Friday, August 26, 2016
I have witnessed with interest the evolving story of what exactly happened in Rio involving Ryan Lochte the morning of August 14. Initially Lochte claimed he had been robbed at gunpoint. I later heard through the gossip mill that that story was untrue and that Lochte had in fact beat up some security guards. That turned out, it seems, just to be rumor-mongering, but the story has continued to evolve from there, with both Lochte and the Rio police making statements that later seem untrue, or only partially true, or exaggerated. Slate has a good run-down of the changing versions of Lochte's story, although it's from a week ago. Now Lochte has been charged with filing a false police report, since it does seem clear at this point that no robbery happened. Even that, however, is confusing to parse if you read a lot of articles about it: It seems like the crime is more accurately making a false communication to police, as some articles have eventually stated, since there are conflicting reports about whether a police report was ever filed.
In the wake of this whole mess, Lochte has lost several of his sponsorship deals (although he's also picked one up). It's unclear, because the contracts don't seem to be public, whether this is a choice of just not renewing the contract (apparently that's the case with Ralph Lauren) or if a violation of a morals clause is being invoked to allow cancellation of the contract (which might be what's going on with Speedo). All of this provokes an interesting morals-clause conversation to me, and we had a bit of discussion about it on the Contracts Professors listserv. It seems clear that Lochte engaged in some sort of inappropriate behavior, and it seems also clear that whatever that behavior was, even the most minor version of the story is arguably a violation of any morals clause out there.
What is most clear is that, no matter what really happened, this has definitely served to tarnish his reputation, and that's is what's striking to me. This story has taken on an enormous life of its own, with many differing versions of it floating around the Internet. This situation has been caused, of course, by Lochte's many differing stories, together with some apparent conflicting statements by the Rio police, coupled with reporting that may have been less than precise itself in describing what was going on. One online story details all the conflicting information and asks the individual reader what they believe about the story.
While this particular maelstrom seems to have some basis in fact, it's not difficult to imagine something like this getting out of control without such justifying behavior at the root of it. Morals clauses tend to be about perception, but does that mean you can manipulate the perception of someone, through no real fault of their own? Take, for instance, the "Ted Cruz is the Zodiac Killer" meme that was popular on the Internet earlier this year. Ted Cruz wasn't born until after some of the Zodiac killings had happened, so he obviously could not have been the Zodiac Killer, and in fact some people interviewed about the meme noted that was the point: what they were saying was impossible. Nevertheless, it was reported that polls indicated 38% of those surveyed thought he might, in fact, be the Zodiac Killer, despite the impossibility. If a substantial number of people start thinking you did something you absolutely did not do, is that enough for a morals clause to be violated, because of the perception that you did it?
Thursday, August 25, 2016
The New York Times reports here (paid access) on the increasing use of so-called “rent-to-own” housing contracts. Under these contracts, companies from big Wall Street giants to a slew of small landlords hoping to strike it rich lend or, should I say, purport to sell homes to tenants who contractually commit to make all repairs on the homes no matter how major or minor (yes, you read that right: all repairs… and it gets more extreme than that, read on!). Typically, tenants under such contracts are not told what repairs are needed, yet face a contractual deadline for making sure that the houses in question are brought up to local code. Unlike most typical home purchases, rent-to-own contracts do not require the tenant/buyer to obtain an independent home inspection.
We probably all know how many things can go wrong with older homes, even newer ones. Examples of how bad things can go in this context thus abound. One tenant moved into a home not having been told that it had several unresolved building code violations and had to remain vacant by city order. Another moved into a home that had no heat, no water, and major problems with its sewage system that led to nearly $10,000 in repairs (many of these homes have been purchased by the lender for less than $10,000 and are not worth very much more than that, if any). A third example describes a woman moving into a home with her three children and partner in Michigan, living in the house during cold winter with the only heat sources being one electric heater and a wood-burning stove in the kitchen, only to be evicted and charged $3,100 in overdue rent after she stopped paying rent because of the heat issue.
People who accept these kinds of contracts often do not qualify for mortgages. Banks have virtually stopped making mortgages on homes worth less than $100,000, which leaves millions of people with few options for - now or one day - owning their own homes.
One company that rents homes on a rent-to-own basis does so “as is,” calling the contracts “hybrid leases” that allow people to build up “implied equity.” If tenants are evicted during the contract (typically of a seven-year-duration), they get no credit for money spent on repairs or renovations. Neither do they receive any equity unless they actually end up buying the home at the end of the contract term. At that point, they still need financing for the home which, as mentioned, many people just cannot obtain.
A number of legal questions arise in this context, among them several contractual ones such as the role of caveat emptor vs. the violation of a possible duty to disclose. If the landlords know of the problems from which many of these houses suffer, should they disclose this knowledge? On the other than, shouldn’t these potential (long-term) buyers be presumed to have at least enough savvyness to not promise to bring a home that they do not own outright up to Code by a certain deadline? Then again, are landlords fraudulent in their dealings with these folks when the landlords require such potentially extensive repairs when, as the owners of the homes, they presumably if not actually have actual knowledge of the problems from which these houses suffer? What about the statement that renters get “implied equity?” What in the world does that mean, if anything? Do low-income folks that may never have been homeowners truly understand what it means to bring a home “up to Code” and buying “as is?” Does it matter? And what about the doctrine of unconscionability, which is alive and well in some states such as California? If nothing else, this case seems to smack of both procedural and substantive issues.
In some states, landlords are required to keep homes and apartments in habitable condition. But rent-to-own contracts have, for good reason, been said to reside in a gray area of the law: are they rental contracts? - Or purchase contracts? Or something else?
Further, rent-to-own contracts may, to some extent, resemble contracts for deeds. However, the latter are subject to basic consumer-lending regulations such as the Federal Truth in Lending Act.
The housing market again seems to host highly questionable practices. This story almost reads as a contract or property law issue-spotting exam. Meanwhile, housing sharks seem to be swimming relatively freely in some areas of the nation.
For further information, see Alexandra Stevenson and Matthew Goldstein, Rent-to-own Homes: A Win-Win for Landlords, a Risk for Struggling Tenants, the New York Times, Aug. 21, 2016.
Monday, August 22, 2016
In a move that demonstrates how contracts for various aspects of marijuana products and services are going mainstream, Microsoft Corp. has accepted a contract to make marijuana-tracking software available for sale on its cloud computing platform. The software is developed by “cannabis compliance technology” Kind Financial and allows regulators to track where and how much marijuana is being grown, sold or produced in real time. In turn, this lets the regulators know how much sales and other tax they should be collecting and from whom (maybe this is the beginning of the end of some growing marijuana plants in state and national parks to hide their activities from the government).
This contract – called a “breakthrough deal” because it is the first time that Microsoft ventures into the marijuana business - may end up enabling the software developer to capture as much as 60% of this very lucrative market. (Other companies with government contracts often end up with such a large market share.)
How did the company strike such a lucrative deal? You guessed it: by networking. Kind’s CEO was introduced by a board member to an inside contact in Microsoft.
Saturday, August 20, 2016
I apologize for my lack of blogging lately, but, you see, AT&T was supposed to have my Internet connected last Monday and still hasn't managed to get around to it, after a series of delayed appointments, canceled appointments, and appointments where no technician ever showed up. On Wednesday evening when I called to express my displeasure about all of this, I was told that my failure to accept the delays without complaining meant that they were now pushing my installation back even further, so that now I am looking at sometime next week.
Naturally, at a time when I will be teaching, so the Saga of Internet-less may drag on for a while.
I would love to examine my AT&T contract in detail to see what my rights (if any) are, but, of course, the contract requires me to have Internet access to get to it! So for the time being I am keeping my mouth shut and hoping AT&T decides to show up next week and then I will return to my regularly scheduled blogging!
Wednesday, August 10, 2016
This recent case out of the Bankruptcy Court for the Northern District of California, Ow v. Oropeza, Case No. 15-41959 CN (behind paywall), has a nice example of unconscionability. Well, not that unconscionabilty can be called "nice." But I know my students are always attracted to the doctrine of unconscionability as an argument but it can be difficult to find good examples of it being successful. Here, however, is one.
The relationship between Ow and the defendants in this case begins with a house that Ow had owned that was damaged by fire and became uninhabitable. Ow began living with friends or in motel rooms, eventually defaulted on the note on the house, and later declared bankruptcy.
Ow did not have the money to fix the house or to catch up on the payments he owed on the house. Enter a man named Freeman who proposed that he would pay the $24,000 owed to the bank on the house and keep the payments current until Ow could sell the house. In exchange, Freeman would receive $105,000, to be paid out of the proceeds of selling the house. Freeman ended up paying almost $39,000 on the house, until the sale that Freeman had helped facilitate fell through. At that point, Freeman stopped paying on the house.
The court examined the arrangement between Ow and the defendants and found it to be unconscionable. Freeman's expectation to receive $105,000 only a few months after investing at most $39,000 in the house amounted to an interest rate in excess of 250%. This interest rate wasn't justified by the low risk of Freeman's behavior, because Freeman approached Ow with prospective buyers already in hand and so knew the house should be sold quickly.
Procedurally, Ow was homeless when he was approached by Freeman, and he was desperate to save the house, where he had grown up. He had tried to restructure the loan with the bank but was unsuccessful. Ow, the court found, had no other options.
I feel like I've grown used to many courts being reluctant to find that people had no options. Here's an example of a situation otherwise.
Thursday, August 4, 2016
I might wish that more places would just tell me the end price without the extra fees, but, for now, I think the widespread acceptance of these fees in the course of transactions indicates they're here to stay for the time being.
Wednesday, August 3, 2016
Yesterday, Stacey noted how employers should be careful not to be too greedy when dealing with employees. Another example of the backlash – judicial or legislative – that may be the result if employers overstep what ought to be reasonable limits in interactions with their employees is a new law in Massachusetts that prohibits employers from asking job candidates about their salary history as part of the screening process or during an interview.
Why indeed should they be able to do so?! In a free market, freedoms cut both ways: just as an employee can, of course, not be sure to get any particular job at any particular salary, the employer also cannot be sure to be able to hire any particular employee! There is no reason why employers should enjoy financial insight about the employee when very often, employees don’t know about the salaries at the early stages of the job negotiation process. Both parties should be able to come to the negotiation table on as equal terms as possible, especially in this job market where employers already often enjoy significant bargaining advantages.
Massachusetts also requires Commonwealth employers to pay men and women equally for comparable work.
Contract-based payment systems have substantially supplanted the check-oriented payments contemplated by the Uniform Commercial Code over a half-century ago. Is there another commercial revolution waiting in the wings with mobile payments? In an insightful industry-focused piece at PYMNTS.com, Karen Webster shares observations on what enabled the mid-1990s success of debit cards and how those ingredients have not fallen into place (yet) today for mobile payment systems such as Apple Pay, Android Pay, and Samsung Pay. Some of the key paragraphs:
Debit ignited by leveraging existing technologies that could be easily enabled at merchants – or that already existed at those merchants – to enable payment via a checking account using a plastic mag stripe card. Mastercard and Visa simply used the technology merchants already had and paid for while the EFTs subsidized the technology that merchants would need to use their cards. No one expected merchants to go sink money in a new technology out of their own pockets.
That has not been the case with NFC and mobile payments.
We’ve unfortunately spent the last 10 years forcing mobile payments into an in-store NFC technology mold that hasn’t knocked the socks off of consumers by simply substituting a tap for a swipe and asked merchants to foot the bill. We’ve let technology drive mobile payment’s ignition strategy, instead of the value created when a consumer with a mini computer in her hand encounters a merchant who’d like to use that computing power to help him sell more stuff to her.
NFC as an ignition strategy has also ignored the many, many dependencies that such a strategy requires to get the critical mass needed to achieve ignition: enough merchants with enough NFC-enabled terminals, enough consumers with enough of the right handsets or cards and enough of a value proposition for both to care. Absent all three, mobile payments ignition is left up to chance: the hope that one day *something* might happen to move things along, and at that point, there’d be infrastructure in place to support it.
This view of the payments market and place of innovation strikes me as largely correct, though I must admit some of my sympathy comes from having recently written here about what payments law can learn from its past.
Despite all the technological innovation sweeping the payments arena, past comparison of the law and the markets suggest that Solomon got it right with the observation that there really is "nothing new under the sun."
Tuesday, August 2, 2016
One of the things I caution my students about is the danger of being greedy in a covenant not to compete. If you are in a jurisdiction that enforces such covenants, you still must be aware that courts frequently subject them to close examination. It might be true that in many cases, the employee subject to the over-restrictive covenant might simply accept it without challenging it, but a recent case out of the Fourth Circuit, RLM Communications, Inc. v. Tuschen, No. 14-2351 (you can listen to the case's oral argument here), serves as a reminder that a court can knock a covenant not to compete out of a contract and leave no protection at all in its place.
Tuschen was an employee of RLM who had the following non-compete in her employment contract:
While I, the Employee, am employed by Employer, and for 1 years/months afterward, I will not directly or indirectly participate in a business that is similar to a business now or later operated by Employer in the same geographical area. This includes participating in my own business or as a co-owner, director, officer, consultant, independent contractor, employee, or agent of another business.
Tuschen eventually resigned from RLM and went to work for a competitor, eScience, and RLM alleged that Tuschen had thereby breached her non-compete.
The Fourth Circuit, however, found that the non-compete was overbroad and therefore unenforceable. First it noted that it prohibited direct and indirect participation, which the court found inherently problematic, because it theoretically prevented Tuschen from, say, acting as eScience's realtor, landscaper, or caterer. Nor was the only problem with the covenant its use of the word "indirectly," which RLM argued could just be struck from the clause, leaving the rest of the clause enforceable and in place. The breadth of prohibition on Tuschen's actions, including to businesses that might be operated by RLM in the future, wasn't justified by RLM's business concerns. The non-compete's focus on the identity of the new employer, rather than on Tuschen's behavior in the new employment, was misplaced: RLM should have been more concerned about the risk that Tuschen would use secret RLM knowledge detrimentally, rather than concerned about who she was working for (directly or indirectly).
An interesting case, with some interesting things to say about non-competes (and also trade secret misappropriation). When you read the case, it becomes clear that the court thought Tuschen was in many ways a good employee for RLM who was not engaging in sketchy behavior. In fact, in the court's characterization, one of the things RLM complains about was that Tuschen took steps to make the transition within RLM for her replacement easier and more streamlined without seeking permission first. This whole case stands as a warning not to be overly aggressive with enforcement in situations where a court will find it inappropriate.
Wednesday, July 27, 2016
As anyone who's ever moved knows full well, it's a fraught process. Finding good movers can be challenging, and untangling the relationships between the parties involved in your move even more challenging: which company is storing, which company is packing, which company is renting the truck being used, which company owns the truck being used, which company employs the movers, etc. I've had moves go poorly enough that I've left a couple of scathing "beware!" reviews in places, but I've never gone to court, and so I never really thought through fully the challenges in litigating issues that might arise during a move.
A recent case out of Ohio, Nieman v. Moving Insurance, LLC, Appeal No. C-150666, made me finally consider them. Not a lot of details are given about what happened during the Niemans' move to prompt them to sue, but what we do learn is that they are suing about a move from Chicago to Cincinnati. The Niemans have sued multiple companies, probably because of how many companies get involved in a major interstate move like this. For instance, it seems to me that they're suing a moving company, a trucking company, and an insurance company (again, details aren't really given in the case). The Niemans signed contracts, of course, with each of these entities. Each of the contracts had a forum selection clause. One contract required that suit be brought in New Jersey. The other contracts required that suit be brought in Florida. The court here found that the Niemans were bound by the forum selection clauses. Therefore, rather than bringing suit in their current state and the place where the move concluded, the Niemans have to bring two suits, one in New Jersey, one in Florida.
I've blogged a lot about arbitration clauses, but I haven't blogged much about forum selection clauses. The court is dismissive here of the Niemans' arguments, which it characterizes as a matter of inconvenience rather than injustice. But surely there's a point where something becomes so inconvenient that it's no longer worthwhile, from a cost efficiency perspective, to pursue it, and in that case isn't some kind of injustice being wrought? I'm not saying necessarily that the Niemans deserve some kind of recovery from the moving companies. However, I could see how, if it was me, faced with a ruling that I had to bring two separate cases, procuring lawyers, etc., in states that aren't even in my time zone, I might decide it wasn't worth the effort and just drop it. And I don't think this is laziness on my part; I think this is practicality regarding the best use of my time and money at that point. Which, of course, means this definitely depends on the amount of damages I believed that I was owed, and therefore underlines that enforcing a forum selection clause in these circumstances means that there is some amount of liability that, as a practical matter, will almost never be assessed, even if it should be, because the costs of procuring that assessment are too high.
This is, naturally, an ongoing problem in the court system in general. Maybe because I am in the process of coordinating yet another move, this one really stood out to me today!
Monday, July 25, 2016
A recent case out of the Eastern District of Michigan, Burke v. Cumulus Media, Inc., Case No. 16-cv-11220 (behind paywall), has some interesting things to say about the impact of the Internet on non-competes you may be drafting.
In the case, the plaintiffs had a radio show on a Michigan radio station owned by Cumulus. Cumulus terminated the plaintiffs, and they sued alleging age discrimination. In response, Cumulus counterclaimed alleging that the plaintiffs were violating their non-compete clause because they were hosting an Internet-based radio show together.
Unfortunately for Cumulus, though, the non-compete prohibited the plaintiffs from doing various things related to "radio stations." It said nothing about any other medium, including the Internet. Because the plaintiffs had shifted their show to an Internet stream, it was not covered by the non-compete.
If you're drafting non-competes in this context, keep this ruling in mind. Of course, I have no idea if a non-compete that included the Internet would have been considered enforceable or if it would have restricted the plaintiffs' ability to earn a livelihood too much.
Another interesting facet of this case is that only one of the plaintiffs' non-competes was at issue here. The other non-compete by its terms was only enforceable if Cumulus paid the plaintiff for the period of time he was prohibited from competing. Cumulus chose not to pay that plaintiff and so did not (and could not) seek to enforce his non-compete. Whenever I talk to my students about covenants not to compete, we talk about how easily they can be broadly drafted to possibly intimidate less legally knowledgeable employees, and one of the things we bring up is that making them have some cost to the employer could help judge the seriousness of the necessity of the covenant. Here, it apparently wasn't worth it for Cumulus to pay to keep one of the plaintiffs from competing.
Wednesday, July 20, 2016
Here is a good case for illustrating equitable estoppel in a way that students, frequently renters, will probably appreciate: Pinnacle Properties Development Group, LLC v. Daily, Court of Appeals Case No. 10A01-1512-SC-2275, out of Indiana.
You may recognize Pinnacle's name. I previously blogged about them here. I stated in that blog entry that the case seemed straightforward and not worth the money to appeal, but apparently they have a habit of appealing relatively small (here, $752.37) judgments against them.
In this case, Daily was a tenant at a Pinnacle property. About eight months after moving into his apartment, Daily's apartment flooded. He reported the flooding using Pinnacle's emergency telephone number, which Pinnacle told its tenants to use in such circumstances. When no one answered the emergency number, he left a message and then dealt with the flooding himself, borrowing a wet/dry vacuum and removing thirty gallons of water from his unit.
In the month of July, the apartment flooded three more times. The first two times, Daily again called the Pinnacle emergency number. He was told that someone would be sent out to his apartment, but no one ever came. Daily continued to deal with the flooding himself, removing another fifty-two gallons of water using the borrowed wet/dry vacuum.
The third time in July that the apartment flooded, Daily went personally to the Pinnacle office, rather than calling the number. Pinnacle submitted a work order into the system but still no one came out to Daily's apartment. Daily bought himself his own wet/dry vacuum and continued to remove gallons of water from his apartment. A week later, he filed a complaint against Pinnacle and was awarded his rent for the month of July, the cost of the wet/dry vacuum he purchased, and some costs and interest. (The amount he was awarded was considerably less than the three-thousand-plus dollars he was originally seeking.)
Pinnacle's main argument on appeal was that the lease required Daily to give Pinnacle written notice of the flooding, which he never did. The court wasn't sure written notice was required under the lease but it stated that, even if that was true, Pinnacle was equitably estopped from asserting the written notice requirement because it was undisputed that Pinnacle had actual notice of Daily's flooding issue. It would be unjust under these circumstances to force Daily to pay rent for an apartment that was partially uninhabitable, where Pinnacle knew that Daily was suffering this problem and provided Daily with false assurances that it would deal with the problem, on which Daily relied, justifiably, to his detriment. As the court says, "We can hardly imagine a more appropriate application of the equitable estoppel doctrine." The court affirmed the award of the July rent, plus the cost of the wet/dry vacuum as a consequential damage.
Monday, July 11, 2016
A group of 1L students recently caused a stir-up at an anonymous law school by posting an anonymous complaint after their criminal law professor wore a "Black Lives Matter" t-shirt "on campus" (not "to class," apparently). See the letter and the professor's great response here. (For full disclosure, our colleagues on the TaxProf Blog also wrote about the story here ).
Do students, because they enter into a contract with a private law school (or even a public one), have a legitimate reason to complain that their professors wear t-shirts with a socially and legally provocative or at least thought-provoking message? The students wrote, "We do not spend three years of our lives and tens of thousands of dollars to be subjected to indoctrination or personal opinions of our professors."
Is this reasonable, in your opinion? First, this comparison is not apt. In fact, it is an extreme over-exaggeration that barely needs commenting on. The students also comment that the "BLM" movement does not have anything to do with the law, which demonstrates the sad state of ignorance about the law and society in which many of our students - and perhaps especially those in conservative areas such as Orange County, California - find themselves (that's where the anonymous law school is thought to be located). The movement is clearly about very little but the law and policy. Second, students can and should expect to get a quality legal education when attending an ABA-accredited law school, but simply because they pay money for it does not entitle them to only hear about the version of the law that _they_ prefer. In fact, as the professor so correctly notes in his response, the consumer theory should not apply to the content of one's legal education. In other words, students don't pay to only hear part of the message. And as the professor said: students certainly don't pay us _not_ to have an opinion about the classes we teach (note that the Tshirt was worn in connection with a criminal procedure class).
What are your thoughts on this? And why does the law school not publish its name?
Saturday, July 9, 2016
In this case, the plaintiffs had purchased Gogo's in-flight Internet access multiple times. They claimed that the Internet access didn't work as advertised, with allegations that it was incredibly slow, crashed frequently, or sometimes didn't work at all. (Anecdotally, I have heard people around me on flights complain about this, although I don't know if Gogo was at issue there or if in-flight Wi-Fi is simply fraught with complications.) Despite these alleged ongoing issues, the plaintiffs kept buying Gogo's Wi-Fi, perhaps in eternal hope that it would someday work properly? At any rate, this all culminated in plaintiffs' lawsuit here.
How to click on a hyperlink, yes, most Internet users know how to do; whether or not the average Internet user necessarily understands all of the legalese found at that hyperlink is another question entirely, of course, but not one addressed in this case. Possibly because the court assumes that all laypersons understand the difference between litigation and arbitration, although in my experience I am not entirely sure that's true. At any rate, the court here held this arbitration clause to be binding.
Wednesday, July 6, 2016
Yesterday, I blogged here about ticketscalping “ticketbots” outperforming people trying to buy tickets with the result of vastly increased ticket prices.
Now Ashley Madison – dating website for married people – has announced that some of the “women” featured on its website were actually “fembots;” virtual computer programs. In other words, men who paid to use the website in the hope of talking to real women were actually spending cash to communicate with computers (men have to pay to use the website, women don’t).
Why the announcement? The new leadership apparently wanted to air the company’s dirty laundry, so to speak.
Ashley Madison was hacked last year, revealing who was using the website to cheat on their husband, wife or partner. It was a devastating hack, ruining lives and even leading a pastor to commit suicide.
This seems to be a clear breach of contract: if you pay to communicate with real women, the contract must be considered breached if all or most of the contact attempts went to and/or from computers only. Perhaps even worse for Ashley Madison is the fact that the company is under investigation by the U.S. Federal Trade Commission. The FTC does not comment on ongoing cases, but “it could be investigating whether Ashley Madison properly attempted to protect the identity of its discreet customers -- which it promised to keep secret. Or it could be investigating Ashley Madison for duping customers into paying to talk to fake women. On Monday, the company also acknowledged that it hired a team of independent forensic accounting investigators to review past business practices around bots and the ratio of male and female U.S. members who were active on the site."
Tuesday, July 5, 2016
Have you ever tried buying concert tickets right when they were made available for sale on the Internet, only to find out mere minutes later that they were all sold out? Or, for that matter, highly coveted camping reservations in national or some state parks?
Where once, we all competed against the speed of each other’s fingertips and internet connections, nowadays, “ticket bots” quickly snatch up tickets and reservations making it virtually impossible for human beings to compete online. Ticket bots are, you guessed it, automatic computer programs that buy tickets at lighting speed. They can even read “Captcha boxes;” those little squiggly letters that you have to retype to prove that you are not a computer. Yah, that didn’t work too well for very long.
“A single ticket bot scooped up 520 seats to a Beyonce concert in Brooklyn in three minutes. Another snagged up to more than 1,000 U2 tickets to one show in a single minute, soon after the Irish band announced its 2015 world tour.”
Ticket bots scoop up tickets for scalpers who then resell them on other websites, marking the tickets up many times the original price. (I’m actually not saying that state and national parks are cheated that way, maybe camping reservations in those locations are just incredibly popular as hotel prices have increased and incomes are staggering. I personally used to be able to, with t he help of a husband and several computers, make campground reservations for national holidays, but those days are long gone…”we are now full.”).
Ticket bots are already illegal in more than a dozen states. New York is considering cracking down on this system as well. However, the most severe penalty under New York law is currently fines in the order of a few thousand dollars where ticket scalpers make millions of dollars. A new law proposes jail time for offenders. This is thought to better deter this type of white-collar crime in the ticket contract market.
Everyone else is talking about Donald Trump, so I guess why shouldn't we hop in, right?
This recent New Yorker Talk of the Town piece introduced me to an ongoing contract dispute involving Trump that I hadn't been paying attention to, even though now I see it's been widely reported by various news outlets, including food blogs, because it involves restaurants. So if you don't normally like to read political stuff but you consider yourself a foodie, this blog entry is also for you!
It turns out that Trump is embroiled in breach of contract lawsuits with a couple of famous chefs who pulled out of commitments to put restaurants into one of Trump's new developments. According to the reports, the impetus for pulling out of the business deal was Trump's anti-immigrant rhetoric during his presidential campaign. Jose Andres, himself an immigrant, was not too happy about Trump's statements. As seems to be the case with Trump, his business concerns don't necessarily track his political rhetoric when the bottom line is at issue. Faced with an immigrant refusing him rather than the other way around, Trump sued Andres for breach of contract. Andres counter-sued, alleging that Trump's many derogatory remarks about Hispanics rendered Andres's proposed Spanish restaurant "extraordinarily risky."
The chefs sought partial summary judgment, which a court recently denied, finding that material facts were still in dispute.
The crux of this lawsuit revolves around the covenant of good faith and fair dealing: Did Trump breach that covenant when he made his remarks, which would make him the one in breach of contract? Or were Trump's remarks not a breach of the covenant, either because they're not relevant to the contract or because they did not harm the prospects for success of Andres's restaurant? I don't know if the parties will continue to litigate this question but I'm curious what the result would be. In the current climate where rhetoric is frequently extremely inflammatory, could there be contract implications to such statements? How far, policy-wise, do we want the covenant of good faith and fair dealing to extend?
The case is Trump Old Post Office LLC v. Topo Atrio LLC, 2015 CA 006624 B (behind paywall), in District of Columbia Superior Court.
Thursday, June 30, 2016
In Walker v. Trailer Transit, Judge Easterbrook finds that in addition to “recover costs,” the word “reimburse” could just as easily mean to broadly “compensate” (at a profit) or “pay” even given a seemingly contradictory context.
In the case, one thousand truck drivers filed a class action lawsuit against their “gig” employer, Trailer Transit. The drivers contracted to earn 71% of Trailer Transit’s contracts with its end clients. Trailer Transit owned the trucks; the drivers drove them. Among other things, the contract between the drivers and Trailer Transit stated that
[t]he parties mutually agree that [Trailer Transit] shall pay to [Driver] … a sum equal to seventy one percent (71%) of the gross revenues derived from use of the equipment leased herein (less any insurance related surcharge and all items intended to reimburse [Trailer Transit] for special services, such as permits, escort service and other special administrative costs including, but not limited to, Item 889).
The drivers (perhaps inartfully) claimed that Trailer Transit cheated them out of earnings by labeling income “special services” whereby Trailer Transit could claim it was simply getting “reimbursed” and thus deduct certain amounts from the equation before compensating its drivers. Trailer Transit claimed that the drivers were only entitled to 71% of whatever was listed as the “gross charges” for the driving services, end of story.
How would you interpret the provision in question?
The most obvious and reasonable reading of the contract seems to me to be as follows: If, for example, Trailer Transit enters into a contract with an end client for $1,000 plus $100 for also arranging for special services in the form of, for example, an escort vehicle (e.g. a “Wide Load” car), its drivers would earn $710, Trailer transit $290 in profits ($1,000 – 71% to the drivers), but bill the end client $1,100.
But what if, hypothetically speaking, the company was to seek to maximize its profits out of the total sum of $1,100 to be billed to the end client? It could then, for example, label $600 as “special services” to be “reimbursed” to it, thus reducing the amount to be paid to the drivers to $355 (71% of ($1,100-600)). That would increase its profits from the above $290 to $645 (($500-355) plus $500 (with the escort service at $100). Do you think that the contract was meant to be interpreted that way? Judge Easterbook (yes, of “bubble wrap fame”) does. Among other things, he found that
[d]rivers are entitled to 71% of the gross charge for “use of the equipment” (that is, the Drivers’ rigs), but the contract does not provide for a share of Trailer Transit’s net profit on any other part of the bill. It would be possible to write such a contract, but the parties didn’t … [T]he Drivers do not invoke any principle of  law that turns “71% of gross on X and nothing on Y” into “71% of gross on X plus 71% of net on Y.”
Judge Easterbook also makes the unpersuasive and, in my opionion, ill-thought out example that if
Trailer Transit paid someone $1,000 to accompany an over-wide shipment and display a “WIDE LOAD” banner, and billed the shipper $1,250, then the Driver would be entitled to $887.50 for that escort service—and Trailer Transit would lose $637.50 ($1,250 less $1,000 less $887.50 equals $637.50).
This is unpersuasive as Trailer Transit would presumably not be as large and profitable as it is if it were so incompetent as to systematically incur the losses that Judge Easterbrook concocts here. Further, in his example, if the charge of $1,000 truly was for a cost of that amount, Trailer Transit would, per its own contract and intent, get to deduct that cost in full first. Nothing in the case indicates otherwise.
The meaning seems to hinge on two things: the meaning of “reimburse” and whether or not this was an example of the company taking opportunistic advantage of its contractual commitments, which the drivers had, for some reason, not argued (Easterbrook recognizes that such an argument might have changed the outcome of the case – note to our students: always consider that). As regards the meaning of “reimburse, Judge Easterbook argues
True enough, one standard meaning of “reimburse” is to recover costs. Someone who submits a voucher for expenses incurred on a business trip seeks reimbursement of actual outlays rather than a profit. But this is not the only possible meaning of “reimburse.” The word also is used to mean “compensate” or “pay.” If the contract had said “reimburse the expense of special services,” that would limit the word’s meaning to recovery of actual costs. But those italicized words aren’t in the contract.
No, but that intent seems to be clear here. Contracts are usually interpreted in accordance with both the plain meaning of the contract and the intent of the parties (not after-the-fact intent of one party).
What do you think the word “reimburse” means here? The word is defined by various sources as follows (my emphasis):
Black’s Law Dictionary:
- to pay someone an amount of money equal to an amount that person has spent;
- to pay someone back;
- to make restoration or payment of an equivalent to an amount that person has spent
- to make repayment to for expense or loss incurred;
- to pay back; refund; repay.
- pay someone back for some expense incurred;
- reimburse or compensate (someone) as for a loss
Third Circuit Court of Appeals:
"To pay back, to make restoration, to repay that expended; to indemnify, or make whole." United States v. Konrad, 730 F.3d 343, 353 ( 3d Cir. 2013).
To me, all these sources indicate that the word means what we probably all think it means: money back for an outlay. But apparently, that is not the case in the Seventh Circuit.
Wednesday, June 29, 2016
This seems like it should be obvious but a recent case out of Indiana, Pinnacle Properties Development Group, LLC v. Gales, Court of Appeals Case No. 10A01-1512-SC-2271, was still being fought at the appellate court phase.
Gales rented an apartment from Pinnacle. She was told that she could not view the apartment until the day of her move-in. On the date of the move-in, Gales signed the lease and was then shown the apartment. At that point, Gales realized that the apartment had a shattered sliding door, a toilet that flooded and soaked the carpet, and no electricity (and apparently could not be made to get electricity because the meter had been removed). Gales told the leasing agent that the apartment was unacceptable and, as there was no other apartment of that floor plan available and as there was going to be a delay of at least several days before the apartment could be inhabited, she wanted the lease canceled and her money back.
Pinnacle's main argument was that Gales signed the lease, it was binding, and so Gales shouldn't be let out of it. The court, however, disagreed. Gales signed the lease, it found, with the understanding that she would received a habitable apartment. Since she didn't receive that habitable apartment, the lease was unenforceable, and she was entitled to her money back.
This seems like it should be a straightforward case. I can't imagine why it would be worth the money to continue fighting this.
Monday, June 27, 2016
As technology continues to evolve, so does the law, and a recent case out of Massachusetts, St. John's Holdings, LLC v. Two Electronics, LLC, MISC 16-000090, proves it. Addressing what the court termed a "novel" question in the Commonwealth of Massachusetts, the court concluded that the text messages at issue in the case constituted writings for statutes of frauds purposes.
I have often thought that we communicate much more in writing these days than people did, say, twenty years ago. I know that it is now much more common for me to text the people I want to speak with than actually call them to speak orally. It will be interesting to see how the statute of frauds continues to develop.
(Thanks to Ben Cooper for sending this case my way!)