Monday, December 11, 2017
Were you aware of this? A first-of-its-kind study exploring the relationship between specific law school courses and components of the bar exam has identified Contracts as making the greatest contribution to performance on the Multistate Bar Examination among first-time takers. Most of the other MBE-subject courses showed no significant contribution to overall MBE performance. Austin, Christopher, and Dickerson, Will I Pass the Bar Exam?: Predicting Student Success Using LSAT Scores and Law School Performance, 45 Hofstra Law Review 753, 772 (2017), available here: http://www.hofstralawreview.org/wp-content/uploads/2017/06/BB.2.Austin-et-al.NEW_.pdf
Hat tip to Otto Stockmeyer for this story!
Friday, December 1, 2017
Montana brings us an anticipatory breach case about a Mexican restaurant, Bridger Del Sol, Inc. v. VincentView, LLC, DA 17-0186.
Bridger Del Sol ("BDS") leased some property from VincentView for the purpose of operating a "casual, young, fun Mexican restaurant." I appreciate these adjectives. BDS's Mexican restaurant sounds like a place I'd want to be friends with.
BDS opened its casual, young, fun restaurant but the upstairs tenants turned out to not be so keen on their hip new downstairs neighbor, complaining about noise and cooking smells. VincentView then sent BDS a Notice of Default and stated that it would take over the premises prior to the expiration of the lease unless BDS stopped playing music and emitting cooking odors.
The court characterized that as an anticipatory breach on VincentView's part. As the court noted, "Restaurants commonly play music and must cook. Thus, VincentView's new rules were not reasonable or fair to BDS." This was therefore a breach of VincentView's duty of good faith and fair dealing and VincentView would have been unjustified in retaking the premises as it threatened unequivocally to do.
Thursday, November 30, 2017
I always struggle to think of examples of illegal contracts other than contracts to kill people, which makes for a dramatic class discussion but I fear might cause the students to write off illegal contracts as a subject better suited for Breaking Bad or something. So I was delighted to come across this recent case out of Michigan, M-D Investments Land Management, LLC v. 5 Lakes Adjusting, LLC, No. 336394 (behind paywall), dealing with an illegal contract.
While the contract is found illegal in this case, the facts are not glamorous. The plaintiff hired the defendant to adjust its fire insurance claim and signed a contract for the services. Later, the plaintiff filed this action seeking a declaration that the contract between the parties was illegal as against public policy, and therefore voidable at the plaintiff's option. The issue was that the contract had not been approved by the Department of Insurance and Financial Services ("DIFS") as required by Michigan statute.
The trial court found the contract in violation of the statute and thus voidable, and this appellate court agreed. The statute required the adjuster to seek approval from DIFS of its contract, and the defendant's failure to do so, no matter the reason, made the contract at least voidable at the plaintiff's option (which the plaintiff had chosen to exercise), if not void altogether.
The defendant argued that it has since obtained DIFS approval of its contract. However, it was undisputed that it did not have this approval for the entire time the contract with the plaintiff was in effect. Thus, the contract could not be saved by after-the-fact approval.
Wednesday, November 29, 2017
As a recent case out of Utah, Desert Mountain Gold LLC v. Amnor Energy Corp., No. 20160654-CA, reminds us, if your contract tells you what to do, you'd better do it.
In the case, the two parties had entered into a contract regarding mining claims. Desert Mountain allegedly breached the contract, which Desert Mountain disputed. Under the terms of the contract, in the event of a disputed breach such as this, the parties were required to "hold one informal meeting" before resorting to legal proceedings. Amnor sent Desert Mountain a communication stating that it was "willing to meet to discuss" the dispute. When Desert Mountain never took them up on the offer to meet, Amnor argued that it was justified in treating the contract as breached.
The court disagreed, because the court found that Amnor's statement was merely "casual." That was not enough to fulfill the requirement of holding an informal meeting. It should proposed a time to meet. Further, Amnor did not argue that Desert Mountain was in breach until fourteen months later, when Desert Mountain accused Amnor of being in breach for missing a royalty payment. The court said that violated the contract's "demand that it promptly seek legal action in the event that an informal meeting proved to be unsuccessful."
I quoted that in full because I think it's an interesting finding. The relevant clause as excerpted by the court states that, if the informal meeting is unsuccessful, the dispute "shall be resolved in a legal proceeding." The only place "promptness" seems to show up as a requirement is when the court reads it in. It's unclear what timeline the court would have viewed as prompt, given the contract doesn't provide for one, except that this one wasn't it.
The lesson from this case seems to be that if your contract calls for an informal meeting, you'd better not be casual about asking for it. Your informal meeting demands a little more proactive effort on your part. After all, we all know when people vaguely say "We should get together soon," no plans ever materialize!
Tuesday, November 21, 2017
As widely reported elsewhere such as by David Frakt in The Faculty Lounge, law schools seem to be turning desperate to hide their student recruiting practices and ABA communications (see, e.g., Desperation Times at Thomas Cooley). That blog post was cited to by the ABA in its brief in opposition to a motion filed by the Cooley law school for a temporary restraining order and preliminary injunction in an attempt to prevent the ABA from publishing a letter online stating Cooley's noncompliance with at least one accreditation standard.
Of course, law students choosing to attend law school execute legally binding contracts with their schools. So do employees choosing to work for these schools, many of which seem to be on the brink of discontinuation of operations. For how much longer can we as law schools continue defending _not_ telling applicants the real truth about their prospects for passing the bar given our applicants' LSAT scores which are, we have to admit, highly determinative in predicting ultimate bar passage rates? Is what we do ethical and professional? Do we even follow contract laws against fraud in the inducement, or torts fraud laws, when we as schools have information that could and likely is crucial to applicants' decision-making?
David Frakt developed what he calls a "risk band" that correlates LSAT scores and students' risk of failing the bar. Taking that even further, shouldn't applicants be told their _individual_, percent-wise chance of passing the bar? If, for example, students know that with an LSAT score of 143 (this is just a random example), they have virtually zero chance of passing the bar, would they still execute a three-year contract with a law school that may cost them upward of $100,000? I doubt it. More honesty and transparency is clearly required in both the law school hiring and admissions world.
Thursday, November 9, 2017
I mean, our entire society is filled with contracts, so it's no surprise that Harvey Weinstein was surrounded by a web of contracts designed to protect himself from accusations. Not just the NDAs I've previously discussed, but also contracts with his lawyer and with the investigators they hired. Not to the mention the interaction between his contracts with the National Enquirer's publisher and the National Enquirer's information. Because Dylan Howard at the National Enquierer's publisher considered himself to have to act in Weinstein's best interests because of other business deals, it affected the way National Enquirer used the information gained by its reporters.
You can read the whole story here. It's extremely lengthy and I have not done it justice at all in this tiny blog entry, but it's got a lot about contracts there: what they said, why they existed, what was being done under them, etc. Just...a lot of contracts. All of them to keep people silent.
Sunday, November 5, 2017
St. Vincent de Paul trademark battle falters on breach of contract and promissory estoppel, but unjust enrichment survives
I think there is sometimes an impression out there that implied-in-fact contracts can be used to save all situations where formal contracts weren't executed, but that is definitely not the case. Implied-in-fact contracts still require some allegation of contractual intent between the parties. A recent case out of the Western District of Wisconsin, National Council of the U.S. Society of St. Vincent de Paul, Inc. v. St. Vincent de Paul Community Center of Portage County, Inc., 16-cv-423-bbc, reiterates this. (Actually, this case dates from late May, but just crossed my inbox now. No idea why, but I'll blog it for you anyway!)
The case is a trademark dispute over several trademarks owned by the plaintiff. The plaintiff sued the defendant for trademark infringement and the defendant asserted a number of counterclaims, including breach of contract. The defendant's breach of contract claim was based on a "contract implied in fact" because the plaintiff allegedly knew (either constructively or actually) about the defendant's use of the marks and the course of dealing between the parties created an implied contract regarding this use. But the complaint failed to show any intention to contract between the parties. Rather, its allegations illustrated that the parties coexisted but that they did so independent of each other.
Even if there was an implied-in-fact contract, though, it would be terminable at will, meaning that the plaintiff could terminate it when it objected to the arrangement. The court refused to infer that any implied-in-fact contract waived the plaintiff's trademark rights against defendant in perpetuity, considering that there was so little evidence of any contractual intent in the first place.
The defendant next asserted promissory estoppel but there was no allegation the plaintiff had ever made any promise that the defendant could rely on. The defendant's unjust enrichment claim, however, was allowed to proceed. The defendant had alleged that the plaintiff would benefit unjustly from the goodwill the defendant had built up in the community and that was enough to survive the motion to dismiss.
Thursday, November 2, 2017
This recent case out of Nevada, Edy v. McManus Auctions, No. 70737 (behind paywall), caught my eye because it has facts that sound like a hypo. Basically, Edy attended a McManus auction. Prior to the auction, he examined what was purported to be a ruby pendant with a certificate estimating its value as $127,500. At the auction, Edy won the pendant with a bid of $15,842. However, when he brought the pendant to be appraised, he learned it was not a ruby and was only valued at $8,675.
Edy sued for breach of contract, unjust enrichment, and fraudulent misrepresentation, inter alia. However, his fraudulent misrepresentation claim was struck after he failed to submit a timely damages calculation pursuant to a court order. On an incomplete appellate record, the court found that the district court did not abuse its discretion in striking these claims. That left a contract claim without any allegations of misrepresentation, and the court found that the contract entered into at the auction was valid and binding. So Edy lost.
However, a concurrence in this case talked more about the misrepresentation allegations. The concurrence agreed that the district court's striking of the allegations was not an abuse of discretion, but the concurrence went on to analyze those allegations as if they have been permitted. McManus, at trial, admitted that the pendant was shown before the auction with a certificate claiming it was a ruby worth $127,500, just as Edy had claimed. McManus also testified that it knew there was a reserve price of $10,000, meaning that was the minimum acceptable bid, which was obviously far lower than the estimated value. Nevertheless, McManus did not independently verify the pendant nor did it disclose to the bidders that it might not be genuine or that it had such a low reserve price nor did it allow the bidders to get independent appraisals before the auction. Representations of value, the concurrence noted, are usually tricky bases for fraud, but here the pendant was unequivocally presented as a genuine ruby worth $127,500. The concurrence thought that was sufficient to constitute representations on behalf of McManus, had those allegations not been struck. But, without an adequate appellate record, the concurrence agreed that the district court's decision could not be reversed.
This case is a little tragic to me. I'm not sure what happened at the district court level, but it seems like the concurrence thinks the auction company was behaving questionably here. The concurrence stands as a warning to the auction company to be cautious about its practices in the future.
Monday, October 30, 2017
In the wake of the Weinstein revelations, everyone is talking about it: NDAs seem to be part of the problem. They were used consistently to silence people from speaking out. The NDA seemed to be how you could get away with it, as Weinstein's last-ditch offer to Rose McGowan to keep the lid on the story seems to illustrate. You can read criticisms of NDAs at Vox, Variety (and again), CNN (and again), the New York Daily News, Above the Law, and Forbes. And that was just my first page of Google results. I've been blogging about the danger of them for a while. It's not just the rich and powerful using them; college campuses are also using them in the sexual assault context. And they're not just being used to cover up sexual abuse; Amber Heard's NDA restricted her from apparently ever even mentioning domestic abuse at all. It's easy to see why NDAs are popular among the powerful (the President also loves them). They allow complete and total control of the narrative. An NDA can make it a legal breach for you to tell the truth; an NDA can indeed make it legally enforceable for you to lie, basically. And, in this way, the fuzzy line between truth and fiction becomes fuzzier and fuzzier. And people get victimized and feel alone and the culture of contractual silence makes them lonelier, depriving them of support systems.
NDAs also exist for lots of valid and important reasons. But they are also being widely and abusively used and we as a society need to confront that. The question isn't why less powerful people sign these NDAs. Until we can fix power imbalances (and we're a long way from that), it's always going to happen. But we should really question the public policy justifications for NDAs in certain circumstances. These past couple of weeks have spotlighted lots of troubling systemic issues in our society. This is one of them.
Sunday, October 29, 2017
As reported on The Hill and in several other national and international news outlets, tiny Montana energy company Whitefish Energy – located in Interior Secretary Ryan Zinke’s very small hometown – stands to profit greatly from its contract with the Puerto Rico Electric Power Authority. That’s fine, of course. However, highly questionable issues about the contract have surfaced recently. For example, Whitefish very famously prohibited various government bodies from “audit[ing] or review[ing] the cost and profit elements of the labor rates specified herein.”
What were those? The Washington Post reports that under the contract, “the hourly rate was set at $330 for a site supervisor, and at $227.88 for a ‘journeyman lineman.’ The cost for subcontractors, which make up the bulk of Whitefish’s workforce, is $462 per hour for a supervisor and $319.04 for a lineman. Whitefish also charges nightly accommodation fees of $332 per worker and almost $80 per day for food.” Another news source notes that “[t]he lowest-paid workers, according to the contract, are making $140.26 an hour. By comparison, the minimum wage in Puerto Rico is $7.25 an hour … [T]he average salary for a journeyman electrical lineman is $39.03 per hour in the continental U.S. However, a journeyman lineman on Whitefish Energy's Puerto Rico project will earn $277.88 per hour.”
Little wonder why the company did not want anyone to “audit or review” its labor rates. If it wasn’t for the apparent “old boy”/geographical connections that seemed to have led to this contract to have been executed in the first place, hopefully no Puerto Rican official would have accepted this contract in the form in which it was drafted.
But it doesn’t end there. When the San Juan mayor called for the deal to be “voided” and investigated, Whitefish representatives tweeted to her, “We’ve got 44 linemen rebuilding power lines in your city & 40 more men just arrived. Do you want us to send them back or keep working?”
To me, this entire contract to violate several established notions of contract law such as, perhaps, undue influence or duress (in relation to contract formation but perhaps also, if possible, to continued contractual performance), bad faith, perhaps even unconscionability, which is a alive and well in many American jurisdictions.
This could work as an interesting and certainly relevant issue-spotter for our contracts students. It also gives one a bad taste in the mouth for very obvious reasons. It will be interesting to see how this new instance of potentially favoring contractual parties for personal reasons will pan out.
Friday, October 27, 2017
As reported by CNN, Penguin Press has just cancelled a contract with sexual-predator-of-the-day Mark Halperin, formerly of ABC News and recently a host of "Showtime" on HBO. HBO has also cancelled its plan to create a mini-series based on his book.
Can a contract be cancelled for this reason? I have not seen the actual contract, but it undoubtedly contained a provision allowing the publisher to do so. If not, does it matter? Clearly not. Halperin and others like him well deserve the contractual outcomes of their incredibly poor behavior. I doubt it that Halperin will dispute this legally too.
What in the world is going on with all these allegations and facts demonstrating sexual harassment, gender harassment, and other vile power games in the work place? Sorry, gentlemen, but clearly, many men in the workplace and elsewhere still suffer from an almost incredible sense of entitlement to power over women. "Almost" because history shows that this has apparently always been the case. One would think that in 2017, things would be different, but quite evidently not. Just look at our own industry, legal education, and how many men still dominate that field in the acquisition of job positions, promotions, presentations at conferences, etc. Yes, it is still a man's world. Yes, glass ceilings still exist. How sad to think that as a society, we have not come further than this.
A good aspect of this current revelation trend is that women are finally speaking up against what has happened. It's doubly troubling that not only were they discriminated against, but also did not find it feasible to bring these issues up until now, apparently.
Monday, October 16, 2017
Take That! Outstanding Contractual Balance, Not Just Profits, Due in Case of Asserted Commercial Impracticability
In Hemlock Semiconductor Operations, LLC v. Solarworld Industries Sachsen GmbH, 867 F.3d 692 (Sixth Cir. 2017), Hemlock contracted to provide Sachsen in Germany set quantities of polysilicon at fixed prices between 2006 and 2019. The market price at the time was well above the price agreed upon between these parties, but plummeted several years later when the Chinese government began subsidizing its national production of polysilicon.
When Sachsen refused to pay the original contractual amount for 2012, Hemlock brought suit for breach of contract. Sachsen defended itself claiming that the Chinese government (1) illegally subsidized its national production of polysilicon and dumped massive quantities of the product onto the market, causing the price of polysilicon to fall; and (2) committed acts of “criminal industrial espionage” against Sachsen's U.S.-based sister company, SWIA. As a result of these illegal actions, the price of polysilicon plummeted, rendering Sachsen's performance impracticable and frustrating the purpose of entering into the contracts with Hemlock.
Hemlock demanded the entire outstanding balance due to Hemlock from 2012 through 2019 – close to $600 million – plus post-judgment interest. Sachsen argued that this would be an unenforceable penalty rather than permissible liquidated damages under the contract. At the most, Sachsen argued, it should pay only for Hemlock’s lost profits since Hemlock did not have to actually produce polysilicon for Sachsen after the breach. This would have saved approximately $200 million for Sachsen.
Both the district and appellate courts found that since even drastic changes in the market are not sufficient to trigger the impracticability defense, Sachsen could not here either, even given the alleged Chinese interference. This, said the district court, was irrelevant because the alleged illegal actions of the Chinese government had “simply caused a market shift in pricing, making it unprofitable for Sachsen to perform as promised.” The appellate court cited to a case where even a $2m a day loss causing a company to go out of business did not warrant the defense. Both courts referred to the standard “floodgates” arguments and not blaming third parties for one’s own contractual misfortunes.
OK, but so what about the lost profit argument? Although such cost savings might factor into an ordinary breach-of-contract claim, the courts concluded that considering cost savings was inappropriate in the context of the particular take-or-pay provision in place between these parties. Hemlock, in other words, was entitled to full payment under the contract even if Sachsen refused delivery of the polysilicon. “Under these circumstances, Hemlock would have had no need to produce the polysilicon, but would still be entitled to be paid in full. The court persuasively reasoned that the [contract] therefore contemplated situations in which Hemlock's cost savings would be irrelevant to the amount of payment that Hemlock was due.”
That argument seems terribly circular to me. Hemlock was entitled to the full contractual amount because Hemlock was entitled to the full contractual amount? Uhm, even if it did not have to do anything and thus did in fact enjoy huge cost savings? I find that erroneous, nonsensical, and actually rather vindictive on the part of the U.S. court system over a foreign entity.
The appellate court also found that “restricting Hemlock's recovery to lost profits without accounting for the fact that Sachsen saved (and Hemlock lost) approximately $509.1 million earlier in the contract term would be inequitable. In light of the fact that Sachsen benefited substantially in the earlier years of the LTAs, the liquidated-damages award is not ‘unconscionable or excessive.’” That does not make sense to me either. The parties took the contractual risks that they did. Granted, Sachsen then breached. But greed then seemed to come into play, for profits were the only thing Hemlock would have gotten out of the situation had there not been a breach. Hemlock was placed in a vastly better situation here than what liquidated damages normally allow for, precisely because they cannot be punitive. They seemed to have been here as they were a simple, yet extreme formula: if breach, pay the rest of the contract no matter what. When the contractually stipulated liquidated amount grossly exceeds actual damages, courts of law usually construe such provision as an unenforceable penalty. Not in this case, not even for a windfall of $200 million.
The case is Hemlock Semiconductor Operations, LLC v. SolarWorld Indus. Sachsen GmbH, 867 F.3d 692, 707 (6th Cir. 2017), reh'g denied (Sept. 19, 2017)
Friday, October 13, 2017
If you're a person who spends time on Twitter, you might be aware that it's been a manic week on the platform (although every week is a manic week on Twitter; it's 2017). As the news broke about Harvey Weinstein's pattern of multiple sexual assaults, Rose McGowan added to the many allegations and tweeted an accusation of rape against him. Later, McGowan's Twitter account was suspended. The reaction to this suspension was swift and furious by many of the platform's users. Twitter later clarified that it suspended her account because she had posted a personal phone number (in violation of Twitter's policies) but for a while the exact reason was unclear, and many users complained that it was more of Twitter's selective enforcement of its policies.
Social media's increasing reliance on algorithms to handle the speech going on on the sites has lots of problems, and as more and more public discourse collides up against more and more opaque policies, it seems like a problem that's only going to get worse. We should think about these issues, and we should especially think about them as we teach our students how to interpret the contracts that govern our lives: we all have an entrenched viewpoint that should be critically examined rather than blithely assume our own neutrality.
In the meantime, I'm going to post this blog and then tweet to tell you all about it, because that's the way we communicate in today's society, and I'm going to have to agree to Twitter's policies to do it, and I'm going to hope these policies let me make the tweet, something that many of us take for granted but that is definitely not guaranteed. Our contracts are never as clear as we hope.
Wednesday, October 4, 2017
A slip-and-fall in a cruise ship bathroom, a forum selection clause, a defective filing, an untimely filing...and equitable tolling
A recent case out of the Southern District of Florida, Jordan v. Celebrity Cruises, Inc., Case No. 1:17-cv-20773-WILLIAMS/TORRES (behind paywall), concerned a plaintiff, Jordan, who was allegedly injured when she slipped and fell in the bathroom of her cabin. She attempted to sue the defendant, Celebrity Cruises, in Florida state court. However, her ticket contract with Celebrity Cruises required that any causes of action be filed in the Southern District of Florida. Jordan did eventually file in the Southern District of Florida but it was after the statute of limitations had run.
The main issue in the case revolved around whether the statute of limitations could be equitably tolled, since she had filed in state court prior to the statute of limitations running. Jordan argued that she did not have her ticket contract, nor was she aware that it required suit in the Southern District of Florida--a not-at-all implausible argument on her part, considering that few of us read those terms and conditions or really register them. She claimed that the first time she realized she had a ticket contract with Celebrity Cruises was when Celebrity Cruises attached the ticket contract to its motion to dismiss her state court complaint, and that the case was refiled in the proper contractual forum shortly thereafter.
The court found that equitable tolling could apply. Jordan was diligent in pursuing her cause of action, and Celebrity Cruises did not suffer any adverse consequences, since Jordan had provided timely notice of her injury to Celebrity Cruises. The court did not think Jordan was negligent in her failure to file in the proper forum. Celebrity Cruises seemed to argue that Jordan should have found the ticket contract online to learn where the proper forum to file would be, but there was no evidence in the record showing that the ticket contract was so easy to locate online that Jordan's failure to do so was negligent. Therefore, Jordan's timely filing in the wrong forum entitled her to equitable tolling, considering her diligence in all other respects.
Sunday, October 1, 2017
Three peer-reviewed studies have each concluded that travelers who pay an additional fee for luggage pay more than they did, on average, when bag costs were included in the airfare. This finding was first reported by the Los Angeles Times.
Airlines started "unbundling" their services such as food, drinks, luggage and now even reserving seats in an alleged effort to give passengers the option of only paying for what they want.
Officially, airfare rates have fallen over the past three consecutive years, but with the added luggage fees, flying is actually more expensive.
Since airlines by and large charge the same prices for things unless, perhaps, you have good frequent flyer credit with them and can book tickets months and months ahead of time, your contractual bargaining power with them will be almost zero. Take it or leave it!
Wednesday, September 20, 2017
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.
Tuesday, September 19, 2017
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.
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?
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).
Friday, September 15, 2017
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.
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.
Wednesday, September 13, 2017
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: