ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, September 20, 2017

Don't worry, corporate entities themselves get confused about their corporate structure...

I have actually seen a bunch of cases lately where people have either sued the wrong company in a complicated corporate structure (understandable) or where they have brought suit on behalf of the wrong company, which seems less understandable to me since you should presumably know your own corporate structure and which companies are bound by which contracts. But, as a recent case out of the District Court for the District of Columbia, Washington Tennis & Education Foundation, Inc. v. Clark Nexsen, Inc., Case No. 15-cv-02254 (APM), shows: not always. 

The parties entered into an agreement where Clark Nexsen would design a tennis and education facility. About a year after entering into this agreement, Washington Tennis & Education Foundation, Inc. ("WTEF") assigned "all of [it]s right, title and interest" in the contract to Washington Tennis & Education Foundation East, Inc. ("WTEF East"), a related company that was not a party to this lawsuit. After growing dissatisfied with Clark Nexsen's performance under the agreement, WTEF sued for breach of contract. Clark Nexsen moved for summary judgment that WTEF lacked standing to sue because all of its contractual rights now belonged to WTEF East by virtue of the assignment. 

The court agreed with Clark Nexsen. WTEF and WTEF East were two separate and distinct legal entities. It was true that they were related but they had separate boards of directors and separate records, etc. WTEF was not entitled to bring claims on WTEF East's behalf. Once WTEF assigned the contract to WTEF East, it became a "stranger" to the agreement and could not enforce it. 

WTEF tried to argue that it and WTEF East were, for all intents and purposes, the same. However, the court pointed out that WTEF created WTEF East in order to put itself in a position to secure extra financing. The court said that WTEF couldn't have its cake and eat it, too: If it wanted to have separate entities when it was advantageous for it to do so, then the court was going to treat them as separate entities even when it became disadvantageous. 

WTEF also tried to argue that it was a third-party beneficiary of the contract at issue, but there was nothing about the contract that indicated WTEF should be treated as a third-party beneficiary, and in fact the contract explicitly disclaimed that the contract should be construed to have any third-party beneficiaries. Nor was there anything in the assignment agreement indicating WTEF should now be treated as a third-party beneficiary of the original contract. In fact, the assignment agreement named Clark Nexsen as a third-party beneficiary to it, so it was clear the parties had thought about third-party beneficiary issues and had not given such status to WTEF. 

The court ended up dismissing all of WTEF's claims but maintaining jurisdiction over Clark Nexsen's counterclaim moving forward. Not a good outcome for WTEF. Double-check your corporate structure before deciding which entity needs to sue on a contract. 

September 20, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, September 19, 2017

“Making Money is Still Allowed” – As Are False Pricing Strategies

The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.

Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale. Unknown

Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).

The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).

Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”

So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.

Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”

I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter? Images

I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.

The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).

September 19, 2017 in Commentary, E-commerce, Miscellaneous, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, September 15, 2017

California court finds broad arbitration clause unconscionable

A recent case out of California, Pimpo v. Fitness International, LLC, D071140 (behind paywall), finds an arbitration clause in a contract unenforceable due to unconscionability. 

In the case, Pimpo worked at one of Fitness International's fitness centers, where another employee sexually harassed her. Pimpo made several reports about the other employee's behavior and ultimately ended up suing over the sexual harassment. Fitness International responded by moving to compel arbitration based on a contract Pimpo electronically signed when she submitted her application for employment with Fitness International. However, the very terms of that agreement said it was only effective for 45 days, so it had expired by the time Pimpo filed suit. Fitness International tried to argue that Pimpo had signed a different arbitration agreement upon accepting employment but the trial court found no evidence of such agreement and the appellate court said that Fitness International's statement that it moved to compel arbitration based on this other agreement for which there was no evidence "border[ed] on a misrepresentation to this court."

So the appellate court already wasn't too happy with Fitness International as it began its unconscionability analysis, which it turned to in the interest of thoroughness. The arbitration clause that Pimpo signed when she applied for employment, the court concluded, was unenforceable due to unconscionability. Because the contract was a contract of adhesion presented to Pimpo on a take-it-of-leave-it basis, the court found that it was "by definition procedurally unconscionable." The court then went on to note, though, that Pimpo was in the usual position of someone applying for a job: She needed money to survive and did not have the resources to hire an attorney to look over the contracts for every application that she submitted. 

The court also found substantive unconscionability because the clause was drafted to be breathtakingly broad. It explicitly required Pimpo to give up her right to a jury trial on all claims, "even those unrelated to the application or her employment," against Fitness International and "its officers, directors, employees, agent, affiliates, entities, and successors," forever. The court noted that this language meant that if Pimpo got into a car accident with a Fitness International employee, it was covered by this arbitration clause. Fitness International tried to argue that the clause should be read more narrowly than that but the court noted that that was not how it was drafted (and Fitness International had drafted it). In addition, the discovery procedure that the arbitration clause allowed for placed Pimpo at such a disadvantage that the court agreed that was substantivaly unconscionable, too. 

Beware of drafting your clauses too broadly. Such can be the outcome. Even arbitration clauses can have their limits. 

September 15, 2017 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

California Outlaws Forced Arbitration Clauses by Banks

On Sept. 12, 2017, Senate Bill 33 was approved by the California Senate and now awaits Governor Brown’s approval before becoming law.

The legislation was designed after the Wells Fargo scandal to block legal the legal tactic of keeping disputes over unauthorized bank accounts out of public court proceedings an favor of private arbitration.

Said the law’s author, Sen. Dodd (D-Napa): “The idea that consumers can be blocked from our public courts when their bank commits fraud and identity theft against them is simply un-American.” It is also clearly unethical and, once again, emphasized how difficult it can be in modern times to strike a fair contractual bargain with a party that has much greater bargaining power than individuals and that uses lengthy and often complex boilerplate contracts with terms few read and understand.

September 15, 2017 in Commentary, Current Affairs, Famous Cases, In the News, Legislation, Recent Cases, True Contracts | Permalink

Wednesday, September 13, 2017

Why didn't the people in "Rent" just, like, pay their rent?

The other day, I happened to re-listen to "Rent." The 20th Anniversary Tour is coming to town next month, and I have my ticket in hand, and, excited about the upcoming show, I pulled the original Broadway cast album up on Spotify for a re-listen. The thing about "Rent" is its one of those shows that I find it difficult to be rational about. It has its flaws, but I was in high school the first time that I heard "Rent," and it blew me away then, and it still stays fresh to me. Even when I think it should have aged, I hear the first notes of "One Song Glory," and they get me every time, and by the end of my re-listen I'm sitting in floods of tears on my living room and thinking, ...Huh, this whole musical is about a breach of contract. 

Because it is!

If you don't know the plot, it's loosely a re-telling of "La Boheme" that revolves around a number of young New York artists struggling to survive in an age when AIDS is ravaging their community. The titular "Rent" is the first major song in the musical, and it's a reaction to one of the characters, Benny, going back on a promise he made to the main characters, Mark and Roger. Benny used to be roommates with Mark and Roger but now (with his rich bride's money behind him), he's become their landlord. However, when he bought their building the year before he told Mark and Roger they were "golden". Nonetheless, at the beginning of the play, he shows up and demands all of the previous year's rent, which Mark and Roger allege he led them to believe they didn't have to pay (and which Benny never really refutes). 

There are a lot of critiques of the characters of "Rent" and how annoying it can be to listen to the show as an "adult." Yes, you do find yourself asking why Mark can't just rake in some dough for a little while to pay off the debt. Isn't this what all adults have to do? We all have to go out and get jobs to pay for the roofs over our heads. But Mark and Roger shouldn't have been in the rent-money debt in the first place, because they had an agreement with Benny. Are there issues with the formation of this contract? Yes. It's pretty informally done, after all, because of their friendship. And it probably suffers from a consideration issue, because it seems like a gift from Benny to Mark and Roger (the musical doesn't spend a whole lot of time on the details of the transaction, tbh, but it seems like he made the offer because he was feeling generous toward his friends). But I think it could be saved by promissory estoppel. Benny made that promise to Mark and Roger, and he's got to know them well enough to know they were going to rely on it by not worrying much about a source of income for the year, which in fact Mark and Roger did. And now Benny is demanding an entire year's worth of rent all at once, which would be a lot for anyone to come up with, never mind starving artists with uncertain sources of income. 

So it's not entirely Mark and Roger's fault that they owe a year's rent. They were led to believe they didn't. But, more than that, the more I think about the critiques of "Rent," the more I think that actually that's the point of rent. Mark and Roger are annoying and entitled, yes, not just because they don't want to have to pay rent that their friend told them they wouldn't have to pay, but because they don't want to have pay rent going forward, because the payment of rent pushes them into making compromises regarding their art and the type of life they want to live. When you listen to "Rent" as a sixteen-year-old, it's different than listening to it as a thirty-six-year-old, and that difference is that yes, I grew up, and I realized that suddenly I'm no longer on the side of the artists who want to create and live their lives. And then that makes me think about the fact that I'm on the side of people not following dreams because I grew up and I compromised and I paid my rent. And I don't think it's a failing in "Rent" that it makes me pause to think about that, that there was a teenager in me who believed in La Vie Boheme who became an adult who didn't. I think that's the point. The story takes place in the middle of the AIDS epidemic, when these people are losing friends left and right, and so it makes sense that they don't feel like they have time to pretend to be other than what they are. Maybe the joke's on all of us that we feel like we do have time. 

Because, let's face it, for all of "Rent"'s enduring genius as a musical achievement--and there's a lot of it--"Rent"'s story is also the story of all the music that its composer never got to write. Jonathan Larsen died suddenly and unexpectedly the night before the musical's Off-Broadway premiere. He left far too early and left us with just this one perfect masterpiece, about people with uncertain lives clinging stubbornly to their dreams. It's hard for you to reach the end of "Rent" without an appreciation for how lucky we are that some people live that way and give it their all in their time here on Earth. Jonathan Larsen only wrote the one masterpiece, and that's a tragedy, and he didn't live to see the huge success it became, which is an even bigger tragedy, but at least he got to write one, which meant he got to leave a legacy behind him that you've got to think he'd be pretty happy with. And how lucky we all are that he stuck with his art. 

None of which has anything to do with contracts law, oops. EXCEPT EVERYTHING HAS TO DO WITH CONTRACTS LAW. Including the entire plot of "Rent." The end, back to regularly scheduled cases, here, have a song:  

 

September 13, 2017 in Commentary, Film, Film Clips | Permalink | Comments (0)

Monday, September 11, 2017

Employment Contracts in France under Macron

As reported by the Los Angeles Times and others, the no. two economy in the Eurozone - France - may see its notoriously worker-friendly labor laws overhauled in favor of fewer restrictions soon.

One key measure proposed by the government trims the role of unions, notably in small- and medium-size companies — which the prime minister said make up nine out of 10 companies in France.  Under the reforms, companies with fewer than 50 employees would be able to negotiate work rules with an elected colleague — not unionized — and companies with fewer than 20 employees can negotiate directly with their workers.

Labor Minister Muriel Penicaud said the reforms aim to not just change France's work rules but "to change the behavior of social dialogue in our country."

Whether this will be a favorable turn of events for France on the national and international business stage remains to be seen.  For workers, however, "negotiating directly" with employers sounds an awful lot like the very unequal bargaining powers so frequently seen in the USA.  Here, such contractual bargaining and conditions have not resulted in improved incomes for the middle and lower classes, although other factors of course also weigh in.  Nonetheless, it is a basic tenet of contract law - and thus employment law - that one can only strike the bargain that one has leverage to strike.  Trade unions and labor regulations can contribute significantly and importantly to an otherwise very skewed bargaining situation, especially in times and locations of unemployment and for older workers.

But of course, France should do something to improve its equally notorious unemployment rate, currently at 10%.  The work environment in Europe is still so much more relaxed than in the USA that it is doubtful whether any employer would seriously expect workers to amass the very high amount of hours worked by Americans or the very few weeks of vacation.  Hence, a social dialogue may be what it takes in France.

 

September 11, 2017 in Commentary | Permalink

Tuesday, September 5, 2017

Crumbling foundations are happening all over Connecticut, and the insurance policy fights are underway

I'd been seeing a lot of insurance cases come across my alert dealing with crumbling house foundations in the District of Connecticut. This one, Roberts v. Liberty Mutual Fire Insurance Co., No. 3:13-cv-00435 (SRU) (behind paywall), tells us why. Apparently it's part of an epidemic across Connecticut that so far has affected at least four hundred homes and may ultimately affect as many as 34,000 (!). The mix used in the concrete to pour these foundations contained a naturally existing mineral called pyrrhotite that degrades rapidly, causing the issues the homeowners are seeing. You can read more about this horrible situation here

The Robertses are one of the homeowners caught up in the deteriorating foundation issue. They brought a claim under their homeowners' insurance policy, which was denied because the policy excluded coverage based on faulty construction, which Liberty Mutual explained was the problem at issue with the foundation. However, the policy did cover loss due to defective construction if it resulted in "collapse." The issue in this case revolved around the definition of the word "collapse." The Robertses claimed the cracks in the foundations will eventually cause the walls to give way and collapse and so they should be covered. 

The insurance policy did not define the term "collapse," and previous Connecticut precedent had found the term in homeowners insurance contracts to be ambiguous. Because insurance contracts are construed against the insurance company, these courts had concluded that "collapse" could be something beyond just "a catastrophic breakdown" to include the "substantial impairment of the structural integrity of a building." But what does "substantial impairment" mean? Does it mean the building has to be in "imminent danger" of falling to the ground? Precedent suggested no. Connecticut courts had allowed recovery under "collapse" where the house never caved in and indeed the homeowners continued to live in it. So this court concluded that "substantial impairment" means that the building would cave in without repair to the damage. The judge found that there were factual disputes in this case involving whether the Robertses' home was in this state and thus summary judgment was inappropriate. 

This series of cases is painful to read and made me walk around my house worrying about what's not covered by my howeowners insurance that could destroy it...

September 5, 2017 in Commentary, Current Affairs, True Contracts | Permalink | Comments (0)

Friday, August 25, 2017

Beware starting work on a property before you own the property

When I poke through recent contracts cases trying to find ones to blog about, I tend to decide pretty quickly whether I want to spend time reading an opinion or not. This recent case out of Virginia, American Demolition and Design v. Pinkston, CL16000199-00 (behind paywall), caught my eye because the very first paragraph sounds like a hypo: 

This case arises out of a contractual negotiation for sale of real property . . . from . . . Pinkston to . . . Sweet. The negotiations never resulted in a final contract for sale of the property and no conveyance of the real property ever resulted. After the parties entered into contractual negotiations, but before the parties terminated contractual dealings, with oral permission from Pinkston, Sweet began preliminary construction on the property for the purpose of improving parts of the farmhouse located on the property. Although Pinkston discovered that Sweet’s work on the property had exceeded the scope of their discussions, Pinkston never stopped Sweet from performing further work on the property. Finally, when Sweet and Pinkston learned that a lien against the property hindered Pinkston from conveying title, Sweet stopped all work on the property. The property was subsequently rendered to be worth only a fraction of what it was previously worth before Sweet began working on the property.

So, naturally, I stopped to read the rest. Sweet brought the suit quantum meruit, for recovery of the value of his work performed on the property.  

The court acknowledged that there was no written contract about Sweet's work on the property, but the parties did make oral agreements on the subject that the court used in evaluating the quasi-contract claim. The work that Sweet performed on the property apparently brought the value of the property down, raising the question of whether it conferred a benefit on Pinkston as is required for recovery. However, the court noted that Pinkston knew Sweet was doing the work and did nothing to prevent him from doing it. In fact, they negotiated that Sweet would do the work. Therefore, the court found the work was a benefit that Sweet conferred on Pinkston with Pinkston's knowledge, despite the effect of the work on the value of the property at issue. 

But mere rendering of the services is not enough to merit recovery. The circumstances also must indicate that it would be inequitable for Pinkston to retain the benefit of Sweet's work without compensating him for it. There was no evidence that the parties ever thought Pinkston would pay Sweet for his labor. It was very clear that Sweet, expecting to buy the property, was in fact performing the work for himself, not Pinkston. Not only did Sweet not expect Pinkston to pay him, he expected to have to pay Pinkston when he bought the house. Therefore, the circumstances did not indicate that Pinkston needed to pay Sweet for his work. 

The case stands as a word of warning: be careful expending time and effort on a piece of real estate before negotiations for it have concluded. 

August 25, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (2)

Thursday, August 24, 2017

Is Amazon Selling Products or Services?

As first reported on Above the Law, the Federal Circuit Court of Appeals has just ruled that Amazon is nothing but a simple purveyor of “online services” and does not make “sales” of goods. Although the issue in the case was one of intellectual property infringement and thus not the UCC, the differentiation between “goods” and “services” is also highly relevant to the choice of law analyses that our students will have to do on the bar and practitioners in real life. Unknown

How did the Court come to its somewhat bizarre decision? Amazon, as you know, sells millions, if not billions, of dollars worth of tangible, physical products ranging from toilet paper to jewelry, books to toys, and much, much more. They clearly enter into online sales contracts with buyers and exchange the products for money. “Amazon” is the name branded in a major way in these transactions whereas the names of the actual sellers – where these differ from Amazon itself – are listed in much smaller font sizes. Often, it is Amazon itself that packages and ships the products to the buyers, whereas at other times, third party buyers are responsible for the shipping. Amazon “consummates” the sale when the buyer clicks the link that says “buy” on the Amazon website. Amazon then processes the payments and receives quite significant amounts of money for this automated process.

Clearly a “sale,” right? Nope. I guess “a sale is not a sale when a court says so.” As regards the IP dispute, the crucial issue was whether or not Amazon could control the acts of the third-party vendors. You would think that even that would clearly be the case given the enormous control Amazon has over what is marketed on its website and how this is done. Amazon, however, argued that it sells so many items that it cannot possibly police all of them. Thus, it won on its argument that it was not liable under IP law for a knock-off item that had been sold on the Amazon website as the real product (cute animal-shaped pillowcases). Unknown

Had this been an issue of contracts law and had the court still found that the transaction was not a sale of goods under UCC Art. 2, would it have erred? Arguably so. Under the “predominant factor test” used in many, if not most, jurisdictions, courts look at a variety of factors such as the language of the contract, the final product (or service) bought and sold, cost allocation, and the general circumstances of the case. When you buy an item on Amazon, it is true that you obtain the service of being able to shop from your computer and not a physical location, but at the end of the day, it is still the product that you want and buy, not the service. Apart from the relatively small service fee (which gets deducted from the price paid to the seller), the largest percentage of the sales price is for the product. Modernly, online buyers have become so used to that “service” being provided that it is arguably not even that much of a service anymore; it is just a method enabling buyers to buy… the product. Clearly, it seems to me, a “sale” under Art. 2.

Again, this was not a UCC issue, but it does still show that courts apparently still produce rather odd holdings in relation to e-commerce, even in 2017.

The case is Milo & Gabby LLC v. Amazon.com, Inc., (Fed. Cir. 2017)

August 24, 2017 in Commentary, Current Affairs, E-commerce, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, August 18, 2017

Brian O'Conan Hypo

Having disappeared for a couple of weeks into frantic preparation for the new semester, I thought I would re-emerge by sharing a hypo that I do with my students on the first day of class, based on Conan O'Brien's contract dispute with NBC from a few years ago. The hypo goes something like this: 

Brian O’Conan is a comedic host who has helmed a show on CBN, Later at Night, for sixteen years. Later at Night airs at 12:30, and Brian has always wanted to “move up” in the world of late night hosts to host a show at the earlier time of 11:30. Five years ago, in order to keep Brian at the network, CBN promised to give Brian hosting duties for its legendary 11:30 show, Somewhat Late at Night, as soon as Len Jayo’s current contract was up. Somewhat Late at Night is a flagship show that has aired in its time slot on CBN for 43 years; prior to that, it started at 11:15 for 14 years. For its entire 57-year existence, Somewhat Late at Night has begun directly after the late local news.

Brian and CBN enter into a contract with the following terms:

  • Brian is guaranteed that he will be the host of Somewhat Late at Night.
  • Both Brian and CBN promise to act in good faith in executing the contract.
  • Both parties will mitigate any damages caused by a breach of contract, but CBN agrees that it will pay Brian $40 million if it breaches the contract.
  • Brian is prohibited from being a late-night host on any other network in the event of a breach of the contract.

As promised by the contract, Brian becomes host of Somewhat Late at Night. After a strong start, Brian’s ratings trail off. Six months into Brian’s stint as host, CBN makes a public announcement that Somewhat Late at Night will be moved to start at midnight. It will use the 11:30 time slot for a new late-night show with old Somewhat Late at Night host Len Jayo.

Brian, learning all of this for the first time from the public announcement, tells CBN it has breached the contract, demands payment of $40 million, and also opens discussions with a competing network, Wolf, to host a new late night show at 11:30.

***

I like this hypo because, even though it was several years ago now, most students recognize the real-life situation this problem was based on and so feel somewhat engaged with it. In addition, even though I have taught them literally nothing about contract law at this point, I think they gain a lot of confidence from being able to examine the problem and come up with ideas for how the analysis should begin. I usually split them up and assign them a side to represent and have them make arguments on their client's behalf, and then allow them time for rebuttal. Along with discussing the contract's terms around the show itself, the students get into discussions about good faith, mitigation of damages, and just basic fairness. When we're done with the discussion, I then ask them how they felt about the side they had been assigned to, and if any of them had wished they'd had the other side. I think it is a good basic introduction to the task of being lawyers that I find relaxes them a little on the first day: If they can already talk about this problem on the first day, imagine how much better they'll be once they know some law!

If you're starting school years like I am, good luck!

August 18, 2017 in Celebrity Contracts, Commentary, Current Affairs, In the News, Law Schools, Teaching, Television, True Contracts | Permalink | Comments (2)

Tuesday, August 1, 2017

Fact-Checking the Snopes Lawsuit

You, like me, might often resort to Snopes to weed through what's true and what's not in the avalanche of information we're exposed to every day. (My most recent Snopes search: can a gift shop upcharge federal postage stamps? The answer is yes!) Recently Snopes turned to its constituents on the Internet to help provide funding to keep the website alive, precipitated by a lawsuit stemming from several contracts between the parties at issue. The whole thing is a matter of messy corporate structure that really seems like it's going to depend on the court's reading of the stock purchase agreement between the parties. Vox has a rundown of the whole situation here (that I'm quoted in). 

August 1, 2017 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, July 28, 2017

Why Pyeatte v. Pyeatte May Be the Best Teaching Tool in Contracts Law

Our friend and esteemed colleague, Professor Charles Calleros, has kindly sent the following as a guest contribution to the ContractsProf Blog.  Enjoy!

Recently Val Ricks has collected a number of essays from colleagues on best and worst cases for the development or application of contract law.  In addition to participating in that project, Charles Calleros invites faculty to upload and post links to essays about their favorite cases as teaching tools (regardless whether the cases advance the law in an important way). He starts the ball rolling with this Introduction to his essay on "Why Pyeatte v. Pyeatte Might be the Best Teaching Tool in the Contracts Casebook":

Pyeatte v. Pyeatte, a 1983 decision of the Arizona Court of Appeals, did not break new ground in the field of contracts. Nonetheless, I assert that it is one of the best pedagogic tools in the Contracts casebook, for several reasons:

  •  *          The facts are sure to grab the attention of first-semester law students: A law grad reneges on a promise to support his ex-wife through graduate school after she supported him through law school during their marriage;

*          This 1980’s opinion is written in modern plain English, allowing students to focus on substance, while also learning a few necessary legal terms of art.

*          After their immersion in a cold and rather unforgiving bath of consideration and mutual assent, students can finally warm up to a tool for addressing injustice: quasi-contract;

*          The opinion’s presentation of background information on quasi-contract provides an opportunity to discuss the difference between an express contract, an implied-in-fact contract, and an implied-in-law contract; 

*          Although the wife’s act of supporting her husband through law school seems to beg for reciprocation or restitution, students must confront judicial reticence to render an accounting for benefits conferred between partners in a marriage, exposing students to overlap between contract law and domestic relations law;

*          The appellate ruling of indefiniteness of the husband’s promise – presented in a later chapter in my casebook, but looming vaguely in the background of the discussion of quasi-contract – invites critique and perhaps even speculation that the appellate panel felt comfortable denying enforcement of the promise precisely because it knew it could grant restitution under quasi-contract; and

*          The court’s admonition that expectation interest forms a ceiling for the calculation of restitution reveals a fascinating conundrum that brings us back to the court’s ruling on indefiniteness. . . .

You can find the whole essay here.

July 28, 2017 in Commentary, Contract Profs, Famous Cases, Law Schools, Miscellaneous, Recent Scholarship, Teaching, True Contracts | Permalink | Comments (2)

Thursday, July 27, 2017

Make Sure You Use Photos According to the License Agreement

Recently, Procter & Gamble has been sued for copyright infringement based on its use of photographs on packaging. It's not that P&G didn't have a license; it's that P&G allegedly violated the scope of the license. The allegations claim that P&G, trying to keep costs down, negotiated for fairly narrow rights. It makes a ton of sense to do that if that's all you want the photos for. After all, why pay for rights that you're probably not going to utilize? However, the caveat with that is to be sure that you won't want to use the photos beyond what you're negotiating. That's allegedly what P&G did, and why it finds itself the subject of a lawsuit. 

July 27, 2017 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, July 12, 2017

What Does "Renovate" Mean to You? (A Perfect Question for Those, Like Me, Addicted to HGTV)

I'm blogging this case because I had a whole conversation with non-lawyer friends about what the term "renovate" means, and I think maybe they changed my mind about what "renovate" means. I don't know. Upon first reading this case, I spent a lot of time reflecting on all the episode of "House Hunters Renovations" I've watched and what actually happens in them. 

Anyway, if you want to go away and watch a marathon of "House Hunters Renovation" at this point, it's okay. I understand. This blog post will still be here for you to contemplate afterward. 

The case in question (there is an actual case) is a recent case out of Pennsylvania, Blackburn v. King Investment Group, No. 2409 EDA 2016, and, as you may have guessed, the debate in the case was over the meaning of the word "renovate" in the contract. One party maintained that the term was ambiguous, because it could have required them to demolish the bathrooms at issue or merely to do what was necessary to bring them up to modern standards (which was less than full demolition). The other party argued that it was not an ambiguous term and clearly required demolition. 

The court agreed that it was a clear and unambiguous term that required demolition and replacement, and this was what got me to thinking: Do I think that renovation requires demolition? At first my kneejerk reaction was like, "I don't know, I don't think it does." But after conversations with people, I decided maybe it does mean demolition? That doing something less than demolition wouldn't be called renovation but just updating? If you say you're going to renovate your kitchen, does that always imply that you're demolishing the entire kitchen? If you do less than that, is saying you renovated your kitchen misleading? 

My struggling with the word leads me to believe maybe it's not clear and unambiguous but I often feel that way with these types of cases. What I find extra-striking about this case is that, while the court proclaimed the term "clear and unambiguous," it did so by relying entirely on parol evidence, and this parol evidence, in my view, just determined what the parties understood "renovation" to mean. I think finding what renovation meant in the context of this contract to these parties makes a lot more sense than declaring it to be a clear and unambiguous term generally. 

July 12, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, July 10, 2017

Who Typed What Where, and Does That Matter?

When I teach my students rules of construction and we talk about contra proforentem, I feel like the standard examples I use with them are insurance contracts, where it's easy to identify who the drafter is. A recent case out of Indiana, Song v. Iatarola, Court of Appeals Case No. 64A03-1609-PL-2094 (thank to D.C. Toedt for the new non-paywall link!), involved an actual discussion of who was the "drafter" in a situation where both parties had input in the contract. The Iatarolas seemed to try to argue that Song should be considered the drafter and have the contract construed against him because he was the one who typed it into Microsoft Word. The court pointed out, though, that the rule of construction is about independent drafting, not a situation where both parties contributed to the contractual terms. Who physically types the contract up means nothing if both parties have helped to decide on the terms being typed up. I have never thought to discuss that with my students, but I think I might bring it up, just to be clear on what the rule is talking about. 

July 10, 2017 in Commentary, Law Schools, Recent Cases, True Contracts | Permalink | Comments (2)

Friday, July 7, 2017

If You Want to Hold Your Real Estate Development to Its Master Plan, Make Sure It's in Your Contract

A recent case out of Idaho, Swafford v. Huntsman Springs, Inc., Docket No. 44240, serves as a word of warning for those purchasing plots in real estate developments. As someone who recently purchased a plot of land in an in-progress real estate development, I read this case with interest.

The Swaffords bought a plot of land early on in the development's life, based on a master plan that they had viewed. Later, as the development continued underway, Huntsman Springs altered its plans, so that they way it turned out was not as it had been in the master plan the Swaffords had viewed. The Swaffords then sued for breach of contract. 

The problem was that the "master plan" had never been part of the Swaffords' contract with Hunstman Springs. The contract did not incorporate the master plan and in fact the contract stated in several places that Huntsman Springs was bound by no other representations outside of the four corners of the contract and, in an integration clause, that the contract was the entire agreement. The contract was much less specific in Huntsman Springs's obligations to the Swaffords, but Huntsman Springs did comply with all of them. Therefore, there was no breach of contract. 

Important lesson learned: If you want your developer bound by a master plan, make sure it's in your contract. (Of course, that's possibly easier said than done, depending on power differentials. But, if you allow for reasonable modifications of that master plan in some way, maybe you could accomplish it.)

July 7, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Sunday, July 2, 2017

The McMansion Hell Dispute Was Really About Contracts

Zillow's cease-and-desist letter to popular Tumblr blog McMansion Hell --and its subsequent backing down from its position after the blogger secured representation from the Electronic Frontier Foundation --has been well-documented, including by such outlets as BBC News. However, a lot of outlets reported it as being a copyright dispute. While there was definitely a copyright angle to the disagreement--Zillow even alleged as such in its letter--the issue was really one of contract. After all, as many commentators pointed out, Zillow didn't even own the copyright in any of the photos. The true dispute, as Zillow conceded and EFF explained in its letter response, was over Zillow's terms of use. 

Zillow alleged that its terms of use prevented "reproducing, modifying, distributing, or otherwise creating derivative works from any portion of the Zillow site." Zillow seemed to be alleging that the blogger's parodies and commentaries of the photos on the site--otherwise easily protected by copyright's fair use doctrine--were prohibited by the terms of use. EFF fought back on this, though. EFF claimed that the blogger had never effectively assented to be bound by the website's terms of use, and that even if she had, the agreement's clause permitting modification without notice rendered the terms of use illusory and unenforceable. EFF also noted that contract doctrines have in the past restricted terms that restrict speech, at least in part due to public policy concerns. Finally, EFF raised the recently enacted Consumer Review Fairness Act of 2016, which voids contract provisions that attempt to prevent people from posting reviews, performance assessments, or other analyses of goods and services. The blogger's parodies of the real estate photographs on Zillow, according to EFF, are analyses of Zillow's services, and therefore Zillow cannot restrict them through its terms of use. 

Zillow backed off pretty quickly, claiming that it never intended to cause McMansion Hell to shut down, and McMansion Hell is back up, without having deleted any of the demanded photos. It seems like a victory for McMansion Hell and, more importantly, for individual speech. All of us spend a lot of time on websites with terms of use that we never bother to read. The quick reaction of many in the legal community to help McMansion Hell fight back, and the subsequent news coverage it received, is a nice reminder that not all contracts are automatically binding, especially not when criticism is involved. Hopefully other less high-profile recipients of dubious cease-and-desist letters can take heart from this story. 

July 2, 2017 in Commentary, Current Affairs, In the News, True Contracts, Web/Tech, Weblogs | Permalink | Comments (0)

Monday, June 26, 2017

"As Is" Clauses Don't Grant You Immunity If You Commit Fraud -- and Parol Evidence Can Help Prove It

A recent case out of South Dakota, Oxton v. Rudland, #28070 (behind paywall), is another case involving alleged fraud during the sale and purchase of a house, this one with an explicit parol evidence debate. 

As in the previous case I blogged about on this topic, the contract for the house contained an "as is" clause. The Oxtons agreed that the contract with this "as is" clause was unambiguous and fully integrated. However, they argued that the parol evidence rule never applies when a party is alleging fraud. Because they were alleging fraud, they wanted to be able to bring in parol evidence regarding that fraud. 

The court agreed that the parol evidence rule does not apply in cases of fraud, which cannot be avoided by disclaimers in the contract. Therefore, the court looked at the Oxtons' evidence of fraud, which consisted of the fact that the Rudlands who sold them the house had just bought it a few months before and in the course of buying it had been told about "major settling" of the house (the problem at issue). The Rudlands, however, did not disclose that "major settling" when they sold to the Oxtons months later. The Rudlands countered that the disclosure statement that did not contain any language about "major settling" was largely irrelevant, and that the Oxtons were well aware they were purchasing the home "as is" and had the opportunity to obtain an inspection before finalizing the contract. 

The court found that it could not resolve these questions of fact but that there was enough evidence to possibly support the Oxtons' fraud claim, such that summary dismissal of that claim was inappropriate. The court allowed the parol evidence to support the claim, and also explicitly pointed out that "as is" clauses do not provide "general immunity from liability for fraud." Therefore, the Rudlands could not rely on the "as is" clause alone as blanket protection for all of their behavior and statement, and the litigation over the alleged fraudulent inducement should continue. 

It's interesting to contrast this with the Texas case I just blogged. There, the court held that getting an inspection was enough to prove that you were not relying on the sellers' statements. The Oxtons did obtain an inspection in this case but little attention is given to that fact. I wonder if it will gain more prominence as the debate over the alleged fraud goes forward, as at the moment the case was pretty focused on the parol evidence rule and the operation of the "as is" clause, not on the effect of the inspection. 

June 26, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 19, 2017

David Mamet's Last-Minute License Term

 

Puyallup High School Auditorium.jpg
Public Domain, Link

This story is a few weeks old, but I think it's an interesting one still deserving of discussion. Apparently, one of the terms of licensing one of David Mamet's plays to perform is that the theater not host any "talk backs" within two hours of the show. It's interesting to me first because talk backs are fairly common within the theater industry, and I'm not sure most theater companies would assume there were restrictions around them. This makes me wonder if other playwrights have similar policies and how much theater companies check into those specific terms. 

Another thing that struck me about this, though, was that apparently this talk-back-prohibiting term was not in the original terms of the license. The theater company detailed in the article received a new contract with the new licensing term just four hours before the show opened. Do we think that was a valid modification of the original license terms? There is no discussion of this in the article, but do you think that the theater company, threatened with fines of $25,000, felt compelled to agree to the new term after having sold tickets and invested time in rehearsing the play? Was the new term in that license enforceable? 

Finally, apparently Mamet's agent will ensure that the clause is included in license terms from this point on. Generally, parties can enter into any contractual terms they wish (within certain bounds of reason). Presumably if Mamet's no-talk-back provision is disliked by theater companies, Mamet's plays could fall out of fashion and the market could handle the situation. However, if other playwrights start demanding similar terms, then there might not be as much pushback from the theater companies. So far it seems that Mamet's clause just prohibits discussion within two hours of completion of the play, so that could allow an enterprising theater company to just hold a talk back two and a half hours later. It could be interesting to see what effect, if any, this situation has on theater talk backs going forward. Anyway, it was an interesting little contract story, so I thought I'd pass it along. 

(h/t to Rebecca for bringing the article to my attention!)

June 19, 2017 in Commentary, Current Affairs, In the News, True Contracts | Permalink | Comments (1)

Monday, June 12, 2017

Adding to Quatar’s Woes: Loss of FIFA Soccer Contract?

On Monday June 5, 2017, Saudi Arabia, Egypt, Bahrain, Yemen, Libya, the United Arab Emirates and the Maldives all severed diplomatic ties with Qatar. While only a small period of time has passed, the small Arab nation has been left with some pressing issues. Almost immediately the people of Qatar rushed to supermarkets to stock up on food. Many fear that with their only land border shut (that between Qatar and Saudi Arabia), food supplies will run short and prices will skyrocket. The Philippines have already begun restricting migrant workers from going to Qatar for fear that migrant workers will be more marginalized if food shortages become an issue in a country that does not produce any of its own food. Migrant workers have been a source of conflict in Qatar for years and this current crisis could worsen or better the landscape. Unknown

On December 2, 2010, Qatar became the first Middle Eastern country to win a World Cup bid. That World Cup is set for 2022. In preparation, massive construction projects have begun in Doha and the surrounding area, including building new stadiums, renovating old ones, building new ports and rail systems, and renovating current city areas to make Qatar appear a modern metropolis in the heart of a desert. While all of that sounds good, it has come at a steep humanitarian cost. Many migrant workers have died and many modern governments have reprimanded Qatar for its inhumane treatment of people. Unknown

However, the current climate of Qatar is one of isolation from its neighbors—Emirates and Etihad airlines have ceased all travel to Qatar. Migrant workers are already starting to lose jobs. While FIFA, the governing body of soccer worldwide, has stated that the World Cup will continue as planned, if construction materials and workers cannot enter the country, the small country cannot hope to continue hosting the World Cup. No country has ever lost a FIFA World Cup contract after being awarded the bid, but the consequences could be astronomical. Qatar is looking to spend almost $200 billion for the World Cup, and while not all or even most of that money will be recovered by hosting the event, there is an expectation of gain for local businesses and hopefully an increase in tourism following the event. Without the World Cup, Qatar would be out the money and potentially enter a massive contract suit with FIFA. Currently, we can only wait and see how the situation works itself out, but it will be at the forefront of many people’s minds until the current diplomatic situation is resolved.

June 12, 2017 in Commentary, Current Affairs, Sports | Permalink | Comments (2)