Monday, September 8, 2014
I am sure most readers know what the CISG is. I was surprised to learn that some are not aware of the International Commercial Arbitration Moot (ICAM) held in Vienna annually over the weekend and then into the week just prior to Easter. It is maybe the most rewarding experience I have had as a teacher. The organizers of the Moot release the problem on the first Friday of October. It is usually a spawling but somewhat realistic fact pattern, Typically there are procedural issues and substantive issues dealing, obviously, with international contract law. Over two hundred teams from around the world gather for 4 days of prelims. The top 64 then go into a single elimination tournament.
At my school, like others, we organize a course around the Moot. In the fall, the students first have 5 weeks of regular class sessions on the CISG followed by an exam. After that, the problem comes out and they have 4-6 weeks to write their briefs. Finally, there are oral arguments. From those exercises, 4 to 6 students are selected to be on the team. (all students earn 3 credits whether they make the team or not) Those students must prepare a claimant's and a respondent's brief and practice twice a week until the competition. It requires dedication.
There are a couple of drawbacks. First is it expensive to send students and a coach to Vienna. At Florida we have been fortunate to have support from the International Section of the State Bar, private donors, and the Law School. Second, the judging in Vienna can be hit and miss. In the four day premlinary period the abitrators (3 each per session) may apply different standards and are sometimes not well prepared. Thus, the goals be for the students must be to learn at much as they can, network, and enjoy, for a few days, interacting with students from all over the world. The winning teams are always superb but some left out of the tournament may also be superb.
I realize there are maybe only a handful of people out there who do not know of this opportunity but I've found it to be very worthwhile (and also hardwork)
In our first post about the Salaita case, we lamented how few posts really wrestled with the contractual (or promissory estoppel) issues in the case. Professor Kar’s post is the most detailed investigation of the contractual issues to appear to date. We also queried whether Salaita's potential constitutional claims against the University of Illinois might turn on the question of whether or not he had a contract with that institution, which is also the institution at which Professor Kar (pictured, at right) teaches. Kar notes:
Critics of the Chancellor’s decision argue that, even if there was no contract, Salaita’s rights to academic freedom vis-à-vis the University of Illinois should apply with equal force at the hiring as at the firing stage.
Professor Kar seems to disagree. He does not rule out entirely the possibility of constitutional and academic freedom claims in the absence of a contract, but he does note that "the existence of a contract should change the nature of the underlying arguments on both sides of this case."
Peofessor Kar's analysis is both passionate, in dealing with an issue that is creating genuine anguish at his institution, and dispassionate, in treating the Salaita case as a forum for the elaboration of his theory of contract law as empowerment. Based on the publicly-available facts, Professor Kar thinks Salaita's contractual claims are quite strong. As he puts it, "If the publicly known facts are all there is to know about this case, then I believe there very likely was a contract in this case, and that it may well have been breached." This is so because (in short), Salaita's offer letter incorporated by reference the American Association of University Professors' (AAUP) principles of academic freedom, and the AAUP interprets those principles to require (at least) warnings hearings before someone in Salaita's position can have his offer letter revoked. At this point, Professor Kar argues, his view of contract as empowerment becomes relevant to the analysis:
The power of the marketplace—in both academic and non-academic contexts—depends on parties’ capacities to make commitments that have certain objective elements to them. In this particular case, this means that the condition of Board of Trustee approval gave the Board some authority to refuse Salaita’s appointment—but not necessarily the authority it subjectively believes it has. If the Board’s unwillingness to approve this appointment reflects an undisclosed and idiosyncratic understanding of its authority, which diverges too sharply from the shared understandings of the national academic community, then there is likely a contract here. And it may well have been breached.
Professor Kar then proceeds to a discussion of the way out for the University of Illinois, which probably would involve a retreat. If the facts are as Professor Kar believes them to be, the Chancellor should "admit that the Salaita decision was in error and state that this matter is—properly speaking—outside of her hands."
I do not disagree with Professor Kar's analysis but I would like to push him on one point that I think is vital in this case and in his theory of empowerment generally. As a normative theory, I find Professor Kar's theory attractive, but I wonder about its applicability to situations of grossly unequal bargaining power, and I believe the Salaita case is such a situation. Professor Kar takes up this issue in earnest at the end of the second part of his work on contract as empowerment On page 73, Professor Kar acknowledges that parties "rarely enter into contracts from perfectly equal bargaining positions" and he notes that, "[i]t would therefore be significantly disempowering if parties were only bound by contracts negotiated in these circumstances."
But parties are routinely bound in circumstances when they have no real bargaining power. In such circumstances, even if Professor Kar is right that contracts law ought to be about empowerment, much of contract law (and this point has been made at great length by Peggy Radin, Nancy Kim, Oren Bar-Gill and others), is currently extremely disempowering for ordinary consumers and even for small businesses when (as in Italian Colors) they have to contract with corporate behemoths.
Professor Kar's assessment of Salaita's contractual claims turns on communal understandings of the contractual obligations that arise in such circumstances:
The University of Illinois is part of a much larger academic community, which extends well beyond the confines of Illinois. Its contractual interactions with other members of this community will thus be subjected to some tests for consistency with national understandings of how these interactions typically work. This includes national understandings about the appropriate relationship between government-appointed entities, like the Board of Trustees, and faculty decisions about hiring at academic institutions that aim to pursue knowledge impartially and in the absence of political influence.
As the conversation that has been taking place on the blogosphere thus far suggests, there may be no national consensus on the subject. Some contracts scholars will agree with Professor Kar; others, like Dave Hoffman, think that Salaita's contractual and promissory estoppel claims are weak, and they are weak precisely because Salaita lacked the bargaining power to protect himself. And if Salaita's case were to go before an adjudicatory body, it will not be decided based on whether contracts ought to be empowering but on whether the already empowered University of Illinois can escape any contractual obligation that might empower Professor Salaita.
Thursday, August 21, 2014
A lot of ink has been spilled over this subject, and I don't have much to add, except to note that I have not seen a very many good discussions of the contract issues.
The very short version of the story, as best I can cobble it together from blog posts, is that the University of Illinois offered a position in its American Indian Studies program to Steven Salaita, who had previously been teaching at Virginia Tech. According to this article in the Chicago Tribune, the U of I sent Professor Salaita an offer letter, which he signed and returned in October 2013. Professor Salaita was informed that his appointment was subject to approval by the U of I's Board of Trustees, but everyone understood that to be pro forma. In August 2014, Salaita the U of I Chancellor notified Professor Salaita that his appointment would not be presented to the Board and that he was no longer a candidate for a position. According to the Tribune, the Board next meets in September, after Professor Salaita's employment would have begun. The Chancellor apparently decided not to present Professor Salaita's contract for approval because of his extensive tweets on the Isreali-Palestinian conflict, which may or may not be anti-Semitic, depending on how one reads them.
The main argument in the blogosphere is over whether or not the U of I's conduct is a violation of academic freedom. But there is also a secondary argument over whether Professor Salaita has a breach of contract of promissory estoppel claim against the U of I. The list of impressive posts and letters on the whole Salaita incident include:
Michael Dorf on Verdict: Legal Analysis and Commentary from Justia
Finally, Dave Hoffman stepped in on Concurring Opinions to address the promissory estoppel issues and then answers Michael Dorf's response
Hoffman makes strong arguments that there was no breach of contract here, because the offer was clearly conditional on Board approval. There are arguments that the promise breached was a failure to present Salaita's employment to the Board, but the remedy for that breach would simply be presentment, at which point both the claim and the appointment would go away (unless U of I has a change of heart on the matter).
We would have to know more about the process to make a more educated guess about whether or not a breach of contract claim here could succeed. I think it is relevant that, at the point Salaita was informed that the offer was rescinded, the Board could not meet before his employment would have begun. I suspect that his courses were already scheduled and that students had, at least provisionally, registered for them. I wonder if there were any announcements on the U of I website crowing about their recent hires. All of this would be relevant, it seems to me, to the state of mind of the parties regarding whether or not a contract had been made. It would be very sad for all of us in academia if it turned out to be the case that our offer letters mean nothing until the Board has spoken, as acceptance of a position usually involves major life changes, including giving notice at current jobs, moving to a new city, selling and buying a residence, etc.
I have no doubt that Dave Hoffman is right that promissory estoppel claims rarely succeed. I do think that some versions of the facts presented here suggest that this one might be a winner nonetheless or, as Hoffman suggests, is the kind of claim that is worth bringing at least in order to make the threat of discovery on the subject a strong inducement to the U of I to settle the case. But the remedy for promissory estoppel is probably not really the remedy Salaita seeks.
Professor Salaita's claims -- his academic freedom and constitutional claims -- go beyond the issues of contract and promissory estoppel. A lot has been written on this situation, and I haven't had a chance to read everything carefully, but I have yet to see a clear discussion of whether those claims hinge on Professor Salaita's contractual claims. It seems likely to me that if he had no contract, then he had no free speech or academic freedom rights vis a vis the U of I. And I don't think a promissory estoppel claim would get him such protections either. Or do people think that universities have a generalizable erga omnes duty to protect academic freedom?
Dave Hoffman has an additional post up on Concurring Opinions here.
Wednesday, August 20, 2014
The University of California Hastings College of the Law is sponsoring a symposium to honor Professor Charles L. Knapp (left) on the completion of his 50th year of law teaching. (He began his teaching career at NYU School of Law in fall 1964.)
The day-long program will take place on October 24, 2014 and will include four panels that will focus on areas that are of particular interest to Professor Knapp, but will also address topics with broad appeal to contract law scholars.
8:45 – 9:00 Introduction & Welcome
9:00-10:30 Panel I -- The State of Contract Law
Professor Jay Feinman, Rutgers University - Camden
Professor William Woodward, Santa Clara University
Professor Danielle Kie Hart, Southwestern Law School
Moderator – Professor Harry G. Prince, UC Hastings College of Law
10:45-12:15 Panel II -- The Role of Casebooks in the Future of Contract Law
Professor Deborah Post, Touro Law Center
Professor Carol Chomsky, University of Minnesota
Professor Thomas Joo, UC Davis
Moderator – Professor Nathan M. Crystal, University of South Carolina
12:15-1:15 Lunch: Marvin Anderson Lecture – Professor Keith Rowley, UNLV
1:30-3:00 Panel III -- The Politics of Contract Law
Professor Peter Linzer, University of Houston
Professor Judith Maute, University of Oklahoma
Professor Emily M. S. Houh, University of Cincinnati
Moderator – Professor Jeffrey Lefstin, UC Hastings College of Law
3: 15-4:45 Panel IV -- The Future of Unconscionability as a Limit on Contract Enforcement
Professor David Horton, UC Davis
Professor Hazel Glenn Beh, University of Hawaii
Moderator – Professor William S. Dodge, UC Hastings College of Law
4:45-5:00 Concluding Remarks
5:30 Reception and Dinner – UC Hastings Skyroom - [Limited space and requires separate registration with fee.]
*Papers will be published in a symposium issue of the Hastings Law Journal.
UC Hastings - Mary Kay Kane Hall (View Map)
200 McAllister St
San Francisco, CA 94102
Room: Alumni Center
Name: Roslyn Foy
The Marvin Anderson Lecture will be presented during the luncheon by Professor Keith Rowley of UNLV (right). Registration for the program is free except that the reception and dinner require a separate registration and payment of a fee.
And speaking of Keith Rowley, he has announced that UNLV's William S. Boyd School of Law will host the 2015 International Conference on Contracts (a.k.a. "KCON10") February 27 & 28, 2015.
The conference was held there in 2010, so we hope to return and win back all the money we lost at the craps tables five years ago.
Monday, August 11, 2014
Here are the basics:
The practicum is designed to give students a taste for real world contract drafting on behalf of clients. Students are randomly assigned to one of two roles --either representing an employer or a recently hired employee. They negotiate and memorialize the terms of employment their respective clients have already agreed upon. Students will be assigned counterparts within their classes and will negotiate the terms of the contracts through an online portal.
The practicum is set up so that all of the logistical work is done by the software and Professor Eigen. For instance, the software will pair students and email them information about their counterparts. Instructions, participants’ confidential role information, and general instructions will be available through the portal. After student pairs upload their contracts, the software will analyze their work product. Students and professors will receive analytical results in case you wish to spend class time discussing their performance. That is, there is very little work for you if you wish to run it, and you can use almost no class time on it if you wish. Professor Eigen provides a “Professor’s Guide” offering more information including some suggested class discussion points.
There is also an interesting technology-related component of the practicum. If you contact Professor Eigen directly, he will provide more detailed information about it to you.
Instructors who would like to know more about this practicum, and are considering using it in their classrooms this fall should contact Professor Eigen directly: firstname.lastname@example.org
Wednesday, August 6, 2014
Robin Kar (pictured) has just posted an ambitious piece, Contract as Empowerment: A New Theory of Contract on SSRN. The submission is still under review right now, so you can be among the first to download it! Here is the abstract:
Modern contract theory is in a quandary. As Alan Schwartz and Robert E. Scott have observed: “Contract law has neither a complete descriptive theory, explaining what the law is, nor a complete normative theory, explaining what the law should be.” This article aims to cure these deficiencies with a novel theory, “Contract as Empowerment”.
Contract as Empowerment is a deontological (duty-based) theory, rooted in a special strand of social contract theory known as “contractualism”. The theory nevertheless differs from more familiar deontological theories, which are typically rooted in moral intuitions about promising, autonomy or reliance. Because of its foundation in social contract theory, contract as empowerment can absorb a number of important economic and psychological insights, which have traditionally given efficiency theories explanatory advantages over traditional deontological theories. But contract as empowerment can absorb these insights without subjecting them to thoroughgoing economic interpretation. It can thereby produce a more robust, unified and normatively satisfying account of many core areas of doctrine. Among other things, contract as empowerment offers a more compelling account of the consideration doctrine than exists in the current literature; a better account of the expectation damages remedy (both descriptively and morally); and a special way of understanding the appropriate role of certain doctrines like unconscionability, which regulate private market activity by making the scope or content of contractual obligations depend on facts other than contracting parties’ subjective wills.
This last fact provides a major point of contrast with most existing theories of contract. One of the most striking features of the way that standard debates between deontological and consequentialist theories have been framed in this area of the law is that general theories on both sides typically share a key implication. They imply that legal doctrines that invite courts to police bargains for fairness reflect alien intrusions into the basic subject matter of contract. Contract as empowerment suggests that this framing has been distorting our understanding of contracts (and hence modern markets) for some time now. It offers an alternative framework, which understands both private market empowerment and some market regulations as direct expressions of the same fundamental principles. Because this framework is principled, it can help depoliticize a range of currently heated debates about the appropriate scope and role of market regulation. This framework can be applied to many different forms of market exchange—from those in consumer goods to labor, finance, credit, mortgages and many others.
This article is the first in a two part series. Contract as Empowerment introduces and develops the theory of contract as empowerment. Contract as Empowerment II applies the theory to a range of doctrinal problems and argues that contract as empowerment offers the best general interpretation of contract law.
Professor Kar promises that a follow-up article is coming soon. Stay tuned.
Monday, July 14, 2014
In Random Ventures, Inc. v. Advanced Armament Corp., the District Court for the Southern District of New York found that a party that wrote the word "flounder" on a signature line was not bound by the document on which he scribbled that word.
For the full context, you would have to read the 117-page District Court opinion. Our highly-consdensed summary is as follows:
Kevin Brittingham formed a company, Advanced Armament Corp. (AAC) that designed and manufactured silencers for firearms. AAC thrived and in 2009, a large firearms manufacturer, Remington Arms Company (Remington) acquired it. Remington paid $10 million up front, and Brittingham was to get another $8 million if he was still around as an AAC employee (now Remington's subsidiary) in 2015. He was terminated at the end of 2011 and his partner from the original business, Lynsey Thompson, was terminated one month later. Both Brittingham and Thompson sued for breach of contract and breach of the covenant of good faith.
The Court noted that Brittingham socialized with his clients by riding dirt bikes, engaging in aerial pig hunts and attending strip clubs. He ran a successful business but, as the Court observed, he is nobody's idea of a perfect fit for a corporate culture. Tensions arose in the relationship over AAC's compliance with federal regulations relating to the handling of firearms. The Court concluded unequivocally that Remington (not Brittingham) bore responsibility for the compliance failures. Nontheless, Remington suspended Brittingham and Thompson over compliance issues.
Remington offered Brittingham a new employment agreement. The agreement was really an ultimatum: either sign this acknowledgment that we have grounds to terminate you for cause and then you can return to work on a probationary basis or consider yourself terminated for cause right now. Of course, termination for cause would cost Brittingham $8 million. The court characterized this document as an $8 million hold-up (with or without a silencer?), which Brittingham "consistently refused to execute." Eventually Brittingham (or someone) scribbled "Flounder" on the signature line and faxed the agreement to Remington. The Court seems to have found that the scribble did not bind Brittingham, since a sophisticated party like "Remington could not reasonably have been duped into believing Brittingham had adequately executed the proposed amended EA based on the scribbling on the last page." But it is not clear that such a finding is necessary to the Court conclusion, since Remington never executed the new agreement.
It seems that the Court's finding that the agreement was not enforceable did not actually turn on the issue of signature. The Court refused to enforce an agreement that Brittingham could be terminated for cause when, in fact, no grounds for termination for cause existed.
To the extent that Brittingham and Thompson did agree to amended employment terms, however, the Court finds as a factual matter that they did so under false pretenses – as determined above, defendants did not have Cause to terminate either plaintiff at the time of their suspensions.
The Court rejected Remington's argument that by writing "Flounder" and by returning to work, Brittingham had waived any objection to the amended employment agreement. The Court construed Brittingham's act as one of defiance rather than as one of waiver.
Interesting aside related to Nancy Kim's post from February about Rocket from the Crypt and acceptance by tattoo. Before it was acquired, Brittingham's company ran a promotion promsing a free silencer to anyone bearing a tattoo with his company's logo. The promo cost the company $250,000.
Monday, July 7, 2014
Christopher Keating was a tenure-track professor of physics at the University of South Dakota. He did not get along with the only other full-time physics professor at the university. Keating filed a grievance against her with their department head. She responded with an accusation of sexual harrassment against Keating. After two heated exchanges with Keating, the department head rejected Keating's claims. Some time later, having been reprimanded for not seeking approval from either his colleague or the department chair for something that required such approval, Keating explained in an e-mail that he would not seek approval from his colleague because "she is a lieing [sic], back-stabbing sneak."
After that academic year ended, Keating was informed that his employment contract would not be renewed, because his e-mail violated Appendix G to the university's employment policy, which reads:
Faculty members are responsible for discharging their instructional, scholarly and service duties civilly, constructively and in an informed manner. They must treat their colleagues, staff, students and visitors with respect, and they must comport themselves at all times, even when expressing disagreement or when engaging in pedagogical exercises, in ways that will preserve and strengthen the willingness to cooperate and to give or to accept instruction, guidance or assistance.
Keating challenged his termination, alleging that the "civility clause" was unconstitutionally vague in violation of the U.S. Constitution's Due Process Clause. The District Court granted Keating the declaratory relief he sought. In Keating v. University of South Dakota, the Eighth Circuit reversed.
In the public employment context, the Eighth Circuit noted, the standard for vagueness is not as stringent as in the criminal context. "Standards are not void for vagueness as long as ordinary persons using ordinary common sense would be notified that certain conduct will put them at risk of discharge.” The Eighth Circuit found that the civility clause was neither facially void for vagueness nor impermissibly vague as applied to Keating. The Court read the offending e-mail in the broader context of Keating's refusal to work with his colleagues or to even communicate with his immediate superiors. So seen, the Court had little difficulty finding that Keating had failed to comport himself in ways that "preserve and strengthen willingness to cooperate."
Professor Arthur Leonard, of New York Law School (pictured), posted a link to this case and queried whether the civility clause could pass contractual (as opposed to constitutional) tests for vagueness. One wonders what sort of evidence either party would have to put forward to persuade the court as to the meaning of "civil" in this context. Those of us in the academy can likely come up with plenty of examples of interactions with colleagues in which one or more university employees can be said to have acted in ways that were not civil. Still, it is rare to see someone put in writing his principled opposition to cooperation and communication with his one disciplinary colleague and his department chair. Could Keating show contractual vagueness by pointing to rampant and unpunished incivility on the part of other university employees, or does the university have discretion to terminate any given professor who, in its determination, crossed the line of incivility?
In short, if universities are free to point to a civility clause whenever they want to terminate a professor, tenure means nothing. Keating was not yet tenured, but as to the constitutional and contractual issues, I don't think tenure would change the outcome of the case. On the other hand, a civility clause might be a useful tool that university administrators can use in extreme cases when a faculty member -- even a tenured faculty member -- is so unprofessional as to degrade the working environment for his or her colleagues. In this case, the fact that Keating called his colleague a lying, back-stabbing sneak" may be less significant than his statement that he would not trust his department chair or communicate with the university's only other full-time physics professor.
Thursday, June 26, 2014
Thanks to Miriam Cherry (left) for sharing this one:
I love this fact pattern: as reported in the National Law Journal, a student who received a D in contracts is suing the law school he attended, as well as his contracts professor, claiming that the professor deviated from the syllabus by counting quizzes towards the final grade. He claims $100,000 in harm because the D in contracts resulted in his suspension from the law school. He could not transfer to a different law school because he was ineligible for a certificate of good standing.
The case is a cautionary tale. It appears that the syllabus indicated that the quizzes would be optional. The professor then announced in class that the quizzes would actually count. The plaintiff claims to have been uanaware of the change or at least adversely affected by it. I say it is a cautionary tale because I sometimes make changes to my syllabus, usually in response to student feedback. I make sure to e-mail all students to make certain that everyone is aware of the changes and I obsessively remind students of the changes because I worry about precisely what happened here. It may well be that the defendant contracts prof did the same, although the National Law Journal article states that the change was evidenced by the handwritten notes of another student.
There is an interesting exchange on the merits of the case in the comments to the ABA Journal article on this subject. Apparently, there is some case law stating that a syllabus is a contract. For the most part, I think such a rule would benefit instructors. No student could complain about my attendance or no-technology policies because I could tell them (doing my best Comcast imitation) that by continuing to attend my course, they had agreed to my terms. But many of the commentators think that written contracts can never be orally modified. I don't think a syllabus is a contract because I don't think there are parties to a syllabus and I don't think there is intent to enter into legal relations. Things might be different if the syllabus identified itself as a contract and informed students of the manner of acceptance of its terms.
Friend of the blog, Peter Linzer (right), chimes in (comment #13) and succinctly dismisses this notion that a contract not within the Statute of Frauds cannot be orally modified. In any case, he thinks the claim is best understood as sounding in promissory estoppel, and plaintiff's claim fails because, in short, he cannot claim to have reasonably relied on a promise just because he missed class or did not pay attention when that promise was retracted.
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 email@example.com 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