Wednesday, June 8, 2016
Words are tricky things, as contracts remind us every day. When I teach contract ambiguity, a lot of the cases seem to revolve around insurance contracts, with the doctrine of contra proferentem coming into play. A recent case out of Michigan, Atlantic Casualty Insurance Co. v. Gustfason, No. 325739, provides another example.
Gustafson operated a landscaping business. While one of his employees was clearing brush on a homeowner's property, the homeowner was watching off to the side and was struck with debris and injured. The homeowner sued Gustafson, and Gustafson contacted his insurance agent. Atlantic Casualty reported that the loss to the homeowner was excluded from the insurance policy, so Gustafson sued Atlantic Casualty, contending that the loss was covered by the policy.
The relevant clause in the policy stated that it didn't apply to bodily injury to any "contractor," and then defined "contractor" using a long string of examples: including but not limited to
any independent contractor or subcontractor of any insured, any general contractor, any developer, any property owner, any independent contractor or subcontractor of any general contractor, any independent contractor or subcontractor of any general developer, any independent contractor or subcontractor of any property owner and any and all persons providing services or materials.
The emphasis there is added, because Atlantic Casualty sought to exclude the homeowner's injuries by asserting that he was "any property owner."
The court pointed out that the phrase "any property owner" was extraordinarily broad and would include almost everyone in the world "except perhaps for a newborn baby," because most people can be found to at least own the clothes they're wearing, which would make that person a property owner. Such a broad reading, excluding virtually the entire planet, would render the policy illusory.
Atlantic Casualty apparently acknowledged that the phrase was broad as written and instead argued that what it really meant was "the owner of the real property upon which the insured is performing work." The court, however, found that it made sense, given the other items in the list, to interpret "any property owner" to mean "those who are being compensated, or who otherwise have a commercial interest, for being on the job site." In that case, "any property owner" would cover not the real property owners whose land was being worked on but owners of any equipment being used (possibly rented) to work on the real property.
Because "any property owner" is an ambiguous term and the court found itself with two reasonable interpretations, it employed contra proferentem and interpreted the contract against Atlantic Casualty, who had drafted the contract. Therefore, it stated that "any property owner" did not include those "without a commercial interest in the project," and therefore did not include the residential homeowners, which meant the policy covered the homeowner.
While I generally like the court's reasoning and interpretation in this case, I do find it slightly odd to decide that a property owner doesn't have a commercial interest in the project being performed on his own land. Presumably he is paying for the work and therefore does have a commercial interest in making sure that the work is being done properly. Even if he's not paying for it, the improvement to his land will likely increase its value, also giving him a commercial interest in what's happening. I think the better phrasing is to interpret it as someone who is being compensated for their presence on the job site.
Tuesday, June 7, 2016
This One Again: Handwritten Contracts Really Are Binding (but Mediation Transcripts Are Highly Recommended)
The Seventh Circuit just reconfirmed the fact that handwritten contracts are enforceable as long as they contain all the material terms of the contract.
In the relevant case,Martina Beverly brought suit against her former employer, Abbott Laboratories, for discrimination and retaliation against her because of her German nationality (not a lot of anti-German discrimination going on in this country these days, one might think, but that was nonetheless the allegation) as well as on the basis of her disabilities. The case went to mediation. A day before the mediation took place, Abbott’s attorney sent Beverly’s attorney a “template settlement agreement in order to avoid any surprises in the event that [the parties] are able to resolve the matter.” That document also stated that Beverly had twenty one days to review it and seven days to revoke any possible acceptance.
During the fourteen-hour mediation session the next day, both parties were represented by counsel. At the end of the session, both parties and their counsel signed a very brief handwritten agreement that, at bottom, stated that Abbott would pay the cost of mediation and “$200,000+” with Beverly demanding $210,000. The parties were probably and understandably tired after such a long session, but still: a quarter million-dollar settlement, and no one had the energy or took the time to type up one measly paragraph?...
Next day, Abbott emailed a typed agreement to Beverly’s specifying the amounts to be paid ($46,000 to Beverly and a relatively whopping $164,000 to her attorneys!). The emailed response from Beverly’s attorneys: “Oh happy days!.. You are a gem.”
Soon after that, Beverly – perhaps for good reason – got cold feet and sought to rescind from the deal, arguing that additional terms were needed for a contract to have been formed, that the twenty one days mentioned in the pre-meeting template (which was never used in its original form) were applicable to her settlement offer, and that a “more formal future writing” was anticipated.
The appellate court struck down each of these arguments. First, additional terms such as any future cooperation between the parties and Beverly’s future employment with the company were nonessential details. The language in the original template pertaining to a cool-down period was never actually used. The fact that parties anticipate a more formal writing does not nullify an otherwise binding agreement. The court found the happy exclamation by Beverly’s attorney dispositive of the parties’ intent to enter into a contract when they did (one might also say it was simply an indication of the attorneys’ happiness with a large payment, not their clients’ mood).
Perhaps most importantly, the court pointed out that “[i]t bears mentioning that a transcript (or some other recording) of the private mediation session here may have provided important clarity regarding the parties’ beliefs and intentions relating to the handwritten agreement and the draft proposal. We encourage future litigants to record any communications that directly relate to final settlement agreements.”
Sound advice in days of, apparently, little or no secretarial assistance even when relatively large sums of money are at stake. An assistant could have typed up the agreement in less than one minute. So could an attorney. In the end, though, the handwriting argument did not prevail, but having something in writing or at least an audio recording would have precluded even more costly lawyering.
Thursday, June 2, 2016
Donald Trump is currently attacked on many fronts, one of which for the potential re-launch as President of his now-defunct for-profit real estate training classes. The “playbook” used by the corporate recruiters for the business unit required them, among other things, to use such arguably despicable and potentially fraudulent recruiting language as the following:
“As one of your mentors for the last three days, it’s time for me to push you out of your comfort zone. It’s time for you to be 100% honest with yourself. You’ve had your entire adult life to accomplish your financial goals. I’m looking at your profile and you’re not even close to where you need to be, much less where you want to be. It’s time you fix your broken plan, bring in Mr. Trump’s top instructors and certified millionaire mentors and allow us to put you and keep you on the right track. Your plan is BROKEN and WE WILL help you fix it. Remember you have to be 100% honest with yourself!”
“Do you like living paycheck to paycheck? ... Do you enjoy seeing everyone else but yourself in their dream houses and driving their dreams cars with huge checking accounts? Those people saw an opportunity, and didn’t make excuses, like what you’re doing now.”
(Can you imagine reading those statements allowed for a living?)
Does promising potential students too much constitute fraud in the inducement? In a not entirely dissimilar case in our own field, law student Anna Alaburda recently lost her lawsuit against Thomas Jefferson School of Law. Ms. Alaburda had argued that the law school had committed fraud by publishing deceptive post-graduation employment statistics and salary data in order to bait new students into enrolling. Alaburda claimed that despite graduating at the top of her class and passing the California bar exam, she was unable to find suitable legal employment, and had racked up more than $150,000 in student loan debt. An attorney for the school rejected the claims and said Alaburda never proved them. The attorney also reminded jurors that she had turned down a job offer, and that many Thomas Jefferson alumni have had successful careers. The verdict in that case was 9-3 in favor of Thomas Jefferson.
The cases are of course not similar, yet similar enough to remind us of the importance of not promising too much in the for-profit educational field (in Thomas Jefferson’s case, the school won, but a dozen other lawsuits have allegedly been filed against other schools). This makes sense from both an ethical and business risk-avoidance angle.
What about the use of the very word “University”? The media seems to stubbornly – probably for “sound bite” reasons – continue using the phrase even though the business was, in effect, forced to change its name to “The Trump Entrepreneur Initiative” after government pressure around 2010. The business was just that, and not a certified university.
If Trump decides to start up the business again, does the media not help him do so again by using a much too favorable term? It seems like it. Linguistics matter in the law and beyond. May media PR inadvertently (or not) contribute to a potential fraud? Comment below!
Thursday, May 26, 2016
Book Review: Drafting and Analyzing Contracts: A Guide to the Practical Application of the Principles of Contracts Law
Carolina Academic Press has just released the fourth edition of the above title by Professor Scott J. Burnham. I got a chance to review it and, although I have not used it in a classroom setting yet, share my impressions with you here.
The book is well organized into twenty clearly defined chapters. Each chapter boils the relevant contract law into nicely terse “blackletter” law segments with no cases (a plus!) or irrelevant matter. This may serve the dual function of reminding students taking a contract drafting class about the applicable law for purposes of such a class, but also to refresh their memories again before taking the bar.
The exercises alter between reading/understanding-style problems and actual drafting problems. For example, some problems will ask the students pointed questions about contract clauses (“Is nonperformance excused?,” “What does the company have to pay [an injured worker],?” “Which of the following clauses are enforceable?” Many more, though, ask for more student involvement and deeper analysis while drafting. For example, several exercises give students a range of objectives to be accomplished and ask the students to draft the appropriate language, others ask students to identify ambiguities and improving them, some deliberately provide overly complicated “legalese” clauses, asking students to modernize them without compromising the legal objectives, and yet others ask students to rely on certain passages in the book in order to draft certain clauses, taking into consideration certain concerns.
The book also asks students to address various ethical concerns, which is a plus.
The only activity that I saw that I personally do not care for is one asking the students to “research the law in your jurisdiction” to be draft a certain problem. For me, that is too open-ended. I would fear questions about substantive law provisions with which I am not personally familiar and the potential surprise when students find out that we do not know “everything” about the law. However, that was just one of many great, diverse exercises.
In short: this book contains much good substantive information and features a wealth of different types of exercises. I highly recommend that you examine this book for your potential classroom or other use.
Tuesday, May 24, 2016
Pretty darned bad! Imagine this: A law student starts giving professional legal advice while still in law school. The advice is rendered to a 78-year-old Chinese-American with limited English skills and experience with the American legal system. The student renders the advice in person, over the phone, and in extensive e-mail exchanges. He even persuades the client to “assign” the lawsuit to the student so that the student would be “better able to control the suit and properly advise” the client. In doing so, the student promises to “minimize any legal costs to [the client] before [the student] getting [sic] his license by doing all the work he can carry on for said case.” The students subsequently graduates (from a California law school not accredited by the ABA, according to the website of the State Bar of California), passes the bar, and becomes the formally retained lawyer for the client.
The new graduate sues a party on behalf of his client. The graduate also names his own client on a lawsuit for an unrelated matter “only as a matter of legal procedure.” Additionally, the graduate sues his client’s defendants! The advice he renders is thought to be legally incorrect by a mediator. The client thus fires the graduate. The State Bar of California brings disciplinary proceedings against the new graduate for conflict of interest matters as well as the unauthorized practice of law. The graduate stipulates to the charges and is suspended for some time. Trial is brought against the graduate by his former client for professional negligence, breach of fiduciary duty, unlawful business practice, breach of contract, and fraud. The client wins a judgment of $552,412.
You guessed it! The graduate does not pay. Rather, he appears in some subsequent judgment debtor proceedings, but disputes the court’s personal jurisdictions (that argument is waived once an appearance has been made, by the way). He submits briefs to the court misciting passages from outdated Matthew Bender Civil Procedure practice treaties. He refuses to produce tax returns to show his income. The court has to order him to do so. He goes bankrupt, and produces a “myriad” of inconsistent stories in the case. As the court said, “a few examples should suffice:
- Yan testified he sold his membership in an LLC to two persons for $650,000, but could not remember their names.
- Yan testified that his mother provided him checks, but could not remember: whether the checks numbered more than a hundred; when the most recent check was received; or when his mother last worked or her last job.
- Yan testified that he was the sole support for his children, supported solely by his income, which for 2014 was “less than [$]10,000.” The support included rent, which included $8,400 in 2014, but he refused to provide the identity of the person to whom the rent was paid. Yan was asked the source of the money to pay his children's rent, and he said it was from his “income.” Asked if that was from legal fees, Yan said, “I don't know.”
- Enough is enough.”
The monetary judgment against the graduate was affirmed. Years later, at least one other disciplinary matter has been brought against the graduate.
The question is: is this just one example of an unusually rotten apple? Or does this point to the assertion made by many that California really does not need a number of unaccredited law schools on top of the already large amount of ABA-accredited ones? (But note too that even the trial court record contains “no evidence of anything, only assertions as to what occurred, though [the plaintiff’s] assertions are supported by various exhibits” and not disputed by the defendant. There were, for example, “no reporter’s transcript, nor any real evidence – that is, sworn evidence….”
Comment below! The case is Charles Li v. Demas Yan, 2016 WL 1757283.
Monday, May 23, 2016
Is it unthinkable to you that George Zimmerman would seek to profit from killing Trayvon Martin? No? How about reneging on one contract if he were to get an even more lucrative one?
The latter has recently been shown to be the case. The former Florida neighborhood watchman who shot the unarmed teenager in 2012 has confirmed that he has accepted an auction bid for $250,000 for the gun with which he killed Mr. Martin. Before that, he had accepted a bid for $150,000 from a Florida bar owner for the same gun, but backed out of that deal when he got a better one. Says the bar owner, “I thought [Mr. Zimmerman] was a man of his word.”
The sale drew heavy criticism from people claiming that Mr. Zimmerman was seeking to profit from the sale. Gun rights advocates claim that Mr. Zimmerman is simply exercising his legal rights under the law.
Meanwhile, Mr. Zimmerman has displayed his apparent usual lack of social skills by accusing one gun auction website that refused to sell the gun of being “Nazi loving liberal liars ” (Huh? How would that work?). At least he promises to give some of the proceeds of the sale to “fight Black Lives Matter violence against law enforcement officers”…
No further comments are needed for this story.
From a Colonial Cemetery to a World War II Factory to Condos and a Spa: Environmental Concerns, Contract Releases, and Secret Underground Containers Are Just the Latest Chapter
(Photo from northjersey.com)
I use a lot of hypos in my class based on undiscovered buried containers of environmental hazards, and I feel like sometimes my students wonder if this is a thing that actually happens. Unfortunately, yes, as a recent case out of New Jersey, North River Mews Associates v. Alcoa Corp., Civil Action No. 14-8129, proves.
The case centers around a piece of land on which Alcoa had operated a manufacturing facility from 1917 to 1968, a facility once so central to East Coast industry that it had actually been placed on the National Register of Historic Places. The piece of land had been vacant since 1978 and became a popular site for people looking to photograph "modern ruins." It was eventually sold to North River Mews Associates and 38 COAH Associates (the Plaintiffs). Twenty years ago, the New York Times reported optimistically that the development deal would be a "win-win" the would help clean up the Hudson River shoreline. The site, however, has been plagued by a number of challenges and tragedies (several fires, workman injuries from freak accidents, etc.) that have led some people to talk about curses. (Well, it apparently had been built on an old graveyard dating back to colonial times.) The latest obstacle has now emerged in the form of, yes, previously undiscovered buried containers of environmental hazards.
The parties were well aware that the land would have environmental contamination, as the Times article makes clear. But the Plaintiffs had worked with the New Jersey Department of Environmental Protection and believed that the property had been remediated. In 2013, however, the Plaintiffs discovered two previously unknown underground storage tanks filled with hazardous materials. The property around the tanks seemed to indicate that at one point the tanks had attempted to be burned instead of properly disposed of. The presence of these tanks, needless to say, was never disclosed by Alcoa to the Plaintiffs.
Alcoa's stance, however, is that the purchase contracts for the land released them from liability for various claims brought against them. The court disagreed at this motion to dismiss stage, finding that the language was ambiguous. The release in the contract stated that the Plaintiffs waived the rights "to seek contribution from [Alcoa] for any response costs or claims." The court said that it was unclear whether the contribution language modified only response costs or whether it modified both response costs and claims. Was this a blanket release of all claims, or only a release of the right to seek contribution? This question, the court concluded, could not be determined on a motion to dismiss.
At any rate, the Plaintiffs also alleged that Alcoa concealed the presence of the underground tanks, fraudulently inducing them to enter into the contracts, and the court concluded that, if true, that would be grounds for the release to be vitiated.
This case is a great example of how long environmental issues, development deals, and contractual disputes can drag on. In 1997, the parties signed the purchase contract. Today, the parties are still trying to clean up the site and fighting over which of them ought to pay for it, with language drafted twenty years ago taking center stage. As the case continues, it will of course likely become relevant who knew about the storage tanks and when, and I am curious to see if the tanks can be dated. Since Alcoa apparently ceased using the site for manufacture in the 1960s, it will be interesting to see how much knowledge from that time period still exists. It's the latest chapter in the history of a plot of land that seems to have been a busy place for centuries.
Friday, May 20, 2016
Implied Warranties of Habitability on Houses Do Not Apply to Second Buyers If the First Buyers Waived Them
A recent case out of Illinois, Fattah v. Bim, Docket No. 119365 (behind paywall), allowed the court to clarify whether an initial home buyer's waiver of the implied warranty of the house's habitability applied to subsequent buyers, or whether the second purchaser of the house could nevertheless assert a breach of warranty claim against the builder of the home. The Supreme Court of Illinois concluded that a waiver of the warranty on the part of the first buyer eliminated the second buyer's ability to exert such a claim, overturning an appellate court decision that had sent reactionary ripples through the home-building blogosphere.
In 2005, Masterklad built a house that contained a brick patio. In 2007, Masterklad sold the house to Beth Lubeck. The sale of the house included a "Waiver and Disclaimer of Implied Warranty of Habitability" in which Lubeck "knowingly, voluntarily, fully and forever" waived the implied warranty of habitability that the State of Illinois reads into all contracts involving newly constructed houses. In exchange for the waiver of the implied warranty, Masterklad provided Lubeck with an express warranty on the house. The express warranty was limited to a one-year term. There was no allegation in the case that Lubeck's waiver of the implied warranty wasn't effective and enforceable, and there were also no allegations that Masterklad hadn't complied fully with the terms of the express warranty.
In 2010, a couple of years after the expiration of Masterklad's express warranty on the house, Lubeck sold the house to John Fattah. The sale of the house stated that it was "as is." A few months later, the brick patio that Masterklad had installed collapsed. Fattah sued Masterklad, alleging that the patio had had latent defects that violated the implied warranty of habitability.
At the trial court level, Fattah lost, with the court concluding that the policy that permitted knowing waivers of the implied warranty would be frustrated if subsequent buyers could resurrect the claims. The appellate court, as has been mentioned, reversed, though, finding that Fattah could assert breach of the implied warranty.
Illinois' Supreme Court disagreed with the appellate court's decision. While Illinois has previously determined that the implied warranty extends to subsequent purchasers of a house where the first purchaser has not waived the warranty, this was a different situation: Fattah was seeking to recover damages that the first buyer would not have been entitled to. Allowing Fattah to do this alters Masterklad's risk exposure in an unfair way. Masterklad sought to manage its level of financial risk by providing an express warranty with a clear termination date, as it was permitted to do under Illinois precedent. It was unfair to switch everything up on Masterklad at this late date. In fact, allowing Fattah to bring this claim would effectively mean that the implied warranty of habitability could never be waived, as it could be resurrected by any subsequent buyer--which was the opposite of what Illinois had decided when it concluded that the implied warranty could be waived.
The disagreements within the Illinois court system about this come down very explicitly to a policy decision. The appellate court seemed uneasy with waivers of the implied warranty because of public policy concerns, and one can see its point: You like to assume the houses you buy can generally be lived in. But the supreme court's point here also makes sense: If you buy a house "as is," you've usually gotten some kind of discount. If your gamble doesn't pay off, the courts are reluctant to revive arguments you bargained away. This might boil down to, much of the time, the maxim that a deal that seems too good to be true might, indeed, be untrue, and wariness should be employed.
Wednesday, May 11, 2016
Myanna Dellinger blogged about the proposed regulation here. Jean Sternlight of UNLV is circulating this letter in support of the CFPB proposed regulation. The letter is comprehensive and persuasive. At least 140 law professors have signed it so far. If you would like to add your name to the list, please email Jean Sternlight at firstname.lastname@example.org no later than May 20.
Monday, May 2, 2016
You Might Think City Buses Don't Have a System, But They Totally Do! (it just might be copyright infringing)
Entities and people come together, do business, have disagreements, go their separate ways. It happens all the time. But nowadays, since so many things have embedded software, these break-ups of business relationships have copyright implications. If you don't have a license to continue using the embedded software, when you break up with another business, that means you have to stop using whatever contains the software, too. Theoretically.
A recent case out of the Middle District of Tennessee, ACS Transport Solutions, Inc. v. Nashville Metropolitan Transit Authority, 3:13-CV-01137, dealt with this issue. The Nashville Metropolitan Transit Authority ("MTA") had contracted with ACS to develop a system for MTA to manage its buses. The system ACS created contained copyrighted software that ACS expressly licensed to MTA. A few years after the development of the system, MTA discontinued its relationship with ACS, but it continued to use the system that contained the embedded software. ACS contacted MTA and told it that it was using the software without a license and infringing ACS's copyright. Nevertheless, MTA continued to use the system with the embedded software, and so ACS eventually brought this lawsuit.
MTA argued that, when it terminated its relationship with ACS, it did not terminate the license to use the software, and so it was still properly licensed. However, MTA's relationship with ACS was governed by a contract, within which was the software license. Terminating the relationship set forth by that contract, the court found, necessarily terminated the software license also found in that contract.
MTA additionally argued that it had paid for the system and that therefore it should be entitled to use the software within the system indefinitely. ACS did agree that MTA had paid for the system and would not have owed ACS any further payments...if ACS and MTA had fulfilled the rest of their contractual obligations. Instead, ACS argued, MTA breached its obligations. Therefore, ACS rescinded MTA's license to use the software.
There was some slim hope for MTA. MTA argued that it had an implied license to use the software for a "reasonable" period of time while it transitioned to the new software of the company it hired to replace ACS. The court seemed skeptical that the length of time MTA had used ACS's software after terminating ACS (it ended up using the software for more than two years after terminating ACS) was reasonable; the court implied that, even if MTA had had an implied license to use the software while it transitioned, MTA's use had exceeded that implied license's scope. However, the court found this to be a material fact in dispute and so inappropriate to resolve at the summary judgment stage.
Under the terms of its contract with ACS, MTA received only a non-exclusive, revocable license for the software. If MTA had wanted more protection, MTA should have negotiated better license terms. ACS, of course, might never have been amenable to granting better license terms. But let this case be a lesson: Many things are going to come with embedded software these days, and that software is copyrighted. You're going to need to dot your copyright i's and cross your copyright t's regarding this software; don't lose sight of that by focusing instead on the larger product you're buying. MTA may have thought of itself as buying a system, but it really needed to think of itself as buying the software within the system.
Wednesday, April 27, 2016
I echo Nancy’s tribute below to Prince. Not only was “His Royal Badness” an amazing musician, singer and dancer, he was also able to legally wrestle with and ultimately prevail over some of the really “big boys” in the entertainment industry on issues of contract law.
But even after his death, some companies sought to take financial advantage of him. For example, Cheerios tweeted “Rest in peace” on a simple purple background, but with the “i” replaced with a single Cheerio. After fans expressed their disappointment of this, the tweet was removed just a few hours later with the company acknowledging that their note m ay not have been appropriate. I would agree with that: In such a moment, who’d really think about promoting and buying cereal, of all things?! A lengthier tweet by Hamburger Helper was also removed. Smart: folks, the guy was a vegan! Give the man a little respect.
In contrast, Chevrolet is applauded for a much more tasteful tribute simply stating, on a black background, “Baby That Was Much Too Fast, 1958-2016” and at the very bottom featuring an image of a classic red Corvette, a brand that the singer himself chose to immortalize with his big 1982 hit.
Why would companies so quickly resort to using a famous person’s death to make money? Apart from the Chevrolet ad (which the Chevrolet simply would have to post, it seems, given the song lyrics) Corporate America is rumored to have felt that they did not “bank sufficiently” on the death of another music icon: David Bowie. With Prince’s death, they felt they got a great second chance. (I can no longer find the link to the reputable business magazine where I read this, which shouldn’t matter as no official statement was, of course, made from any company stating this).
With this, let’s remember two great music and business talents who both understood the importance of the Internet on contractual issues (Prince once declaring it dead, Bowie taking the opposite stance and considering it the future of interaction between musicians and their fans). David Bowie even created his own Internet service, BowieNet, to be able to reach out to fans in ways he himself could control.
As law professors, I think we can sympathize with these music icons as we also know how relatively easily big corporations can cash in on the creative works of others. Just think of how little, I have heard, authors of legal casebooks earn on each book sold; not unlike the situation in the musical world.
Rest in peace, Prince and David Bowie
Monday, April 25, 2016
My love for HGTV is real and enduring. It started as a House Hunters addiction when I was a practicing lawyer looking for something mindless to watch when I got home at night and it has seriously spiraled out of control. I find something soothing about the formulaic nature of the shows; their familiarity is like a security blanket to me. And I've also realized that I've actually learned a lot about my taste. For what it's worth, I do feel like HGTV has made me think more about how I decorate my house, even if I can't afford a professional decorator.
So I gobbled up with interest every single article I could find on the recent "Love It or List It" lawsuit. If you don't know the show, it's one of my favorites for the snark between the competing real estate agent and designer. One half of a home-owning couple wants to renovate their existing home; the other half wants to give up and move away. Enter the "Love It or List It" team, showing the couple houses they could buy while simultaneously renovating their home. The theory is that the couple can then decide to love it, or list it.
I entertain no illusions about the "realness" of reality television (really, mostly I've learned from reality television that apparently an enormous number of people are tremendously good actors - while others are decidedly not), but this recent lawsuit attacks not just the "realness" of reality television but practically the *definition* of it: "Love It or List It," the homeowners accuse, were much more interested in making a television show than they were in renovating this couple's home. On at least some level, this lawsuit seems to be a challenge to what "Love It or List It" is: a television show or a general contractor.
As a general contractor, the homeowners weren't too happy with the show's performance. They allege shoddy work on their house, including low-quality product, windows that were painted shut, and holes big enough for vermin to fit through. (They also allege their floor was "irreparably damaged," although I think they can't possibly mean that in the true legal sense of "irreparably," because surely the floor can be repaired?)
It seems to me this is going to come down to the contract between the parties. What did "Love It or List It"'s production company promise? I would love to see what the contract said about the work that was to be performed, how that work was to be performed, and what the financial arrangements were (since part of the couples' allegations is that a large portion of their money was diverted away from the renovations). However, for some reason, I have had an incredibly difficult time locating a copy of the complaint (never mind the contract). None of the stories I've found linked to it, and I have had zero luck finding it through Bloomberg Law's docket search.
Saturday, April 23, 2016
The City of Los Angeles is proposing rules for legalizing Airbnb. The rules would be less draconian than those in Santa Monica, which has entirely banned renting out full units for less than 30 days and which allows home-sharing (in which an occupant rents just a room or a couch) only if the occupant registers and pays taxes on the unit.
In Los Angeles, homeowners would be able to rent out their entire homes for up to ninety days a year. Home-sharing landlords would have to register with the City and, in that connection, submit information about “all hosting platforms to be used and the portion of the unit to be used for Home-Sharing.” Only rooms in one’s main house or guest houses could be rented out, and thus not tents, yurts, backyard RVs, garage spaces and the like.
This is good news for a lovely, modernizing, yet expensive city where many people struggle to make ends meet. With the minimum salary increasing to $15 an hour in 2020, things are improving slightly for the middle and lower classes... but will that be enough to set off rapidly increasing prices in other areas of life? I personally doubt it, but time will tell. At least the above is an improvement of people’s individual property and contracting rights.
Friday, April 15, 2016
(image from IMDB)
Gilmore Girls fandom rejoiced when it was announced that the show would receive a revival on Netflix (and, even better, that it will include Sookie!). But, as often seems to be the case, developments that bring a fandom joy can come with legal entanglements. In this case, producer Gavin Polone's production company Hofflund/Polone has filed a lawsuit against Warner Bros., alleging breach of contract. The lawsuit, Hofflund/Polone v. Warner Bros. Television, Case No. BC616555 (behind paywall), was filed in the Los Angeles County, Central District, Superior Court of California.
The case revolves around the agreement between the parties concerning the original production of Gilmore Girls. The parties agreed, according to Hofflund/Polone, to provide Hofflund/Polone with "$32,500 for each original episode of Gilmore Girls produced in any year subsequent to 2003," along with some percentage of the gross and with "executive producer" credit. With the news of the recent Netflix revival, Hofflund/Polone allegedly reached out to Warner Bros. seeking compensation under the agreement. According to the complaint, Warner Bros. took the position that the Netflix version of Gilmore Girls is a derivative work based on the original series, and so therefore does not trigger compensation to Hofflund/Polone.
It's an interesting question that highlights one of the debates copyright scholars have: What, exactly, is a "derivative" work? Copyright owners have the exclusive right to reproduce their own works or works substantially similar to those works. They also have the right to produce derivative works based on those works, which, in the jurisprudence, has ended up using the same substantially similar standard to elucidate the "based on" language. Which means: what is the point of the derivative work right, if its standard seems the same as the reproduction right? This case has the potential to force confrontation with that problem: Where do we draw the line between infringement of the reproduction right and infringement of the derivative work right? When does a substantially similar work cross the line between reproduction and derivative work?
One thing that's been noted about the derivative work right is it tends to be talked about when there's some kind of change in medium or other kind of adaptation different from the original form (book to film, or translation from one language to another). The definition in the statute points us to that focus. Which raises the question: Is a Netflix revival more like a translation or adaptation of Gilmore Girls than it is like an exact copy of Gilmore Girls? Does this depend on how true it is to the original show?
The "television" landscape has shifted dramatically since Gilmore Girls premiered. It'll be interesting to see how contracts formed pre-Netflix-and-Amazon-production-era function going forward.
Wednesday, April 6, 2016
By Rotational - Own work, Public Domain, https://commons.wikimedia.org/w/index.php?curid=3455706
Here's an area of law where we're going to need a lot more guidance over the coming years, I suspect: how exactly does the wording of specific insurance policies apply to (now legal in some places under some circumstances) marijuana growing facilities?
A recent case out of the District of Colorado, The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, Civil Action No. 13-cv-03452-MSK-NYW, deals with that question. In that case, Green Earth, a marijuana growing facility, alleged that a wildfire sent so much smoke and ash into Green Earth's ventilation system that it ended up damaging the marijuana plants inside. Green Earth therefore made a claim under its insurance policy with Atain for this damage.
This case contains an interesting discussion of how exactly marijuana plants are grown. The important takeaway is that Green Earth was making claims both for Green Earth's growing marijuana plants and for buds and flowers that had been harvested and were being prepared for sale. Green Earth argued that both the growing plants and the harvested buds and flowers were covered under the insurance policy's definition of "Stock." Atain maintained, however, that "Stock" did not apply to the growing plants, only to the buds and flowers that had already been harvested.
The insurance policy defined "stock" as "merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping." Everyone agreed that the harvested buds and flowers qualified as "stock" so the debate centered entirely around whether the growing plants also qualified as "stock." There was no prior discussion between the parties as to this issue, so the court ended up relying heavily on dictionary definitions, especially of the term "raw materials." The court ended up concluding that this wasn't appropriate for summary judgment, because the court could see the definition as including growing plants or not.
However, the court then turned its attention to another part of the insurance policy that specifically excluded "growing crops." Green Earth argued that its growing marijuana plants weren't "growing crops" because crops are grown outside, not in indoor facilities. But, once again looking at dictionaries, the court concluded that the exact location was not important to the definition of "crop." "Crops" referred to things growing out of soil and did not differentiate between outdoor soil and indoor soil. Therefore, even if the growing marijuana plants could be "raw material" under the definition of "stock," they were specifically excluded from coverage as a "growing crop." And, indeed, in correspondence proposing the policy, Atain wrote that it would not cover "growing...plants," supporting the court's more expansive reading of "crops" as just being a type of plant, whether inside or outside.
Interestingly, Atain then tried to argue that, even though the harvested buds and flowers were technically "stock," they weren't covered because they were "contraband" and public policy was against insuring such forbidden goods. The court noted that the attitude of the federal government toward the legality of marijuana is "nuanced (and perhaps even erratic)" and focused on the fact that it was undisputed that Atain knew Green Earth was growing marijuana and agreed to insure it, so it wasn't fair to allow Atain to back out of that now.
Tuesday, April 5, 2016
Hurricane Sandy's flooding of the Red Hook section of Brooklyn damaged are in the Christie's warehouse located there, and provoked a rash of subrogation cases against Christie's, including AXA Art Insurance Corp. v. Christie's Fine Art Storage Services, Inc., 652862/13.
All of the cases revolved around the same core set of facts: As Hurricane Sandy was approaching, the Mayor of New York warned that Red Hook was likely to be flooded, and eventually ordered its evacuation. Christie's sent an e-mail to its clients stating it would "take extra precautions" in the face of "significant inclement weather," and that "may include" making sure the generators were working, providing extra security, and raising all of the artwork up off the floor. Allegedly Christie's did none of these things. Shortly after Sandy went through, Christie's sent another e-mail assuring its clients that the artwork was safe, but a few days later Christie's corrected itself, contacting some of its client to inform them that flooding had damaged some of the artwork.
Some insurance companies had to pay out millions of dollars in the wake of this news, and this insurance companies sought to collect the money from Christie's. AXA brought a typical case, that resulted in a typical failure, based on the fact that Christie's storage agreement contained a waiver of subrogation: Christie's clients were "responsible for arranging insurance cover" for the artwork stored at Christie's and "agree[d] to notify [the] insurance carrier/company of this agreement and arrange for them to waive any rights of subrogation against [Christie's] . . . with respect to any loss of or damage to the [artwork] while it remains in [Christie's] care, custody and control."
The court held that this subrogation waiver acted to bar AXA's claims for gross negligence, negligent misrepresentation, breach of bailment, and breach of contract. AXA tried to argue that this was in violation of U.C.C. Section 7-204, but the court disagreed: The U.C.C. prevented Christie's from exempting itself from all liability, but this subrogation waiver, according to the court, merely allocated the risk of liability to the insurance companies. AXA also argued that Christie's breached the storage agreement in its actions (apparently no artwork was supposed to be stored on the ground floor, which had been represented to the clients as being used for "intake" before the artwork was move to more secure storage), but the court said those breaches didn't affect the enforceability of the subrogation waiver.
Well, the appellate court has spoken, and claims like AXA's now live to be litigated another day. In the similar case XL Specialty Insurance Company v. Christie's Fine Art Storage Services, Inc., the appellate court held that the subrogation waiver did violate Article 7 of the U.C.C. and attempt to exempt Christie's from all liability, the lower court's characterization otherwise notwithstanding. Therefore, the fight will now shift to whether Christie's actions were reasonable.
I recently blogged here about the healthcare insurance problem of patients not knowing ahead of time for what they will ultimately be charged and by whom. California is now introducing a bill (“AB 533”) seeking to prevent the problem of patients being unexpectedly charged out-of-network charges at in-network facilities when the facility subcontracts with doctors that are (allegedly) out-of-network.
The practice is widespread, at least in California. Nearly 25% of Californians who had hospital visits since 2013 have been very unpleasantly surprised with unexpectedly high bills after the fact for “out of network” services. This even after inquiring about the contractual coverage ahead of time and ensuring – or attempting to – that their providers were in network.
I personally had the same experience once as described in my recent blog. I also recently encountered a similar problem in South Dakota when, after asking about billing prices from an emergency room, was assured of one relatively modest price, only to be billed roughly ten times that amount a couple of months later for various unrecognizable items on the bill that the service provider, to add insult to injury, subsequently did not want to even discuss with me. (Yes, that is right: sick and in the emergency room, I was leery of hospital pricing and asked, only to still not get correct information.)
The onus of information-sharing should be on doctors and other medical provider. They should tell their patients if they are not in network, patients shouldn’t have to jump through an almost endless row of hoops just to find out their ultimate contractual obligations. Doctors will know immediately once you swipe your health insurance card, whereas patients have no way of knowing, as these stories show. Making matters even worse: what are patients supposed to do when they often don’t even see all the involved doctors ahead of time? Wake up during anesthesia and ask, “Oh, by the way, are you in network”? This practice is unconscionable and must stop. It is arguably an ethical obligation as well.
Because some hospitals, for instance, only accept employer-provided plans and not individual ones, some patients will always be out of network, thus allowing doctors to bill full charge. “This is a market failure. It allows doctors to exploit the monopoly that they have.”
Although it seems ridiculous, patients may, for now, have to turn the tables on the providers and scrutinize as many providers and facilities as they get in touch with 1) what the prices charged to the patients will be, and 2) if the providers are truly, actually, really in network (!).
Contractually, would patients win if they informed providers that they will only pay for in-network providers and only up to a certain amount? What else can a reasonable patient do in situations of such blatant greed and ignorance as these stories depict? Comment below!
Monday, April 4, 2016
CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=39855 (Harvard Science Center)
It's a very common thing, to be provided with a "policy" as opposed to a "contract." A recent case out of the District of Massachusetts, Charest v. President and Fellows of Harvard College, Civil Action No. 13-11556-DPW, addresses that exact issue, and concludes, as you might expect, that what you call something isn't as important as how you behave.
Dr. Mark Charest was a chemistry graduate student at Harvard University. While he was there, he and his supervisor (also a defendant in this lawsuit) and other scientists developed a "novel and valuable method for creating synthetic tetracyclines," important for commercial antibiotics. Universities have lots of valuable things being created by their employees and students, so it's not surprising that Harvard had a policy in place for this sort of situation. Harvard had Dr. Charest, as a student, sign the Harvard University Participation Agreement, which contained a clause that Dr. Charest "ha[d] read and  under[stood] and agree[d] to be bound by the terms of the 'Statement of Policy in Regard to Inventions, Patents, and Copyrights,'" referred to in this case as the IP Policy. A lot of things happen from that point on, but the important thing to know for purposes of this blog entry is that Dr. Charest maintained that Harvard had breached the IP Policy. Harvard, in response, maintained (among other things) that the IP Policy was not a contract.
Other than being called a "policy," you might think this an odd argument for Harvard to try to make, considering that having Dr. Charest sign an agreement to be bound by the IP Policy sounds pretty contract-y. A 1988 Massachusetts Supreme Judicial Court decision, Jackson v. Action for Boston Community Development, had held that an employer's personnel manual was not a contract, and so Harvard relied heavily on that precedent, trying to cast its IP Policy as similar to the personnel manual in that case.
Jackson established a number of factors for its decision, and, while some of those factors did weigh in favor of Harvard, others weighed in favor of Dr. Charest. For instance, Harvard maintained the ability to unilaterally modify the IP Policy and there were no negotiations between Harvard and Dr. Charest over the IP Policy, two factors Jackson said support a conclusion that the IP Policy does not impose contractual obligations. However, Harvard called special attention to the IP Policy and Dr. Charest's agreement to it, required Dr. Charest's signature acknowledging the IP Policy, and the IP Policy spoke in mandatory terms rather than suggestive terms, all of which made it seem more like a binding contract.
In the end, the court found that, as the Jackson precedent has developed, the really important thing is whether Dr. Charest understood himself to have to agree to the terms of the IP Policy in order to continue as a student researcher at Harvard, and that Harvard was likewise agreeing to be bound. The court concludes that yes, this was true. The IP Policy sounded as if it was being very clear about Harvard's obligations, because of its unambiguous language. Harvard itself consistently referenced the IP Policy as governing its actions when questioned by Dr. Charest and when communicating with its students. Therefore, Harvard could not pretend now that it had not been behaving as if it was bound by the terms of the IP Policy.
(Nevertheless, the court went on to dismiss most--but not all--of Dr. Charest's claims. The facts are too complicated to get into in the scope of this blog entry, but if you're interested in the relationship between research universities and their graduate students, it's an interesting read.)
UPDATE: This case has now settled. Dr. Charest released the following statement:
"Harvard University and I have settled our ongoing litigation regarding the allocation of royalties related to the license with Tetraphase Pharmaceuticals on mutually agreeable terms. In light of my claims and goals in bringing this litigation, I am very pleased to accept terms I view as equitable.”
You can read more here.
(Thanks to Brian O'Reilly at www.oreillyip.com for the update!)
Monday, March 28, 2016
Here, Stacey Lantagne reports on a very sad story of what can happen if health care customers fail to follow accurate procedure and, at bottom, dot all the I’s and cross all the T’s when contracting for health care services.
For me, this speaks to the broader issue of whether or not patients can truly be said to have given consent to all the procedures and professionals rendering services to patients. I think this is often not the case. As you know, Nancy Kim is an expert on this area in the electronic contracting context. She kindly alerted me to this story in the health care field. (Thanks for that.) The article describes the practice of “drive-by doctoring” whereby one doctor calls in another to render assistance although the need for this may be highly questionable. The NY Times article describes an instance in which one patient had meticulously researched his health care insurance coverage, yet got billed $117,000 by a doctor he did not know, had never met, and had not asked for. That doctor had apparently shown up during surgery to “help.”
Of course, this is a method for doctors to make end runs around price controls. Other methods are increasing the number of things allegedly or actually performed for patients. Other questionable practices include the use of doctors or facilities that all of a sudden turn out to be “out of network” and thus cost patients much more money than if “in network.” I personally had that experience a few years ago. I had to have minor surgery and checked my coverage meticulously. The doctor to perform the surgery was in network and everything was fine. She asked me to report to a certain building suite the morning of the surgery. All went well. That is, until I got the bill claiming that I had had the procedure performed by an “out of network” provider. This was because… the building in which the procedure was done by this same doctor was another one than the one where I had been examined! When I protested enough, the health care company agreed to “settle” in an amount favorable to me.
In these cases, patients typically have very little choice and bargaining power. In the emergency context, what are they going to do? There is obviously no time to shop around. You don’t even know what procedures, doctors, etc., will be involved. The health care providers have all the information and all the power in those situations. However, in my opinion, that far from gives them a carte blanche to bill almost whatever they want to, as appears to be the case, increase their incomes in times when insurance companies and society in general is trying to curb spiraling health care costs.
In the non-emergency context, how much of a burden is it really realistic and fair to put on patients who are trying to find out the best price possible for a certain procedure, only to be blind-sighted afterwards? That, in my opinion, far exceeds fair contracting procedure and veers into fraudulent conduct. Certainly, such strategies go far beyond the regular contractual duty to perform in good faith.
Of course, part of this is what health care insurance is for. But even with good health care insurance, patients often end up with large out-of-pocket expenses as well. The frauds in this context are well known too: most health care providers blatantly offer two pricing scheme: one (higher) if they have to bill insurance companies, and a much lower price if they know up front to bill as a “cash price.”
We have a long ways to come in this area still, sadly.
Sunday, March 27, 2016
One of the areas of contract law where the mere language alone frequently trips my students up is the area of assignment and delegation, largely because neither courts nor contracts are always exactly precise in what they mean in this area. It remains one of the areas that, say, a large insurance company can find it got the wording wrong, as happened in a recent case out of Florida, Bioscience West v. Gulfstream Property and Casualty Insurance, Case No. 2D14-3946.
A homeowner had bought a insurance policy from Gulfstream. The policy prohibited assignment "of this policy" without Gulfstream's written consent. The homeowner's house suffered water damage and she hired Bioscience to fix the damage. She assigned "any and all insurance rights, benefits, and proceeds pertaining to services provided by BIOSCIENCE WEST INC. under the above referenced policy to BIOSCIENCE WEST, INC." When Gulfstream subsequently denied the homeowner's insurance claim, Bioscience sued as the assignee of the homeowner's right to recover the insurance policy's benefit. Gulfstream responded by stating that the policy could not be assigned with Gulfstream's consent, which had never been given. The distract court agreed, found the homeowner's assignment to be improper, and entered summary judgment in Gulfstream's favor.
The appellate court disagreed. The appellate court said that the phrase "assignment of this policy" plainly referred to the entire policy. What the homeowner assigned, however, was something less than the entire policy, i.e., just a portion of the benefits. Therefore, under the "unambiguous" wording of the policy, the homeowner's actions were permissible without Gulfstream's consent; Gulfstream's consent was only required if she tried to assign the entire policy.
And, in fact, the court found this was consistent with the loss-payment portion of the policy, which provided that Gulfstream would pay the homeowner "unless some other person . . . is legally entitled to receive payment." The court said that proved that Gulfstream understood that the homeowner would be able to assign benefits under the policy. (Although arguably all this proved was that Gulfstream understood that the homeowner would be able to assign benefits under the policy with Gulfstream's consent.) At any rate, there was ample precedent in Florida's case law supporting the proposition that policyholders can assign post-loss claims without the consent of the insurer.