Monday, March 31, 2014
More on the Fairness of Contractual Penalties
By Myanna Dellinger
In my March 3 blog post, I described how the Ninth Circuit Court of Appeals just held that contractual liquidated damages clauses in the form of late and overlimit fees on credit cards do not violate due process law. A new California appellate case addresses a related issue, namely whether the breach of a loan settlement agreement calling for the repayment of the entire underlying loan and not just the settled-upon amount in the case of breach is a contractually prohibited penalty. It is.
In the case, Purcell v. Schweitzer (Cal. App. 4th Dist., Mar. 17, 2014), an individual borrowed $85,000 from a private lender and defaulted. The parties agreed to settle the dispute for $38,000. A provision in the settlement provided that if the borrower also defaulted on that amount, the entire amount would become due as “punitive damages.” When the borrower only owed $67 or $1,776 (depending on who you ask), he again defaulted, and the lender applied for and obtained a default judgment for $85,000.
Liquidated damages clauses in contracts are “enforceable if the damages flowing from the breach are likely to be difficult to ascertain or prove at the time of the agreement, and the liquidated damages sum represents a good faith effort by the parties to appraise the benefit of the bargain.” Piñon v. Bank of Am., 741 F.3d 1022, 1026 (Ninth Cir. 2014). The relevant “breach” to be analyzed is the breach of the stipulation, not the breach of the underlying contract. Purcell. On the other hand, contractual provisions are unenforceable as penalties if they are designed “not to estimate probable actual damages, but to punish the breaching party or coerce his or her performance.” Piñon, 741 F.3d at 1026.
At first blush, these two cases seem to reach the same legally and logically correct conclusion on similar backgrounds. But do they? The Ninth Circuit case in effect condones large national banks and credit card companies charging relatively small individual, but in sum very significant, fees that arguably bear little relationship to the actual damages suffered by banks when their customers pay late or exceed their credit limits. (See, in general, concurrence in Piñon). In 2002, for example, credit card companies collected $7.3 billion in late fees. Seana Shiffrin, Are Credit Card Law Fees Unconstitutional?, 15 Wm. & Mary Bill Rts. J. 457, 460 (2006). Thus, although the initial cost to each customer may be small (late fees typically range from $15 to $40), the ultimate result is still that very large sums of money are shifted from millions of private individuals to a few large financial entities for, as was stated by the Ninth Circuit, contractual violations that do not really cost the companies much. These fees may “reflect a compensatory to penalty damages ratio of more than 1:100, which far exceeds the ratio” condoned by the United States Supreme Court in tort cases. Piñon, 741 F.3d at 1028. In contrast, the California case shows that much smaller lenders of course also have no right to punitive damages that bear no relationship to the actual damages suffered, although in that case, the ratio was “only” about 1:2.
The United States Supreme Court should indeed resolve the issue of whether due process jurisprudence is applicable to contractual penalty clauses even though they originate from the parties’ private contracts and are thus distinct from the jury-determined punitive damages awards at issue in the cases that limited punitive damages in torts cases to a certain ratio. Government action is arguably involved by courts condoning, for example, the imposition of late fees if it is true that they do not reflect the true costs to the companies of contractual breaches by their clients. In my opinion, the California case represents the better outcome simply because it barred provisions that were clearly punitive in nature. But “fees” imposed by various corporations not only for late payments that may have little consequence for companies that typically get much money back via large interest rates, but also for a range of other items appear to be a way for companies to simply earn more money without rendering much in return.
At the end of the day, it is arguably economically wasteful from society’s point of view to siphon large amounts of money in “late fees” from private individuals to large national financial institutions many of which have not in recent history demonstrated sound economic savvy themselves, especially in the current economic environment. Courts should remember that whether or not liquidated damages clauses are actually a disguise for penalties depends on “the actual facts, not the words which may have been used in the contract.” Cook v. King Manor and Convalescent Hospital, 40 Cal. App. 3d 782, 792 (1974).
Eleventh Circuit Joins Others in Holding that Bank Agreement without Arbitration Clause Supersedes Prior Customer Agreement
Last month, the Eleventh Circuit Court of Appeals decided Dasher v. RBC Bank, in which Mr. Dasher alleges excessive overdraft fees and which is part of a larger multidistrict litigation pending in the Southern District of Florida. RBC Bank (RBC) moved to compel arbitration, and the District Court denied the motion.
The procedural history of the case is complicated. The parties' relationship was originally governed by a 2008 agreement (the RBC Agreement) which included an arbitration clause. Before the Supreme Court decided Concepcion, the District Court refused to enforce the arbitration clause because it made it impossible for Mr. Dasher and others to vindicate their rights. While the case was awaiting reconsideration after Concepcion, PNC Financial Services Group (PNC) aquired RBC and a 2012 PNC Agreement replaced the 2008 RBC Agreement which had previously governed the parties' relationship. The PNC agreement did not mention arbitration. The District Court ruled that the PNC Agreement applied to this litigation and that it superseded the RBC Agreement. The District Court thus again denied RBC's motion to compel arbitration, and the Eleventh Circuit affirmed on the same grounds.
While the Court acknowledged the general public policy in favor of arbitration, courts cannot compel arbitration where the parties have not agreed to arbitration. Here, the Court found that the parties expressed a "clear and definite intent" that the PNC Agreement superseded the RBC Agreement, and the former had no arbitration clause. The Court was unmoved by RBC's arguments that it had not waived its right to demand arbitration. There was no question of waiver where the right to demand arbitration did not exist in the relevant agreement. Similarly, the Court rejected RBC's argument that mere silence was not enough to overturn an arbitration clause. While RBC cited cases that seemed to support its position, those cases all involved new agreements that did not entirely supersede prior agreements. Two other Circuit Courts have addressed the issue in the context of superseding agreements, and both have held that an arbitration clause from a prior agreement is unenforceable, and the Sixth Circuit was especially clear that prior arbitration agreements are unenforceable even where the superseding agreement is silent on the subject.
Tuesday, March 25, 2014
The Georgetown Consumer Law Society and Citizen Works are co-hosting an exciting conference, "Making the Fine Print Fair," on Friday, April 4. Notable speakers include consumer advocate Ralph Nader, FTC Chairwoman Edith Ramirez and former Director of the Bureau of Consumer Protection of the FTC and Georgetown Law Prof. David Vladeck as well as blog favorites Margaret Jane Radin and Omri Ben-Shahar. Registration is free but space is limited. More information about speakers and how to register below:
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Monday, March 24, 2014
- Comparative Law Prof Blog, edited by Shawn Marie Boyne (Indiana), Monica Eppinger (Saint Louis), Lissa Griffin (Pace) & Shitong Qiao (NYU)
- Human Rights At Home Blog, edited by Martha F. Davis (Northeastern) & Margaret Drew (Northeastern)
- Law and Economics Prof Blog, edited by Gerrit De Geest (Washington U.), Ben Depoorter (UC-Hastings), Brian Galle (Boston College), David Gamage (UC-Berkeley), Shi-Ling Hsu (Florida State), Murat C. Mungan (Florida State), Eric Rasmusen (Indiana) & Manuel A. Utset, Jr. (Florida State)
- Legislation Law Prof Blog, edited by Kevin Barry (Quinnipiac), Emily Benfer (Loyola-Chicago), Sara K. Rankin (Seattle) & Joel Rogers (Wisconsin)
To all the new start-ups, we say: Welcome and we look forward to your posts.
Friday, March 21, 2014
Microsoft has been in the news recently for accessing a user's Hotmail account without a court order. Microsoft revealed this information as part of a lawsuit it filed against a former employee who it accussed of stealing trade secrets. The company received information that a French blogger had access to Windows operating system software code and wanted to find out who was the blogger's source. Conveniently for Microsoft, the blogger had a Microsoft-operated Hotmail account. The company's accessing of the emails and instant messages of the blogger was lawful because - you guessed it - it was permitted under the company's terms of service which state:
We also may share or disclose personal information, including the content of your communications:
- To comply with the law or respond to legal process or lawful requests, including from law enforcement and government agencies.
- To protect the rights or property of Microsoft or our customers, including enforcing the terms governing your use of the services.
- To act on a good faith belief that access or disclosure is necessary to protect the personal safety of Microsoft employees, customers or the public.
Lest you think you can escape the intrusions of corporate peeking into personal communications by moving to another email provider, a quick check of the terms of service of Yahoo and Google showed nearly identical language in their privacy policies.
Google’s terms of service state:
We will share personal information with companies, organizations or individuals outside of Google if we have a good-faith belief that access, use, preservation or disclosure of the information is reasonably necessary to:
- meet any applicable law, regulation, legal process or enforceable governmental request.
- enforce applicable Terms of Service, including investigation of potential violations.
- detect, prevent, or otherwise address fraud, security or technical issues.
- protect against harm to the rights, property or safety of Google, our users or the public as required or permitted by law.
You acknowledge, consent and agree that Yahoo may access, preserve and disclose your account information and Content if required to do so by law or in a good faith belief that such access preservation or disclosure is reasonably necessary to: (i) comply with legal process; (ii) enforce the TOS; (iii) respond to claims that any Content violates the rights of third parties; (iv) respond to your requests for customer service; or (v) protect the rights, property or personal safety of Yahoo, its users and the public.
Interestingly, Microsoft's terms of service give the company less discretion to snoop through our emails than Google or Yahoo -- it can only do so to protect the company and its users. Google or Yahoo can access communications to protect third party property interests. But they wouldn't really do that without a court order, would they? Oh, right.
Nan Aron, President of the Alliance for Justice, has an op-ed in SFGate supporting the Arbitration Fairness Act. It begins with the attention-grabbing question:
What do a Bay Area restaurant, customers of Instagram and the Oakland Raiders cheerleaders have in common? All of them have been - or could become - victims of a perversion of the American system of justice that could deny them their chance to stand up for their rights in court.
The practice is known as forced arbitration. Thanks to a series of bad decisions by the U.S. Supreme Court and unfair corporate practices, more and more Americans are required to use it. Forced arbitration turns dispute resolution into a privatized system of dispute suppression that is supplanting our justice system and letting corporations ignore laws that protect consumers and workers.
Aron explains that the Raiderette cheerleaders have attempted to sue the Raiders for wage violations but the cheerleader contract has an arbitration clause requiring them to take their dispute to the Commissioner of the NFL. The op-ed concludes:
The Consumer Financial Protection Bureau is considering barring forced arbitration in consumer services contracts - and it should. But forced arbitration is also spreading to employment contracts, like the one between the cheerleaders and the Raiders, threatening workers' ability to sue over race, sex or age discrimination and other workplace injustices.
There is a solution: The Arbitration Fairness Act, now pending in Congress, would bar forced arbitration in employment, antitrust and civil rights cases as well as consumer disputes. It would reopen the courthouse doors to millions of Americans and level the legal playing field for the cheerleaders, who, like every American, deserve a fair shot at justice.
I agree with Aron's conclusion and I support the Arbitration Fairness Act, but I am struck by the shift in the political framing of pre-dispute arbitration -- from "mandatory" to "forced." That seems a bit hyperbolic to me.
Anyway, here's a link to the full op-ed.
Thursday, March 20, 2014
Because I teach both these courses I am intrigued by their connection. Copyright, when granted, (which these days is for nearly anything) is essentially a contract between the author and the public with the government acting as the agent of the public. The consideration for the author is defined by duration and breadth of exclusivity. The consideration for the public is the creation of a "work" that will be available on a limited bases for the life of the author plus 70 years and then available without limit after that. If there were no transaction costs at all, it would be possible to "pay" authors different amounts of exclusivity. Perhaps a greeting card would get one holiday season if anything. Works that are not minimally original draw no consideration. And in some cases, an author -- say one writing a book that will be a guaranteed best seller -- should be charged to have the work copyrighted.
My sense is that some authors are paid way too much and almost none are paid too little. Has anyone ever heard of an author who turned down the bargain because it is life plus 70 instead of life plus 80? Perhaps more important, many works would be provided gratuitiously. They require no consideration but the authors recieve it anyway.
Take the makers of the Cajun in Your Pocket. It's a little plastic device that has 6 buttons and it play six Cajun sayings like the classic, "you gotta suck da head off den der crawfish" which then showed up in that well-know rap tune "Shake ya Ass." This all resulted in a case that eventually was appealed. Do you think the makers of the Cajun in Your Pocket actually were motivated by the sense they had monopolized "you gotta suck da head off den der crawfish"? I doubt it.
When you think about copyright as contract, you realize how ineffective your agent is.
Tuesday, March 18, 2014
A recent ruling by the 9th Circuit is causing quite a stir in certain online circles. The decision concerned the controversial video "Innocence of Muslims" which was posted to YouTube and sparked worldwide outrage and protests. Cindy Garcia is an actress who was Borat'd into appearing in the anti-Muslim film. She sued Google seeking to get it removed. She claimed that she had a copyright interest in her performance. The Ninth Circuit ruled in her favor and in so doing, released the wrath of the bloggerati. While the ultimate outcome is still unclear since Google is going to fight this one, all of this might have been avoided if the producers had signed a contract with Garcia. (I say "might" because it would depend upon how the release was drafted and whether she was fraudulently induced to sign it). While the Borat plaintiffs had all signed extensive releases giving up every right under the sun, no such release was produced documenting that Garcia had done the same.
I think this case is not actually the dangerous precedent some might have us think. Kozinski is nobody's fool, including Google's, and thankfully, he has a strong record as a First Amendment stalwart so all Google's self-serving rhetoric about unconstitutional prior restraint didn't intimidate him. Neither should all the alarmism about YouTube being inundated by requests to takedown clips or the dire warnings of the imminent demise of the online entertainment industry. In my view, this is just plain hysteria and not uncommon in certain corners when one dares suggest curbing some of the special rules granted to Internet companies. [Speaking of special rules for online companies, there's one other issue here that's relevant, and that's Section 230 of the Communications Decency Act. That's a federal law that protects websites from state law liability for content posted by others. That's likely why Garcia sued on a copyright infringement claim as opposed to, say, false light or some other tort claim]. The fact is that most (legitimate) filmmakers have their actors execute written assignments prior to filming. The "copyright in performance" argument only works if the subjects actively participated in the creation of the work so it would not include, for example, subjects who were captured on film without their knowledge or who did not "perform". So what's left? Subjects who actively participated in their performance and did so without a written assignment (or where the written assignment was obtained through fraud) but later - for whatever reason - wanted his or her performance removed from YouTube or another online site.
Now let's think about that a minute. Most people will not ask for clips to be removed unless they feel there is something invasive or embarrassing about their appearance in it. (Revenge porn victims come to mind and Prof. Derek Bambauer has already proposed using copyright to address it). In that case, why not remove it? Given the unforgiving nature of the Internet and the possibility of humiliation or worse on a mass scale, it seems that Google should exercise the caution of taking down the clip and allowing the parties to resolve their rights in court. If the clip stays up while the case is being litigated, well, the harm is done regardless of who ultimately wins in court.
This case is a good one to illustrate the irreparable harm concept. The posting of the clip resulted in threats to Garcia's life. Given the hate (aka fatwa, threats against her life) Garcia was feeling after the clip appeared, the deception involved in getting her to participate (and the fact that part of her performance was dubbed over so it appeared that she was speaking "fighting words" that she never uttered), the ability of the filmmakers to post the clip without her brief appearance (yes, video editing tools are available....), the inability of Garcia to have the clip removed on other grounds because of Section 230 of the CDA and - of most relevance to readers of this blog - the fact that the filmmakers might have avoided this whole mess by having her sign a release and explaining to her the true nature of the film -- given all that, I, unlike many in the blogosphere, applaud the decision.
We're not talking about a common situation here so all the hysteria about the death of Youtube is greatly exaggerated. Nobody is killing the Internet here. Google will still be a multi-billion dollar company that scans our emails and chips away at our privacy while pretending to guard our "free speech." Nothing will change much. As Kozinski writes, "It is not irrelevant that the harm Garcia complains of is death or serious bodly harm." Furthermore, as the opinion notes, the filmmaker "lied to Garcia about the project in which she was participating. Her performance was used in a way that she found abhorrent and her appearance in the film subjected her to threats of physical harm and even death. Despites these harms, and despite Garcia's viable copyright claim, Google refused to remove the film from YouTube. It's hard to see how Google can defend its refusal on equitable grounds, and indeed, it doesn't really try." Bravo Kozinski, for not being bullied by the almighty Google and for standing firm on a case that was sure to attract the wrath of the Internet yahoos.
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Monday, March 17, 2014
An employee sues his employer for age discrimination and retaliation. The parties reach an $80,000 settlement agreement pursuant to which the existence and terms of the settlement are to be kept “strictly confidential.” The employee is only allowed to tell his wife, attorneys and other professional advisers about the settlement. A breach of the agreement will result in the “disgorgement of the Plaintiff’s portion of the settlement payments,” although the attorney would, in case of a breach, be allowed to keep the separately agreed-upon fee for his services. The employee tells his teenage daughter about the settlement and being “happy about it.” Four days later, she boasts to her 1,200 Facebook friends:
“Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”
The employer does not tender the otherwise agreed-upon settlement amount, citing to a breach of the confidentiality clause of the contract. The employee brings suits, wins at trial, but loses on appeal. The employee’s argument? He felt that it was necessary to tell his daughter “something” about the agreement because, some sources state, she had allegedly been the subject of at least some of the retaliation against her father.
The appellate court emphasized the fact that the agreement had called for the employee not to disclose “any information” about the settlement to anyone either directly or indirectly. Settlement agreements are interpreted like any other contract. Thus, the unambiguous contractual language “is to be given a realistic interpretation based on the plain, everyday meaning conveyed by the words,” according to the court. The employee did precisely what the confidentiality agreement was designed to prevent, namely advertise to the employer’s community that the case against them had been successful.
What could the employee have done here if he truly felt a need to tell his daughter about the deal? Pragmatically, he could have made it abundantly clear to his daughter that she was not to tell anyone, obviously including her thousands of Facebook “friends,” about it. Hopefully she would have abided by that rule... The court pointed out that the employee could also have told his attorney and/or the employer about the need to inform his daughter in an attempt to reach an agreement on this point as well. Having failed to do so, “strictly confidential” means just that. As we know, consequences of breaches of contract can be ever so regrettable, but that does not change any legal outcomes.
The case is Gulliver Sch., Inc. v. Snay, 2014 Fla. App. LEXIS 2595.
Sunday, March 16, 2014
An article in the LA Times explains how one customer's claim for insurance from AT&T Mobile Insurance resulted in nothing but headache and a lighter wallet.
A new iPhone 5s can cost a couple of hundred dollars so Marianna Yarovskaya thought it was a good idea to purchase phone insurance. Yarovskaya purchased the insurance from AT&T Mobile Insurance for $6.99 a month so that if her phone was lost, stolen or damaged, she could get a replacement. But she didn't read the very fine print - and even if she had, she probably wouldn't have understood what it meant.
While on an overseas trip, her iPhone was stolen and she submitted a claim to Asurion, AT&T's partner and insurance provider. Asurion explained that because she enrolled on the trip while she was outside of AT&T's network (she was in Indonesia) she wasn't covered under the plan.
There are a few sneaky things about this provision and Asurion's use of it. First, it seems that if you are going to exclude coverage for those outside a territory, that you should not permit them to sign up while they are outside that territory. You might reasonably assume that if a company is allowing you to purchase insurance while you are out-of-network, that they will cover you as of that time. Remember, we are talking about replacing a phone, not providing coverage.
The second sneaky thing is that the exclusion was emailed to her after she had signed up for coverage, aka a "rolling contract." I'm not necessarily against emailed terms after a transaction - but the type of terms really matters. If they addressed issues that the consumer should expect, then no problem. For example, an acceptable exclusion for damage coverage might be intentional misuse. But this exclusion undermines the very purpose of the insurance.
The third sneaky thing was that the exclusion was buried on page eight of the nine pages emailed to the consumer. Not conspicuous at all.
Furthermore, David Lazarus points out that the exclusion was not contained in the section on "eligibility," which a consumer might read, but in the "definitions" section.
Finally, even if she had read the terms all the way through to the page 8 definitions, it's doubtful that she would have understood the meaning of "covered property" as "actively registered on the service provider's network and for which airtime has been logged after enrollment," to mean that she had to use the phone on the carrier's network after coverage before that phone would be considered covered.
Don't get me wrong - I think I understand the reason for the exclusion. AT&T probably wants to guard against opportunistic consumers who might purchase the insurance after losing their phone. But it seems there are much better and more consumer friendly ways to do this. In this case, they could have called her to verify the phone was still in her posssession (or asked her to call) before activating her insurance account and charging her. It seems that the burden should be on the insurer to verify that the insured is eligible, not the other way around. It also seems irksome to use a fine print provision that will always work against the consumer in this situation than instituting some corporate policy (like calling the consumer as part of initiating coverage) that would weed out opportunistic consumers from good faith ones that are seeking coverage.
My guess is that Yarovskaya is unlikely to sue over this contract becaues the dollar amount is too low to warrant legal fees. Furthermore, there's probably a mandatory arbitration clause and a class action waiver that would create procedural hurdles. Bottom line? It will require more vigilance to understand AT&T Mobile's Insurance contract than it will be to just guard your phone more carefully when traveling.
Wednesday, March 12, 2014
For those of you who made the wide choice to avoid Miami in February (highs in the 80s, lows in the 70s -- it was hell!), you can still enjoy the experience of hearing the papers presented at last month's conference. The conference organizer, Jennifer Martin, is in the process of making all the sesions availalbe here.
Here's a taste, Robin West's luncheon address:
Ahh, the memories.
Garrick Apollon, Sino-American Contract Bargaining and Dispute Resolution, 13 Pepp. Disp. Resol. L.J. 385 (2013)
Frank O. Brown, Jr., Construction Law, 65 Mercer L. Rev. 67 (2013)
Richard F. Brown, Oil, Gas, and Mineral Law, 66 SMU L. Rev. 1003 (2013)
Dean A. Calloway & Dan M. Silverboard, The Georgia Taxpayer Protection and False Claims Act. 65 Mercer L. Rev. 1 (2013)
Boris Kozolchyk, Drafting Commercial Practices and the Growth of Commercial Contract Law, 30 Ariz. J. Int'l & Comp. L. 423 (2013)
Colin P. Marks, Not What, but When Is an Offer: Rehabilitating the Rolling Contract, 46 Conn. L. Rev. 73 (2013)
Tuesday, March 11, 2014
According to Russian media, China has sued Ukraine for $3 billion, claiming Ukraine breached a loan-for-grain contract.
Under the loan-for-grain contract signed in 2012, the Export-Import Bank of China provided the loan to Kiev in exchange for supplies of grain.
Ukraine's State Food and Grain Corporation used part of the $3 billion Chinese loan to instead provide crops for other countries and parties, including Ethiopia, Iran, Kenya and the Syrian opposition groups, the ITAR-TASS news agency reported, citing a Ukrainian parliament official.
The contract stipulated annual supply of a maximum 6 million tonnes of Ukrainian grain for a 15-year period.China also delivered half of the agreed loan to Ukraine last year and Ukraine had planned to export four million tonnes of grain to China.
However, Chinese importers have so far received only 180,000 tonnes of grain, worth $153 million, from Ukraine, the report said.
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Monday, March 10, 2014
As the New York Times reports here, dancers with the New York City Ballet (NYCB) have been operating without a contract since the summer of 2012. No details of the agreement are available, beyond the fact that the dancers are guaranteed pay for 38 weeks of work now, up from 37.
A bit of quick internet research suggests that a member of the NYCB corps de ballet makes $1500 a week. Let's assume the new contract is more generous and round up to $2000/week. If they get paid for 38 weeks of work, that comes out to $76,000/year, which is a good salary in New York City, so long as you can share a studio apartment in an outer borrough with two or more other members of of the corps (or you can marry and investment banker). There was a bit of controversy about five years ago when tax returns for Peter Martins, the NYCB's Ballet Master-in-Chief, surfaced and revealed that he made about $700,000. Some of that money comes from royalties he earns on his choreographies. In any case, it seems that was considered a lot of money for a dancer.
To put that in some perspective, the median salary for an NBA player is $1.75 milion, if we include players on short-term contracts. The top salary exceeds $30 million, and the lowest salary, as of the 2011-12 season according to nba.com, was just under $500,000 for a rookie.
And now, here is the New York City Ballet performing an excerpt from George Balanchine's Agon
Friday, March 7, 2014
A New Mexico law permits a court to strike down as unconscionable arbitration agreements that apply only or primarily to claims that only one party would bring. That is, if an arbitration agreement is drafted so that one party always has to go to arbitration while the other party can always go to court, such an agreement may well be unconscionable. In THI of New Mexico at Hobbs Center, LLC v. Patton, a Tenth Circuit panel unanimously held that the Federal Arbitration Act (FAA) preempts the New Mexico law. The Court reversed the District Court's ruling and remanded the case for the entry of an order compelling arbitration.
Lillie Mae Patton's husband was admitted to a nursing home in Hobbs, New Mexico operated by THI. When he was admitted, he agreed to an arbitration clause that required "the parties to arbitrate any dispute arising out of his care at the home except claims relating to guardianship proceedings, collection or eviction actions by THI, or disputes of less than $2,500." After he died, Ms. Patton sued THI on behalf of his estate, alleging negligence and misrepresentation. THI brought a claim in the federal district court to compel arbitration. At first, the District Court granted THI the relief it sought, but it reversed itself when the New Mexico Supreme Court found an identical arbitration clause unconscionable in Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 306 P.3d 480 (N.M. Ct. App. 2012).
The Tenth Circuit reviewed the legislative purposes underlying the FAA and the case law firmly establishing the view that arbitration agreements are to be enforced notwithstanding federal statutes that seemd to imply hostility to arbitration or state law invalidating arbitration agreements. While a court may invalidate an arbitration agreement based on common law grounds such as unconscionability, it may not apply the common law in a way that discriminates against arbitral fora. Assuming that the agreement did indeed consign Ms. Patton to arbitration while allowing THI to bring its claims in court, and accepting the Figueroa Court's holding that the agreement is unsconscionable, the Tenth Circuit found that "the only way the arrangement can be deemed unfair or unconscionable is by assuming the inferiority of arbitration to litigation." However, "[a] court may not invalidate an arbitration agreement on the ground that arbitration is an inferior means of dispute resolution. As a result, the Court found that the FAA precludes Ms. Patton's unconscionability challenge to the enforceability of the arbitration agreement.
The Court distinguished this case from a Fifth Circuit case, Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 168–71 (2004), in whichthe Fifth Circuit found an arbitration agreement to be unenforceable where one party's claims had to be arbitrated while the other's could be either litigated or arbitrated. On the Court's reading of the arbitration agreement, THI did not have the option of arbitrating its claims; it would have to go to court. Rather ominously, the Tenth Circuit expressed its doubt about the Fifth Circuit's reasoning in Iberia Credit that having the option to choose between arbitration and litigation was superior to having arbitration as the only option.
There is a remarkable formalism to the Tenth Circuit's opinion. Absolutely nothing that smells of denigration of arbitration is permissible. The Court does not inquire into what might have motivated THI to provide that it gets to go to court with its claims, while its patients have to go to arbitration. Given that THI drew up the contract, that seems a relevant line of inquiry. If THI exploited its superior bargaining power and knowledge to create an unreasonably lopsided agreement that would not be detectable by the average consumer, the arbitration agreement is unconscionable and should not be enforced. Refusing to do so is not a global rejection of arbitration but a recognition that both litigation and arbitraiton have their advantages and disadvantages. The Tenth Circuit's approach permits the party with superior bargaining power exploit its superior knowledge to extract benefits from form contracts to which the other party cannot give meaningful assent.
Thursday, March 6, 2014
Educating the Transactional Lawyer of Tomorrow
Emory University School of Law – June 6-7, 2014
Emory’s Center for Transactional Law and Practice is delighted to announce its fourth biennial conference on the teaching of transactional law and skills. The conference, entitled “Educating the Transactional Lawyer of Tomorrow,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 6th and ending at 3:45 p.m. on Saturday, June 7th.
REGISTRATION AND HOTEL
The registration fee for the Conference is $179.00. It includes a pre-Conference lunch beginning at 11:30 a.m., snacks, and a reception on June 6, and breakfast, lunch, and snacks on June 7. We are planning an optional dinner for attendees on Friday evening, June 6, at an additional cost. Attendees are responsible for their own hotel accommodations and travel arrangements. Registration closes Friday, May 30, 2014.
Special hotel rates for conference participants are available at the Emory Conference Center Hotel, less than one mile from the conference site at Emory Law. Subject to availability, rates are $129 per night.
Free shuttle transportation will be provided between the Emory Conference Center Hotel and Emory Law. To make a reservation, call the Emory Conference Center Hotel at 800.933.6679 and reserve under “The Emory Law Transactional Conference” to obtain the special conference rate.
CALL FOR PROPOSALS
We are accepting proposals immediately, but in no event later than 5 p.m. on Monday, March 17, 2014. We welcome proposals on any subject of interest to current or potential teachers of transactional law and skills, focusing particularly on our overarching theme: “Educating the Transactional Lawyer of Tomorrow.” We expect to address questions like the following:
- What is the shape of the future employment market for transactional lawyers? Will our students be working at law firms (small, medium, large), as solo practitioners, as in-house counsel, as government attorneys, or as degreed attorneys not practicing law?
- Who will be the transactional lawyers’ clients? Individuals? Small to mid-sized businesses? Large businesses?
- How do we best educate our students to become transactional attorneys in each kind of practice setting for each kind of client?
- In what particular areas of the law will transactional attorneys be most needed? Administrative Law and Regulatory Practice, Health Law, Intellectual Property Law, and International Business Law, to name a few?
- What are the current best practices for teaching students about each area of transactional law?
- What skill sets and competencies do legal employers expect new transactional attorneys to possess?
- What innovative techniques and technology can we use to enhance the teaching of transactional law and skills?
- How can we teach ethics and professionalism within our transactional law and skills courses?
- How can we assess the students’ progress toward developing the competencies and professionalism required of effective transactional lawyers?
In addition to proposals addressing the overarching questions listed above, we hope to receive proposals that address and update topics that we have considered in past conferences, such as:
- Teaching doctrinal transactional law courses
- Teaching contract drafting and other critical deal skills
- Teaching transactions in an international setting
- Teaching transactional skills within first-year doctrinal courses
Each session will be approximately 80 minutes long. We invite you to present your topic individually or with a panel of other participants and we encourage you to make your presentation creative and interactive. We look forward to receiving your proposals so that we can finalize the Program.
As in prior years, the proceedings of the Conference as well as the materials distributed by speakers will be recorded and published in Transactions: The Tennessee Journal of Business Law, a publication of the Clayton Center for Entrepreneurial Law of The University of Tennessee. Your remarks will be transcribed and you will have the opportunity to edit them. You will also be asked to sign a release permitting publication and broadcast.
Please submit the attached proposal form electronically via the Emory Law website at https://emorylaw.wufoo.com/forms/2014-conference-proposals/ before 5 p.m. on Monday, March 17, 2014.
Beginning March 1, 2014, you can also register for the Conference at our Emory Law website at https://emorylaw.wufoo.com/forms/2014-emory-law-conference-registration/.
If you encounter any technical difficulties in submitting your proposal or in registering online, please contact Edna Patterson, Conference Coordinator, at firstname.lastname@example.org or 404.727.6506.
Wednesday, March 5, 2014
As a follow-up on Nancy's post from last week on Nutrition Labels and Wrap Contracts, I would like to call attention to a new paper posted on SSRN by my colleague Nicole Negowetti (pictured). The paper is called Defining "Natural" Foods: The Search for a "Natural" Law, and here is the abstract:
Because the FDA has refused to codify a uniform or enforceable definition of “natural” food, each food manufacturer determines its own standard for the term. Unlike the certified organic label, no government agency, certification group, or other independent entity ensures that “natural” claims have merit. Generally, the term “natural” means that a food has been minimally processed, contains no artificial ingredients or preservatives, is healthy and wholesome. However, food producers are not prohibited by law from using pesticides, genetically modified crops, fumigants, solvents, and toxic processing aids. Consumers and food producers are both disadvantaged by the inconsistent meanings and uses of the term. Recent surveys demonstrate that while consumers demand “natural” products, they are confused regarding the term’s meaning. A proliferation of consumer protection lawsuits against food producers has flooded the courts over the past two years. Food producers truly committed to producing “natural” products are competing with manufacturers who loosely interpret the term, produce and sell cheaper, inferior, and not-so-“natural” products. In light of the FDA’s reluctance to codify a “natural” definition, this Article will evaluate the recent decisions in the “natural” lawsuits and the attempts by courts, legislatures, the food industry, and retailers to establish a “natural” standard. The Article concludes that the search for an enforceable and comprehensive “natural” standard is futile. It predicts that the term “natural” has proven to be so confusing to consumers that the significance of the term has likely been diluted. Furthermore, because the claim has been so legally troublesome for food manufacturers, use of “natural” on food labels will surely be on the decline.