Wednesday, March 22, 2017
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
A PROPOSAL TO ELIMINATE UCC § 2-315
Robert Brain, Loyola Law School, Los Angeles
It is my contention that UCC § 2-315, the provision on the implied warranty of fitness for a particular purpose, is: (1) unnecessary; and (2) causes more problems than it solves. As such, I believe it should be eliminated from the UCC.
The implied warranty of fitness for a particular purpose is unnecessary because a fitness case is, in truth, an express warranty case and can be analyzed under § 2-312. The only difference from what the Code now recognizes as an express warranty situation and a fitness situation is that the attribute of the good comes initially from the buyer and not the seller. However, in both cases that parties are contracting based on a shared belief that the good has certain, specified (not implied) qualities. This can be seen by the two situations below:
Situation One: A scuba diver walks into a dive shop, looking for a watch that will be waterproof down to 200 feet. She tells the sales associate that she’s looking for a watch for a deep dive. The clerk says, “This one is guaranteed to be watertight down to 200 feet.” She buys the watch.
Situation Two: The same woman walks into the same shop and talks to the same associate. She says, “I’m doing deep diving, and am looking for a dive watch that will stay watertight down to 200 feet.” The associate picks up the same watch as before, and says, “Here you go.” The woman buys the watch.
If the watch starts leaking at 60 feet, under current law, the woman would sue for breach of express warranty under Situation One, but would have to sue for breach of the implied warranty of fitness under Situation Two. The legitimate expectation of the consumer is identical in the two situations and should be analyzed identically. If the words and actions of the associate in Situation Two are taken as affirming the 200 foot watertight attribute initially broached by the buyer, there is no difference between the two. As such, what are now fitness cases could, and should, be analyzed as breaches of express warranty.
Conceptually it is difficult to justify the fitness warranty as an “implied” warranty. In the merchantability cases under § 2-314, it is the attribute of the good – that it is of ordinary quality, for example – that is implied into the transaction. But under § 2-315, the attribute of the good is expressed; what is “implied” is some representation by the seller as to that expresses attribute, but as noted above, the words and actions of the seller can easily be viewed as communicating that the seller is warranting the attribute under existing law. It is an “implied” warranty in the same way we say a contract by conduct is an “implied-in-fact” contract. But we treat implied-in-fact contracts as if they were express contracts, and we should so the same for fitness.
Another issue is that courts have problems determining whether particular cases should be analyzed as a fitness or a merchantability case. For example, suppose the buyer asks for “heavy-duty hiking boots” and suppose the shoes come apart upon their first wearing. Is the proper claim that the boots are not fit as ordinary heavy-duty hiking boots (or even as just boots), or is it a fitness problem because they do not measure up as heavy-duty boots? Courts have struggled with this issue from the first English case in which the fitness warranty was birthed.
Friday, March 10, 2017
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
Choosing “Choice” in the Age of ART: Designer Babies and the Case for Genetic Selection
Deborah Zalesne (City University of New York School of Law)
While rapidly developing Assisted Reproductive Technology (“ART”) such as in vitro fertilization, surrogacy, artificial insemination, IUI, fertility medication, intracytoplasmic sperm injection, cryopreservation, and pre-implantation genetic diagnosis, offer new pathways to parenthood, this capacity has challenged our collective notions about family. Ethical questions that arise require rethinking the traditional view of family as something “organic” and “natural” and as a “self-contained unit.”
New technologies allow for far-reaching reproductive decision-making that was not possible even a generation ago. Parents can now select the sex, race, or other characteristics of an embryo to be implanted. Parents can also choose to cryopreserve their embryos to allow for implantation in the future, or choose to terminate or reduce a pregnancy because of birth defects or multiples. With the opportunities presented by reproductive autonomy and choice come legal and ethical chaos of sorts, and a division that pits consent against state and public interest.
As these technologies develop, questions arise as to whether, as a society, we should allow market forces and private contracting to control their use – in effect allowing the market to decide what is right or wrong. Is leaving development of reproductive technology to the demands of the market equivalent to saying nothing is right or wrong – only efficient or inefficient, wealth maximizing, or not wealth maximizing? Or, rather, does the market represent the natural course of change and the inevitable direction of society, with regulation of technology in these areas simply inhibiting progress? There is no single answer to these questions that can be applied across the board to all the various existing and emerging technologies. I argue, however, that where there is tension between individual reproductive choice and other moral values, the use of reproductive technologies is most often best left to the choice of individuals and the innovation of the market.
My presentation highlights some of the ethical issues that arise from the reproductive capabilities that have developed over the past decades, focusing specifically on the unique ethical issues that arise from pre-implantation genetic testing. (I will also briefly discuss ethical issues surrounding gamete donation and surrogacy, which can result in more than two legal or biological parents; the creation, selection, freezing, and destruction of embryos; and prenatal testing, selective abortion and selective reduction.) Much of the resistance to these technologies stems from long-held and deeply ingrained beliefs about the purity of reproduction and motherhood. As technology continues to create reproductive possibilities that were once unheard of or considered fantasy, the purity of motherhood, pregnancy, reproduction, and family are threatened, creating controversy and debate. My talk examines some potentially troubling contract clauses that can give reproduction choices to intended parents that did not exist before technology facilitated it. I attribute some of the resulting ethical concern to societal hesitance to deviate from traditional family norms, looking specifically at the sacredness of motherhood and primacy of biology in definitions of parenthood.
Ultimately, I argue for emphasis on consent and market freedom, and for more rigorous and consistent enforcement of reproductive agreements. The law, by its nature, is slow to respond and slow to capture societal mood, which is constantly evolving. Artificial insemination, for example, was originally, over a century ago, thought to be scandalous, but opinions softened eventually. Since law necessarily lags behind social momentum, family law and regulation are often ill equipped to address adequately the myriad ethical issues that have arisen and are likely to arise as technology advances further. Even as family law adapts, it will never be able to keep pace with the rapid developments happening in reproductive technology and accommodate all possible non-normative relationships, ever growing based on cultural and social shifts, and made even more accessible through technology. Regulation of new technologies can thwart progress, inhibiting the development of important medical procedures. Consent, market forces, and contract law, on the other hand, which are based on individual needs, individual desires, and societal demand, are the best arena for dealing with rapid technological momentum.
People have a fundamental right, both morally and legally, to privacy and freedom when it comes to reproduction, so intervention where there are private reproductive agreements is not usually justified. Individual choice should guide reproduction (whether natural or artificially mediated), and a free market and private contracting are the best vehicles for delivering assisted reproductive services and for responding to individual choice. Assisted reproduction, like sexual reproduction, is not a social enterprise. Although it often involves more than two parties, it is still based on private arrangements and should be governed by rules of privacy and autonomy.
The SSRN link to the full paper is: http//ssrn.com/abstract=2930290
Wednesday, March 8, 2017
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
Orit Gan (Sapir College, School of Law)
Under Jewish law divorce occurs when the husband writes and delivers and the wife accepts a gett. Until wife is granted a gett she may not remarry or date. Some men use the gett as a bargaining chip to extort favorable economic divorce agreements. In other words men threaten women by refusing to grant them a gett unless they will succumb to their financial demands. This is gett abuse.
Women who pay for their gett resist enforcement of the divorce agreements by claiming duress, and U.S. courts usually accept such claims. However, based on anti-commodification theories I claim that trading the gett for money should be prohibited. I suggest that gett should be an inalienable right for two reasons. Women pay for a gett under conditions of severe inequality. They are coerced by the necessities of the situation. Moreover, this exchange has a degrading effect. Women's autonomy, dignity and freedom are corrupted and diminished by trading the gett. In an ideal world a gett should not be commodified.
However, we do not live in an ideal world. In today's reality, trading a gett also has advantages for women. Paying for a gett is their only way to break free from the marriage. The alternative is staying married against their will. Furthermore, women bring tort claims against their husbands in civil courts for gett refusal claiming emotional distress. Women then leverage the compensation that they are awarded to get a gett. They use the tort claim to improve their bargaining power and trade the damages awarded for a gett.
Therefore both commodification and non-commodification of gett have both advantages and disadvantages for women. A way out of this double bind dilemma is to recognize incomplete commodification.
The gett abuse analysis has broader implications. For example, the gett abuse analysis may be applicable to custody negotiations. Spouses bargain for their children's custody and maintenance upon divorce. Studies show that women are willing to waive financial rights in order to get custody. This transaction may have the corruption and coercion effects and therefore custody may also be an inalienable right.
Tuesday, March 7, 2017
Emotional Value and the Value of Emotions
Hila Keren, Ph.D. (Southwestern Law School)
American contract law has demonstrated an ongoing and long-lasting reluctance to award remedies to a party to a contract who suffered an emotional harm due to a breach by the other party. Such reluctance stands in clear contrast to the treatment of other harms coming from a breach of contract, namely economic and physical harms. In this paper I argue for equal treatment of all harms caused by a breach of contract and against the legal marking of emotional harms as unfit for the general effort of contract law to compensate injured parties.
For many decades legal theorists have debated the aptness of a special and tightfisted legal response to emotional harms, highlighting both aspects relating to the nature of law and the qualities of the emotions. For example: Is the law, with its rational logic, able to address affective problems? Are emotions uniquely easier to fake or inflate?
My paper brings to the debate a fresh set of arguments. Analyzing the issue from the perspective of the novel approach of law and emotions, I argue that the reluctance to award damages for emotional harms reflects and reinforces law’s “hyper-rationality,” i.e., the broader legal misunderstanding and mistreatment of emotions. More importantly, taking emotions seriously and in an interdisciplinary fashion, I contend that for the last four decades we have been subject to a rapidly increasing dominance of a neoliberal worldview that has operated to reconfigure the meaning of the emotions themselves. This significant shift, I submit, makes compensation for emotional harms more necessary than ever before.
In particular, I show how neoliberalism has made key positive emotions, such as happiness, an essential part of our human capital and thus has turned these emotions into economic assets—indistinguishable from those the law is eager to protect by contractual remedies. Similarly, neoliberalism has reframed negative emotions of the sort engendered by breach of contract—anxiety or anger for example—as a cause of depreciation of one’s human capital, making such harms impossible to tell apart from other contractual injuries. In a neoliberal world that constantly requires people to invest expensive resources in maintaining their emotional “portfolio,” I conclude, there is an urgent need to bring the conventional reluctance to compensate for emotional harms to an end.
WELLNESS PROGRAMS UNDER THE AFFORDABLE CARE ACT—A STATUTORY DEFINITION OF “VOLUNTARY”
Allen R. Kamp (John Marshall Law School - Chicago)
Can Congress force you to eat your broccoli? To the Supreme Court in NFIB v. Sibelius, the answer is no under the Commerce Clause, but yes under the Taxation Clause. But can your employer force you to eat it? The answer may well be yes.
An employer could have this ability under wellness programs.” Wellness program” is a defined term under the Affordable Care Act. Wellness programs may include monitoring of vital functions and activity that may report activity 24/7. A certain activity level may be required, for example, 5,500 steps a day. Wellness programs may also require meeting such goals as lowering body/mass ratio or cholesterol levels.
The ACA authorizes wellness programs if they are “voluntary.” The term is numerically defined, unlike legal definitions of duress and unconscionably, which may invalidate some contracts. Employers can reduce employees’ pay by 30% of the total amount of the insurance costs of the employee’s insurance and be “voluntary.” (The total cost includes both the employee and the employer’s contribution. Thirty percent of the average cost of insurance is more than $5,000 per year. For a low wage employee, this penalty is a high percentage of his income.
The Equal Employment Opportunity Commission has issued a regulation that adopts the ADA definition of “voluntary.” 
Although the definition of voluntary will probably not be decided for years, wellness programs starkly pose the issue of the limits of employer power under the employment contract Thanks to modern technology, such biometric data as activity level and pulse can be monitored 24/7. A blood test now can reveal he presence of nicotine, cholesterols, glucose, and a great amount of other data such as nicotine use. Should the employer be allowed to monitor employee behavior and vitals 24/7? Wellness programs can include exercise programs (for example, 5,500 steps a day), taking part in health improvement counseling (e.g., weight loss or smoking cessation), and attainment of certain goals, such as lower cholesterol and body/mass index. Should an employer be able to mandate an exercise regime? Should an employer be able to require either achievement of a change in an employee’s body with the threat of sanctions or firing if the change fails to take place?
The rule may well be that Congress cannot force one to eat one’s broccoli, at least under the Commerce Clause, but one’s employer may well be able to. One can, of course, find another job (one without a wellness program), while one cannot opt out of a federal law. But finding a new job for many is difficult and finding one without a wellness program could be harder.
We can engage in law professor speculation. Given that assesment to contract terms is found in the most extenuated contexts (See, e.g., Carnival Cruise). Does the ADA definition actually represent an advance towards a meaningful definition of consent?
This leads to my final point, which is a dig at my libertarian friends and colleagues. The libertarian premise is that if government power is limited, human freedom is increased. Is there, however, a Law of Conservation of Power in a society parallel to the Law of Conservation of Energy, that the amount of energy in a closed system remains constant? Does the amount of power in a society remain constant, so that if power is diminished in one place it just goes somewhere else?
 Nat’l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 567 U.S.___ (2012).
 Patient Protection and Affordable Care Act § 1201(4), 42 U.S.C. § 300gg-4(j)(1)(A) (2012).
 E.g., the Fitbit.
 Although many federal statutes regulate wellness, none deal with the problems of employee privacy or employer control over employees per se. Statutes which may apply to wellness programs in are the Affordable Care Act (ACA), The Americans With Disability Act (ADA), the Genetic Information Non-Disclosure Act (GINA), HIPPA, and Title VII. The main current legal controversies center around the ACA, the ADA and GINA.
 42 U.S.C. § 300gg-4(j)(3)(A) (2012).
 Letter from Congressional Members, Robert C. Scott, Elizabeth Warren, Patty Murray, Louis McIntosh Slaughter, Richard Blumenthal, Janice D. Schakowsky, and Sherrod Brown to Jerry R. Yang, Chair of the EEOC (Feb. 2, 2016), http://democrats.edworkforce.house.gov/sites/democrats.edworkforce.house.gov/files/2016-02-11%20Letter%20to%20EEOC%20Chair%20Yang%20re.%20GINA%20Proposed%20Rule.pdf
 This brings the ACA into conflict with at least two other federal acts, the ADA and GINA. Both prevent health information from being disclosed to the employer. Note that the ADA is a law designed to prevent discrimination against the disabled and focuses on that problem, not the privacy aspects of wellness programs. The ADA defines “voluntary” as not being based on any sanction for non-agreement to participation in a wellness program. GINA has a similar provision, with the non-disclosure extending to spouses. So which Act controls? At present it is open question. The ACA is the later act and following the ADA or GINA would make its voluntary section meaningless. But the ACA Regulations do say that the ACA does not limit the ADA. The AARP has sued the E.E.O. C., seeking to have the regulation invalidated. See Complaint, ww.aarp.org/content/dam/aarp/aarp_foundation/litigation/pdf-beg-02-01-2016/AARP-v-EEOC-complaint.pdf
 (3) Incentives offered for employee wellness programs. The use of incentives (financial or in-kind) in an employee wellness program, whether in the form of a reward or penalty, will not render the program involuntary if the maximum allowable incentive available under the program (whether the program is a participatory program or a health-contingent program, or some combination of the two, as those terms are defined in regulations at 26 CFR 54.9802-1(f)(1)(ii) and (iii), 29 CFR 2590.702(f)(1)(ii) and (iii), and 45 CFR 146.121(f)(1)(ii) and (iii), respectively) does not exceed:
(i) Thirty percent of the total cost of self-only coverage (including both the employee's and employer's contribution) of the group health plan in which the employee is enrolled when participation in the wellness program is limited to employees enrolled in the plan;
(ii) Thirty percent of the total cost of self-only coverage under the covered entity's group health plan, where the covered entity offers only one group health plan and participation in a wellness program is offered to all employees regardless of whether they are enrolled in the plan;
(iii) Thirty percent of the total cost of the lowest cost self-only coverage under a major medical group health plan where the covered entity offers more than one group health plan but participation in the wellness program is offered to employees whether or not they are enrolled in a particular plan; and
(iv) Thirty percent of the cost of self-only coverage under the second lowest cost Silver Plan for a 40-year-old non-smoker on the state or federal health care Exchange in the location that the covered entity identifies as its principal place of business if the covered entity does not offer a group health plan or group health insurance coverage.
29 C.F.R. 1630 (d) (2). Published 5/17/16, e-version.
 See webpage of Fitbit advertising the use of the device in wellness programs.
 My latest blood test showed that I drink too much water and consume too many saturated fats and sugars.
Monday, March 6, 2017
Copyright Survives: Rethinking the Copyright-Contracts Conflict
Guy A. Rub (The Ohio State University Michael E. Moritz College of Law)
Copyright law consists of legal norms that govern certain actions with respect to creative works fixed in a tangible medium of expression. Contracts allow individuals to create legal norms with respect to creative (and non-creative) works that are fixed (and those that are not fixed) in a tangible medium of expression. This potential overlap in legal norms can create tension between the two. This tension is typically discussed under the auspice of copyright preemption doctrine.
The leading decision on this matter is Judge Easterbrook’s 1996 decision in ProCD v. Zeidenberg. In that case, the Seventh Circuit held that a contract that restricted the use of factual information was not preempted by the Copyright Act and therefore enforceable. The reaction among copyright scholars was swift and passionate. In dozens of articles and books, spreading over two decades, scholars cautioned that if the ProCD approach is broadly adopted, the results would be dire. Through contracts, the rights of copyright owners would run amok, expand, and in doing so they would invade, shrink, and possibly destroy the public domain. Contracts, we were repeatedly warned throughout the years, would kill copyright law.
This Article challenges this scholarly consensus by studying the 288 court opinions that have dealt with the copyright-contract conflict over the past four decades. This examination reveals surprising facts: Notwithstanding the scholars’ warnings, ProCD’s approach won the day and was embraced by most federal circuit courts. However, the doomsday scenarios scholars warned against did not materialize. The overall effect of contracts on the size and scope of the public domain, or over copyright law as a whole, seems minimal. The Article explains this discrepancy and shows that contracts are an ineffective tool to control information because they are too weak of a device to threaten or replace copyright law. Indeed, to paraphrase Mark Twain, the reports of the death of copyright were greatly exaggerated.
The Article concludes by placing this analysis in context, as part of a broader ongoing discussion on the desirability and enforceability of standard-form agreements.
The Article is available for SSRN download here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2926253
The Statute of Limitations, Res Judicata, and Acceleration Clauses in Mortgage Foreclosures
Eric A. Zacks (Wayne State University Law School)
The high volume of foreclosures during and following the Great Recession in the United States has led to the revelation of many troubling lending practices. It also has led to problematic judicial decisions that erode borrower protection by curtailing or eliminating procedural requirements and substantive defenses with respect to foreclosure. My article examines the treatment of statute of limitation and related defenses after a loan has been accelerated following a default. In particular, one would expect the formalism that is used to justify strict enforcement of the loan instruments for foreclosure purposes would also be employed when mortgagors fail to comply with statutory, common law, or contractual requirements regarding mortgage assignment, enforcement, acceleration, or foreclosure. In each instance, however, mortgagors are often instead protected by a contextual or equitable approach that seeks to preserve their right to foreclose. Some courts have ignored the traditional rule that acceleration under a contract starts the clock for statute of limitation purposes or that acceleration consolidates the loan instrument into a single obligation as opposed to an installment obligation. Instead, these courts have permitted lenders to accelerate loans repeatedly without triggering the statute of limitations or res judicata defenses. Consequently, lenders are permitted to assert foreclosure claims with respect to the same underlying debt amount over and over again. Instead of being used as a last-resort, acceleration and the subsequent foreclosure process can now be wielded as a significant threat to borrowers throughout the life of their home loan. My article explores the tendency of, and justification for, adjudicators to liberalize the foreclosure process and provides a critique of this approach.
Friday, March 3, 2017
Michael P. Malloy, Ph.D. (University of the Pacific McGeorge School of Law)
Contracts in a Digital Age: My Teenaged Tech Advisors Rescue Dad
Contracting in a digital age isn’t just a change in time or place, it is in many respects potentially a change in orientation. Confronting that change initially involved improvising an assimilation of e-contracting into our unstated assumptions about the way contracts are created and the way they are performed, but some adjustment in the framework has been necessary as e-contracting has flourished. It has now been 25 years since the Third Circuit decided Step-Saver Data Systems, Inc. v. Wyse Technology, subjecting box top terms to those assumptions, and 20 years since the Seventh Circuit decided ProCD, Inc. v. Zeidenberg, distinguishing Step-Saver and embracing shrink wrap terms, leading the way to the easy application of click wrap terms. As we have moved from telex to facsimile, to e-mail, to texting, to direct communication between computers, and so on to as yet unknown methods – new technology almost always creates new challenges for contract law. My paper calls for the recognition of new analysis and adaptable principles for electronic contracting on its own terms, but without abandoning the objectives underlying contract law.
Pricing Methods, Marketing Techniques, and the Law of Consumer Contracts
Eyal Zamir (Hebrew University of Jerusalem, Faculty of Law)
(Based on a forthcoming book, Behavioral Law and Economics (co-authored with Doron Teichman, OUP))
Firms employ various marketing and pricing methods, which arguably exploit consumers’ heuristics and biases, to enhance their sales and profits. Some of these techniques are clearly illegitimate and even illegal. Others raise difficult questions regarding their legitimacy and the appropriate legal response to them. In my presentation I will describe a few pricing and marketing techniques that are not obviously illegitimate, and raise the question of whether they should be regulated. I intentionally use the language of “raise the question,” because I will not offer definitive answers.
The methodological perspective I use is commonly described as behavioral law and economics. A primary contribution of behavioral law and economics lies in the identification of behavioral market failures. In addition to traditional market failures, such as monopolies and information problems, markets may fail to promote social utility due to deviations from the assumption that all players in the market are rational maximizers of their utility.
However, I will not limit myself to the behavioral-economic perspective, as behavioral insights are equally relevant to non-economic perspectives that highlight other values in lieu of, or in addition to, maximizing aggregate human welfare. These include respect for autonomy, fairness, and distributive justice.
However, due to time limitations, I will neither be able to consider all of these perspectives, nor to delve into the choice between different regulatory measures: disclosure duties, compulsory interventions, and mere nudges. Some people identify the behavioral perspective with the use of nudges, but this is a mistake. Behavioral findings may justify more intrusive regulation. I believe that mandatory regulation is often warranted, and that paternalism—despite its bad PR—is often justified. But I will not go into these issues today.
Relatedly, the pricing and marketing techniques I will discuss are used not only in consumer transactions, but in commercial ones, as well. Hence, my discussion is not limited to the consumer sphere, although the normative considerations in commercial transactions may be different.
Thursday, March 2, 2017
Assessing the Assessment: B Lab's Effort to Measure Companies' Benevolence, Seattle University Law Review, Vol. 40, No. 1, 2017
Michael B. Dorff, Southwestern University School of Law
For benefit corporations to persuade their various audiences that they are as beneficial for society as they claim, they need reliable assessments of their social performance. Even if assessments were not required by most states’ benefit corporation statutes, it is difficult to imagine the benefit corporation form could gain credibility without them. Creating measurement tools for these assessments poses the twin challenges of balancing simplicity against validity and weighing vision against inclusiveness. This article examines how B Lab’s popular assessment tool engages these challenges.
SSRN link: https://ssrn.com/abstract=2911302
Contracting for Abortion
KCON 12: Intimate Contracts, Consent, and Commodification Panel
Carol Sanger, Barbara Aronstein Black Professor of Law, Columbia University
Contracts between intimates or about intimate subjects are now a regular feature of regular contract law. I have recently written about post- adoption visitation agreements, where birthmothers agree to place a child with an adoptive couple in exchange for visitation rights; Bargaining for Motherhood, 41 Hofstra L. Rev. 309 (2012). This paper concerns not the acquisition of a child, but the promise not to have one by agreeing contractually to abort a pregnancy in exchange for consideration. The topic arose as part of my inquiry into what men take into account when decisions about the disposition of an embryo or fetus is up to them, in such matters as contested embryo cases. Another source of these decisions is found in surrogacy contracts when the commissioning man (or couple) bargains for the surrogates promise to terminate the pregnancy upon prenatal testing that reveals an anomaly specified in the contract as triggering the abortion provision. While such contracts have not been specifically enforced, they remain a common feature of surrogacy contracts, perhaps serving an in terrorem function.
Yet in an interesting 1987 case, L.G. v. H.A.G., the Missouri Court of Appeals upheld a contract between a father and his adult unmarried daughter where he promised to reinstate her in his will if she terminated her pregnancy. She did, but he didn’t. The Court found there was nothing against public policy or illegal per se in the daughter’s promise. Indeed, “family harmony and reconciliation were also involved and both … naturally encouraged as a matter of public policy.” The case puts women’s abortion decisions in an economic framework, and suggests that fathers too have interests in reproductive decisions for which they too are willing to bargain.
This paper draws from the chapter “Fathers and Fetuses: What Would Men Do” in my new book About Abortion: Terminating Pregnancy in 21st Century America (Harvard U.P., March, 2017).
Wednesday, March 1, 2017
Not from guile, but from entitlement: Lawful opportunism haunts the cracks in contracts
Gastón de los Reyes and Kirsten Martin (George Washington University School of Business)
Abstract (KCON Presentation by Gastón de los Reyes)
Opportunistic acts are not all cut from the same cloth. While the blatant opportunism that results from “self-interest seeking with guile” is widely acknowledged, the lawful opportunism that Williamson paints as the bane of hybrid governance remains obscure and little understood. We examine the construct of lawful opportunism and empirically explore its connection to the known and studied contracting behaviors of blatant opportunism and cooperation. Using a series of contracting vignette surveys, we demonstrate that lawful opportunism is a theoretically distinct intended behavior across a variety of contracting scenarios. A contractor’s sense of entitlement, we find, is the primary driver of intended lawful opportunism. In contrast, and perhaps surprisingly, the more a contractor views the exchange in economic terms, the less likely they are to act with blatant opportunism. The study has implications for the study of contracting and hybrid governance across disciplines and for prescription to contracting parties.
BITCREDIT: MARKETPLACE LENDING AND CONSUMER PROTECTION
Christopher K. Odinet
The digital economy is changing everything, including how we borrow money. In the wake of the 2008 crisis, banks pulled back in their lending and, as a result, many consumers and small businesses found themselves unable to access credit. In the space left vacant by these traditional financial institutions have come a wave of online firms called marketplace lenders. These platforms are fast making antiques out of many mainstream lending practices, such as face-to-face interviews with loan officers and long paper applications. Instead, through underwriting by automation—utilizing big data (including social media data)—loan processing that once took weeks can now be done overnight. The result of these technological advances has been quicker access to capital, more economic efficiencies, and even greater prospects for access to credit for theunbanked and underbanked. “Click here” is the new “sign on the dotted line.”
But there is a lot still to learn about the online lending marketplace. How do these marketplace lenders work and what kinds of products do they offer? Moreover, what role will they play in the future of American debt and credit markets? This Article explores these questions and assesses current government responses to the nascent industry. It also surveys the currentregulatory landscape for marketplacelenders and analyzes a multi-year dataset of complaints submitted to the CFPB relative to consumer loans offered by these firms.The Article concludes by offering some broad policy considerations for how investors, small businesses, and consumers could be protected in this new world of BitCredit.
Tuesday, February 28, 2017
Online and As Is
Colin P. Marks (St. Mary's University School of Law)
Online retail is a multi-billion-dollar industry in the United States. Consumers enjoy the ease with which they can browse, click, and order goods from the comfort of their own homes. Though it may come as no surprise to most lawyers, retailers are taking advantage of online transactions by attaching additional terms and conditions that one would not normally find in-store. Some of these conditions are logical limitations on the use of the retailers’ websites, but others go much further, limiting consumers’ rights in a way that would surprise many shoppers. In particular, many online retailers are using these terms to limit implied warranties, selling the goods “as is,” and limiting remedies, as well as adding a host of other limitations. This article does not discuss the effects of online terms and conditions, but rather starts with exploring a very basic question: How prevalent are certain terms and conditions? While these terms and conditions may seem to be ever-present in online transactions, there have been few attempts thus far to empirically record the frequency of their use in retail transactions involving goods. This article remedies the situation by exploring the mode by which consumers assent, the prevalence of warranty and liability limitation clauses, and the prevalence of other common clauses used by the largest retailers in the United States.
U.S. Unconscionability and Article 1171 of the New French Civil Code: Achieving Balance in Statutory Regulation and Judicial Intervention
(forthcoming in Georgia Journal of International and Comparative Law)
Professor Charles R. Calleros,
Sandra Day O’Connor College of Law, Arizona State University
Perhaps the most notable development in commercial law in 2016 is the revision of contract law in the French Civil Code, the first comprehensive revision since the adoption of the 1804 Napoleonic Code. Perhaps the most notable innovation in that revision is article 1171, which empowers a judge to strike down an ancillary provision of an adhesion contract if it would otherwise create a significant imbalance between the parties.
Compared to the U.S. unconscionability doctrine, article 1171 adds to existing French legislation in a cautious manner and should not spark serious concerns about interference with freedom of contract. Instead, the more interesting questions are (1) whether the French judiciary will sufficiently embrace and exercise the authority afforded it under article 1171 to achieve its limited goals, and (2) whether lawmakers in the United States can overcome the American resistance to legislative and executive intervention sufficiently to emulate French and European control of abusive terms through a combination of legislative, administrative, and judicial regulation.
Saturday, February 25, 2017
From left: Rachel Arnow-Richman, Keith Rowley (Moderator), Eric Zacks, Thomas Joo, and Allen Kamp.
This after-lunch panel deals with a variety of contract law issues in specific settings--hence "reality." Summaries follow, with the usual caveats about the possibility of scribal error.
Rachel Arnow-Richman (Denver): "Noncompetition, Good Faith, and the Bilateral Employment Contract." As a body of law, noncompetition agreements follow a well-established framework for analysis, but courts are in fact dealing with particular fact patterns by analysis that occasionally explicitly--but often implicitly--utilizes a duty of good faith. Other times, the courts will use good faith language while not using the concept in its better known forms, as in the Restatement and the UCC. New Hampshire, for example, will not enforce an employment contract modification to add a noncompete agreement in an employment at will situation, not because it lacks consideration, but the modification is not in good faith. In other situations two otherwise enforceable terms will be seen as bad faith when enforced together even though the separate provisions could be enforceable. Explicit use of an implied duty of good faith in covenant not to compete cases would be a preferable approach for policing this public policy issue, both for employees and as a matter of coherence in contract doctrine.
Allen Kamp (John Marshall): "Wellness Programs and Consent." The U.S. spends twice as much as other industrial countries on healthcare but do not get appreciably better results. Statistics show that Americans are frequently more out of shape than their international counterparts. The Affordable Care Act of 2009 introduced the concept of employer "Wellness Programs" to incentivize better healthy behavior, but these can be intrusive and reveal personal health information. One of Fitbit's features, incidentally, is a tie-in to an employer wellness program. The ACA requires that a wellness program be "voluntary," raising the concern of employers coercing employees into these programs by financial incentives, some of which could be quite large. The ACA itself does not define "voluntary," thus raising the concepts of contract-law consent, duress, good faith, unconscionability, and other doctrines. These doctrines however, are as vague as the term that they are seeking to supplement. The employer wants the benefit of reducing its health insurance premiums, so there are very real incentives for employers to pressure their employees. Going forward, if the ACA is repealed, the Americans with Disabilities Act will be the controlling law.
Thomas Joo (UC-Davis): "The Law in the High Castle: Breach of Contract and Alternative History." Professor Joo noted that his paper is actually contract law meeting unreality rather than reality. In seeking expectation damages, contract law seeks to construct an alternative version of history where the contract was performed, and that is the place where plaintiff's damages are based. The discipline of history deals in counterfactuals, though these technically don't qualify as history. Quantum physics does allow for alternate realities as a concept--one that actually can exist. Viewed in this light, benefit of the bargain from an alternative future is a more normatively defensible concept. In effect, the litigating parties are fighting over the properties of the quantum wave function. The court enforcing contract law makes an alternative world come into existence.
Eric Zacks (Wayne State): "The Statute of Limitations and Acceleration Clauses in Mortgage Foreclosure Cases." This paper considers the effect of certain provisions in home mortgages. Acceleration and foreclosure can be wielded as a threat again and again because the means by which the statute of limitation operates from individual payments. Acceleration provisions are routine, as they both protect the lenders' interests and serve to motivate the borrower to pay in an in terrorem sense. How should res judicata apply here? Subsequent claims could be barred based on the same earlier breaches of the contract. If a lender accelerates and loses the case, it arguably loses the right to sue on an acceleration again because the obligation is a single indivisible obligation for preclusion purposes. This approach encourages lenders to be judicious in enforcing acceleration clauses. Some courts and jurisdiction have chipped away at the "two dismissals" rule, finding that a voluntary dismissal works a constructive "de-acceleration" of the loan, despite the fact that deceleration clauses actually are not in the loan documents. The issue becomes one of framing and equity--deadbeat borrowers versus oppressive lenders, but lenders have frequently gotten the upperhand in story telling. Regular contract law and doctrine--if applied--would actually benefit the borrowers in these sloppy mortgage litigation cases. But the lenders are not treated like "regular" plaintiffs and extending equity to those lenders but not the borrowers.
Saturday morning at KCON also included a session on empirical scholarship, summarized below. As always, errors in the notetaking are those of the taker--whom happened to be the moderator--and not the presenters.
From left: Gaston De Los Reyes, Colin Marks, Chris Odinet, and Mark Burge (Moderator)
Gaston De Los Reyes (George Washington University - School of Business): "Not From Guile But From Entitlement: Lawful Opportunism Haunts the Cracks in Contracts. Professor De Los Reyes dealt with opportunism based on a transaction cost perspective in contract law. Opportunism includes strategic manipulation of information or disclosure of intentions. Hybrid governance in deals has a timebomb built into it of "literal enforcement"--this is the longstanding contract law problem of Paradine v. Jane, where the parties didn't bargain for the situation that actually happened, but that is a fully honest dealing by the parties (naivete rather than opportunism). Lawful opportunism would pursue these cracks with literal enforcement even when the outcome would be punitive. This isn't lying or cheating in a deal, which would be blatant and unlawful. Can or should we adapt contract law to deal with the problem of lawful opportunism. Behavioral studies in contracting identified some variables (e.g., sense of entitlement) that could impact when parties defect from the spirit of the contract to enforce the letter. A strong sense of entitlement rather than a relational sense will contribute to the tendency to push literal enforcement. A study with about 1,300 participants tested the potential variables to see the tendency to be cooperative rather than opportunistic. Participants were not inclined to be blatantly opportunistic, lawful opportunism was more likely, and cooperative behavior was most likely. People with strong sense of entitlement were more likely to use lawful opportunism, as were people with a strong sense of economic exchange, but the latter were less likely to be blatantly opportunistic.
Colin Marks (St. Mary's University): "On-Line and As Is." Professor Marks studied online transactions where it is well established that parties dis not read the terms and conditions. For example, Wal-Mart terms online effectively create an "as-is" transaction through disclaimers where such disclaimers are not necessarily present in an in-store transaction. Are customers aware of these terms? Are they enforced and enforceable? Data came largely from the top 100 retailers in the National Retail Federation who have both online and in-store sales. Eleven different terms in contracts that could impact consumers were compared. One difference is between browsewrap and clickwrap, with the former being much more passive in nature. Terms and conditions are fairly hidden in some websites. Clickwrap at least involves an active consent. Pizza Hut, for example, works hard at obtaining consent, but the actual deal is fairly user friendly. A newer innovation is "sign-in wrap" where continuing on a site (like Amazon creation of an account) is where the binding terms occur. Another variant is "scrollwrap" which requires scrolling to the end of the terms before clicking "I Accept." Surprisingly, 72.5% of the retailers still use browsewrap. Clickwrap and scrollwrap are seldom used by large retailers. The retailers seem to be more concerned with reducing transaction friction rather than creating enforceability. Some disclaimers are only arguable in their enforceability. 85% of terms use some form of "as is" clause to disclaim the implied warranty of merchantability. 35% of retailers have arbitration clauses. None of the 110 retailers use conspicuous disclaimers in a brick-and-mortar store where they had the opportunity to do so. Most retailers (outside of food-sellers) have return policies despite the fact of an otherwise "as is" deal. Overall, browsewrap, as-is clauses, and return policies are prevalent.
Chris Odinet (Southern University Law Center): "Bitcredit: Marketplace Lenders and Consumer Protection." Professor Odinet studied marketplace lending, which bypasses traditional financial institutions and puts borrowers and lenders together directly (e.g., Kabbage, Avant, Prosper, Lending Club). Information from an application is put into an algorithm that evaluates the potential borrower, including (allegedly) the borrower's social media activity. Many of these lenders use the direct funding model with investors, but the bank-partnership model is becoming more prevalent, where the bank is the loan-maker, but the platform lender purchases the loan with funds put up by investors. How does this differ from traditional borrowing? Technology reduces the transactional cost of traditional lending through automation. Mainstream banks like these companies because someone else handles the FinTech, while the affiliate banks take on their traditional role albeit in a less-costly transaction. Marketplace lending arose following the 2008 financial crisis when many types of credit lending dried up as traditional banks became more cautious and shut down their non-core lending activities. The types of lending are diverse ranging from consumer to small business to refinancing. State banking regulators in some states have approached these firms, as have the CFPB and FTC, but the regulation is far less developed than what is occurring with traditional banks. Professor Odinet conducted an empirical study of these marketplace lenders based on data from the CFPB complaint portal to determine the nature of consumer problems with this type of lending. Study focused on 228 complaints over a five year period all based on consumer loans. CFPB complaints tend to be disproportionately filed by higher income consumers and some racial minorities. California is disproportionately represented in the CFPB database, as is Florida. The narratives submitted by consumers are a rich source of information as well as to what is motivating filing consumers. Many complained about their credit score being pulled before they actually applied for the loan. Borrowers seem to be having some substantial misunderstandings with these websites. Marketplace lending does not have a concerned prudential regulator at this point.
Mindy Chen-Wishart (Oxford University): In a plenary session, Professor Chen-Wishart described the massive multi-volume project, Studies in the Contract Laws of Asia, of which she is co-editor, to create an English-language resource on modern contract law in Asian jurisdictions. As countries seek to harmonize contract law internationally, Asian law is often left out of the discussion due to its inaccessibility. Major Asian jurisdictions, however, due to the colonial era, have legal systems that share a great deal with European contract law, both continental civil law and English common law. China is a particularly interesting hybrid system that was codified in 1999 with an eye toward international harmonization. The most recent codification of Asian law is in Cambodia, which draws heavily from Japanese legal experts. Indonesia is the most diverse and complex jurisdiction, drawing from tribal law, Islamic law, and Dutch law--which is still in Dutch and has never been translated into local language, despite the fact that most judges don't speak judge. Such a massive comparative law project has raised many interesting (and conflicting) theoretical issues about the nature of legal-system transplantation. Asia is an amazing laboratory for learning the process of legal transplant, and the transplanted law morphs when transplanted into new soil.
A particular challenge arises from editing authors whose native language is not English, and translation issues were particularly problematic when using legal technical terms. Differing cultural norms caused problems in the editing process, working with authors who were used to high deference in their local cultures. On the substance, comparing jurisdictions has required ferreting out real differences and similarities from actual differences. Both civil and common law seek to put the non-breaching party is the same position as performance, but civil law places a great focus on cure and performance. Exceptions and concepts like good faith mitigate some of the surface differences. Authors would reach similar results on the same hypotheticals, despite the fact that the reasoning to get to that result differed. Objective approaches have been subjectified (and vice-versa) across jurisdictions. Human communication is actually "inter-subjective" and putting together this project exemplified this truth.
Legal transplant has led to divergences as well as convergences: In Singapore cases purporting to apply the exact same English law on undue influence reached different results, with the Singapore courts far less likely to find uindue influence due to Confucianist culture. In the East, a rigid hierarchy of titles, gender, and other positions creates legal soil in which the same doctrine will play out. "Person" and "roles" play different roles, with Western cultures focused on the person while Eastern cultures focused on roles--where respect, obligation, and duties are owed based on roles. Power is understood as more derivative--roles are inherently correct and not to be challenged. Individualism and collectivism play different parts--Asian cultures and law focus on identity as part of community and family, not as individuality. Eastern culture tends to control by shame where Western culture tends to control by guilt. Finding undue influence in a family setting would be counter-cultural. omparison with and among Asian legal jurisdictions shows that law on the books is not the same as law in action. Application of the law will differ based on the soil where a legal system is transplanted.
Volume 1 has just been published by Oxford University Press, entitled Remedies for Breach of Contract covering the law of contract remedies in China, India, Japan, Korea, Taiwan, Singapore, Malaysia, Hong Kong, and Thailand.
Tan Zhong Xing (Moderator, National University of Singapore)
Friday, February 24, 2017
Last doctrinal panel session of the afternoon involved a variety of empirical studies on the actual contracting process. Fascinating stuff. As always, beware of the roughness of the notes, as they could contain errors.
Eyal Zamir (Hebrew University of Jerusalem) "Marketing Techniques, Pricing Methods, and the Law of Consumer Contracts." Numerous studies show that price framing impacts consumer choices in significant disproportion to the actual money involved. Describing a price differentiation as a "discount" rather than a "surcharge" substantially impacts customer perception, as do pricing methods such as charging $1.99 rather than $2.00 because of disproportionate reliance on the left digit. Another effective strategy is the use of a "regular price" term coupled with a discount price. A high regular price suggests higher quality and perception of a bargain on an item sold at a discount. In the U.S. the FTC can use 16 CFR 233.1(b) to police a deceptive regular price, but the prohibition is convoluted and multifactor, leading to little FTC enforcement of the provision. Interesting, studies show consumers don't believe the "regular price" but know that they are influenced by it. These kind of pricing practices present a quandary for consumer protection, as do some uses of rebates and gifts. Humorous moment: How many economists does it take to change a lightbulb? Answer: None, because the market will take care of it.
Russell Korobkin (UCLA) "Bargaining with the CEO: The Case for 'Negotiate First, Choose Second.'" A longstanding debate exists over CEO compensation. How much are they worth relative to what they are paid? Advocates suggest too much or too little based on their perspective from where the CEO value is derived. Better question to act, according to Korobkin, is whether CEOs are overpaid versus what firms could be paying them. The problem is the process: choose first, negotiate second. Better approach would be to reverse this, and negotiate the salary with a few select finalists. At this point, the firm has more bargaining power, but both sides in the negotiation get more information on which to make a rational choice. The firm avoids commitment and consistency bias in inflating CEO compensation. Korobkin and co-author Michael Dorff did a study using 206 law students placed in roles of a hiring "Director" and three "Candidates." Both sides were given incentive to maximize their relative cost position. Candidates are told to assume that the other two are "well qualified," as are they. Directors are told that outside consultant rated all the finalists as equal. Tested three conditions: (1) choose first, negotiate second (C1N2), (2) negotiate first will all three candidates individually before hiring a candidate (N1C2), (3) candidates pre-submit their minimum salary requirements (N1C2 also). Control group (1) averaged $8.62 MM, (2) averaged $6.56MM, and (3) averaged $7.58 MM. So why don't firms adopt N1C2? Possible answers are (a) director self-interest--but that isn't universal enough, (b) higher transaction costs--but these costs are not proportionately higher, or (c) firms rate candidates as having widely different value--but how would most candidates know this. Better hypothesis: Firms are concerned about losing candidates by adopting a N1C2 process and it may be perceived as unfair. But study didn't support this hypothesis either.
Dave Hoffman (Penn) and Tess Wilkinson-Ryan (Penn): "The Psychology of Consumer Contracts." Why do layperson intuitions about contracts matter as a substantive? Some answers: Rules have to comport on some level to ensure legitimacy of the rules; parties use intuitions as their basis for taking precautions against overreach; and simple majoritarian doctrine. The authors worked on a study of the role of formalities in the perceptions of formation: When do parties think a contract is formed when given a hypothetical with several arguable points of formation? Signing the paperwork was actually the vast majority understanding (62%). The layperson understanding is that a document titled a "contract" is most significant. When told that a "contract period" didn't begin for three days, subjects said they felt more free to shop around. What about contracts as having a "moral meaning" in a world of standard forms that simply can't actually be read? When provided various scenarios for ways an obnoxious term could be provided to a consumer, consumers don't distinguish between a set contract and a rolling contract in connection with their respect for the enforceability of the term. When the offending policy was online rather than in the document, parties were less sanguine about the policy and its enforceability. Study also inquired as to what parties think the law actually is. Judge's declaration only mattered when it was an invalidation of the contract. Another study showed that Millennials are three times more likely to think that an oral contract is not legitimate as compared to a "written" internet contract. Laypersons shown the cross-collateralization provision from Williams v. Walker-Thomas Furniture were far less empathetic to the plaintiff if they were. But once told that a doctrine of unconscionability exists, Millennials are more likely to think it applies that the doctrine would apply in real life.
From left: Dave Hoffman, Tess Wilkinson-Ryan, Eyal Zamir, and Russell Korobkin (not pictured Deborah Post (Moderator))
Friday afternoon at KCON XII included an excellent panel on corporate contract law issues, including the new Benefit Corporation business entity form and exploring the problem of data privacy. The notes are rough and may contain scribal errors, but they hopefully provide you the flavor of the proceedings.
From left: Michael Dorff, Pamela Edwards, and Mark Gergen (not pictured--Summer Kim (Moderator))
Michael Dorff (Southwestern): "Benefit Corporations--Assessing the Assessment: B Lab's Effort to Measure Companies' Benevolence." Only about 3,000 Benefit Corporations ("B Corps") exist in 31 states as a relatively new form of business entity. B Corps are required to consider community interests and social benefits rather than principally profits. What does this different structure add? Officers include Benefit Directors and Benefit Officers and allow a special kind of derivative suit. Ultimately the force toward social benefits seems to be toothless. The B Corp only works if you believe in it. What makes this system work is the B Lab Certification Process. Thus, the certification contract matters more than the state statute. B Lab has the BIA, "the B Impact Assessment." Assessment tools need simplicity, reliability, validity, transparency, credibility, and efficiency. It must measure what people care about or no one will pay attention to the assessment. Professor's Dorff's paper assesses the viability and value of the B Lab assessment. Companies must want to engage in this process and it has to be doable. The BIA is heavily customized for company size, industry sector, etc. and to date 72 versions of the BIA exist. Companies must score 80 out of 200 to be certified. The BIA is ultimately simple, but comparing across categories is difficult. Questionnaire is long and complicated, which makes it hard for companies. Fault is that BIA measures virtue (good intentions) rather than actual impact. Negative behavior does not deduct from the score. Points are not readily translatable--how does helping the homeless compare against preventing pollution. BIA is a good first cut at the problem, but more needs to be done.
Pamela Edwards (CUNY): "Have Public Benefit Corporations Benefitted the Public?" B Corps are valuable as an attempt to account for constituencies other than shareholders and their profit. This has been a problem since 1919 in corporate law. Moving away from that premise is valuable in changing what the premise is of a corporation. Notably, regular corporations seek to promote their actions as beneficial. Are B Corps actually helping anyone? Too early to tell--but it may be too optimistic to expect corporations to be agents of change due to the B Corp entity form. Agrees with Professor Dorff that comparisons of different companies are difficult to make. The greater ability to challenge a corporation's decisions beyond the standard business judgment rule is a significant feature. Notably, that was one of the purposes of B Lab's founders who had seen his corporate vision and culture destroyed after selling his business. Business entities are able to move in and out of being in the formal B Corp form. While that flexibility can be useful, it lessens the ultimate impact of the business form.
Mark Gergen (UC-Berkeley): "Privacy, Privity, and Collective Private Ordering." U.S. privacy law is in limited silos--FTC, HIPPA, etc., unlike the more comprehensive approach in Europe and elsewhere. Can breach of contract litigation fill the gap? Probably not--courts have been very hostile to privacy claims, frequently by misstating or ignoring established contract law, such as claims for disgorgement and restitution. Just because compensatory damages are not available does not mean that breach of contract claims are note available, yet that is where the privacy decisions are heading. Google and Facebook actually aren't the problems here, not because of damages but because of market forces. The real problem is THIRD PARTIES--data brokers, against whom you can't bring a breach of contract action because you have no privity of contract. Europe and HIPPA (as a U.S. example) require that a contract exist containing consent. That won't work with gateway data harvesters. The real way to solve this problem is to recognize a property right in personal privacy--but that's unlikely in the current political climate. Another possible solution: data firms must give a warranty that your data won't be acquired. If a 3rd party acquires the data, then it is liable for tortious interference with contract. The Yelp (review for hire vs. restaurant) case illustrates the viability of a tortious interference claim. Only way to get out of liability would be for the gateway firms to get a standard license. Here, private ordering doesn't require the creation of a property right. Ultimately, the tortious interference route may be our best hope for protecting personal data privacy.