Friday, November 29, 2013
Craig Crockett's law firm had a billing dispute with LexisNexis (Lexis). but his firm's agreement with Lexis had an arbitration clause. Crockett realized that arbitration of his claim against Lexis as individual claim would be economically unfeasible, so he sougth to create a nationwide class of similarly situated Lexis customers. The arbitration clause itself was silent about the availability of class claims. In 5 Reed Elsevier, Inc. v. Crockett, the Sixth Circuit affirmed the District Court's finding that arbitration clause does not permit class claims.
Crockett's basic claims is that, although his firm was to be charged a monthly fee for unlimited use of certain Lexis databases, and an additional fee for the use of other databases, Lexis charged him for the use of databases that were not identified as extras. He seeks to bring claims for fraud, negligent misrepresentation, breach of contract, negligence, gross negligence, unjust enrichment, and violation of New York's consumer protection laws on behalf of classes consisting of law firms using Lexis services and their clients. On behalf of the two classes, Crockett sought damages in excess of $500 million.
Lexis responded to the claim with a suit in federal District Court seeking a declaration that the arbitration agreement did not allow for class arbitration. The District Court granted the declaratory judgment sought. Crockett objected that the issue of whether or not classwide arbitration was available should have been put to the arbiter. As the Sixth Circuit explained, that issue turns on whether it is a "gateway" or a "subsidiary" question. There is a presumption in favor of courts answering gateway questions, while subsidiary questions should presumptively be reserved to the arbiter.
Alas, the Supreme Court has yet to decisively address whether classwide arbitrability is a gateway or subsidiary question. While a plurality of the Justices found the issue to be susbidiary in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003), the Court more recently acknowledged that it had not yet determined whether or not classwide arbitrability is a gateway question. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 n.2 (2013). But in other recent cases, Stolt-Nielsen and Concepcion, the Supreme Court has characterized the difference between bilateral and class arbitration as "fundamental" and thus has indicated fairly strongly that the issue is a gateway question.
The Sixth Circuit cited various reasons for assigning "gateway" status to the question of classwide arbitration and concluded that "whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved 'for judicial determination unless the parties clearly and unmistakably provide otherwise'" (citing Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (2002)). The Court then reasons that "the principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it." Because the consequences of class arbitration are "momentous," the Sixth Circuit reasoned, an arbitration agreement must include class arbitration in order for a court to find that the parties have agreed to it.
To which I say, where is the contra proferentem canon when a consumer needs it? The agreement is silent on the issue and thus unquestionably ambiguous. The consequences are equally momentous on both sides, since the Sixth Circuit acknowledges that Crockett's claims are not worth bringing as an individual arbitration. It also characterizes the contract as one of adhesion. So it was entirely within Lexis's powers to avoid the ambiguity and completely beyond Crockett's power to remedy it. In such cases, courts should invoke contra proferentem and interpret the agreement in favor of the non-drafting party.
Crockett also argued that the arbitration clause is unconscionable, and the Sixth Circuit seemed to agree that, substantively, it's a lousy agreement. However, elements of procedural unconscionability are lacking, and Crockett had the option of using Westlaw (which apparently has no arbitration clause -- for now). This is likely a correct application of the law but it also illuminates a central tension in unconscionability doctrine. In order to show that substantive unconscionability exists, one has to show that the terms are outrageously lopsided in favor of the drafting party "by the business standards and mores of the time and place." But if one can make such a showing, then one loses on the procedural unconscionability prong because one then could have chosen to go with a competing business. And if all of the businesses in the market have equally one-sided terms, then one cannot meet the standard for substantive unconscionability.
Thursday, November 28, 2013
Theodoros Chiou, On Royalties and Transfers without (Monetary) Consideration -- Looking for the "Magic Formula" for Assessing the Validity of Renumeration Clauses of Copyright Transfers under French Copyright Law. 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 585 (2013)
Louise Longdin & Phen Hoon Lim, Inexhaustible Distribution Rights for Copyright Owners and the Foreclosure of Secondary Markets for Used Software, 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 541 (2013)
Michael Pressman, The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate, 7 Va. L. & Bus. Rev. 651 (2013)
Thomas J. Lilly, Jr. Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a unified Theory. 92 Neb. L. Rev. 86 (2013)
Andrea M. Matwyshyn, The Law of the Zebra. 28 Berkeley Tech. L.J. 155-225 (2013)
Debra Pogrund Stark, Jessica M. Choplin & Eileen Linnabery, Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis. 46 Ind. L. Rev. 797-847 (2013) [and check out Kenneth Ching's review of this article here]
George G. Triantis, Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design. 18 Stan. J.L. Bus. & Fin. 177 (2013)
William Wood, It Wasn't an Accident: The Tribal Sovereign Immunity Story, 62 Am. U. L. Rev. 1587 (2013)
Wednesday, November 27, 2013
Today’s mini-review is of Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis, 46 Ind. L. Rev. 797 (2013), by Debra Pogrund Stark, Dr. Jessica M. Choplin, and Eileen Linnabery.
Apparently, many real estate contracts limit buyers’ remedies to return of earnest money, and many courts enforce such limitations. The problem is that if a buyer’s only remedy for breach of contract is the return of earnest money, then the seller hasn’t really bound himself to anything. If the seller doesn’t want to perform, all he has to do is return the earnest money. This encourages the kind of strategic behavior that contracts are supposed to prevent. For example, a seller may agree to sell real estate, but if the property's market value increases, the seller can breach the contract, return the earnest money, and sell the property to a second buyer at a higher price. The seller essentially gets to speculate on the buyer's dime.
Further, many buyers don’t understand the meaning of these limitation of remedy clauses, even if they read them. The authors conducted a study which suggests more than a third of people who read a limitation of remedies clause fail to comprehend that their remedies have been limited. The authors use this finding to challenge some courts’ reasoning that buyers knowingly consent to the limitation of their remedies.
The authors offer several reforms, and two are particularly interesting: (1) enacting legislation that prohibits limiting buyers’ remedies to the return of earnest money, and (2) replacing the exacting standards of unconscionability with a "reasonable limitation of remedy” test similar to that used in evaluating liquidated damages.
This article is state-of-the-art in its use of empirical research to aid legal analysis. It not only provides interesting data, but it also marshals that data against flimsy intuitive arguments still common wherever people talk about contracts.
[Image by thinkpanama]
Tuesday, November 26, 2013
Monday, November 25, 2013
The U.S. Supreme Court is scheduled to hear oral arguments on December 2, 2013 in BG Group PLC v. Republic of Argentina. Links related to the case can be found on the SCOTUSblog, including this fabulous introduction to the case from Professor Diane Marie Amann (pictured), the Emily and Ernest Woodruff Chair in International Law at the University of Georgia School of Law. The issue in the case is whether, in disputes involving a multi-staged dispute resolution process, a court or the arbitrator determines whether a precondition to arbitration has been satisﬁed.
The International Dispute Resolution Committee of the DC Bar's International Law Section, in cosponsorship with the American Society of Internatioanl Law's Howard M. Holtzmann Research Center for the Study of International Arbitration and Conciliation and the Washington Foreign Law Society, and in cooperation with the International Arbitration Committee of the American Bar Association's Section of International Law and the International Committee of the American Bar Association's Section of Dispute Resolution, will host a luncheon program to discuss the case immediately following the oral argument.
- George Bermann, Professor, Columbia Law School, and Chief Reporter for the forthcoming Restatement on International Commercial Arbitration
- Janis Brennan, Partner, Foley Hoag LLP, and Vice-Chair, DC Bar International Dispute Resolution Committee
- Jean Kalicki, Partner, Arnold & Porter LLP (Moderator)
Sunday, November 24, 2013
In California and a dozen other states, it is becoming increasingly popular to have solar panels installed on private properties to reduce household electric bills. In addition to potentially significant energy savings, solar panels also help private parties mitigate climate change at the very local level. However, solar panels are expensive. Instead of buying them outright (an average-size residential system costs about $35,000), many consumers choose to lease the systems instead. This option typically entails no upfront costs and, as many solar panel providers tout, “low monthly rental fees” that are supposedly offset by utility bills savings and the avoidance of maintenance and upgrading otherwise associated with individually owned systems.
So is this a contractual win-win situation? Not necessarily so. Solar panel leases typically comprise terms that may either surprise the unwary consumer or turn out to be more favorable to the solar panel owners than the homeowners in the long run.
For example, state or federal tax benefits, renewable energy credits sold to companies to offset carbon emissions, and state or utility cash incentives go to the solar panel owners and thus not the leasing homeowners. Some contracts contain escalator clauses increasing the initially low lease payments over time. What is also often left unsaid, at least upon initial conversations with solar panel providers, is that if a household already has low electricity bills, leases structured as is often typically the case may not pay at all or be financially beneficial enough to justify the risks inherently involved in transactions between consumers and sophisticated energy company for something as new and technologically risky as solar electric panels. This risk is enhanced by the fact that the contract duration used by many California solar panel providers is no less than twenty years. Much could happen over two decades in relation to both the technical and financial aspects of these types of contracts: technology could (and likely will) change so that in the years to come, more effective systems are developed that could have produced even greater benefits for homeowners then tied to contracts for “old” technology. Utilities could reduce their electric rates so that the leases are not as commercially viable anymore. State and federal subsidies and other rules could change the entire energy field. Could consumers down the road prevail on an argument that imposing contracts of such durations in field so rapidly evolving is sufficiently draconian to be unconscionable? Probably not.
In California as in many - if not most - other states, unconscionability consists of both procedural and substantive elements and are evaluated on a sliding scale. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to, among other factors, unequal bargaining power and the lack of meaningful choice. Substantive unconscionability pertains to the fairness of the actual terms of an agreement and to assessments of whether these terms are overly harsh or one-sided. However, substantive unconscionability “turns not only on a ‘one-sided’ result, but also on an absence of ‘justification’ for it.” Several problems thus abound for consumers attempting this argument. First, no reasonable argument can be made that leasing solar panels rises to the level of “needed services” or “life necessities” that even perceivably liberal California courts have called for in connection with the lack-of-choice prong. Second, consumer choice does exist here: homeowners could, for example, simply not rent the panels if not sure of the ultimate advantageousness of the deal. They could buy the systems outright instead, or ask their utility providers if it is possible to increase the percentage of household power purchased from renewable sources if interested in acting on climate change. Substantively, twenty years is a long time, but far from uncommon in contractual contexts. Finally, the solar panel companies have an arguably justified cause for requiring a twenty-year duration, namely installing the equipment at no upfront payment, servicing it over years, and the chance to recover a good return on it.
Solar power is one of many solutions that could prove viable in mitigating climate change. In a nation with as much annual sunshine as the United States, solar power will hopefully quickly become much more prevalent than is currently the case and help us as a nation become more energy independent. Consumers may be well able to obtain current and significant energy savings if operating solar systems on their properties. But consumers should realize that twenty-year leases constitute a significant legal commitment that will be difficult, if not impossible, to avoid if better technological solutions should be discovered in the next years to come.
Myanna Dellinger, JD, MA, Assistant Professor of Law, Western State College of Law
I want to thank all the experts who participated in last week's symposium on WRAP CONTRACTS: FOUNDATIONS AND RAMIFICATIONS . They raised a variety of issues and their insights were thoughtful, varied and very much appreciated. I also want to thank Jeremy Telman for organizing the symposium and inviting the participants.
Today, I’d like to respond to the posts by Michael Rustad, Eric Zacks and Theresa Amato. Eric Zacks emphasizes the effect that form has on users, namely that the form discourages users from reviewing terms. Zack notes that contract form may be used to appeal to the adjudicator rather than simply to elicit desired conduct from the user and that forms that elicit express assent - such as “click” agreements - help the drafter by aiding “counterfactual analysis surrounding the ‘explicit assent’” issue. In other words, drafters may use contract forms to manipulate adjudicator’s decisionmaking and not necessarily to get users to act a certain way. (This is a topic with which Zachs is familiar, having just written a terrific article on the different ways that drafters use form and wording to manipulate adjudicators’ cognitive biases).
Both Michael Rustad and Theresa Amato focus, not on form, but on the substance of wrap contracts – the rights deleting terms that contract form hides so well. Amato comes up with an alternative term to wrap contracts – online asbestos – to highlight the not-immediately-visible damage caused by these terms. As a consumer advocate and an expert on how to get messages to the general public, Amato understands the need to overcome the inertia of the masses by communicating the harms in a way that can drown out the siren call of the corporate marketing masters. So yes, a stronger term may be required to jolt consumers out of their complacency although the real challenge will be getting heard and beating the marketing masters at their own game.
Michael Rustad notes that my doctrinal solutions fall short of resolving the problem of predispute mandatory arbitration and anti-class action waivers. He’s right, of course, although I think reconceptualizing unconscionability in the way I propose (by presuming unconscionability with certain terms unless alternative terms exist or the legislature expressly permits the term) would reduce the prevalence of undesirable terms including mandatory arbitration and class-action waivers. Rustad, who has considerable expertise on this subject, mentions that many European countries are further along than we are in dealing with unfair terms. Many of those jurisdictions, however, also have legislation which limits class actions, tort suits or damages awards. In addition, they don’t have the same culture of litigation that we do in this country. Wrap contracts have their legitimate uses, such as deterring opportunistic consumer behavior and enabling companies to assess and limit business risks. In order to succeed, any proposal barring contract terms or the enforceability of wrap contracts must also consider those legitimate uses.
I believe there is a place for wrap contracts and boilerplate generally but their legitimate uses are currently outweighed by illegitimate abuses of powers. Wrap contract doctrine has moved too far away from the primary objective of contract law – to enforce the reasonable expectations of the parties-- and my solutions were an attempt to move the train back on track. My focus was on doctrinal solutions but the problems raised by wrap contracts are complex and my solutions do not foreclose or reject legislative ones. I’m a contracts prof, so my focus naturally will be on contract law solutions (if you have a hammer, everything looks like a nail, I guess). Doctrinal responses have the advantage of flexibility and may be better adapted to dynamic environments than legislation which can be quickly outdated when it comes to technology or business practices borne in a global marketplace.
Admittedly, when it comes to wrap contracts, doctrinal flexibility hasn’t really worked in favor of consumers, but that only makes it more important to keep trying to sway judicial opinion. I know there are those who question whether judges read legal scholarship, but I know that there are many judges (and clerks) who do. The case law in this area has spiraled out of control so that it makes no sense to the average “reasonable person” and has opened the door to the use of wrap contracts that exploit consumer vulnerabilities.
My book was not intended as a clarion call to rid the world of all wrap contracts; rather, it was intended to point out how much damage wrap contracts have done, how much more they can do, and to provide suggestions on how to rein them in and use them in a socially beneficial manner.
I’m grateful to have had the opportunity to hear the insightful comments of last week’s highly respected line-up of experts and to share my thoughts with blog readers.
Friday, November 22, 2013
We remind our readers that the Ninth International Conference on Contracts will be held next February in Miami. All the details can be found here. Here's the main information:
The 9th Annual Conference on Contracts
February 21-22, 2014
The 2014 conclave will be hosted by
St. Thomas University School of Law.
Deadline is Monday, December 16, 2013.
Proposals submitted earlier will be accepted on a rolling basis. Proposals submitted after the deadline will be accepted on a space-available basis. Submissions should be directed to:
We now have a list of confirmed participatnts; they are:
Kristen Adams – Stetson University
Bader Almaskari - University of Leicester, England
Reza Baheshti - University of Leicester, England
Wayne Barnes – Texas A&M University
Daniel Barnhizer – Michigan State University
Thomas Barton – California Western School of Law
Shawn Bayern – Florida State University
Amy Boss – Drexel University
Steve Callandryllo – University of Washington
Miriam Cherry – University of Missouri
Kenneth Ching – Regent University
Neil Cohen – Brooklyn Law
Gerrit De Geest – Washington University School of Law
Sidney Delong – Seattle University
Scott Devito – Florida Coastal School of Law
Zev Eigen – Northwestern University School of Law
Larry Garvin – Ohio State University
Katie Gianasi – Husch Blackwell L.L.P.
Jim Gibson – University of Richmond
Ariela Gross – USC Gould
Nancy Kim – Cal Western University
Christina Kunz – William Mitchell College of Law
Lenora Ledwon – St. Thomas University
Joasia Luzak – University of Amsterdam
Kingsley Martin – KM Standards
Jennifer Martin – St. Thomas University
John Mayer – CALI
Murat Mungan – Florida State University
Dr. John Murray – Duquense University
Marcia Narine – St. Thomas University
Wendy Netter Epstein – DePaul University
Karl Okamoto – Drexel University
Joe Perillo – Fordham University
Amir Pichhadze – University of Michigan (SJD Student)
Michael Pinsof - Attorney
Lucille Ponte – Florida A&M University, College of Law,
Deborah Post – Touro Law Center
Michael Pratt – Queens University
Cheryl Preston – Brigham Young University
Val Ricks – South Texas College of Law
Roni Rosenberg – Carmel Academic Center, Law School, Israel
Linda Rusch – Gonzaga University
Mark Seidenfeld – Florida State University
Gregory Shill – University of Denver
Frank Snyder – Texas A&M University
Jeremy Telman – Valparaiso University
David Tollen – Adili & Tollen, L.L.P.
Manuel Usted – Florida State University
Robin West – Georgetown University
Robert Whitman – University of Connecticut
Eric Zacks – Wayne State University
Deborah Zalesne – CUNY School of Law
Candace Zierdt – Stetson University
For more information about the Conference contact lead conference organizer:
Professor Jennifer S. Martin (pictured)
at (305) 474-2420, or via email at firstname.lastname@example.org
Our seventh guest blogger, Theresa Amato, is the executive director Citizen Works which she started with Ralph Nader in 2001. After earning her degrees from Harvard University and the New York University School of Law, where she was a Root-Tilden Scholar, Amato clerked in the Southern District of New York for the Honorable Robert W. Sweet. She was a consultant to the Lawyers Committee for Human Rights (Human Rights First) and wrote an influential human rights report on child canecutters in Haiti and the Dominican Republic. She then became the youngest litigator at Public Citizen Litigation Group, where she was the Director of the Freedom of Information Clearinghouse in Washington D.C. In 1993, Amato founded the nationally-recognized, Illinois-based Citizen Advocacy Center and served as its executive director for eight years. She currently serves as its Board President. Most recently, she has launched Fair Contracts.org to reform the fine print in standard form contracts. In 2009, The New Press (New York) published her book, Grand Illusion: The Myth of Voter Choice in a Two-Party Tyranny. She also appears prominently in the Sundance-selected and Academy Awards short-listed documentary “An Unreasonable Man.”
“Yes,” writes Professor Nancy S. Kim. “As strange as it may seem, under contract law you can legally bind yourself without knowing it.”
In her valuable book, Wrap Contracts, Foundations and Ramifications, Professor Kim does a service to all by explaining how courts enforce these online contracts “where consumers have no intent of entering into a contract.” She points out that “[t]he requirement of manifestation of consent seems to be subsumed in wrap contract cases with the issue of notice.” As a result, “the nondrafting party does not actually need to either receive notice or understand or intend the meaning attributed by the courts to a particular action.”
courts have constructed consent in an entirely unreasonable fashion by twisting doctrinal rules, conjuring up notice, inferring action from inaction, and blithely ignoring the central role of intent in contracts. They engage in this hocus pocus in order to enforce transactions that they believe provide a net benefit to society.
These “wrap contracts” consumers often unknowingly “agree” to may be buried in the hyperlinks and are not merely proprietary instructions for how to use the product or service. As Professor Kim explains, consumers are not only under affirmative obligations in these “wrap contracts,” they may be subject to a smorgasbord of rights-reducing language. Exclusive jurisdiction, forced arbitration, waived class actions, and the vendor’s one-way reserved rights to change the terms whenever it wants to are aggressive consumer rights reducers, often eviscerating decades of public policy and legal decisions that have afforded consumers their rights. In some cases, consumers are agreeing to muzzle themselves from complaining about the product or service. Fine print contracts may not only strip mine the legal rights of consumers, but they can also take or “steal” their property and privacy.
Thank you, Professor Kim for spelling it out for all to read. Not only do consumers not need a pen to sign on a dotted line, or in some cases even a button to click that one “agrees” to terms certainly not read, but “wrap contracts” take it even further. Consumers don’t even need to know they are agreeing, much less to what set of terms. Nonetheless, “wrap contracts,” now often “multi-wrap contracts,” as Professor Kim notes, “by their form, permit companies to impose more objectionable terms than paper contracts of adhesion.”
When people begin to understand how their rights are treated in the “wrap contract” rabbit hole, this offends sensibilities. For those not attuned to the “degradation of consent,” so aptly explained in Professor Margaret Jane Radin’s book Boilerplate, The Fine Print, Vanishing Rights, and The Rule of Law, this sort of contract peonage is not only unwelcome, it runs counter to everything the non-drafting parties think of as fair play.
Professor Kim’s use of the term “crook provisions” should not be understated and aligns with popular sentiment when consumers are fully informed of this state of affairs. Companies now grant themselves the right to “appropriate” -- once known otherwise as “stealing” or, charitably, “taking”-- from consumers for no payment. They then turn around and make a profit on what heretofore we would have considered the possessions of the consumer, e.g. their content, images, personal information and shopping habits.
As Professor Kim explains: “a crook provision anticipates no such offensive action by the consumer and has no direct relationship with the product or services offered by the company. It is simply an attempt to sneak an entitlement from the user without payment, either in terms of money or goodwill.” Indeed.
So where is the counteraction to this outright mugging of consumer rights and property? The ubiquity of these contracts has masked the reality of their potential to do serious harm to consumers such that consumers are not even aware of the magnitude of the problem.
For lack of a better term at the moment, I think we should nonetheless stop calling them “contracts” and start treating them as the equivalent of “online asbestos.” Like asbestos in its heyday, manufacturers and service providers use “wrap contracts” everywhere. They have properties that facilitate commerce but that does not mean that they are not toxic and dangerous for those exposed to them.
Moreover, like asbestos, some of the dangers will not necessarily emerge for decades when content thieves and data aggregators use consumer information to the detriment of the consumers. Perhaps due attention will be paid when the content providers, i.e. the consumers/users, begin to realize they cannot expunge those posts from their teens or more uncensored moments that now prevent them from getting hired or getting credit. Or perhaps regulators will begin to pay sufficient attention to the one-sided misappropriations when serious amounts of data are compromised by those with criminal intent (already it is happening) and with frequency for millions of users.
The question is, how long will it take for U.S. regulation and the courts to catch up to the need to ban or strictly limit the use of these offensive sword and crook provisions? For asbestos it took at least half a century, while manufacturers whined the whole way about regulation even as they knew for decades of its dangers much as “wrap contract” apologists do now. No, these “contracts” may not kill you, but they can make your life miserable and we would all breathe better if consumers were treated more fairly.
Professor Kim’s doctrinal adjustments (“a duty to draft reasonably; replacing blanket assents with specific assent; considering contract function when apply existing doctrinal rules, and reinvigorating unconscionability”) are a very solid start, though they are only a beginning. In some cases, such as replacing blanket assent with specific assents, the proposed remedy may only devolve into the Pavlovian clicking response now exercised by consumers with routine oblivion to the consequences, believing they have little choice if they want the product or service behind the click.
Courts should be helping consumers enforce their intent, not creating doctrinal chaos as Kim writes by reciting, “law that originates from the paper-based contracting world to this brave new digitally based world when they might be better off acknowledging the difference that contract form and function make to the reasonable expectations of the parties.” The courts have instead largely given corporations a judicial pass thus far and Professor Kim’s rebalancing of burdens (from the nondrafting party to the drafting party) is the least that they could begin to impose to adjust the invocation of the judicial force of the state.
I think we should be asking for much more on behalf of consumers and could take cues from other countries with more advanced notions of consumer protection and data privacy. Not only should legislators, regulators and courts protect consumers from exposure to online asbestos by outright banning, or at minimum reforming, many of these harmful provisions, but corporations who have taken rights from consumers should also be required to begin remediation efforts – immediately. These corporations can start by returning the misappropriated property and other stolen goods to their rightful owners.
[Posted, on Theresa Amato's behalf, by JT]
Thursday, November 21, 2013
It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog. Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology. Moringiello’s knowledge in this area of law is both wide and deep and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts. The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps. Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink. Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them. Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract. I think that’s true and it’s that ubiquity which diminishes their signaling effects. Because we are all clicking constantly, we fail to realize the significance of doing so. It’s not the act alone that should matter, but the awareness of what the act means. I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement agreed to in the past week alone. I wouldn’t have made such a bold statement eight years ago.
Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech. With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.” In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably. Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness. For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses. (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).
Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn. I made a similar point in this article. I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability. (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company). On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties. Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image. But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it. And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like. A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself. Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract. What’s troubling about the lawsuit, however, is that (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii) the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising. To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason? Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims. The law firm claims that arbitration would cost it from $4,000-$5,000.
I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way.
Starting next week, we will add Myanna F. Dellinger (pictured), an Associate Professor at Western State College of Law and Director of the Institute for Global Law and Policy, to our roster of contributors.
After a successful first career in international communications and university instruction on two continents, Professor Dellinger graduated from law school at the top of her class at the University of Oregon School of Law (Order of the Coif). While in law school, she interned for the United Nations Framework Convention for Climate Change. After law school, she clerked for the late Hon. Francis J. D'Eramo of the Superior Court of the United States Virgin Islands and for the Hon. Procter Hug, Jr., of the United States Court of Appeals for the Ninth Circuit. She teaches Contracts Law and Sales. She writes extensively on international law with a particular focus on climate change. She has visited 33 nations for business and pleasure.
A sampling of Professor Dellinger's scholarly writings can be found on SSRN.
We look forward to Professor Dellinger's contributions.
As announced here on the TaxProf Blog, the Mother Ship of the Law Professor Blogs Network, the latter welcomes to its family the Appellate Advocacy Blog edited by David R. Cleveland (Valparaiso), Kendall D. Isaac(Appalachian), Tonya Kowalski (Washburn), and Todd Bruno (Charleston).
It brings us especial pleasure to welcome this blog to the Network because my colleague, David Cleveland (pictured), is a founding editor. Soon the Valpo Blog Network will rival Paul Caron's Blog Empire.
From the inaugural post:
Welcome to the Appellate Advocacy Blog on the Law Professor Blogs Network. On this blog, we plan to address a wide variety of issues related to appellate justice. This includes appellate court advocacy and practice, principles of appellate justice, appellate court jurisprudence on current issues, and legislative developments affecting the courts. We hope to keep our readers informed about cases and issues on appeal as well as scholarship, research, conferences, and news related to appellate courts. Our interest is in appellate advocacy and justice, broadly conceived, including state, federal, tribal, and international appellate courts. We hope that this blog will provide useful information, interesting perspectives, and fodder for engaging discussions.
We look forward to your posts.
This is the sixth in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our sixth guest blogger, Eric Zacks, is an Assistant Professor of Law at Wayne State University Law School.
Deciphering the Function of Form in Wrap Contracts
Form and function collide again and again in Professor Kim’s engaging Wrap Contracts. As Kim explains, the wrap contract’s form is deeply connected to its function, and her description and devastating critique of these varying forms illuminate the complexities of how we interact with, and are affected by, such contracts. She argues that the form ought to reflect the function of the wrap contract so that users better understand the nature of the contract. In this comment, I seek to address the ways form may already reflect function, albeit not in the manner that Kim necessarily would prefer.
As in industries utilizing paper consumer contracts, competition among businesses that employ wrap contracts demands that they develop a nuanced understanding of how the non-drafting parties and judges interact with contracts. For example, we should not be surprised by contracts that induce deference to the contract as written from the non-drafting parties. To that end, the prevalence of particular wrap contract features, such as the use of multiple hyperlinks to obtain the text of a license or lengthy and complex terms, are unsurprising because they make it more unlikely that non-drafters will try to (or actually) understand the content of the contract. Similarly, delivering the product prior to, or simultaneously with, the “execution” of the contract through the use of shrinkwrap or delaying the opportunity to review contract terms until the website user has sunk time and energy into filling out an order form, deter contract term detection or review and reflect drafters’ sophisticated understanding of individual decision-making processes.
Wrap contracts presumably also could be designed to make the adjudicator comfortable with enforcing the contract as written against the non-drafting party. The “click-through” on a website is a powerful device because it lends itself nicely to a particular counterfactual analysis that “but for” the click, the customer would not have been bound. Because the customer did click, adjudicators typically conclude that she should be held responsible for the terms of the contract. Importantly, this adjudicative response is triggered even though, as Kim notes, “adherents to these contracts to these contracts are typically oblivious to what they have done,” suggesting that the click triggers a psychological response similar to contracts with a more passive means of acceptance (such as simple disclosure of terms).
Kim’s metaphors of the shield, sword, and crook to explain the different functions of the wrap contracts (Chapter 5) also are helpful because they can help identify the underlying motivation for certain provisions. By understanding whether the primary function of the contract is to protect the drafting party (the “shield”), obtain better transaction terms (the “shield”), or seek benefits beyond the scope of the transaction (the “crook”), we may then speculate as to which form of a wrap contract makes sense from the drafter’s perspective.
If, however, the goal is to prevent the use of the software in a particular manner, then the form of contract as it appears to the adjudicator may be more important than a contract form that deters returns. Accordingly, the contract form may emphasize notice of the terms, if not outright acceptance. I suspect that a “click-through” box may help in this regard, although the blatancy of wrongful or inappropriate use, particularly of free software, may not require an additional volitional act on the part of the user (such as explicit assent to the contract) to convince an adjudicator to enforce the contract as written. The courts, as noted in Kim’s book, typically find notice of non-negotiated terms to be sufficient when such wrongful use has occurred.
Lastly, if the goal is to use the contract as a crook, then a contract that requires a more active acceptance of the contract terms (such as clicking “I agree”) may be preferable from the drafter’s perspective. By being able to point to the specific act of the click and a “better” assent, a drafting party may be better able to extract property rights unrelated to the transaction under adjudicative scrutiny. The extraction of the property rights by the drafting party may appear wrongful to the adjudicator, but counterfactual analysis surrounding the “explicit” assent to the contract may point to a different result.
With respect to the metaphors described above, I do question whether the distinction between shield and sword holds up sufficiently in many cases. License agreements containing shields and license agreements containing swords essentially provide the user with a restricted license, and the difference between the two types is a bit unclear. For example, Kim describes the restrictions on copying and transferring software discussed in ProCD, Inc. v. Zeidenberg as a shield and the restriction on reverse engineering discussed in Davidson & Associates v. Jung as a sword. As each can be described as a shield protecting the licensor from unfair or undesired business practices or a sword preventing the licensee from exercising certain rights, it may be simpler to divide the world of wrap contract provisions into defensive (those that manage business risks related to the license or transaction) and offensive (those that extract rights unrelated to the license or transaction). In any event, the specific categorization does not undercut Kim’s more significant conclusion that the use of shield and sword provisions has enabled the use of crook provisions.
It also would be interesting to know whether these different contract goals and functions do, as an empirical matter, affect the form chosen by the drafting party as described above. Of course, the judicial slide towards “notice that terms exist” as “consent” noted in Wrap Contracts could somewhat obviate the need for such planning, and the multiple goals of the drafting party also are not necessarily mutually exclusive. Wrap Contracts provides us with a welcome exploration into the connection between form and function in these ubiquitous contracts and suggests how understanding this connection can help us address problematic contracting practices in this still-developing context.
[Posted, on Eric Zacks' behalf, by JT]
This is the fifth in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our fifth guest blogger, Michael Rustad, is the Thomas F. Lambert, Jr. Professor of Law and Co-Director of the Intellectual Property Law Concentration at Suffolk University Law School.
Reforming Wrap Contracts
In her insightful new book, Nancy Kim contends that “wrap contracts” take the form of a traditional contract but constitute a “coercive contracting environment.” (Nancy S. Kim, Wrap Contracts: Foundations and Ramifications 1-3 (Oxford University Press, 2013)). Professor Kim contends that the problem with “wrap contracts” is “their aggressive terms.” (Id. at 4.) My Suffolk University Law School research team, focusing on contracting practices in social media websites, found strong empirical support for Professor Kim’s argument that wrap contracts are overly aggressive and in need of law reform. My own empirical work with a team at Suffolk University Law School has uncovered a growing number of social networking sites incorporating mandatory arbitration and anti-class action waivers. (Michael L. Rustad, Richard Buckingham, Diane D’Angelo, and Kathryn Durlacher, An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements, 34 University of Arkansas Law Review 1 (2012) (Symposium Issue on ADR in Cyberspace)).
The most pernicious of the waivers are those against joining class actions. In our study of predispute mandatory arbitration agreements in social media wrap contracts, we found eleven of the thirty-seven arbitration clauses preclude consumers from initiating or joining class actions. Class action waivers have the practical effect of denying justice to a large number of consumers by divesting them of the right to join with other aggrieved social media users to pursue relief under state consumer law. Many of the first generation lawsuits against SNSs were class actions or collective proceedings because the damages for any one individual user were too small to make the lawsuit cost-justified. Immunity breeds irresponsibility in the information-age economy, where an increasing number of companies are divesting consumers of any civil recourse by including class action waivers in their terms of service.
The creators of SNS and other wrap contracts are overly aggressive about including anti-class action waivers, in large part, because the U.S. Supreme Court routinely upholds predispute mandatory arbitration clauses and anti-class action waivers. In a 5-4 decision, AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the U.S. Supreme Court held that the Federal Arbitration Act preempted California’s use of state unconscionability law to render class action waivers unenforceable. Let’s be clear about what Concepcion means for ordinary consumers. With these rulings, the Court is padlocking the courthouse door to elderly nursing home patients harmed by neglectful caretakers. Keep in mind that the typical nursing home resident or his caretaker has probably not even read the arbitration clause buried on page 20 or deeper into an admissions contract. What this means is that if your Mother or Grandmother suffers septic shock from decubitus ulcers caused by neglect, her estate will have no recovery because no lawyer in her right mind will take a case where mandatory arbitration and its running partner, class action waivers are in play. Trial lawyers do not take nursing home cases to arbitration because of the perception that arbitrators will give lower awards for non-economic damages and almost never award punitive damages. In my informal survey of attorneys specializing in nursing home neglect, I have been unable to find a single case where a trial lawyer represented a nursing home patient in arbitration. The Court’s decisions are, in effect, a federal takeover of arbitration, preventing the states and private plaintiffs from challenging one-sided and oppressive consumer arbitration clauses on grounds of unconscionability. When wrap contracts couple mandatory arbitration clauses with class-action waivers they essentially create a liability-free zone in cyberspace. Class action waivers preclude Internet users from filing a class action or even joining an existing one. This de facto immunity shields social networking sites from class actions for violations of privacy, contract, tort, or intellectual property rights that would otherwise be recognized in federal and state courts.
Social networking sites that combine mandatory arbitration with anti-class action waivers ensure that these powerful entities will not be accountable for failing to secure and safeguard their users' sensitive personally identifiable information. Social media sites can use the names, likenesses, and personal information of their users with impunity. Consumer class actions are often the only practical alternative in securing legal representation under the contingency fee system in cases where actual compensatory damages are small or nominal. Class actions enable litigants with slight monetary damages claims to combine actions in a representative action. Without class actions, social networking sites are effectively immunized from the judicial process and may continue unfair practices with impunity.
Professor Nancy Kim’s suggested law reform to police overly aggressive terms in webwraps would be to tip the doctrine of unconscionability on its head. Her proposed reform for webwraps would presume that these standard forms are unconscionable, except if validated by legislative decree or if there were meaningful alternatives in the marketplace. (Id. at 248). However, even a revivified unconscionability doctrine will be preempted by the U.S. Supreme Court’s current reading of the Federal Arbitration Act. (“FAA”). Congress must act to prohibit predispute mandatory arbitration and class action waivers in all types of wrap contracts. In the end, U.S. companies would benefit from mandatory terms constraining or cabining wrap contracts.
The golden age of the broad enforcement of U.S. style wrap contracts will end soon because of the increasingly flattened world where U.S. companies license content to European consumers. In Germany, consumers associations have successfully challenged the terms of CompuServe, AOL, and Microsoft: the first was subject to a default judgment; the other two agreed to a binding cease-and-desist declaration. All three American companies have entered into settlements in which they agreed to change their marketing practices. When it comes to consumer rights for wrap contracts, the U.S. is like Mars—and Europe is like Venus. Europe rejects freedom of contract in consumer transactions, recognizing that this is a legal fiction in non-negotiated standard form contracts. The European Commission takes the position that, even if a consumer assents to an abusive term, it is unenforceable as a matter of law, and European consumers, unlike their American counterparts, cannot be hauled into distant forums and be divested of mandatory consumer protection. Professor Kim has done a superb job in identifying the problem with wrap contracts, but her solution falls short of addressing problems such as predispute mandatory arbitration and anti-class action waivers.
[Posted, on Michael Rustad's behalf, by JT]
Wednesday, November 20, 2013
Laura Dee (plaintiff) and Dena Rakower (defendant) lived together in a committed, same-sex relationship for nearly 18 years and are the parents of two children. In her complaint, Dee alleges that they had an oral “joint venture/partnership agreement” whereby Dee would share in Rakower's assets, including Rakower’s retirement contributions and earnings, in exchange for Dee leaving her full-time job to care for their children. The couple’s entire relationship pre-dated the passage of New York’s Marriage Equality Act. Upon termination of the couple’s relationship, Dee sued Rakower for, among other claims, breach of contract. The trial court dismissed the cause of action for breach of contract; in a divided opinion, the Appellate Division (Second Department) reinstated that claim.
The majority of the appellate court reasoned that the allegations in the complaint sufficiently plead a cause of action for breach of contract:
The alleged contractual agreement between the parties was supported by consideration. "Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him [or her]" * * * The consideration here for the alleged contract is the forbearance of the [Dee’s] career, the inability to continue to save toward her retirement during that forbearance, and her maintenance of the household in return for a share in [Rakower’s] retirement benefits and other assets earned during the period of forbearance. * * * Since [Dee] also alleged that [Rakower] breached the alleged agreement and that she has sustained damages as a result of that breach, at this pleading stage, the eighth cause of action [to recover damages for breach of contract] must survive dismissal * * *.
The fact that the alleged agreement was made by an unmarried couple living together does not render it unenforceable. "New York courts have long accepted the concept that an express agreement between unmarried persons living together is as enforceable as though they were not living together, provided only that illicit sexual relations were not part of the consideration of the contract'" (Morone v Morone, 50 NY2d 481, 486, quoting Rhodes v Stone, 63 Hun 624, 624 [citations omitted]). "[W]hile cohabitation without marriage does not give rise to the property and financial rights which normally attend the marital relation, neither does cohabitation disable the parties from making an agreement within the normal rules of contract law" (Morone v Morone, 50 NY2d at 486; see Matter of Gorden, 8 NY2d 71, 75).
The case at bar is similar to Morone v Morone (50 NY2d 481). In Morone, the parties cohabited as husband and wife although they were not married. The plaintiff claimed that the parties had entered into an oral partnership agreement whereby, among other things, they agreed that the net profits of their partnership would be used and applied for their equal benefit **. The plaintiff devoted herself exclusively to their relationship and this endeavor. The Court of Appeals concluded that the plaintiff sufficiently stated a breach of contract cause of action.
There is no reason, on this record, at this early stage of the litigation to conclude, as the Supreme Court did, that the oral agreement between the parties cannot serve as the basis for a breach of contract cause of action. ***
Contrary to the Supreme Court's determination and the opinion of our dissenting colleague, [Dee’s] failure to specifically allege that there was a "meeting of the minds" as to how the assets would be distributed upon the termination of the parties' relationship does not compel the conclusion that the complaint fails to state a cause of action to recover damages for breach of contract. * * * The complaint specifically alleges that the parties agreed to share equally the defendant's retirement account accrued during that period of time that the plaintiff did not work at a job that provided a retirement plan without consideration of the direct and indirect contributions of the parties or when such contributions were made. Thus, as alleged, there is sufficient definiteness to the material terms of the alleged agreement between the parties to establish an enforceable contract (see Joseph Martin, Jr., Delicatessen v Schumacher, 52 NY2d 105, 109). The failure to include the mechanism for the implementation of the parties' alleged agreement does not negate the allegations in the complaint that they entered into an agreement with regard to the rights to their assets.
The dissent, however, took the view of the oral agreement, stating that “the complaint is devoid of any allegation as to whether and how their assets and pension benefits would be divided in the event the parties were to no longer be together.” The dissent opined that “read[ing] such a provision into the parties’ agreement, where none is expressed in the complaint, would result in the invention of an implied contractual provisions which, as noted, is prohibited by our law for agreements between unmarried persons living together.” Then the dissent expressed concern that Dee seeks “equitable distribution” without alleging that the parties had expressly agreed to such a distribution:
Distilled to its essence, the plaintiff in this action seeks "equitable distribution" of the defendant's assets and future pension benefits without alleging in the complaint that the defendant had promised to share them if the parties did not stay together. Indeed, there is no allegation that the parties had any meeting of the minds as to the distribution of property or assets upon a termination of their relationship. Absent such an allegation, and absent an affidavit from the plaintiff clarifying or expanding her description of the parties' agreement to cover such an eventuality, the complaint fails to state a cause of action. The plaintiff's theory of recovery is dependent upon implying terms for the distribution of retirement benefits to circumstances involving the dissolution of the parties' familial relationship. The Supreme Court properly refrained from implying such provisions into the oral contract in determining that, under the circumstances alleged, the "complaint lacks a contract for the court to enforce."
No aspect of this partial dissent speaks to the merits of the New York's more recent enactment of the Marriage Equality Act. This Court is sensitive to the complications occasioned by various forms of familial relationships that necessarily result in financial agreements or entanglements. The judiciary, however, is limited in addressing and determining the ownership and/or distribution of familial assets, absent either the existence of a lawfully recognized marriage or an enforceable expressed contract between persons in a cohabitational relationship.
According to an article in the NYLJ about the case:
The court agreed to resolve the appeal though the parties settled, apparently accepting the position of Dee's pro bono attorney, Michele Kahn of Kahn & Goldberg, that the case involved important issues for both gay and heterosexual couples.
Kahn noted in a letter to the court that there were "tens of thousands of unmarried, mostly gay, couples in the State." Although those couples can now marry, she said "questions will remain" about the application of equitable distribution laws to "specific and identifiable promises and agreements" prior to their marriages.
Kahn also argued that, according to the Census Bureau,"an increasing number of couples are rejecting the institution of marriage."
"The manner in which this couple conducted their lives—relying and acting upon each others' specific promises, without formal writings, is the way that most unmarried couples live their lives," she wrote. "Inevitably, many of these couples will break up, and inevitably many of these couples will be involved in litigation over property and assets that were acquired during the relationship," Kahn wrote.
Dee v. Rakower, 2013 NY Slip Op 07443 (2d Dep't Nov. 13, 2013).
[Meredith R. Miller]
Fan Cui, Ying Ge & Fengchun Jing, The Effects of the Labor Contract Law on the Chinese Labor Market, 10 J. Empirical Legal Stud. 462 (2013)
Gerrit De Geest, N Problems Require N instruments, 35 Int'l Rev. L. & Econ. 42 (2013)
Jay M. Feinman, The Enforceability of Releases in Property Insurance Claims, 19 Conn. Ins. L.J. 251 (2013)
Yuval Feldman, Amos Schurr & Doron Teichman, Reference Points and Contractual Choices: An Experimental Examination, 10 J. Empirical Legal Stud. 512 (2013)
Fali Huang, Contract Enforcement: A Political Economy Model of Legal Development, 29 J.L. Econ. & Org. 835 (2013)
Osnat Jacobi & Avi Weiss, The Effect of Time on Default Remedies for Breach of Contract, 35 Int'l Rev. L. & Econ. 13 (2013)
Giorgio Zanarone, Contract Adaptation under Legal Constraints. 29 J.L. Econ. & Org. 799 (2013)
I’m thrilled to have the opportunity this week to engage with an outstanding line-up of scholars on the topic of wrap contracts. In today’s post, I will respond to posts by Ryan Calo and Miriam Cherry.
Miriam Cherry observes that wrap contracts raise much of the same issues raised by contracts of adhesion and my book canvasses those similarities. But they also raise different issues, primarily because their digital form makes it easier for companies to abuse and for consumers to ignore and also because courts don’t adequately recognize how form affects the behavior of both parties. The difference in form leads to a difference of degree so that it’s virtually impossible (pun intended) to engage in any online activity without agreeing to the terms of an unreadable wrap contract. My proposals aim to respond to the ways in which form affects perception to get us closer to the underlying objective of contract law – to fulfill the reasonable expectations of the parties. The form of wrap contracts raises issues that are unique to them and consequently, call for different solutions - solutions that respond to the problem of form.
Ryan Calo focuses on the role of technological design in contract formation and enforcement which is not surprising given his extensive expertise and research in this area regarding effective notice. The way that technological design of contracts affects parties’ behavior is underappreciated in the literature on contracts of adhesion. Calo observes that the potential for mischief through the use of standard terms is even worse than the examples I give in my book (this is a great relief since I am often accused of exaggerating the dangers of wrap contracts). As Calo notes here and elsewhere, the digital contracting environment has made it easier for companies to understand the consumer and so manipulate the consumer’s perceptions and behavior. I agree and would like to respond to his wish that I had addressed the argument made by Scott Peppet and others (who I’ll call “digital solutionists”) who claim that this very environment might aid the consumer and that increased digitalization could ameliorate the limits of freedom of contract. I agree with the first part, but disagree with the second. Greater access to information and the digital landscape may, in many cases, aid consumers who can research products, announce their “likes” and dislikes, and tweet their dissatisfaction to attract the customer service departments of large companies. This shouldn’t, however, influence the discussion regarding freedom of contract. There is a distinction to be made between the product or service that is the subject of the contract and the terms of the contract itself. The former is salient to consumers and they will often research that information before they act. For a variety of reasons, including cognitive biases but also tricky design employed by companies, the latter is not. Anyway, comparing terms does no good if the terms are all the same – it’s the old fiction about “shopping for terms” reincarnated in digital form.
Even assuming that the current state of affairs changes and there is awareness and competition for contract terms, the consumer is already inundated with too much information online. Are we really going to impose a requirement or an expectation that they read through online reviews or download an app simply in order to understand the contract terms? Even if the reviews exist (which they may not for some products or companies) and even if they are accurate (which they may not be), they add a layer of complexity to consumer transactions which may hamper effective decision-making and aggravate cognitive biases. How much research is a consumer expected to do simply to be able to buy a product, bank or communicate online? And is that something we want as a society – wouldn’t this negatively impact productivity, increase transaction costs for the consumer, and muck up the wheels of commerce (and isn’t this why we tolerate standard form contracts in the first place, to improve productivity, reduce transaction costs and grease the wheels of commerce)?
Drafting companies have all the power in the digital contracting environment – they have the bargaining power of old school drafters of adhesive contracts but they also have the power to present the terms in a multitude of ways. They decide whether and how to attract user attention. They determine whether to use clickwraps, browsewraps, multi-wraps, graphics or sounds. They exercise that power in a way that meets very minimal legal requirements of notice. The onus is on the consumer to ferret out terms, chase down hyperlinks, understand dense legalese and reconcile conflicting language. Are we going to require even more of consumers, expecting them to “go beyond” the contract by reading online contract reviews and downloading the “compare contracts” app (assuming one exists)? Maybe digitalization or augmented reality will make it easier for consumers to compare terms --but it will likely make it more complicated especially when those terms are constantly changing thanks to modification at will provisions. Doesn’t it make more sense to require the company to draft the terms so they are easy to find and understand? There’s more to say about the digital solutionist view but I will leave that for another forum. For now, my response is that the digital solutionist view is actually part of the problem, rather than the solution because it, like wrap contract doctrine, demands nothing from drafting companies and creates more work for consumers, exacerbating the lopsided balance of burdens that currently exists.
Tuesday, November 19, 2013
We are delighted to see our very own Meredith Miller in the Top Ten. Congratulations, Meredith!
Wrap Contracts Symposium, Part IV: Juliet Moringiello on “Wrap” Terminology: Needlessly Confusing or Useful Analytical Tool?
This is the fourth in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our fourth guest blogger, Juliet Moringiello, is a Professor at Widener University School of Law, where she regularly teaches Property, Sales, Secured Transactions, and Bankruptcy, and has taught seminars on Cities in Crisis and Electronic Commerce. From 2004 – 2010, she was the co-author, with William L. Reynolds, of the annual survey of electronic contracting law published in The Business Lawyer.
Yes, we said it. As Prof. Nancy Kim notes in her terrific new book Wrap Contracts: Foundations and Ramifications, my co-author Bill Reynolds and I have argued that the use of the terms “clickwrap” and “browsewrap” to describe electronically-presented contract terms might be needlessly confusing, and that the terms themselves may even be irrelevant. Yet Nancy, whose work I admire tremendously, has not only embraced this wrap terminology, but has written an entire book about how wrap contracts are materially different from their paper standard-form predecessors. And I enthusiastically agreed to participate in this symposium so that I can sing the praises of this book and encourage ContractsProf readers to go right over to the Oxford University Press web site and buy the book. What gives?
Emerging business practices have long challenged contract doctrine. Contract rules that assumed two parties with equal bargaining power sitting down to hammer out a deal have evolved, both through statutory and case law, to adapt to a world in which parties transact by the use of non-negotiated standard-form terms. Are non-negotiated standard-form terms that are delivered electronically so different from their paper predecessors that they require a new set of rules? Nancy makes a convincing argument that they are, and her (spoiler alert!) ultimate prescriptions include the imposition of a duty to draft reasonably, a rejection of the doctrine of blanket assent in favor of a specific assent requirement, and a redefinition of the doctrine of unconscionability. Although she recognizes that contract doctrine continuously evolves to account for new business practices, Nancy convincingly argues that it is not evolving appropriately in the mass-market electronic contracting realm.
Why should the law treat electronically-presented standard-form contract terms differently from how it treats the same terms presented on paper? The main contribution of this book is its argument that form (and thus “wrap” form) matters tremendously. One of the reasons that Nancy offers to support her position is that the electronic form has altered the substance of standard-form contracts. Freed from the spatial constraints imposed by the paper form, purveyors of electronic terms can offer many more terms in a form contract than could their paper-world predecessors. As a result, consumers are being presented with voluminous and complex terms governing, among other things, data collection and property rights. As a result, according to Nancy, wrap contracts “by their form, permit companies to impose more objectionable terms than paper contracts of adhesion.” Wrap Contracts is filled with specific examples of such terms.
Although my co-author and I have argued in the past that courts are slowly getting electronic contracts right, most of the electronic contracting cases that result in published opinions involve challenges to choice of forum clauses. We read almost all of those opinions from 2004 through 2010, when we wrote the annual surveys of electronic contracting law for The Business Lawyer.The opinions never get to the substantive guts of the electronic standard terms; they can’t, because often their punch line is “you agreed to arbitration, so arbitration is where you are going to resolve these issues.” When one compares an electronic choice of law clause to the same clause on paper, it looks like an apples-to-apples comparison. The main difference appears to be the way the terms were transmitted, not the substance, so courts tend to analyze only whether the electronic terms are reasonably communicated to the non-drafting party. So long as the non-drafting party can access the terms via an arguably conspicuous link, the courts hold that there is sufficient notice and therefore assent. This judicial conflation of notice and assent is not unique to electronic contracting law, but Nancy argues that its application is inappropriate to wrap contracts because often individuals do not have any idea that they are entering into legally-binding agreements.
[Posted, on Juliet Moringiello's behalf, by JT]