, University of New Hampshire School of Law, Florida International University (FIU) - College of Law
|5||57||Duties of Love and Self-Perfection: Moses Mendelssohn's Theory of Contract
McGill University - Faculty of Law
|6||57||Mediation at the Intersection with Contract Law: The Settlement Agreement
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Unaffiliated Authors - Independent,
Gus De Franco, Florin P. Vasvari, Regina Wittenberg Moerman,Dushyantkumar Vyas,
University of Toronto - Rotman School of Management, London Business School, University of Toronto - Rotman School of Management, University of Chicago - Booth School of Business
|8||52||The Law and Economics of Norms
Juliet P. Kostritsky,
Case Western Reserve University School of Law,
|9||50||Carve-Outs and Contractual Procedure
Erin A. O'Hara O'Connor, Christopher R. Drahozal,
Vanderbilt University - Law School, University of Kansas School of Law
|10||49||A Theory of Contract Formation
School of Law, University of South Australia
Monday, August 12, 2013
Ninth Circuit Leaves Determination of Arbitrability to the Arbiter in Oracle America v. Myrida Group
The facts of this case are complex and require an understanding of computing that I Iack, but what it seems to come down to is that Myriad Group (Myriad) had some licenses to use Java trademarks and the Java programming language developed by Oracle America (Oracle). The parties dispute the terms of the licenses and as a result Oracle alleges that Myriad had been using the trademarks and the programming language without paying for them, thus infringing upon Oracle's intellectual property rights. Oracle sued in the Northern District of California alleging breach of contract and violation of intellectual property rights, while Myriad sued Oracle in Delaware alleging breach of contract.
Myriad moved to compel arbitration in the Northern District of California pursuant to an arbitration clause that provided for arbitration of any claim relating to intellectual property rights "in accordance with the rules of the United Nations Commission on International Trade Law (UNCITRAL) (the 'Rules') in effect at the time of the arbitration as modified herein . . . " The District Court granted Myriad's motion with respect to Oracle's breach of contract claim only, finding that the UNCITRAL Rules do not provide the arbitrator with exclusive jurisdiction to determine the scope of its own jurisdiction.
On July 26, 2013, the Ninth Circuit issued its opinion in Oracle America, Inc. v. Myriad Group A.G. and reversed the District Court’s partial grant of Myriad’s motion to compel arbitration.
The Ninth Circuit began by noting that, while public policy favors arbitration agreements, there is a presumption that courts should decide which issues are arbitrable. Nonetheless, a court should grant a motion to compel arbitration to decide issues of arbitrability if the parties’ arbitration provision “constitutes clear and unmistakable evidence that the parties intended to arbitrate arbitrability.” While the Ninth Circuit had never decided whether UNCITRAL’s Rules constitute such evidence, both the Second Circuit and the D.C. Circuit had concluded that the 1976 version of the UNCITRAL Rules constitutes clear and unmistakable evidence that the parties to an agreement governed by the Rules intended to arbitrate questions of arbitrability. Although the 2010 version of UNCITRAL’s Rules might have been at issue in this case, the Ninth Circuit ruled the differences betwee the 1976 and 2010 versions do not affect the outcome on this issue.
The Court remanded the case to the District Court for proceedings consistent with its opinon.
Miriam Cherry shared with the Contracts Prof world this story from the UK's The Telegraph about a man who got sweet, sweet, SWEET revenge on a credit card company. According to The Telegraph, Dimitry Argakov received a credit card offer from Tinkoff Credit Systems (Tinkoff). He scanned the offer, changed some of the terms to elimnate all fees, interest and credit limits. According to the new terms. Tinkoff would be fined 3 million rubles each time it violated the terms and 6 millio rubles for any attempt to terminate the agreement.
Tinkoff seems to have approved the credit card without reading the altered agreement, and a court has held that the company is bound by the terms of the altered agreement. The issue came before a court when Tinkoff sued Mr. Argakov for 45,000 rubles worth of fees and fines not altered in the agreement. A Russian judge found Mr. Argakov liable for 19,000 rubles but upheld the altered agreement. But now Mr. Argakov is bringing his own suit seeking 24 million rubles in damages because Tinkoff has not hornored the terms of the agreement. Tinkoff is planning to counterclaim for fraud.
Pace University School of Law's James Fishman suggests that Mr Argakov ought to be careful about overplaying his hand. He cites Hand v. Dayton-Hudson, 775 F.wd 757 (6th Cir. 1985). In that case, Mr. Hand, an attorney due to be terminated by his employer, was asked to sign a release in which he promised not to sue his employer in return for a payment of $38,000. Hand objected on the ground that he was entitled to that sum in any case. When Dayton-Hudson nonetheless proferred the release, Hand altered it to except from the release claims relating to age discriminatino and breach of contract. Hand did so extremely cleverly, making the altered release look identical to the original.
When Hand sued base on the claims excepted from the release, Dayton-Hudson alleged fraud. The District Court agreed with Dayton-Hudson, reformed the release to return it to its original form and dismissed Hand's complaint. The Sixth Circuit affirmed, reasoning as follows:
The defendant was excused from not having read the new document because the general rule of being held responsible for contracts one signs, even if one has not read them, "is not applicable when the neglect to read is not due to carelessness alone, but was induced by some stratagem, trick, or artifice on the part of the one seeking to enforce the contract." Komraus Plumbing & Heating, Inc. v. Cadillac Sands Motel, Inc., 387 Mich. 285, 290, 195 N.W.2d 865 (1972) (citing International Transportation Ass'n v. Bylenga, 254 Mich. 236, 239, 236 N.W. 771 (1931)). Hand carefully retyped the release in such a way that Dayton-Hudson's agent Harms would never expect that changes were made. The failure to read most definitely resulted from Hands' clever scheme, and, accordingly, does not bar Dayton-Hudson from challenging the validity of the fraudulent release.
The reformation remedy was available under Michigan law because Dayton-Hudson's mistake was caused by Hand's conduct.
Mr. Argakov had better hope that Tinkoff does not seek a change of venue to Michigan.
Friday, August 9, 2013
This year, my colleauges at the Valparaiso University Law School and I, with the help of our librarian, Jeese Bowman (pictured), are teaching with the aid of this LibGuide. The LibGuide contains all of the cases that we will use in our courses, plus links to Restatement, UCC and CISG sections, as well as tabs through which students can find links to excercises, past exams and model answers, study guides, blog posts and other information that might prove useful to our students.
The move to the LibGuide was motivated by a number of considerations. First, we have all used different casebooks and find a great deal to praise and admire in all of them. However, no single casebook can be perfect for each contracts professor's individual needs. I have a roster of cases that I think work best for the material I want to convey to my students. No single casebook includes all of the cases I want to use, and the casebook authors sometimes edit their cases slightly differently than how I would edit them. My colleagues and I edited the cases posted on the LibGuide to suit our teaching needs, and if we differ, we can always put up multiple versions.
Second, even if I could find the perfect casebook that had every single case I want to teach and all the relevant ancillary materials, I still could not justify the expense to my students. Casebook prices are simply too high, since we can deliver the same materials through the LibGuides. I should note that, because I ban laptops and other technology from my classroom, I do require that the students buy xeroxed copies of the edited cases. That will run them $10 a piece for the first seven-week minimester.
Yup! That's not a typo! We are teaching contracts in two, two-credit, seven-week "minimesters," a topic about which I will have a lot to say in future posts.
The LibGuide is still a work in progress. Each week, I send Jesse more materials to add to the LibGuide. This is another advantage of the LibGuide over print course materials. It is easily expanded; easily revised; easily updated.
The final advantage of the LibGuide is (dare I say it?) . . . LibGuides are fun. Ask any librarian! And believe you me, librarians know how to have fun. They are fun for the same reason that this blog is fun. You can follow links that interest you, and they often take you to unexpected and illuminating places. We hope that our LibGuide will grow and prosper and that it will provide a portal through which our students can wander cautiously, tentatively until [whoosh!] they fall down a rabbit hole and emerge in the Wonderland of contract law.
Wednesday, August 7, 2013
This post responds to the thoughtful comments offered by my co-blogger Jeremy Telman in his post about my op-ed. As he hinted, an op-ed provides a great forum for raising issues to a larger, non-academic audience but it is hardly the place to be thorough. Jeremy’s post gives me an opportunity to briefly touch upon the issues that I address in my forthcoming book. (Note: If you use the promotion code 31998 and click here you get a 20% discount).
Jeremy raised the issue of the inadequacy of doctrinal solutions. In fact, all of my proposed solutions are doctrinal. There are undoubtedly more effective way to achieve societal changes, but doctrine obviously matters and right now, the law of wrap contracts is a mess. It’s in a mess in a lot of different ways, yet the courts seem to be in denial, repeating the refrain that wrap contracts are “just like” other contracts. This is simply not so. Much of my scholarship looks at how technology shapes behavior and argues that courts should consider the role of technology when they interpret and apply the law. With respect to wrap contracts, courts ignore the ways that digital form affects both user perception and drafter behavior (i.e. overuse). My proposed solutions seek to make the effects of the digital form part of the court’s analysis.
One of these solutions, briefly mentioned in the op-ed and discussed in the book and elsewhere, is a “duty to draft reasonably” which acts to counter the burden of the “duty to read.” The duty to draft reasonably has very little to do with getting consumers to read contracts – it’s about getting companies to ask for less by making it less palatable for them to ask for more. As I explain in great length in my book, there are plenty of reasons why I am not a big fan of the duty to read –and why I think trying to get consumers to read is an inadequate solution. Consumers shouldn’t be expected to read online contracts, at least, not as they are now drafted. Reading wordy online contracts is not efficient and would hurt productivity. It’s also useless, since consumers can’t negotiate most terms. Instead, we should try to get companies to present their contracts more reasonably/effectively. We should require them to signal the information in an effective manner, the way that road signs signal dangerous conditions. For example, I propose using icons, such as the danger icon that accompanies this post, to draw consumers’ attention to certain information. Currently, courts construe “reasonable notice” to mean something other than “effective notice” – and this places too heavy a burden on consumers to ferret out information. A “duty to draft reasonably” shifts the focus from the consumer's behavior to the drafting company’s behavior. Could the company have presented the information in a better way? And if so, why didn’t it? This is a question that courts used to ask with paper contracts of adhesion – but for some reason, they have moved away from this with wrap contracts.
A related doctrinal adjustment that I propose in my book is specific assent. For terms that take away user rights (which I refer to as “sword” and “crook” provisions), the user should be forced to actively assent by, for example, clicking on an icon. The idea here is also not to get users to read, but to hassle them! Imagine having to click to give away each use of your data. What a pain – and that’s the point. The incorporation of a transactional hurdle or burden damages the relationship between the website and the user – and the more hurdles, the more annoying it becomes to complete the transaction.
Both proposals try to signal the type of company to the consumer. A website full of danger icons sends a very different message than one with only one or two danger icons. A website which requires a user to click forty times to complete a transaction won’t be around too long.
As for better solutions, there are ways to address specific problems by using third party tools and I am all in favor of technical solutions. For example, you can use duckduckgo or Tor to try to cover your tracks. But technical solutions have their shortcomings or limitations because they only address one part of the larger problem and it gets to be a bit like whack-a-mole as technology shifts and improves.
Ultimately, any comprehensive solution has to be implemented by the government – either the legislature or the judiciary. But it’s up to us, the consumers, to raise the issue as one needing a solution and we can do this through the democratic process and by marching with our feet. I agree with Jeremy that there are problems with collective action – there are coordination and resource issues as well as cognition limits, but that doesn't mean we shouldn't do anything. I don’t want to get into the thicket of that in this already too-long post, but I address this issue at great length in my book and propose that one way to deal with this is by reconceptualizing unconscionability.
Consumer advocacy groups and the websites referred to by Jeremy in his post certainly help with the collective action problem. They inspire us to get off the couch. Not easy when companies make it so comfortable for us to do nothing but that’s the nature of the beast here – it’s the same in other areas where consumers face the corporate marketing machinery and its expertise in manipulation. As Kate O'Neill notes in the comments to Jeremy's post, we contracts profs have a role which is to point out the inconsistencies and contradictions in judicial application of doctrine and propose better ways to evaluate legal issues. Some may scoff that judges don’t read law review articles --or books written by academics-- but it’s our job to keep trying.
Tuesday, August 6, 2013
A few days ago, my co-blogger Nancy Kim (pictured) posted a link to her op-ed in the Sacramento Bee entitled Why do we sign away our Internet Right to Privacy? Today, I would like to take her to task for not solving the world's problems within the confines of an op-ed.
The comments on her op-ed are unusually knowledgeable and interesting as online comments go, so kudos to the readers of the Sacramento Bee, and they anticipate some of my remarks below.
As I told Nancy (and I expect that she will return to weigh in on the subject) I was disappointed with her proposed remedies to the problem of online form contracts which include hidden terms that compromise privacy rights. In the op-ed, she offers two suggestions: first, that courts should closely scrutinize the terms of contracts of adhesion for reasonableness; and second that we consumers should band together and voice our opposition to form contracts that deprive us of our privacy rights by grumbling about or boycotting (at least for a day) the websites that use such contracts. Neither of these proposals strikes me as all that promising, and I know from having read Nancy's other writings that she has better ideas.
With respect to courts, Nancy suggests that the "duty to read" that the judiciary currently imposes on consumers ought to be offset by companies' "duty to draft reasonably." Nancy contends that this would constitute a more evenhanded approach to reasonableness. I'm sold; consumer advocates are sold; but I just don't see even the vaguest glimmer of hope that courts will move in such a direction. The Supreme Court's recent arbitration decisions suggest that courts understand reasonableness as anything that promotes the agenda of the chamber of commerce, so long as it falls short of consigning orphans to lives of indentured servitude. And the trend towards Dickensian understandings of commercial reasonableness is in my view heading in the direction of the 19th century robber barons and away from the world of Judges like Skelley-Wright and Traynor who would actually shape the law with the perspectives of ordinary consumers in mind.
From Grumbling to Boycotts
Nancy sensibly suggests that we consumers should not expect courts to do all the heavy lifting. Consumers need to step up as well, either by complaining loudly on websites like Facebook and Twitter so that other users will learn about those sites' privacy policies and how much they suck, or by writing to members of Congress or by (heaven forfend!) staying away from the site for a few days in an organized way so that the site gets the message that consumers care about privacy. To all of this I say, "meh." I don't think people are sufficiently motivated to organize on these subjects, and I don't think a write-in campaign to either the websites themselves or to politicians will have much effect. Zev Eigen raises a number of questions in his comment on the Sacramento Bee website. His comments are a bit cryptic, but I think he is suggesting that people might be willing to sacrifice a shocking amount of privacy in exchange for the ability to "like" their sister-in-law's cousin's picture of her neighbor's newborn. But Zev, if you are out there, feel free to elaborate.
I'm not trying to show Nancy up here -- I'm not pretending that I know of solutions to the problem of which she is unaware. I learned these solutions from Nancy and her ilk (e.g., the Boilerplate crowd and the Seduction by Contract crowd). So, first, two of the comments on the Sacramento Bee website reference privacy-protective alternatives to mainstream websites. I literally learned about these things from Nancy and Dan Barnhizer in comments posted on this very blog. My recently remedied ignorance suggests that Nancy could do a lot of good by foregrounding the message that there are (at least sometimes) alternatives to the old stand-bys (I'm looking at you Google).
The other solution is to let the invisible hand help us to overcome the group action problem that prevents our grumbling and boycotting from having much force. I believe there already are websites that help people compare the terms of service of various providers. How about an online version of something like Consumer Reports that does nothing but compare companies' boilerplate terms. Are you looking to get a new phone contract? Terms of Servitude (e.g.) will tell you which companies' terms are most rapacious. Would you like to connect with your friends and "friends," without revealing to advertizers or others your addiction to websites about the real lives of the people on Jersey Shore? Keep Out (e.g.) could be a website devoted to comparing the privacy policies of the various competitors in that field. Such websites could be money-making propositions or they could be wikis -- or both I suppose. Either way, they would be a far more powerful tool for group action (methinks) than the aggregated grumbling that Nancy advocates.
Perhaps once I get her book, Wrap Contracts (OUP 2013), I will see that she has quite a bit to say on this topic.
Monday, August 5, 2013
Ars Technica provides a nice summary of the state of affairs in the case of the New York City dentist who attempted to contract around the criticism of her patients. It even includes a shout out to law profs Eric Goldman (Santa Clara) and Jason Schultz (Berkeley). Open wide, here's a taste:
A lawsuit regarding a dentist and her ticked-off patient was meant to be a test of a controversial copyright contract created by a company called Medical Justice. Just a day after the lawsuit was filed, though, Medical Justice backed down, saying it was “retiring” that contract.
Now, more than a year after the lawsuit was filed, the case against Dr. Stacy Makhnevich seems to have turned into a case about a fugitive dentist. Makhnevich is nowhere to be found, won’t defend the lawsuit, and her lawyers have asked to withdraw from the case.
In 2010, Robert Lee was experiencing serious dental pain. He went to see Dr. Stacy Makhnevich, the “Classical Singer Dentist of New York,” in part because she was a preferred provider for his dental insurance company. Before Makhnevich treated him, she asked him to sign a contract titled “Mutual Agreement to Maintain Privacy.”
The contract worked like this: in return for closing “loopholes” in HIPAA privacy law, Lee promised to refrain from publishing any “commentary” of Makhnevich, online or elsewhere. The contract specified that Lee should “not denigrate, defame, disparage, or cast aspersions upon the Dentist.”
And the kicker: if he did write such reviews, the copyright would be assigned to the dentist. She’d own it.
This “I own your criticism” contract would soon be put to the test, because Lee was an extremely unhappy customer. “Avoid at all cost!” he wrote in a one-star Yelp review. “Scamming their customers! Overcharged me by about $4000 for what should have been only a couple-hundred dollar procedure.”
The forms Makhnevich was using, provided to her by a company called Medical Justice, were already the subject of considerable controversy. Two tech-savvy law professors, Eric Goldman of Santa Clara University and Jason Schultz of UC Berkeley, launched a website to fight the contracts, which garnered considerable press. Former Ars Technica writer Tim Lee chronicled his own experience with a Philadelphia dentist who was using the contract.
The “Mutual Agreement” was essentially a work-around to try to stifle patient reviews. Doctors, or any other business, who believe that an online review is, say, defamatory, can go ahead and sue a reviewer—but they don’t have an easy way to get the review down. Review sites like Yelp are protected by Section 230 of the Communications Decency Act, which immunizes the platforms hosting such user-generated content, as long as they don’t edit it heavily. Review sites in the US don’t typically remove posts when a business claims defamation.
Copyright, however, is a different story. Section 230 doesn’t cover intellectual property laws, and Yelp has to react quickly to claims that a user has violated copyright law.
Users of the Medical Justice form were counting on that, and it worked. In September 2011, staff members of Dr. Makhnevich sent DMCA takedown notices to Yelp and DoctorBase. That was followed up with invoices sent to Robert Lee, saying he owed $100 per day for copyright infringement. Accompanying letters threatened to pursue “all legal actions” against him.
Of course, the dentist's disappearance and considerable negative press leads Paul Levy of Public Citizen to remark:
“It’s quite possible that the consequence of her having this contract is that she had to give up her dental practice,” said Levy. “It’s the Streisand effect gone bonkers.”
Yes, indeed. More from Ars Technica here.
[Meredith R. Miller]
Sunday, August 4, 2013