Tuesday, May 27, 2014
Law and Society Association's Annual Meeting is only a few days away. There will be an Author Meets Reader Salon on my book, WRAP CONTRACTS on Friday, 5/30, 8:15am-10:00am in the Duluth Room. Shubha Ghosh (Wisconsin), Danielle Kie Hart (Southwestern) and Juliet Moringiello (Widener) will be joining me in what promises to be a lively discussion about those pesky clickboxes and pop-ups on your screens. If you are attending the meeting, please stop by and join us!
Monday, March 31, 2014
More on the Fairness of Contractual Penalties
By Myanna Dellinger
In my March 3 blog post, I described how the Ninth Circuit Court of Appeals just held that contractual liquidated damages clauses in the form of late and overlimit fees on credit cards do not violate due process law. A new California appellate case addresses a related issue, namely whether the breach of a loan settlement agreement calling for the repayment of the entire underlying loan and not just the settled-upon amount in the case of breach is a contractually prohibited penalty. It is.
In the case, Purcell v. Schweitzer (Cal. App. 4th Dist., Mar. 17, 2014), an individual borrowed $85,000 from a private lender and defaulted. The parties agreed to settle the dispute for $38,000. A provision in the settlement provided that if the borrower also defaulted on that amount, the entire amount would become due as “punitive damages.” When the borrower only owed $67 or $1,776 (depending on who you ask), he again defaulted, and the lender applied for and obtained a default judgment for $85,000.
Liquidated damages clauses in contracts are “enforceable if the damages flowing from the breach are likely to be difficult to ascertain or prove at the time of the agreement, and the liquidated damages sum represents a good faith effort by the parties to appraise the benefit of the bargain.” Piñon v. Bank of Am., 741 F.3d 1022, 1026 (Ninth Cir. 2014). The relevant “breach” to be analyzed is the breach of the stipulation, not the breach of the underlying contract. Purcell. On the other hand, contractual provisions are unenforceable as penalties if they are designed “not to estimate probable actual damages, but to punish the breaching party or coerce his or her performance.” Piñon, 741 F.3d at 1026.
At first blush, these two cases seem to reach the same legally and logically correct conclusion on similar backgrounds. But do they? The Ninth Circuit case in effect condones large national banks and credit card companies charging relatively small individual, but in sum very significant, fees that arguably bear little relationship to the actual damages suffered by banks when their customers pay late or exceed their credit limits. (See, in general, concurrence in Piñon). In 2002, for example, credit card companies collected $7.3 billion in late fees. Seana Shiffrin, Are Credit Card Law Fees Unconstitutional?, 15 Wm. & Mary Bill Rts. J. 457, 460 (2006). Thus, although the initial cost to each customer may be small (late fees typically range from $15 to $40), the ultimate result is still that very large sums of money are shifted from millions of private individuals to a few large financial entities for, as was stated by the Ninth Circuit, contractual violations that do not really cost the companies much. These fees may “reflect a compensatory to penalty damages ratio of more than 1:100, which far exceeds the ratio” condoned by the United States Supreme Court in tort cases. Piñon, 741 F.3d at 1028. In contrast, the California case shows that much smaller lenders of course also have no right to punitive damages that bear no relationship to the actual damages suffered, although in that case, the ratio was “only” about 1:2.
The United States Supreme Court should indeed resolve the issue of whether due process jurisprudence is applicable to contractual penalty clauses even though they originate from the parties’ private contracts and are thus distinct from the jury-determined punitive damages awards at issue in the cases that limited punitive damages in torts cases to a certain ratio. Government action is arguably involved by courts condoning, for example, the imposition of late fees if it is true that they do not reflect the true costs to the companies of contractual breaches by their clients. In my opinion, the California case represents the better outcome simply because it barred provisions that were clearly punitive in nature. But “fees” imposed by various corporations not only for late payments that may have little consequence for companies that typically get much money back via large interest rates, but also for a range of other items appear to be a way for companies to simply earn more money without rendering much in return.
At the end of the day, it is arguably economically wasteful from society’s point of view to siphon large amounts of money in “late fees” from private individuals to large national financial institutions many of which have not in recent history demonstrated sound economic savvy themselves, especially in the current economic environment. Courts should remember that whether or not liquidated damages clauses are actually a disguise for penalties depends on “the actual facts, not the words which may have been used in the contract.” Cook v. King Manor and Convalescent Hospital, 40 Cal. App. 3d 782, 792 (1974).
Monday, March 17, 2014
An employee sues his employer for age discrimination and retaliation. The parties reach an $80,000 settlement agreement pursuant to which the existence and terms of the settlement are to be kept “strictly confidential.” The employee is only allowed to tell his wife, attorneys and other professional advisers about the settlement. A breach of the agreement will result in the “disgorgement of the Plaintiff’s portion of the settlement payments,” although the attorney would, in case of a breach, be allowed to keep the separately agreed-upon fee for his services. The employee tells his teenage daughter about the settlement and being “happy about it.” Four days later, she boasts to her 1,200 Facebook friends:
“Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”
The employer does not tender the otherwise agreed-upon settlement amount, citing to a breach of the confidentiality clause of the contract. The employee brings suits, wins at trial, but loses on appeal. The employee’s argument? He felt that it was necessary to tell his daughter “something” about the agreement because, some sources state, she had allegedly been the subject of at least some of the retaliation against her father.
The appellate court emphasized the fact that the agreement had called for the employee not to disclose “any information” about the settlement to anyone either directly or indirectly. Settlement agreements are interpreted like any other contract. Thus, the unambiguous contractual language “is to be given a realistic interpretation based on the plain, everyday meaning conveyed by the words,” according to the court. The employee did precisely what the confidentiality agreement was designed to prevent, namely advertise to the employer’s community that the case against them had been successful.
What could the employee have done here if he truly felt a need to tell his daughter about the deal? Pragmatically, he could have made it abundantly clear to his daughter that she was not to tell anyone, obviously including her thousands of Facebook “friends,” about it. Hopefully she would have abided by that rule... The court pointed out that the employee could also have told his attorney and/or the employer about the need to inform his daughter in an attempt to reach an agreement on this point as well. Having failed to do so, “strictly confidential” means just that. As we know, consequences of breaches of contract can be ever so regrettable, but that does not change any legal outcomes.
The case is Gulliver Sch., Inc. v. Snay, 2014 Fla. App. LEXIS 2595.
Monday, March 3, 2014
Contracts between credit card holders and card issuers typically provide for late fees and “overlimit fees” (for making purchases in excess of the card limits) ranging from $15 to $40. Since these fees are said to greatly exceed the harm that the issuers suffer when their customers make late payments or exceed their credit limits, do they violate the Due Process Clause of the Constitution?
They do not, according to the United States Court of Appeals for the Ninth Circuit (In re Late Fee & Over-Limit Fee Litig, No. 08-1521 (9th Cir. 2014)). Although such fees may even be purely punitive, the court pointed out that the due process analyses of BMW of North America v. Gore and State Farm Mut. Auto Ins. Co. v. Campbell are not applicable in contractual contexts, but only to jury-awarded fees. In Gore, the Court held that the proper analysis for whether punitive damages are excessive is “whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred” and finding the award of punitive damages 500 times greater than the damage caused to “raise a suspicious judicial eyebrow”. 517 U.S. 559, 581, 583 (1996). The State Farm Court held that “few awards exceeding a single-digit ratio between punitive and compensatory damages … will satisfy due process. 538 U.S. 408, 425 (2003).
Contractual penalty clauses are also not a violation of statutory law. Both the National Bank Act of 1864 and the Depository Institutions Deregulation and Monetary Control Act provide that banks may charge their customers “interest at the rate allowed by the laws of the State … where the bank is located.” 12 U.S.C. s 85, 12 U.S.C. S. 1831(d). “Interest” covers more than the annual percentage rates charged to any carried balances, it also covers late fees and overlimit fees. 12 C.F.R. 7.4001(a). Thus, as long as the fees are legal in the banks’ home states, the banks are permitted to charge them.
Freedom of contracting prevailed in this case. But should it? Because the types and sizes of fees charged by credit card issuers are mostly uniform from institution to institution, consumers do not really have a true, free choice in contracting. As J. Reinhardt said in his concurrence, consumers frequently _ have to_ enter into adhesion contracts such as the ones at issue to obtain many of the practical necessities of modern life as, for example, credit cards, cell phones, utilities and regular consumer goods. Because most providers of such goods and services also use very similar, if not identical, contract clauses, there really isn’t much real “freedom of contracting” in these cases. So, should the Due Process clause apply to contractual penalty clauses as well? These clauses often reflect a compensatory to penalty damages ratio higher than 1:100, much higher than the limit set forth by the Supreme Court in the torts context. According to J. Reinhardt, it should: The constitutional principles limiting punishments in civil cases when that punishment vastly exceeds the harm done by the party being punished may well occur even when the penalties imposed are foreseeable, as with contracts. Said Reinhardt: “A grossly disproportionate punishment is a grossly disproportionate punishment, regardless of whether the breaching party has previously ‘acquiesced’ to such punishment.”
Time may soon come for the Supreme Court to address this issue, especially given the ease with which companies can and do find out about each other’s practices and match each other’s terms. Many companies even actively encourage their customers to look for better prices elsewhere via “price guarantees” and promise various incentives or at least matched, lower prices if customers notify the companies. Such competition is arguably good for consumers and allow them at least some bargaining powers. But as shown, in other respects, consumers have very little real choice and no bargaining power. In the credit card context, it may be said that the best course of action would be for consumers to make sure that they do not exceed their credit limits and make their payments on time. However, in a tough economy with high unemployment, there are people for whom that is simply not feasible. As the law currently stands in the Ninth Circuit, that leaves companies free to virtually punish their own customers, a slightly odd result given the fact that contracts law is not meant to be punitive in nature, but rather to be a resource allocation vehicle in cases where financial harm is actually suffered.
Friday, February 21, 2014
Jennifer Martin (picutured at left), who did a simply incredible job putting together this conference, welcomed us this morning to sunny Florida.
We then got under way with a plenary session on the work of Linda Rusch (pictured below at right), the conference's honoree. Candace Zierdt chaired the session and introduced Louis Higgins from West Academic. He spoke of how great it has been for him to work with Linda as an author. He claimed that in working with Linda on about 20 books(!), she has never once missed a deadline.
Amy Boss, whom Stephen Sepinuck recognized as the reigning "Queen of the UCC," then spoke of Linda's career as both an academic and as a law reformer. Linda read a number of comments from an impressive array of judges and practitioners who have worked with Linda on law reform projects. Linda is the type of person whose work often goes unnoticed, because it takes place outside of the spotlight among small groups of extremely well-informed experts on commercial law but often comes to shape both complex federal regulations and state statutes. People uniformly compliment Linda for her creativity and organization and for her sense of humor. People are willing to work with Linda on all manner of projects because she is extremely competetent, organized, efficient, approachable and enjoyable to work with. She clearly understands the theoretical underpinnings of commercial law but she never loses sight of the practical.
Next, Neil Cohen spoke of Linda's constant presence in the firmament of commercial law. Her work has not been flashy and evanscent. Rather, she is a steady reminder that there are ways to improve on our work and our understanding of commercial law while also working at improving the law itself. He commended her for her successful revision of Article 7 and for the "unbuilt architecture" of the revised Article 2 that the ALI approved but then fell at the Uniform Law Commission. Professor Cohen made the excellent point that the remedies sections in the original Article 2, which are extremely well-conceived, are not especially well drafted. Linda was significantly involved in reconceptualizing, re-organization and re-writing the Article 2 remedies sections. The failure of state legislatures to adopt the revised Article 2 is a loss to all of us who teach the subject matter, because the legal principles are far more clearly laid out in the revised version (thanks to Linda's work) than they were in the original.
Larry Garvin spoke of having met Linda early in the process of UCC revision in 1996 and watched her move from back-bencher to leader in undertaking elegant revisions, especially to the Article 2 damages sections. Professor Garvin basically added his "I agree" to Professor Cohen's comments and then moved on to an appreciation of Linda's scholarly work since the UCC revisions, focusing especially on her article in the SMU Law Review on the ongoing struggle for balance in Article 2 and on Linda's 2003 Temple Law Review article on products liability. In sum, Professor Garvin noted that Linda's scholarship and law reform efforts generally are characterized by clarity and balance.
Finally, Stephen Sepinuck spoke on behalf of the younger scholars who have benefited from Linda's support and mentoring. Professor Sepinuck highlighted as his favorite of Linda's articles her 2008 article in the Chicago-Kent Law Review on payment systems. When the time comes to revisit the laws of payment systems, Professor Sepinuck suggested that this article will provide the basis for that work. He also noted that the reason very few people know anything about the UCC's Article 7 is that Linda's draft made that section so clear that Article 7 issues almost never need to be litigated. He also noted her important contributions to the Restatement (3d) of Restitution and Unjust Enrichment so as to make certain that nothing in the Restatement is inconsistent with anything in the UCC.
Linda said a few quick words of thanks to the panelists, whom she had gotten to know at many meetings at mediocre hotels in medium-sized cities close to major airports. Professor Zierdt announced that the entire panel will be available on YouTube, so that's somethign to look for soon.
Wednesday, February 19, 2014
Do such words imply an enforceable promise to give an employee additional compensation both for work already performed and for work to be performed in the future if the speaker actually obtains a sizeable chunk of money? (Does it matter to your answer if the words were uttered by Heather Mills, famous or infamous ex-wife of Sir Paul McCartney?..)
Your answer to the former question would probably be a resounding “of course not.” In a recent decision, the United States Court of Appeals for the Ninth Circuit agrees (Parapluie v. Heather Mills, No. 12-55895). The case resembles such Contracts casebook classics old and new as Kirksey v. Kirksey (1945), Ricketts v. Scothorn (1898) and Conrad v. Fields (2007). One might have thought that promissory estoppel and, in this case, promissory fraud and intentional misrepresentation claims had generated enough case law to prevent an appeal. Apparently not, much to the amusement of law students and law professors alike.
At bottom, the facts behind the case against Ms. Mills are as follows: In 2005, Ms. Mills hired Michele Blanchard to conduct PR work for her. Ms. Blanchard was paid nothing for her work from 2005 to 2007. In 2007, however, Ms. Mills and Ms. Blanchard agreed that Ms. Blanchard would be paid $3,000 per month because Mills couldn’t pay Blanchard’s usual fee of $5,000 per month. The payments were made. In 2008, the relationship between the two women soured. Ms. Blanchard quit and sent Ms. Mills an additional invoice for $2,000 per month in arrears. Ms. Blanchard claimed to be entitled to the greater amount because Ms. Mills allegedly misrepresented her financial situation when telling Ms. Blanchard that she could only pay $3,000 a month when she could, allegedly, afford to pay more. In making this assertion, Ms. Blanchard relied on Ms. Mills having expressed an interest in renting a house for $80,000 per month, having bid $30,000 on a cruise at a charity auction, and having once stated about the fee to Ms. Blanchard, “I don’t know if I can pay the entire amount, but I’ll do something” and, after Ms. Blanchard askeed Ms. Mills if she might pay Ms. Blanchard “a little something,” allegedly agreeing that “I’ll take care of you when I get the big money.” Ms. Blanchard claims that the latter statement was a promise to pay her regular fee of $5,000 both in the future and for the work already performed. The court pointed out that Ms. Mills interest in renting expensive housing was just that; an interest. She had in fact only rented “modest” properties via Ms. Blanchard for $2,000-3,000 per week for one week. Perhaps most tellingly of Ms. Mills’ financial state of affairs at the time is the fact that when she attempted to pay for the cruise bid with a credit card, the payment was denied.
Ms. Mills is reported to have obtained a nearly $50 million divorce settlement with a sizeable interim payment around the times listed above. But as the court pointed out, when Ms. Mills did receive this interim payment, she also started paying Ms. Blanchard $3,000 a month, suggesting that her earlier statements about her inability to pay Blanchard were true, not false, when made. Ms. Blanchard’s monthly invoices further stated “the total amount due” as $3,000, negating any inference that the contractual parties intended a retroactive or future payment for more than that amount.
Ms. Blanchard’s attorney may have wanted to read Baer v. Chase (392 F.3d 609, U.S. Ct. of App. for the Third Cir. (2004)). In that case, Robert Baer, a former state prosecutor wishing to pursue a career as a Hollywood writer, similarly claimed that David Chase had promised to “take care of” Baer and “remunerate him in a manner commensurate to the true value of [his services]” should the project on which Baer worked for Chase become a success. It did: the project was the creation and development of what turned out to be the hit TV series The Sopranos. Baer received nothing for his services. The court found that the alleged contract was unenforceable for vagueness because nothing in the record allowed the court to figure out the meaning of “success,” “true value,” and, in general, what it meant to be “taken care of” in this context.
Potentially starstruck employees be ware: if you think that your employer promises you a chunk of money, make sure you find out exactly what you have to do to earn that. Now as well as hundreds of years ago: alleged promisors are unlikely to simply “take care of you” out of the goodness of their hearts. And as always: get the promise in writing!
Tuesday, February 18, 2014
Save the Date: Symposium to Honor Professor Chuck Knapp’s
50th Year of Law Teaching – October 24, 2014
The University of California, Hastings College of the Law is sponsoring a symposium to honor Professor Chuck Knapp on the completion of his 50th year of law teaching. (He began his teaching career at NYU School of Law in fall 1964.) The date for the event is Friday, October 24, 2014, and it will be held on the campus of UC Hastings in San Francisco.
The day-long program will include four panels that will focus on areas that are of particular interest to Professor Knapp, but that will also address topics with broad appeal to contract law scholars. The panel topics include:
*The State of Contract Law
*The Future of Unconscionability as a Limit on Contract Enforcement
*The Politics of Contract Law
*The Role of Casebooks in the Future of Contract Law
Confirmed speakers include:
- Professor Hazel Glenn Beh, University of Hawaii
- Professor Carol Chomsky, University of Minnesota
- Professor Jay Feinman, Rutgers University – Camden
- Professor Danielle Kie Hart, Southwestern Law School
- Professor David Horton, UC Davis
- Professor Emily M. S. Houh, University of Cincinnati
- Professor Thomas Joo, UC Davis
- Professor Russell Korobkin, UCLA
- Professor Peter Linzer, University of Houston
- Professor Judith Maute, University of Oklahoma
- Professor Deborah Post, Touro Law Center
- Professor William Woodward, Temple University
Questions may be directed to Professor Harry G. Prince at UC Hastings by email at firstname.lastname@example.org and by telephone at 415-565-4790.
Tuesday, February 11, 2014
If you applied for credit, but got turned down with the reason “Your worst bankcard or revolving account status is delinquent or derogatory,” would you understand what that means?
Probably not, at least not for sure. Under the Dodd-Frank Act, lenders are required to send applicants written explanations of why they are denied credit outright or given less favorable terms than those for which they applied. This requirement is aimed at helping consumers understand what they need to do to improve their credit scores. But many of the explanations provided to consumers are drafted by the credit score developers themselves and use confusing terminology or are too short to be useful.
What’s worse: lenders are aware of this problem, but apparently choose to do nothing about it. According to one survey, 75% of lenders “worry” that consumers don’t understand the disclosure notices. Only 10% of lenders said that their customers understand reason codes “well.” This problem is, of course, not isolated to the credit industry, but also prevails in the health care industry and beyond.
Contracts law is not helpful for consumers in this respect either: there is a clear duty to read and understand contracts, even if they are written in a language (typically English) that one does not understand. Perhaps that’s why only 10% of lenders bother to translate documents into Spanish with the effect that many Spanish-speaking monolingual applicants are unable to read the explanations at all.
Some companies offer websites offering “translations” into easier-to-understand and longer explanations of the codes behind credit refusals and what one can do to improve credit. There’s a website for almost anything these days, but for that solution to be sufficiently helpful in the lending context, it must be presumed that these websites are relatively easy to find, free or inexpensive, and easy to use; all quite far from always the case.
As law professors, most of us probably require our students to write in clear, plain English. We don’t take it lightly if they write incomprehensible sentences. The desirability of writing well should be obvious in corporate as well as academic contexts.
Monday, December 2, 2013
We are delighted to introduce the latest of our new contributors, Michael P. Malloy (pictured), Distinguished Professor of Law of the University at the Pacific's McGeorge School of Law. Professor Malloy's posts will generally fall into the rubric "Global K" and will concentrate mainly on transnational contract law, including but not limited to CISG developments (e.g., cases, accessions, interpretations, secondary literature).
An internationally recognized expert on bank regulation and on economic sanctions, Michael P. Malloy received his J.D. from the University of Pennsylvania and his Ph.D. from Georgetown University. SEC enforcer, bank regulator, economic sanctions architect, Dr. Malloy has authored or edited over 100 books and book-length supplements. He is the co-author of Global Issues in Contract Law (West 2007), and the author of Anatomy of a Meltdown (Aspen 2010), a study of the current global financial crisis.
A listing of Professor Malloy's representative publications can be found here.
A more detailed biography can be found here.
Wednesday, November 27, 2013
Today’s mini-review is of Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis, 46 Ind. L. Rev. 797 (2013), by Debra Pogrund Stark, Dr. Jessica M. Choplin, and Eileen Linnabery.
Apparently, many real estate contracts limit buyers’ remedies to return of earnest money, and many courts enforce such limitations. The problem is that if a buyer’s only remedy for breach of contract is the return of earnest money, then the seller hasn’t really bound himself to anything. If the seller doesn’t want to perform, all he has to do is return the earnest money. This encourages the kind of strategic behavior that contracts are supposed to prevent. For example, a seller may agree to sell real estate, but if the property's market value increases, the seller can breach the contract, return the earnest money, and sell the property to a second buyer at a higher price. The seller essentially gets to speculate on the buyer's dime.
Further, many buyers don’t understand the meaning of these limitation of remedy clauses, even if they read them. The authors conducted a study which suggests more than a third of people who read a limitation of remedies clause fail to comprehend that their remedies have been limited. The authors use this finding to challenge some courts’ reasoning that buyers knowingly consent to the limitation of their remedies.
The authors offer several reforms, and two are particularly interesting: (1) enacting legislation that prohibits limiting buyers’ remedies to the return of earnest money, and (2) replacing the exacting standards of unconscionability with a "reasonable limitation of remedy” test similar to that used in evaluating liquidated damages.
This article is state-of-the-art in its use of empirical research to aid legal analysis. It not only provides interesting data, but it also marshals that data against flimsy intuitive arguments still common wherever people talk about contracts.
[Image by thinkpanama]
Sunday, November 24, 2013
In California and a dozen other states, it is becoming increasingly popular to have solar panels installed on private properties to reduce household electric bills. In addition to potentially significant energy savings, solar panels also help private parties mitigate climate change at the very local level. However, solar panels are expensive. Instead of buying them outright (an average-size residential system costs about $35,000), many consumers choose to lease the systems instead. This option typically entails no upfront costs and, as many solar panel providers tout, “low monthly rental fees” that are supposedly offset by utility bills savings and the avoidance of maintenance and upgrading otherwise associated with individually owned systems.
So is this a contractual win-win situation? Not necessarily so. Solar panel leases typically comprise terms that may either surprise the unwary consumer or turn out to be more favorable to the solar panel owners than the homeowners in the long run.
For example, state or federal tax benefits, renewable energy credits sold to companies to offset carbon emissions, and state or utility cash incentives go to the solar panel owners and thus not the leasing homeowners. Some contracts contain escalator clauses increasing the initially low lease payments over time. What is also often left unsaid, at least upon initial conversations with solar panel providers, is that if a household already has low electricity bills, leases structured as is often typically the case may not pay at all or be financially beneficial enough to justify the risks inherently involved in transactions between consumers and sophisticated energy company for something as new and technologically risky as solar electric panels. This risk is enhanced by the fact that the contract duration used by many California solar panel providers is no less than twenty years. Much could happen over two decades in relation to both the technical and financial aspects of these types of contracts: technology could (and likely will) change so that in the years to come, more effective systems are developed that could have produced even greater benefits for homeowners then tied to contracts for “old” technology. Utilities could reduce their electric rates so that the leases are not as commercially viable anymore. State and federal subsidies and other rules could change the entire energy field. Could consumers down the road prevail on an argument that imposing contracts of such durations in field so rapidly evolving is sufficiently draconian to be unconscionable? Probably not.
In California as in many - if not most - other states, unconscionability consists of both procedural and substantive elements and are evaluated on a sliding scale. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to, among other factors, unequal bargaining power and the lack of meaningful choice. Substantive unconscionability pertains to the fairness of the actual terms of an agreement and to assessments of whether these terms are overly harsh or one-sided. However, substantive unconscionability “turns not only on a ‘one-sided’ result, but also on an absence of ‘justification’ for it.” Several problems thus abound for consumers attempting this argument. First, no reasonable argument can be made that leasing solar panels rises to the level of “needed services” or “life necessities” that even perceivably liberal California courts have called for in connection with the lack-of-choice prong. Second, consumer choice does exist here: homeowners could, for example, simply not rent the panels if not sure of the ultimate advantageousness of the deal. They could buy the systems outright instead, or ask their utility providers if it is possible to increase the percentage of household power purchased from renewable sources if interested in acting on climate change. Substantively, twenty years is a long time, but far from uncommon in contractual contexts. Finally, the solar panel companies have an arguably justified cause for requiring a twenty-year duration, namely installing the equipment at no upfront payment, servicing it over years, and the chance to recover a good return on it.
Solar power is one of many solutions that could prove viable in mitigating climate change. In a nation with as much annual sunshine as the United States, solar power will hopefully quickly become much more prevalent than is currently the case and help us as a nation become more energy independent. Consumers may be well able to obtain current and significant energy savings if operating solar systems on their properties. But consumers should realize that twenty-year leases constitute a significant legal commitment that will be difficult, if not impossible, to avoid if better technological solutions should be discovered in the next years to come.
Myanna Dellinger, JD, MA, Assistant Professor of Law, Western State College of Law
I want to thank all the experts who participated in last week's symposium on WRAP CONTRACTS: FOUNDATIONS AND RAMIFICATIONS . They raised a variety of issues and their insights were thoughtful, varied and very much appreciated. I also want to thank Jeremy Telman for organizing the symposium and inviting the participants.
Today, I’d like to respond to the posts by Michael Rustad, Eric Zacks and Theresa Amato. Eric Zacks emphasizes the effect that form has on users, namely that the form discourages users from reviewing terms. Zack notes that contract form may be used to appeal to the adjudicator rather than simply to elicit desired conduct from the user and that forms that elicit express assent - such as “click” agreements - help the drafter by aiding “counterfactual analysis surrounding the ‘explicit assent’” issue. In other words, drafters may use contract forms to manipulate adjudicator’s decisionmaking and not necessarily to get users to act a certain way. (This is a topic with which Zachs is familiar, having just written a terrific article on the different ways that drafters use form and wording to manipulate adjudicators’ cognitive biases).
Both Michael Rustad and Theresa Amato focus, not on form, but on the substance of wrap contracts – the rights deleting terms that contract form hides so well. Amato comes up with an alternative term to wrap contracts – online asbestos – to highlight the not-immediately-visible damage caused by these terms. As a consumer advocate and an expert on how to get messages to the general public, Amato understands the need to overcome the inertia of the masses by communicating the harms in a way that can drown out the siren call of the corporate marketing masters. So yes, a stronger term may be required to jolt consumers out of their complacency although the real challenge will be getting heard and beating the marketing masters at their own game.
Michael Rustad notes that my doctrinal solutions fall short of resolving the problem of predispute mandatory arbitration and anti-class action waivers. He’s right, of course, although I think reconceptualizing unconscionability in the way I propose (by presuming unconscionability with certain terms unless alternative terms exist or the legislature expressly permits the term) would reduce the prevalence of undesirable terms including mandatory arbitration and class-action waivers. Rustad, who has considerable expertise on this subject, mentions that many European countries are further along than we are in dealing with unfair terms. Many of those jurisdictions, however, also have legislation which limits class actions, tort suits or damages awards. In addition, they don’t have the same culture of litigation that we do in this country. Wrap contracts have their legitimate uses, such as deterring opportunistic consumer behavior and enabling companies to assess and limit business risks. In order to succeed, any proposal barring contract terms or the enforceability of wrap contracts must also consider those legitimate uses.
I believe there is a place for wrap contracts and boilerplate generally but their legitimate uses are currently outweighed by illegitimate abuses of powers. Wrap contract doctrine has moved too far away from the primary objective of contract law – to enforce the reasonable expectations of the parties-- and my solutions were an attempt to move the train back on track. My focus was on doctrinal solutions but the problems raised by wrap contracts are complex and my solutions do not foreclose or reject legislative ones. I’m a contracts prof, so my focus naturally will be on contract law solutions (if you have a hammer, everything looks like a nail, I guess). Doctrinal responses have the advantage of flexibility and may be better adapted to dynamic environments than legislation which can be quickly outdated when it comes to technology or business practices borne in a global marketplace.
Admittedly, when it comes to wrap contracts, doctrinal flexibility hasn’t really worked in favor of consumers, but that only makes it more important to keep trying to sway judicial opinion. I know there are those who question whether judges read legal scholarship, but I know that there are many judges (and clerks) who do. The case law in this area has spiraled out of control so that it makes no sense to the average “reasonable person” and has opened the door to the use of wrap contracts that exploit consumer vulnerabilities.
My book was not intended as a clarion call to rid the world of all wrap contracts; rather, it was intended to point out how much damage wrap contracts have done, how much more they can do, and to provide suggestions on how to rein them in and use them in a socially beneficial manner.
I’m grateful to have had the opportunity to hear the insightful comments of last week’s highly respected line-up of experts and to share my thoughts with blog readers.
Thursday, November 21, 2013
It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog. Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology. Moringiello’s knowledge in this area of law is both wide and deep and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts. The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps. Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink. Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them. Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract. I think that’s true and it’s that ubiquity which diminishes their signaling effects. Because we are all clicking constantly, we fail to realize the significance of doing so. It’s not the act alone that should matter, but the awareness of what the act means. I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement agreed to in the past week alone. I wouldn’t have made such a bold statement eight years ago.
Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech. With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.” In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably. Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness. For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses. (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).
Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn. I made a similar point in this article. I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability. (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company). On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties. Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image. But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it. And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like. A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself. Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract. What’s troubling about the lawsuit, however, is that (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii) the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising. To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason? Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims. The law firm claims that arbitration would cost it from $4,000-$5,000.
I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way.
Wednesday, November 20, 2013
I’m thrilled to have the opportunity this week to engage with an outstanding line-up of scholars on the topic of wrap contracts. In today’s post, I will respond to posts by Ryan Calo and Miriam Cherry.
Miriam Cherry observes that wrap contracts raise much of the same issues raised by contracts of adhesion and my book canvasses those similarities. But they also raise different issues, primarily because their digital form makes it easier for companies to abuse and for consumers to ignore and also because courts don’t adequately recognize how form affects the behavior of both parties. The difference in form leads to a difference of degree so that it’s virtually impossible (pun intended) to engage in any online activity without agreeing to the terms of an unreadable wrap contract. My proposals aim to respond to the ways in which form affects perception to get us closer to the underlying objective of contract law – to fulfill the reasonable expectations of the parties. The form of wrap contracts raises issues that are unique to them and consequently, call for different solutions - solutions that respond to the problem of form.
Ryan Calo focuses on the role of technological design in contract formation and enforcement which is not surprising given his extensive expertise and research in this area regarding effective notice. The way that technological design of contracts affects parties’ behavior is underappreciated in the literature on contracts of adhesion. Calo observes that the potential for mischief through the use of standard terms is even worse than the examples I give in my book (this is a great relief since I am often accused of exaggerating the dangers of wrap contracts). As Calo notes here and elsewhere, the digital contracting environment has made it easier for companies to understand the consumer and so manipulate the consumer’s perceptions and behavior. I agree and would like to respond to his wish that I had addressed the argument made by Scott Peppet and others (who I’ll call “digital solutionists”) who claim that this very environment might aid the consumer and that increased digitalization could ameliorate the limits of freedom of contract. I agree with the first part, but disagree with the second. Greater access to information and the digital landscape may, in many cases, aid consumers who can research products, announce their “likes” and dislikes, and tweet their dissatisfaction to attract the customer service departments of large companies. This shouldn’t, however, influence the discussion regarding freedom of contract. There is a distinction to be made between the product or service that is the subject of the contract and the terms of the contract itself. The former is salient to consumers and they will often research that information before they act. For a variety of reasons, including cognitive biases but also tricky design employed by companies, the latter is not. Anyway, comparing terms does no good if the terms are all the same – it’s the old fiction about “shopping for terms” reincarnated in digital form.
Even assuming that the current state of affairs changes and there is awareness and competition for contract terms, the consumer is already inundated with too much information online. Are we really going to impose a requirement or an expectation that they read through online reviews or download an app simply in order to understand the contract terms? Even if the reviews exist (which they may not for some products or companies) and even if they are accurate (which they may not be), they add a layer of complexity to consumer transactions which may hamper effective decision-making and aggravate cognitive biases. How much research is a consumer expected to do simply to be able to buy a product, bank or communicate online? And is that something we want as a society – wouldn’t this negatively impact productivity, increase transaction costs for the consumer, and muck up the wheels of commerce (and isn’t this why we tolerate standard form contracts in the first place, to improve productivity, reduce transaction costs and grease the wheels of commerce)?
Drafting companies have all the power in the digital contracting environment – they have the bargaining power of old school drafters of adhesive contracts but they also have the power to present the terms in a multitude of ways. They decide whether and how to attract user attention. They determine whether to use clickwraps, browsewraps, multi-wraps, graphics or sounds. They exercise that power in a way that meets very minimal legal requirements of notice. The onus is on the consumer to ferret out terms, chase down hyperlinks, understand dense legalese and reconcile conflicting language. Are we going to require even more of consumers, expecting them to “go beyond” the contract by reading online contract reviews and downloading the “compare contracts” app (assuming one exists)? Maybe digitalization or augmented reality will make it easier for consumers to compare terms --but it will likely make it more complicated especially when those terms are constantly changing thanks to modification at will provisions. Doesn’t it make more sense to require the company to draft the terms so they are easy to find and understand? There’s more to say about the digital solutionist view but I will leave that for another forum. For now, my response is that the digital solutionist view is actually part of the problem, rather than the solution because it, like wrap contract doctrine, demands nothing from drafting companies and creates more work for consumers, exacerbating the lopsided balance of burdens that currently exists.
Monday, November 18, 2013
A screwdriver can be used for turning screws and opening cans of paint. Or it can be used as a dagger in mortal prison combat. Likewise, a contract can “facilitate an efficient private ordering of society,” but it can also be “a means of social dominance and oppression.” Law professors should be quicker to tell new students about the shank-side of contracts.
That’s the gist of Teaching Contract Law: Introducing Students to a Critical Perspective Through Indentured Servitude and Sharecropper Contracts, 66 SMU L. Rev. 341 (2013), by Dr. Gregory Scott Crespi.
Crespi provides a sample lecture in which he tells of homeless English people becoming indentured servants and former slaves becoming sharecroppers. In both cases, contracts were used to bind people to functional slavery.
Crespi gives this lecture around the third class of the semester. He believes that informing students of such abusive contracts early in their legal educations allows them to bring a critical perspective to subsequent doctrinal studies and to consider the law’s context and unintended social consequences.
Dr. Crespi has done us several services by publishing this piece: (1) he has given us a brilliant lecture to use if we don’t feel like doing our own critical research; (2) he has kept it short, six printed pages, excluding footnotes; and (3) he has told us some important stories about abusive contracts.
But I wonder if Crespi’s approach is like teaching students to play tennis without a net? Does the first-semester 1L understand the intended consequences of the law well enough to opine on the unintended consequences? Students arrive at law school fluent in cynicism, but they have difficulty describing the relationship between well-established doctrines and the common good. So perhaps students should be encouraged to develop a critical perspective later, rather than sooner.
Using Crespi’s screwdriver analogy, imagine a master carpenter saying to his new apprentice, “The first thing about a screwdriver is that it turns screws. The second thing is that it can open a can of paint. The third thing is that it can be sharpened into a dagger and used to kill a man.” It’s a fascinating narrative, but is it apt for the apprentice? I’m inclined to think students need to know doctrine before they can criticize it and that giving new students the critical perspective too early might cause them to develop a distorted view of Contracts and the world.
Query the right view of Contracts and the world. If the professor think it’s more shanks than screwdrivers, perhaps the critical lesson should come early. I probably won’t be giving that lesson until at least class number four.
[Image by Xeni Jardin]
Sunday, November 17, 2013
The symposium marks the publication of Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Next wek, this blog will publish posts by experts from around the country commenting on Nancy's work. Here is Oxford's bullet point summary of the book's virtues:
- Explains why wrap contracts were created, how they have developed, and what this means for society
- Uses hypotheticals, cases, and real world examples
- Discusses court decisions with summary critiques
- Provides doctrinal solutions grounded in law and policy
- Defines and distinguishes different types of contract terms
- Includes actual wrap contract terms, flow charts, checklists and other visual aids to explain legal concepts
The following people will be adding their own thoughts and comments on the blog next week:
Ryan Calo is an assistant professor at the University of Washington School of Law. He researches the intersection of law and emerging technology, with an emphasis on robotics and the Internet. His work on drones, driverless cars, privacy, and other topics has appeared in law reviews and major news outlets, including the New York Times, the Wall Street Journal, and National Public Radio. Professor Calo has also testified before the full Judiciary Committee of the United States Senate.
Professor Calo serves on numerous advisory boards, including the Electronic Privacy Information Center (EPIC), the Electronic Frontier Foundation (EFF), the Future of Privacy Forum, and National Robotics Week. Professor Calo co-chairs the Robotics and Artificial Intelligence committee of the American Bar Association and is a member of the Executive Committee of the American Association of Law Schools (AALS) Section on Internet and Computer Law.
Professor Calo previously served as a director at the Stanford Law School Center for Internet and Society (CIS) where he remains an Affiliate Scholar. He also worked as an associate in the Washington, D.C. office of Covington & Burling LLP and clerked for the Honorable R. Guy Cole on the U.S. Court of Appeals for the Sixth Circuit. Prior to law school at the University of Michigan, Professor Calo investigated allegations of police misconduct in New York City.
Miriam A. Cherry is a visiting professor at the University of Missouri School of Law and a tneured professor law at Saint Louis University. Her scholarship is interdisciplinary and focuses on the intersection of technology and globalization with business, contract and employment law topics. In her recent work, Professor Cherry analyzes crowdfunding, markets for corporate social responsibility, virtual work and social entrepreneurship. Her articles will appear or have appeared in the Northwestern Law Review, Minnesota Law Review, Washington Law Review, Illinois Law Review,Georgia Law Review, Alabama Law Review, Maryland Law Review, and the Tulane Law Review, and U.C. Davis Law Review, among others.
Professor Cherry attended Dartmouth College and Harvard Law School, where she was a research assistant to Professor Martha Minow, the present dean. After graduation from law school, she clerked for Justice Roderick Ireland of the Supreme Judicial Court of Massachusetts and then for Judge Gerald Heaney of the U. S. Court of Appeals for the Eighth Circuit. In 2001, a transition to the private sector took Professor Cherry to the Boston firm of Foley Hoag LLP, where she practiced corporate law with an emphasis on mergers and acquisitions, securities compliance filings, venture capital and private debt financing. She was also associated with the firm of Berman, DeValerio & Pease, where she was involved in litigating several accounting fraud cases including those against former telecom giant WorldCom and Symbol Technologies, which resulted in a $139 million settlement.
Professor Cherry has been on the faculty or visited at a number of law schools, including the University of Georgia, University of the Pacific-McGeorge School of Law and Cumberland School of Law. In 2008, she was elected a member of the American Law Institute.
You can read some of Professor Cherry's scholarship on SSRN.
Woodrow Hartzog is an Assistant Professor at Samford University's Cumberland School of Law, which he has taught since 2011. Professor Hartzog writes in the area of privacy law, online communication, human-computer interaction, robotics, and contracts. His work has been or is scheduled to be published in scholarly publications such as the Columbia Law Review, California Law Review, and Michigan Law Review and popular publications such as The Atlantic and The Nation.
Before joining the faculty at Cumberland, Professor Hartzog worked as a trademark attorney at the United States Patent and Trademark Office in Alexandria, Virginia and as an associate attorney at Burr & Forman LLP in Birmingham, Alabama. He has also served as a clerk for the Electronic Privacy Information Center in Washington D.C. and was a Roy H. Park Fellow at the School of Journalism and Mass Communication at the University of North Carolina at Chapel Hill.
Professor Hartzog holds a Ph.D. in mass communication from the University of North Carolina at Chapel Hill, an LL.M. in intellectual property from the George Washington University Law School, a J.D. from the Cumberland School of Law at Samford University, and a B.A. from Samford University. He is an Affiliate Scholar at the Center for Internet and Society at Stanford Law School.
Recent and Forthcoming publications include:
Juliet Moringiello is a Professor at Widener University School of Law, where she regularly teaches Property, Sales, Secured Transactions, and Bankruptcy, and has taught seminars on Cities in Crisis and Electronic Commerce. From 2004 – 2010, she was the co-author, with William L. Reynolds, of the annual survey of electronic contracting law published in The Business Lawyer. She has recently published articles in the Maryland Law Review, the Wisconsin Law Review, the Fordham Law Review, and the Tulane Law Review. Prof. Moringiello has held several leadership positions in the American Bar Association Business Law Section, most recently in its Cyberspace Law Committee, and she is co-chair of the Uniform Commercial Code Committee of the Pennsylvania Bar Association Business Law Section.
Recent Publications Include:
- From Lord Coke to Internet Privacy: The Past, Present and Future of the Law of Electronic Contracting, 72 Maryland Law Review 452 (2013) (co-authored w/ William L Reynolds).
- (Mis)use of State Law in Bankruptcy: The Hanging Paragraph Story, 2012 Wisconsin Law Review 963 (2012).
- Specific Authorization to File Under Chapter 9: Lessons from Harrisburg, 32 California Bankruptcy Journal 237 (2012).
- Mortgage Modification, Equitable Subordination, and the Honest But Unfortunate Creditor, 79 Fordham L. Rev. 1599 (2011)
Recent Publications Include:
- SOFTWARE LICENSES: PRINCIPLES & PRACTICAL STRATEGIES (Oxford University Press, 2d ed., forthcoming 2013 )
- GLOBAL INTERNET LAW (HORNBOOK SERIES) (forthcoming 2013 )
- GLOBAL INTERNET LAW IN A NUTSHELL (2d ed., 2013)
- The Myth of A Value-Free Injury Law: Constitutive Injury Law as a Cultural Battleground, 107 NW. U. L. REV. (forthcoming 2013) (Book Review Esay of Marshall Shapo's An Injury Constitution, Oxford University Press 2012)
- Twenty-First Century Tort Theories: The Internalist/Externalist Debate, 88 INDIANA L.J. 419 (2013) (Fall 2012, Special Symposium Issue on Civil Recourse & Twenty-First Century Tort Theories with Posner, Calabresi, Goldberg, Zipursky, Chamallas and Robinette)
- Restorative Justice to Supplement Deterrence-Based Punishment: An Empirical Study and Theoretical Reconceptualization of the EPA's Power Plant Enforcement Initiative, 2000-2011, 65 OKLA. L. REV. 427 (2013)
Eric Zacks is an assistant professor of law at Wayne State University Law School. His recent scholarship focuses on the relevance of behavioral sciences to contract formation, breach, and enforcement. His work has been published in the University of Cincinnati Law Review, the University of Pennsylvania Journal of Business Law, and the Penn State Law Review, and his forthcoming article, Shame, Regret, and Contract Design, will be published in the Marquette Law Review.
In 2012 and 2013, Professor Zacks was voted Professor of the Year by the second- and third-year law students at Wayne. He teaches a variety of business law courses, including Corporate Finance, Mergers and Acquisitions, Securities Regulation, and Corporations, as well as a first-year Contracts course.
Prior to joining Wayne State, Professor Zacks was a partner in the corporate and securities department of Honigman Miller Schwartz and Cohn LLP, a Detroit law firm, with a practice focus on complex acquisitions and divestitures, debt and equity financings, and other aspects of corporate transactions. He received his J.D., magna cum laude, from Harvard Law School and his B.A., with high distinction, from the University of Michigan.
Recent Publications Include:
- "Shame, Regret, and Contract Design," 97 Marq. L. Rev. __ (forthcoming, 2013)
- "Contracting Blame," 15 U. Pa. J. Bus. L.. 169 (2012)
- "Unstacking the Deck? Contract Manipulation and Credit Card Accountability,"78 U. Cin. L. Rev. 1471 (2011)
- "Dismissing the Class: A Practical Approach to the Class Action Restriction on the Legal Services Corporation," 110 Penn St. L. Rev. 1 (2005) (with Joshua D. Blank) reprinted in Class Action Litigation and Limitations (Icfai University Press, 2008).
Monday, November 11, 2013
The ContractsProf Blog is delighted to welcome the following new contributors!
Professor Kenneth Ching (left) joined the faculty of the Regent University School of Law in 2011 and teaches Contracts and UCC 1. He was selected as the 2011-2012 1L Professor of the Year and the 2013 Law Faculty Scholar of the Year. Professor Ching’s scholarship focuses on legal theory. He has also published creative essays, poetry, and fiction.
Prior to teaching, Professor Ching practiced law in the areas of commercial litigation, trusts and estates litigation, and employment law. He has also litigated constitutional law issues.
His publications include:
Jeffrey L. Harrison (right) holds the Stephen C. O'Connell Chair at the University of Florida's Levin School of Law, where he has taught since 1983. He previously taught law at the University of Houston and economics at the University of North Carolina-Greensboro. He has held visiting position of the Universite du Pantheon-Sorbonne, the University of Texas, Leiden University and the University of North Carolina. Professor Harrison is the author of about a dozen books on monopsony, antitrust law, commercial regulation and deregulation and law and economics, as well as dozens of articles on everything from socioeconomic theory to French New Wave cinema.
Some of Professor Harrison's work is available on SSRN.
We welcome you both to the blog, and we look forward to seeing your posts!
Stay tuned, readers, we expect to introduce a few more new contributors in the coming weeks.
Wednesday, November 6, 2013
On Monday, the Distrct Court for the Southern of New York issued its opinion in Beastie Boys v. Monster Energy Company, 12 Civ. 6065 (PAE) (S.D.N.Y. November 4, 2013). The issue in the case was whether DJ Z-Trip had authorized Monster Energy to use a remix and video Z-Trip (Mr. Z-Trip?) had made of Beastie Boys songs. Z-Trip wrote to Monster Energy saying, "Dope!" in the context of series of exchanges with Monster Energy over use of of the remix, and Monster Energy construed that word as consent.
Friday, October 18, 2013
Reconstructing Contracts: The Contracts Scholarship of Douglas Baird
A panel of leading scholars discuss Douglas Baird's pathbreaking work on Contract Law published in his new book "Reconstructing Contracts."
- Avery Katz, Vice Dean and Milton Handler Professor of Law, Columbia Law School
- Stewart Macaulay, Malcolm Pitman Sharp Professor & Theodore W. Brazeau Professor, University of Wisconsin Madison Law School
- Ariel Porat, The Alain Poher Chair in Private Law, Faculty of Law, Tel Avivi University
Moderated by Omri Ben-Shahar, Leo and Eileen Herzel Professor of Law and Economics and Kearney Director of the Coase-Sandor Institute for Law & Economics, University of Chicago Law School
Lunch will be provided.
Friday, September 20, 2013
Professor Epstein (pictured) recently joined the faculty at the DePaul University School of Law. Her article, Contract Theory and the Failures of Public-Private Contracting, has just been published in 34 Cardozo L. Rev. 2211 (2013).
Her article is all the more timely as, in the wake of this week’s tragic Navy shooting, government contracting failures are again in the news. The U.S. Department of Defense audit just released includes a scathing report confirming that the Navy’s efforts to reduce costs through contractors ended up not only weakening security but also increasing long-term costs.
She has provided a little summary below
In the Article, she discusses why certain types of government outsourcing contracts are systematically biased to cut cost at the expense of service quality. Approaching the problem through a law and economics lens, her theory is that particularly where there is a limited competitive market for services, tasks are difficult to specify and monitor, and the service is intended to benefit disenfranchised portions of the population, the contracting parties will often impose a negative externality on service recipients in the form of poor service that the contracting parties are not forced to internalize. Essentially, then, the cost of such contracts is higher than it would appear (if one figures in the negative externality, the added cost of the poor service). The Article suggests that because these contracts really reflect market failures, that a mandatory contract rule might be justified to protect non-parties to the contract who cannot adequately protect themselves. The mandatory rule would force the transacting parties to bear the cost of the negative externality.