ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, June 3, 2014

Texas Supreme Court Finds Settlement Agreement Was Formed Although Mirror Image Rule Not Satisfied

Texas SealAfter two employees of Amedisys, Inc. (Amedisys) went to work for its competitor, Kingwood Home Health Care, LLC (Kingwood), Amedisys sued Kingwood for tortious interference.  The two parties then engaged in a game of legal chicken.  Amedisys threatened that it would not settle below six figures.  Kingwood responded with a settlement offer of $90,000, expecting that Amedisys would reject the offer and trigger Rule 167 of the Texas Civil Practice and Remedies Code, which would allow Kingwood to recover litigation costs if the case went to trial and resulted in a judgment considerably less favorable to Amedisys than the settlement offer.

Amedisys accepted the settlement offer.  This apparently was not what Kingwood wanted or expected, and Kingwood refused to treat Amedisys's response as an acceptance.  Kingwood proceeded with some pre-trial motions, and Amedisys filed an emergency motion for the enforcement of the settlement agreement.  Kingwood claimed that the settlement agreement lacked consideration and that it was fraudulently induced by Amedisys's statement that it would not settle for less than six figures.  Note that Kingwood is thus effectively admitting that it made its settlement offer only in order to avail itself of Rule 167.  After a few more procedural complexities, the trial court granted Amedysis's motion to have the settlement agreement enforced.

On appeal, in addition to its allegations that the settlement agreement lacked consideration and was fraudulently induced, Kingwood claimed that Amedisys's purported acceptance was a counteroffer because it did not match the terms of Kingwood's offer.  While Kingwood offered $90,000 "to settle all claims asserted or which could have been asserted by Amedisys,” Amedisys agreed to accept $90,000 "to settle all monetary claims asserted."  Despite the fact that this argument was first raised on appeal, the Texas Court of Appeals agreed with Kingwood and reversed the trial court's judgment in favor of Amedisys.

Texas FlagThe Supreme Court found that the Court of Appeals acted correctly in considering Kingwood's argument, raised for the first time on appeal, that no contract existed.  Amedisys, as the moving party, bore the burden of proving each element of its claim that Kingwood had breached a contract, including proof of the existence of a contract.  

[Editorializing here: This seems more than a bit off to me.  Amedisys likely thought it had proved the existence of a contract when it presented evidence of offer and acceptance.  At the trial court, Kingwood did not raise any claims that the acceptance was invalid based on the difference in wording between offer and acceptance.  Why should Kingwood be permitted to sit on its legal arguments and save them for appeal?  By not raising them in opposition to Amedisys's motion, Kingwood should have been treated as having waived those arguments.  Otherwise, Amedisys would have to attempt to guess every possible legal challenge that Kingwood might raise to its claims and put them in its motion papers.  In the process, Amedisys would be required to aniticipate every conceivable counterargument to its position, raise and refute each argument.  This places an intolerable burden on the movant.]

While the common law does provide that an acceptance may not qualify or change the material terms of an offer, the Texas Supreme Court found that the differences between offer and acceptance in this case were not material given the full context of the exchanges between the parties.  Amedisys made clear its intention to accept Kingwood's offer on the terms Kingwood presented.  Moreover, there were no additional claims that Amedisys might potentially bring, as the doctrine of res judicata would bar Amedisys for bringing additional, related claims once the suit had been settled.  

Because the Court of Appeals declined to rule on Kingwood's additional defenses, the Supreme Court remanded the case back to the Court of Appeals for resolution of those issues.

For those who would like to explore the Mirror Image Rule with students, this is a pretty interesting case, and the Texas Supreme Court provides a video recording of the oral arguments, so that would be pretty cool to share with students as well.

June 3, 2014 in Commentary, Recent Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

SSRNSSRN Top Downloads For Contracts & Commercial Law eJournal
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 785 Aftermarketfailure: Windows XP's End of Support 
Andrew Tutt 
Yale University - Information Society Project 
2 156 The FTC and Privacy and Security Duties for the Cloud 
Daniel J. Solove and Woodrow Hartzog 
George Washington University Law School and Samford University - Cumberland School of Law 
3 132 Public-Private Contracting and the Reciprocity Norm 
Wendy Netter Epstein 
DePaul University - College of Law 
4 124 Payment after Actavis 
Michael A. Carrier 
Rutgers University School of Law - Camden 
5 100 From Status to Contract: The Unhappy Case of Johann Sebastian Bach 
Jonathan Yovel 
Yale Law School; NYU School of Law - Straus Institute for the Advanced Study of Law and Justice; University of Haifa - Faculty of Law
6 93 Personal and Proprietary Remedies for Breach of Confidence: Nearer to Breach of Fiduciary Duty or Breach of Contract? 
Graham Virgo 
University of Cambridge - Faculty of Law 
7 83 The Europeanisation of Contract Law and the Proposed Common European Sales Law 
Hector Lewis MacQueen 
University of Edinburgh - School of Law 
8 81 Good Faith in Contract: Why Australian Law is Incoherent 
John Carter 
University of Sydney - Faculty of Law 
9 80 Financial Fair Play ou "Oligopoleague" de clubs rentiers: Elements d'analyse en droit de la concurrence ('Financial Fair Play' or Rent-Seeking 'Oligopoleague'?: A Preliminary Analysis of the UEFA's Break Even Requirement Under the EU Competition Rules) 
Nicolas Petit 
University of Liege 
10 73 The Incoherent Role of Bargaining Power in Contract Law 
Max N. Helveston and Michael S. Jacobs 
DePaul University - College of Law and DePaul University - College of Law 

SSRN Top Downloads For LSN: Contracts (Topic)
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 171 The Evolving Private International Law/Substantive Law Overlap in the European Union 
Ronald A. Brand 
University of Pittsburgh - School of Law 
2 140 Public Lands and the Federal Government's Compact-Based 'Duty to Dispose': A Case Study of Utah's H.B. 148 — The Transfer of Public Lands Act 
Donald J. Kochan 
Chapman University, The Dale E. Fowler School of Law
3 132 Public-Private Contracting and the Reciprocity Norm 
Wendy Netter Epstein 
DePaul University - College of Law 
4 100

From Status to Contract: The Unhappy Case of Johann Sebastian Bach 
Jonathan Yovel 
Yale Law School; NYU School of Law - Straus Institute for the Advanced Study of Law and Justice; University of Haifa - Faculty of Law

5 93 Personal and Proprietary Remedies for Breach of Confidence: Nearer to Breach of Fiduciary Duty or Breach of Contract? 
Graham Virgo 
University of Cambridge - Faculty of Law 
6 83 The Europeanisation of Contract Law and the Proposed Common European Sales Law 
Hector Lewis MacQueen 
University of Edinburgh - School of Law 
7 81 Good Faith in Contract: Why Australian Law is Incoherent 
John Carter 
University of Sydney - Faculty of Law 
8 73 The Incoherent Role of Bargaining Power in Contract Law 
Max N. Helveston and Michael S. Jacobs 
DePaul University - College of Law and DePaul University - College of Law 
9 65 Refining Rectification 
David McLauchlan 
Victoria University of Wellington - Faculty of Law 
10 63 Beauty and Ugliness in Offer and Acceptance 
Kenneth K. Ching 
Regent University - School of Law 

June 3, 2014 in Recent Scholarship | Permalink | TrackBack (0)

Monday, June 2, 2014

Divided Mississippi Supreme Court Strikes One-Sided Arbitration Clause as Unconscionable

Mississippi SealPlaintiffs in Caplan Enterprises, Inc. v. Ainsworth signed two versions of a delayed-deposit agreement with a business called Zippy Check.  The agreements included two versions of arbitration clauses that applied to all of plaintiffs' potential claims, but Zippy Check remained free to pursue all judicial remedies.  In addition, plaintiffs' potential damages were limited to the price paid by plaintiffs for services rendered.

In 2010, plaintiffs brought actions against Zippy Check, alleging fraudulent misrepresentation and predatory lending.  Zippy Check moved to compel arbitration.  The trial court found the aribtration clauses in both versions of the agreement to be unconscionable and unenforceable.  The appellate court found only one version to be unenforceable.  The Mississippi Supreme Court agreed with the trial court.  Its analysis focused on the substantive unconconscionability of the arbitration clauses.  Apparently, a showing of substantive unconscionability alone is enough in Mississippi, at least in connection with adhesion contracts.  The Supreme Court concluded that while arbitration agreements need not impose identifical obligations on each side, "under the particular facts of this case, the arbitration agreements were unreasonably favorable to Zippy Check, oppressive, unconscionable, and unenforceable."

Two dissenting Justices found that plaintiffs had not demonstrated procedural unconscionability because "plaintiffs presented no evidence that they were 'prevented by market factors, timing[,] or other pressures from being able to contract with another party on more favorable terms or to refrain from contracting at all.'"  The dissenting Justices also noted that Mississippi does not require mutuality of obligation in arbitration clauses and thus found no substantive unconscionability in the arbitration agreements at issue in the case.

June 2, 2014 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

New in Print: Books, Part III

Stefan Grundmann, et al. (eds.), The Organizational Contract: From Exchange to Long-Term Network Cooperation in European Contract Law (Ashgate 2013)

  • Organizational ContractThis book introduces and develops the paradigm of the organisational contract in European contract law. Suggesting that a more radical distinction should be made between contracts which regulate single or spot exchanges and contracts that organize complex economic activities without creating a new legal entity, the book argues that this distinction goes beyond that between spot and relational contracts because it focuses on the organizational dimension of contracting and its governance features. Divided into six parts, the volume brings together a group of internationally renowned experts to examine the structure of long-term contractual cooperation; networks of contracts; knowledge exchange in long-term contractual cooperation; remedies and specific governance rules in long-term relationships; and the move towards legislation. The book will be of value to academics and researchers in the areas of private law, economic theory and sociology of law, and organizational theory. It will also be a useful resource for practitioners working in international contract law and international business transaction law.

  • Contents: Preface: Society of European Contract Law (SECOLA): Part I Overview: The contractual basis of long-term organization - the overall architecture, Stefan Grundmann, Fabrizio Cafaggi and Giuseppe Vettori. Part II The Structure of Long-Term Contractual Cooperation: Dissecting long-term contracts: a law and economics approach, Mireia Artigot i Golobardes and Fernando Gómez Pomar; Contractual networks, contract design, and contract interpretation: the case of credit cards, Clayton P. Gillette; The lion, the fox and the workplace: fundamental rights and the politics of long-term contractual relationships, Chantal Mak. Part III Network of Contracts: ‘And if I by Beelzebub cast out devils…’: an essay on the diabolics of network failure, Gunther Teubner; Contracts with network effects: is the time now right?, Roger Brownsword; Networks of contracts and competition law, Michael Martinek. Part IV Knowledge Exchange in Long-Term Contractual Cooperation: Good faith related duties of disclosure and a view on franchising, Massimo Bianca; Trade secrets vs skill and knowledge, Aurea Suñol; Long-term relationships: networks and exchange of knowledge in production and distribution contracts, Marco Gobbato. Part V Remedies and Specific Governance Rules in Long-Term Relationships: Contract remedies - a relational perspective, Yehuda Adar and Moshe Gelbard; Contract governance within corporate governance: a lesson from the global financial crisis, Florian Möslein. Part VI Towards Legislation?: The nemesis of European private law: contractual nexus as a legislative conundrum, Marc Amstutz; Towards a legal framework for transnational European networks?, Fabrizio Cafaggi and Stefan Grundmann; Index.

June 2, 2014 in Books, Recent Scholarship | Permalink | TrackBack (0)