ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, October 13, 2017

Twitter's Discretion in Its Terms of Service and the Way We Define Words

If you're a person who spends time on Twitter, you might be aware that it's been a manic week on the platform (although every week is a manic week on Twitter; it's 2017). As the news broke about Harvey Weinstein's pattern of multiple sexual assaults, Rose McGowan added to the many allegations and tweeted an accusation of rape against him. Later, McGowan's Twitter account was suspended. The reaction to this suspension was swift and furious by many of the platform's users. Twitter later clarified that it suspended her account because she had posted a personal phone number (in violation of Twitter's policies) but for a while the exact reason was unclear, and many users complained that it was more of Twitter's selective enforcement of its policies.

I'm about to settle in to teach contract ambiguity and rules of interpretation, and looking through Twitter's policies I'm reminded of how important it is that we keep our human biases in mind when defining words. Twitter's policies--which we all agree to through Twitter's Terms of Use--give the company a lot of discretion in how the policies get applied: "We may suspend an account if it has been reported to us as violating our Rules surrounding abuse" (emphasis added); "Some of the factors that we may consider when evaluating abusive behavior include . . . ." (emphasis added); "Keep in mind that although you may consider certain information to be private, not all postings of such information may be a violation of this policy. . . . We may consider the context and nature of the information posted, local privacy laws, and other case-specific facts when determining if this policy has been violated" (emphasis added). Aside from the discretion, though, is the issue of how words like "harassment" and "abusive behavior" are even getting defined. It's clear from the very public debates that have been erupting recently that there is a different view of that depending on which gender, race, and ethnic identity you ask. To take just one example, the discussion around telling women to smile indicates that many women find this harassing while many men don't see what the big deal is. Twitter might be deliberately selectively applying its policies but it also might just be defining its policies in a way that leads to selective enforcement because of the particular worldview of the people making the decisions. This means, dangerously, that they might sincerely believe they're applying rules neutrally, without recognizing any built-in bias. 

Social media's increasing reliance on algorithms to handle the speech going on on the sites has lots of problems, and as more and more public discourse collides up against more and more opaque policies, it seems like a problem that's only going to get worse. We should think about these issues, and we should especially think about them as we teach our students how to interpret the contracts that govern our lives: we all have an entrenched viewpoint that should be critically examined rather than blithely assume our own neutrality. 

In the meantime, I'm going to post this blog and then tweet to tell you all about it, because that's the way we communicate in today's society, and I'm going to have to agree to Twitter's policies to do it, and I'm going to hope these policies let me make the tweet, something that many of us take for granted but that is definitely not guaranteed. Our contracts are never as clear as we hope. 

October 13, 2017 in Commentary, Current Affairs, In the News, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, October 4, 2017

Fraud and Bad Faith No Excuse for Liability in Related Contract

The Eight Circuit Court of Appeals has held that conduct tending to show fraud and bad faith in relation to one contract is not an excuse for not performing in a closely related contract.

Dr. Halterman signed a recruitment agreement, an employment contract, and a promissory note in the amount of $50,000 as a “signing advance” – a loan - for his upcoming work as a doctor with the Johnson Regional Medical Center (“JRMC”). The recruitment agreement stipulated that the monthly payments on the signing advance would be forgiven so long as Dr. Halterman’s employment at JRMC “continued.” It did not. Five months into his employment, Dr. Halterman quit, citing to, i.a., JRMC’s fraudulent misrepresentations in negotiating his call-coverage obligations and bad faith in that respect. Dr. Halterman had also suffered a shoulder injury that both parties at one point agreed would result in him not being able to do all the work for JRMC that the parties had originally agreed upon.

JRMC claimed repayment of $37,894 still owed by Dr. Halterman when he resigned without, in the hospital’s opinion, a “legal defense.” Dr. Halterman sought to excuse himself from having to repay the remainder of the loan.

The appellate court agreed with JRMC that Dr. Halterman’s obligations to pay the remaining debt were not excused by his allegations (or eventual proof) of fraud or breach of the duty of good faith in the employment contract. An executory contract procured by fraud is not binding on the party against whom the fraud has been perpetrated. Here, Dr. Halterman sought not to perform under the employment contract, but the court found that the loan agreement was an entirely separate contract that thus still had to be performed.

This situation could have been avoided with more legally apt language, of course. Such language could have included express conditions stating that the loan was not to be repaid under a set of circumstances covering, for example, fraud. However, I find it troublesome that the legal effects of three contracts that clearly were meant to relate to and arguably depend on each other were separated decisively as the court did here. In fact, the parties disagreed on whether the three executed documents should be considered separately or as one single contract. The court analyzed the employment contract as separate from the recruitment agreement and note, which were treated as one. That may or may not make sense. Granted, it may make sense that sophisticated parties such as these could simply, if they had intended one single legally binding contract to arise, have worded their documents accordingly. On the other hand, it does not make much common sense to find that a “recruitment” contract is entirely different from an “employment” contract; the two are clearly connected. If fraud has arisen, is not the result of the above that the party acting fraudulently – the hospital, allegedly – can if not outright recover from a fraud, then at least avoid losses from it? Although I do agree with the outcome here, it seems like it to me that some troublesome aspects of this finding remain, namely that an employer apparently got away with broken employment promises fairly scot-free. That’s not fair.

The case is Johnson Regional Medical Center v. Dr. Robert Halterman, 867 F.3d 1013 (Eighth Cir. Ct. of App. 2017).

October 4, 2017 in Current Affairs, Labor Contracts, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, October 2, 2017

Reminder that silence generally doesn't constitute acceptance

The allegations of this recent case out of the Northern District of California, Consumer Opinion LLC v. Frankfort News Corp., Case No. 16-cv-05100-BLF (behind paywall), are fascinating. Basically, Consumer Opinion owned a consumer review website and alleged that Defendants provided "reputation management" services by which Defendants copied the contents of Consumer Opinion's website, back-dated these contents so that it would look like Defendants' site pre-dated the Consumer Opinion website posting, and then asserted that the Consumer Opinion website was infringing their copyright. Such, at least, were the allegations in the complaint. (You can read the complaint here. You can also read the order on Consumer Opinion's TRO motion here and the order on Consumer Opinion's motion for early discovery here.)

The parties had discussed settlement, and in the current motion Consumer Opinion moved to enforce a settlement agreement between it and Defendant Profit Marketing, Inc. The problem? They never reached any such agreement. First Consumer Opinion tried to argue that Profit Marketing agreed to settle for $50,000 but Profit Marketing's lawyer's last communication on the matter read, "Well I can't agree without my clients consent but that sounds fine to me. I'll get their approval when I talk to them today." As I've been teaching my students as we walk through offer and acceptance, this statement betrayed a lack of authority to enter into a present commitment ("I can't agree without my client's consent."). 

Consumer Opinion then tried to argue that Profit Marketing agreed to settle for $35,000. However, its proof of this was a general e-mail whereby one of Profit Marketing's other attorneys expressed openness to pursuing settlement, followed by several replies by Consumer Opinion that were never responded to. Eventually, in the face of the continuing silence from Profit Marketing's attorney, Consumer Opinion asserted that if it got no response by 5 pm, it would move to enforce the settlement agreement. It got no response, and this motion followed. 

The court refused to read Profit Marketing's attorney's silence as acceptance of Consumer Opinion's settlement offer. Rather, Profit Marketing's lack of response indicated that it never accepted the offer, and so there was no binding settlement agreement between the parties. 

October 2, 2017 in Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, September 27, 2017

Super Bowl commercial pitch copyright claim survives, but not the contract ones

A recent case out of the Southern District of New York, Betty, Inc. v. Pepsico, Inc., No. 16-CV-4215 (KMK) (behind paywall), tackles a fairly common issue: Often people make pitches based on ideas they have. Ideas aren't copyrightable, so often the only protection people have is contract-based. But, also often, they don't actually have a written contract, so they have to rely on an implied-in-fact contract theory. However, as this case reiterates, an implied-in-fact contract is more than just a conclusory allegation that "oh, we had an agreement that they'd pay me something for my pitch." 

The case in question involves an advertising agency, Betty, who pitched a commercial to Pepsi for use in the Super Bowl. Pepsi invited Betty to participate in a telephone pitch meeting, during which Pepsi provided the "general outline of what it envisioned for the Super Bowl commercial," followed by a more formal face-to-face presentation. At the presentation, Betty presented eight different ideas and provided Pepsi with a USB drive with some concepts contained on it. Pepsi allegedly reacted favorably and asked for more details about some of the concepts. 

About a month later, Pepsi informed Betty that it had decided to go in another direction with the commercial. However, when Betty saw the commercial during the Super Bowl, it thought it was substantially similar to one of the concepts it had pitched to Pepsi. The decision itself is behind a paywall but the lawsuit's filing was reported in some outlets.

This lawsuit followed, alleging copyright claims as well as a variety of contract-based claims. The breach of contract claim faltered, though. In the complaint, it consisted of just three paragraphs of conclusory allegations that didn't appear to rise to the level of an agreement. In the most generous reading, it sounded like an "agreement to agree" that can't be enforced. The complaint contained absolutely no terms of the contract. The fact that the contract was an implied-in-fact contract didn't excuse the plaintiff from having to allege facts sufficient to allow the court to draw an inference that the parties had entered into a contract based on their conduct and the surrounding facts and circumstances. That didn't happen here. Therefore, the court dismissed the breach of contract claims.  

The copyright infringement claim, though, survived, and the court granted leave to amend on the breach of contract claim, so the plaintiff does live to fight another day. 

(This post has been edited to correct a typo in the previous version. Pepsi provided the "general outline" over the phone, not Betty.)

September 27, 2017 in Current Affairs, In the News, Recent Cases, Sports, Television, True Contracts | Permalink | Comments (2)

Monday, September 18, 2017

Negotiations falling apart =/= a breach of contract

If you, like me, just taught about letters of intent and also promissory estoppel, then here's a case with both for you, out of the District of Minnesota, City Center Realty Partners v. Macy's Retail Holdings, Civil No. 17-CV-528 (SRN/TNL). (The decision is behind a paywall, but you can read about the background of the lawsuit here.) 

The parties were negotiating a sale of Macy's property in Minneapolis and had executed a Letter of Intent before (predictably, since we're in court) the deal fell apart. City Center brought claims against Macy's, including breach of contract based on the letter of intent. However, Macy's argued that the letter of intent was not binding, and the court agreed. The clauses in the letter of intent referred to a future purchase agreement that was never executed, and so, absent this purchase agreement, the letter of intent only bound the parties in very limited ways. 

City Center also brought a claim that Macy's breached the covenant of good faith and fair dealing in delaying the finalizing of the transaction. However, the actions that City Center complained about were not things that Macy's was obligated to do. Macy's fulfilled its obligations under the letter of intent and City Center's other allegations of delay and obstruction on Macy's part were not actionable. 

Finally, City Center brought promissory estoppel allegations based on oral statements Macy's made in the context of the parties' negotiations. But the court pointed out that the letter of intent represented the parties' agreements about their negotiations. City Center could not use promissory estoppel to alter the terms of the written contract. And, to the extent that City Center alleged other terms had been agreed upon not written in the letter of intent, the court refused to use promissory estoppel to save the statute of frauds problem (since this was a contract for the sale of land). Under the circumstances here, City Center knew that it and Macy's were engaged in ongoing negotiations that might not pan out. If City Center wanted assurance that Macy's would keep certain promises, it should have had those put in the letter of intent in a binding way. This was not a situation where Macy's had committed some kind of fraud where justice would require the enforcement of Macy's oral statements; it was just a situation where negotiations fell apart in a way that City Center didn't like. That didn't justify the application of promissory estoppel. 

September 18, 2017 in Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, September 15, 2017

California Outlaws Forced Arbitration Clauses by Banks

On Sept. 12, 2017, Senate Bill 33 was approved by the California Senate and now awaits Governor Brown’s approval before becoming law.

The legislation was designed after the Wells Fargo scandal to block legal the legal tactic of keeping disputes over unauthorized bank accounts out of public court proceedings an favor of private arbitration.

Said the law’s author, Sen. Dodd (D-Napa): “The idea that consumers can be blocked from our public courts when their bank commits fraud and identity theft against them is simply un-American.” It is also clearly unethical and, once again, emphasized how difficult it can be in modern times to strike a fair contractual bargain with a party that has much greater bargaining power than individuals and that uses lengthy and often complex boilerplate contracts with terms few read and understand.

September 15, 2017 in Commentary, Current Affairs, Famous Cases, In the News, Legislation, Recent Cases, True Contracts | Permalink

Tuesday, September 12, 2017

Uber Arbitration Clause Win

The U.S. Court of Appeals for the Second Circuit recently reversed a district court’s decision to deny Uber’s move to compel arbitration in a contract with one of its passengers, Spencer Meyers.

The district court had found that Meyer did not have reasonably conspicuous notice of Uber’s terms of service (which contained the arbitration clause) when he registered a user, that Meyer did not unambiguously assent to the terms of service, and that Meyer was not bound by the mandatory arbitration provision contained in the terms of service.

The Second Circuit summed up the usual difference between clickwrap agreements, which require a user to affirmatively click on a button saying “I agree” and which are typically upheld by courts, and browsewrap agreements, which simply post terms via a hyperlink at the bottom of the screen and which are generally found unenforceable because no affirmative action is required to agree to the terms.

In the case, Meyer had been required to click on a radio button stating “Register,” not “I agree.” But in contrast to browsewrap agremeents, Uber also informed Meyer and other users that by creating an account, they were bound to its terms. Uber did so via a hyperlink to the terms on the payment screen.

Meyer nonetheless claimed that he had not noticed or read the terms. The Court thus analyzed whether he was at least on inquiry notice of the arbitration clause because of the hyperlink to the terms. This was the case, found the court, because the payment screen was uncluttered with only fields for the user to enter his or her payment details, buttons to register for a user account, and the warning and related hyperlink. Further, the entire screen was visible at once and the text was in dark blue print on a bright white background. Thus, the fact that the font size was small was not so important.

Mayer was bound to the arbitration clause because he had assented to that term after getting “reasonably objective notice.”

The case is Meyer v. Uber Technologies, Inc., No. 16-2750 (2d Cir. 2017).

 

September 12, 2017 in Current Affairs, E-commerce, Famous Cases, Recent Cases, True Contracts, Web/Tech | Permalink

Tuesday, September 5, 2017

Crumbling foundations are happening all over Connecticut, and the insurance policy fights are underway

I'd been seeing a lot of insurance cases come across my alert dealing with crumbling house foundations in the District of Connecticut. This one, Roberts v. Liberty Mutual Fire Insurance Co., No. 3:13-cv-00435 (SRU) (behind paywall), tells us why. Apparently it's part of an epidemic across Connecticut that so far has affected at least four hundred homes and may ultimately affect as many as 34,000 (!). The mix used in the concrete to pour these foundations contained a naturally existing mineral called pyrrhotite that degrades rapidly, causing the issues the homeowners are seeing. You can read more about this horrible situation here

The Robertses are one of the homeowners caught up in the deteriorating foundation issue. They brought a claim under their homeowners' insurance policy, which was denied because the policy excluded coverage based on faulty construction, which Liberty Mutual explained was the problem at issue with the foundation. However, the policy did cover loss due to defective construction if it resulted in "collapse." The issue in this case revolved around the definition of the word "collapse." The Robertses claimed the cracks in the foundations will eventually cause the walls to give way and collapse and so they should be covered. 

The insurance policy did not define the term "collapse," and previous Connecticut precedent had found the term in homeowners insurance contracts to be ambiguous. Because insurance contracts are construed against the insurance company, these courts had concluded that "collapse" could be something beyond just "a catastrophic breakdown" to include the "substantial impairment of the structural integrity of a building." But what does "substantial impairment" mean? Does it mean the building has to be in "imminent danger" of falling to the ground? Precedent suggested no. Connecticut courts had allowed recovery under "collapse" where the house never caved in and indeed the homeowners continued to live in it. So this court concluded that "substantial impairment" means that the building would cave in without repair to the damage. The judge found that there were factual disputes in this case involving whether the Robertses' home was in this state and thus summary judgment was inappropriate. 

This series of cases is painful to read and made me walk around my house worrying about what's not covered by my howeowners insurance that could destroy it...

September 5, 2017 in Commentary, Current Affairs, True Contracts | Permalink | Comments (0)

Thursday, August 24, 2017

Is Amazon Selling Products or Services?

As first reported on Above the Law, the Federal Circuit Court of Appeals has just ruled that Amazon is nothing but a simple purveyor of “online services” and does not make “sales” of goods. Although the issue in the case was one of intellectual property infringement and thus not the UCC, the differentiation between “goods” and “services” is also highly relevant to the choice of law analyses that our students will have to do on the bar and practitioners in real life. Unknown

How did the Court come to its somewhat bizarre decision? Amazon, as you know, sells millions, if not billions, of dollars worth of tangible, physical products ranging from toilet paper to jewelry, books to toys, and much, much more. They clearly enter into online sales contracts with buyers and exchange the products for money. “Amazon” is the name branded in a major way in these transactions whereas the names of the actual sellers – where these differ from Amazon itself – are listed in much smaller font sizes. Often, it is Amazon itself that packages and ships the products to the buyers, whereas at other times, third party buyers are responsible for the shipping. Amazon “consummates” the sale when the buyer clicks the link that says “buy” on the Amazon website. Amazon then processes the payments and receives quite significant amounts of money for this automated process.

Clearly a “sale,” right? Nope. I guess “a sale is not a sale when a court says so.” As regards the IP dispute, the crucial issue was whether or not Amazon could control the acts of the third-party vendors. You would think that even that would clearly be the case given the enormous control Amazon has over what is marketed on its website and how this is done. Amazon, however, argued that it sells so many items that it cannot possibly police all of them. Thus, it won on its argument that it was not liable under IP law for a knock-off item that had been sold on the Amazon website as the real product (cute animal-shaped pillowcases). Unknown

Had this been an issue of contracts law and had the court still found that the transaction was not a sale of goods under UCC Art. 2, would it have erred? Arguably so. Under the “predominant factor test” used in many, if not most, jurisdictions, courts look at a variety of factors such as the language of the contract, the final product (or service) bought and sold, cost allocation, and the general circumstances of the case. When you buy an item on Amazon, it is true that you obtain the service of being able to shop from your computer and not a physical location, but at the end of the day, it is still the product that you want and buy, not the service. Apart from the relatively small service fee (which gets deducted from the price paid to the seller), the largest percentage of the sales price is for the product. Modernly, online buyers have become so used to that “service” being provided that it is arguably not even that much of a service anymore; it is just a method enabling buyers to buy… the product. Clearly, it seems to me, a “sale” under Art. 2.

Again, this was not a UCC issue, but it does still show that courts apparently still produce rather odd holdings in relation to e-commerce, even in 2017.

The case is Milo & Gabby LLC v. Amazon.com, Inc., (Fed. Cir. 2017)

August 24, 2017 in Commentary, Current Affairs, E-commerce, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, August 21, 2017

"We Built This City" (that was just to give you the earworm)

This case, out of the Northern District of California, Chaquico v. Freiberg, Case No. 17-cv-02423-MEJ, concerns a fairly common entertainment law issue that results when bands lose and gain members: who gets to still use the band name? Jefferson Starship has a fairly rocky naming history, having originally been called Jefferson Airplane and later morphing into Starship after a prior fight over the name. Because band name ownership can be a tricky thing to decide under intellectual property law, and because it might result in rulings that the band members (current and former) might not like, bands frequently try to handle these disputes by contract. Like with any contract, the efficacy of this approach differs based on the wording of the particular contract, which is what happens with the contract claims in this case: based on wording and timing and the interplay of other contracts, the court dismisses all of them but those that happened after January 2016.  

(If you're interested in this sort of thing, Rebecca Tushnet writes up another of these cases, this one involving the band Boston.)

August 21, 2017 in Celebrity Contracts, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Sunday, August 20, 2017

Los Angeles Allegedly Violates Free Speech Rights with Entertainment Contracts

Pershing Square in downtown Los Angeles is an outdoor area that is regularly the home of free summer concerts and demonstrations of various kinds throughout the year. You would think you could snap as many photos as you wanted of events there since it is an outdoor, public area, right? Cropped_26394084682_722974dd19_k.0

This past summer, the answer was no. A photojournalist wanted to take pictures of, among others, the B-52s. However, he was informed of a policy that had been set up with the performers per contractual agreement. The policy barred professional photography equipment, albeit not cell phone usage, from the square during concerts.

ACLU has complained to the Los Angeles City Attorney and the General Manager of the Department of Recreation and Parks, claiming that the city does not have a right to contract away the general public’s First Amendment rights because some performers want it that way.

How do you see contractual rights intersecting with the First Amendment in the government contracting context? Comment below!

August 20, 2017 in Current Affairs, Government Contracting, In the News, Miscellaneous, Music, True Contracts | Permalink | Comments (0)

Friday, August 18, 2017

Brian O'Conan Hypo

Having disappeared for a couple of weeks into frantic preparation for the new semester, I thought I would re-emerge by sharing a hypo that I do with my students on the first day of class, based on Conan O'Brien's contract dispute with NBC from a few years ago. The hypo goes something like this: 

Brian O’Conan is a comedic host who has helmed a show on CBN, Later at Night, for sixteen years. Later at Night airs at 12:30, and Brian has always wanted to “move up” in the world of late night hosts to host a show at the earlier time of 11:30. Five years ago, in order to keep Brian at the network, CBN promised to give Brian hosting duties for its legendary 11:30 show, Somewhat Late at Night, as soon as Len Jayo’s current contract was up. Somewhat Late at Night is a flagship show that has aired in its time slot on CBN for 43 years; prior to that, it started at 11:15 for 14 years. For its entire 57-year existence, Somewhat Late at Night has begun directly after the late local news.

Brian and CBN enter into a contract with the following terms:

  • Brian is guaranteed that he will be the host of Somewhat Late at Night.
  • Both Brian and CBN promise to act in good faith in executing the contract.
  • Both parties will mitigate any damages caused by a breach of contract, but CBN agrees that it will pay Brian $40 million if it breaches the contract.
  • Brian is prohibited from being a late-night host on any other network in the event of a breach of the contract.

As promised by the contract, Brian becomes host of Somewhat Late at Night. After a strong start, Brian’s ratings trail off. Six months into Brian’s stint as host, CBN makes a public announcement that Somewhat Late at Night will be moved to start at midnight. It will use the 11:30 time slot for a new late-night show with old Somewhat Late at Night host Len Jayo.

Brian, learning all of this for the first time from the public announcement, tells CBN it has breached the contract, demands payment of $40 million, and also opens discussions with a competing network, Wolf, to host a new late night show at 11:30.

***

I like this hypo because, even though it was several years ago now, most students recognize the real-life situation this problem was based on and so feel somewhat engaged with it. In addition, even though I have taught them literally nothing about contract law at this point, I think they gain a lot of confidence from being able to examine the problem and come up with ideas for how the analysis should begin. I usually split them up and assign them a side to represent and have them make arguments on their client's behalf, and then allow them time for rebuttal. Along with discussing the contract's terms around the show itself, the students get into discussions about good faith, mitigation of damages, and just basic fairness. When we're done with the discussion, I then ask them how they felt about the side they had been assigned to, and if any of them had wished they'd had the other side. I think it is a good basic introduction to the task of being lawyers that I find relaxes them a little on the first day: If they can already talk about this problem on the first day, imagine how much better they'll be once they know some law!

If you're starting school years like I am, good luck!

August 18, 2017 in Celebrity Contracts, Commentary, Current Affairs, In the News, Law Schools, Teaching, Television, True Contracts | Permalink | Comments (2)

Tuesday, August 1, 2017

Fact-Checking the Snopes Lawsuit

You, like me, might often resort to Snopes to weed through what's true and what's not in the avalanche of information we're exposed to every day. (My most recent Snopes search: can a gift shop upcharge federal postage stamps? The answer is yes!) Recently Snopes turned to its constituents on the Internet to help provide funding to keep the website alive, precipitated by a lawsuit stemming from several contracts between the parties at issue. The whole thing is a matter of messy corporate structure that really seems like it's going to depend on the court's reading of the stock purchase agreement between the parties. Vox has a rundown of the whole situation here (that I'm quoted in). 

August 1, 2017 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, July 27, 2017

Make Sure You Use Photos According to the License Agreement

Recently, Procter & Gamble has been sued for copyright infringement based on its use of photographs on packaging. It's not that P&G didn't have a license; it's that P&G allegedly violated the scope of the license. The allegations claim that P&G, trying to keep costs down, negotiated for fairly narrow rights. It makes a ton of sense to do that if that's all you want the photos for. After all, why pay for rights that you're probably not going to utilize? However, the caveat with that is to be sure that you won't want to use the photos beyond what you're negotiating. That's allegedly what P&G did, and why it finds itself the subject of a lawsuit. 

July 27, 2017 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, July 11, 2017

Law Firm Associate Makes $1.5 Billion Mistake

Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:

General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.

What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.

How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:

“The plaintiffs' complaint offers the following autopsy of the error[]: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”

The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.

A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”

The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742

July 11, 2017 in Current Affairs, Famous Cases, In the News, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Sunday, July 2, 2017

The McMansion Hell Dispute Was Really About Contracts

Zillow's cease-and-desist letter to popular Tumblr blog McMansion Hell --and its subsequent backing down from its position after the blogger secured representation from the Electronic Frontier Foundation --has been well-documented, including by such outlets as BBC News. However, a lot of outlets reported it as being a copyright dispute. While there was definitely a copyright angle to the disagreement--Zillow even alleged as such in its letter--the issue was really one of contract. After all, as many commentators pointed out, Zillow didn't even own the copyright in any of the photos. The true dispute, as Zillow conceded and EFF explained in its letter response, was over Zillow's terms of use. 

Zillow alleged that its terms of use prevented "reproducing, modifying, distributing, or otherwise creating derivative works from any portion of the Zillow site." Zillow seemed to be alleging that the blogger's parodies and commentaries of the photos on the site--otherwise easily protected by copyright's fair use doctrine--were prohibited by the terms of use. EFF fought back on this, though. EFF claimed that the blogger had never effectively assented to be bound by the website's terms of use, and that even if she had, the agreement's clause permitting modification without notice rendered the terms of use illusory and unenforceable. EFF also noted that contract doctrines have in the past restricted terms that restrict speech, at least in part due to public policy concerns. Finally, EFF raised the recently enacted Consumer Review Fairness Act of 2016, which voids contract provisions that attempt to prevent people from posting reviews, performance assessments, or other analyses of goods and services. The blogger's parodies of the real estate photographs on Zillow, according to EFF, are analyses of Zillow's services, and therefore Zillow cannot restrict them through its terms of use. 

Zillow backed off pretty quickly, claiming that it never intended to cause McMansion Hell to shut down, and McMansion Hell is back up, without having deleted any of the demanded photos. It seems like a victory for McMansion Hell and, more importantly, for individual speech. All of us spend a lot of time on websites with terms of use that we never bother to read. The quick reaction of many in the legal community to help McMansion Hell fight back, and the subsequent news coverage it received, is a nice reminder that not all contracts are automatically binding, especially not when criticism is involved. Hopefully other less high-profile recipients of dubious cease-and-desist letters can take heart from this story. 

July 2, 2017 in Commentary, Current Affairs, In the News, True Contracts, Web/Tech, Weblogs | Permalink | Comments (0)

Friday, June 23, 2017

Trade Usage vs. Express Terms in Lawsuit Against Hardware Stores

Two by FourWhen I teach "usage of trade" (UCC § 1-303) in Contracts or in Sales, I inevitably bring up the example of  "two-by-four" lumber. The example is a good one in that most students either already know first hand that a two-by-four board is smaller than two inches by four inches, or else they readily grasp the concept that terms in a contract can come from a widespread meaning that is at variance with its literal meaning. For years, I thought the point of the example was non-controversial--or at least less convoluted than more famous interpretive questions like, "What is 'chicken'?" or "Is a burrito a 'sandwich'?"

At least one litigant would disagree with my characterization of the lumber example as being obvious. This story in the Des Moines Register describes a lawsuit in which hardware chains Home Depot and Menards are accused of deceiving buyers by selling "four-by-four" lumber that is not four inches by four inches in dimension:

HomeDepot_svgThe retailers say the allegations are bogus. It is common knowledge and longstanding industry practice, they say, that names such as two-by-four or four-by-four do not describe the width and thickness of those pieces of lumber.

 Rather, the retailers say, those are “nominal” designations accepted in government-approved industry standards, which also specify actual minimum dimensions — 1½ inches by 3½ inches for a two-by-four, for example, and 3½ inches by 3½ inches for a four-by-four.

“Anybody who’s in the trades or construction knows that,” said Tim Stich, a carpentry instructor at Milwaukee Area Technical College.

True enough, said Yevgeniy (Eugene) Turin of McGuire Law, the firm that represents the plaintiffs in both cases.

However, Turin and his clients dispute that the differences between nominal descriptions and actual dimensions are common knowledge.

 

“It’s difficult to say that for a reasonable consumer, when they walk into a store and they see a label that says four-by-four, that that’s simply — quote unquote — a trade name,” Turin said in an interview.

Turin said his clients don’t argue that the retailers’ four-by-fours (and, in the Menards’ case, a one-by-six board as well) are not the correct size under the standards published by the U.S. Department of Commerce. The product labels, however, should disclose that those are “nominal” designations and not actual sizes, Turin said.

With some of Menards’ lumber products, both the nominal and actual size are shown, a document Turin filed in the case against Menards says. But the lumber in question is labeled only with a nominal size — "4 x 4 — 10’," for example — that consists of numbers “arranged in a way to represent the dimensions of the products,” the document says. That leaves the “average consumer” to conclude that the pieces measure four inches by four inches, Turin said.

Some Menards customers aren’t buying it.

“They haven’t measured four inches by four inches since the ‘50s,” said Scott Sunila after loading purchases into his pickup.

“My God, that’s crazy,” the 60-year-old bulldozer operator said of the lawsuits. “Let me on the jury. They ain’t winning. And they’re gonna pay me extra for my time.”

But an unscientific survey of 18 Menards shoppers found that about a third were unaware that "four-by-four" doesn’t represent actual dimensions of that piece of lumber.

The problem with defining terms by usage of trade is that the term usage must have "such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question." UCC § 1-303(c). The existence of the trade usage is not a question of law, but a question of fact when (as here) it is not embodied in a trade code, such codes rarely being applicable to or ratified by consumers. If a party cannot establish the existence of trade usage terminology, then express terms will typically prevail over trade usage. UCC § 1-303(e).

My initial take was that this lawsuit was a clear loser, but the fact that the burden of proof lies with the hardware stores suggests that the plaintiffs at least have a chance. Now, would I take this case on a contingent fee basis?  Er... no.

June 23, 2017 in Current Affairs, In the News, True Contracts | Permalink | Comments (2)

Thursday, June 22, 2017

“Bachelor in Paradise” – Or Contractual Hell?

An article on CNN Media posted on June 21 reads, in part: “A contract for the current season of ‘Bachelor in Paradise,’ which CNNMoney … has confirmed as authentic, provides a rare window behind the scenes of reality shows, in the ‘Bachelor’ franchise and beyond, revealing how they are able to manipulate ‘reality’ and create drama where none actually exists….” Shocker! More surprising, perhaps, is the extent to which the companies producing these types of TV shows seek to avoid liability in potential legal proceedings. Unknown

Whereas the “Bachelor in Paradise” contract requires participants to “refrain from unlawful behavior or harassment” and to acknowledge that the producers “do not encourage intimate or sexual contact with other contestants on the show,” the contract also tries to free the producers from any responsibility if a contestant is injured, even if that injury comes from “unwelcome/unwanted sexual contact or other interaction among participants.” Participants will also have to agree that the producers are not liable for almost anything that happens to them in the course of filming, whether they are injured, suffer emotional trauma, or catch a sexually transmitted disease.

Furthermore, the producers of the show can do nearly anything they want to the participants and their reputation, including filming them naked, airing the details of any part of the life they think is relevant, or flat out lying about them and things they have done. Nicole Page, a New York-based entertainment attorney with Reavis Parent, said that the contract means, from the producers' perspective, "I can basically take your image and do whatever I want with it and I own it and you have no recourse." Contracts like these are common in reality TV, she said. They "have been around since reality TV began," she added. Needless to say, should participants wish to pursue civil legal action, they will have to arbitrate. Unknown-2

Why would contestants want to agree to such far-reaching contracts? For their chance at 15 minutes of fame, of course. If a contestant tries to renegotiate the contract, plenty of other people are ready to take their place.

The contracts, however, may be so broad that they are not legally enforceable, according to one CNN/HLN legal analyst. Another commentator says that these contracts are “so one-sided it seems absurd, but this is the price people are willing to pay to be on television for whatever it is.” “It's not a two-sided contract," the CNN/HLN attorney says. "A contract is supposed to be what they call 'at arms length,' which means there is leverage on both sides and it's freely entered into and freely negotiated. But this is clearly a contract that is one-sided.”

With all due respect to the CNN/HLN attorney, the mere argument that the contract is “one-sided” is, of course, not very strong unless the contracting procedure reaches the level of unconscionability. Yes, this might be a “take-it-or-leave-it” type of contract, but those are, as we all know, also widely used in numerous other industries and companies where courts have upheld them. I think it highly unlikely that contestants on a famous TV show will prevail on an argument that their contracts were so one-sided as to reach the level of unconscionability under contract law. After all, the TV contestants really don’t need to be on these shows at all; they choose to do so on their own free volition, typically for a rather vain chance at fame and fortune (I know that that is not a legal argument, but we all know what this would look like in court…).

Much worse are the alleged attempts by the companies to have the participants sign away their rights under criminal law. That they might very well not be able to do. "If the contract requires you to release any claims you have that you were sexually assaulted, which is a crime, then the contract may or may not be enforceable under the public policy of the state of California [where this contract was drafted]," said entertainment litigator Josh Schiller of Boies Schiller Flexner. "Law enforcement could get involved and bring charges ... would we want to enforce a contract that no one would be liable if they were filmed being sexually assaulted? That would create a real problem." No kidding. In other cases, contestants should closely consider what this type of deal really involves. Unknown-1

For the rest of us, we live in times when lines between fact and fiction are blurred significantly. It seems that an increasing amount of people are comfortable dismissing facts as “fake” when the converse is true. I’ve encountered that numerous times after the most recent presidential election myself, both in South Dakota and even “liberal California.” In addition to the usual climate change denial in the Midwest, I encountered a “crazy cat lady” in Los Angeles the other day claiming that highly established Audobon studies and Smithsonian studies demonstrating how feral cats kill numerous birds and other small wildlife is “not true”! Sigh.

We should consider how we best teach our students to account for this new reality in contract and other law. I think we also need to increasingly point out to them that what they see in the media is not necessarily true. Granted, with reality TV shows, that is obvious, but I have had to undertake rather serious discussions with my own students recently about what “news” really is and what it is not! What we have taken as granted as law professors even in recent years may no longer be the case or may be changing.

 

June 22, 2017 in Celebrity Contracts, Current Affairs, Film, In the News, Television | Permalink | Comments (0)

Monday, June 19, 2017

David Mamet's Last-Minute License Term

 

Puyallup High School Auditorium.jpg
Public Domain, Link

This story is a few weeks old, but I think it's an interesting one still deserving of discussion. Apparently, one of the terms of licensing one of David Mamet's plays to perform is that the theater not host any "talk backs" within two hours of the show. It's interesting to me first because talk backs are fairly common within the theater industry, and I'm not sure most theater companies would assume there were restrictions around them. This makes me wonder if other playwrights have similar policies and how much theater companies check into those specific terms. 

Another thing that struck me about this, though, was that apparently this talk-back-prohibiting term was not in the original terms of the license. The theater company detailed in the article received a new contract with the new licensing term just four hours before the show opened. Do we think that was a valid modification of the original license terms? There is no discussion of this in the article, but do you think that the theater company, threatened with fines of $25,000, felt compelled to agree to the new term after having sold tickets and invested time in rehearsing the play? Was the new term in that license enforceable? 

Finally, apparently Mamet's agent will ensure that the clause is included in license terms from this point on. Generally, parties can enter into any contractual terms they wish (within certain bounds of reason). Presumably if Mamet's no-talk-back provision is disliked by theater companies, Mamet's plays could fall out of fashion and the market could handle the situation. However, if other playwrights start demanding similar terms, then there might not be as much pushback from the theater companies. So far it seems that Mamet's clause just prohibits discussion within two hours of completion of the play, so that could allow an enterprising theater company to just hold a talk back two and a half hours later. It could be interesting to see what effect, if any, this situation has on theater talk backs going forward. Anyway, it was an interesting little contract story, so I thought I'd pass it along. 

(h/t to Rebecca for bringing the article to my attention!)

June 19, 2017 in Commentary, Current Affairs, In the News, True Contracts | Permalink | Comments (1)

Monday, June 12, 2017

Adding to Quatar’s Woes: Loss of FIFA Soccer Contract?

On Monday June 5, 2017, Saudi Arabia, Egypt, Bahrain, Yemen, Libya, the United Arab Emirates and the Maldives all severed diplomatic ties with Qatar. While only a small period of time has passed, the small Arab nation has been left with some pressing issues. Almost immediately the people of Qatar rushed to supermarkets to stock up on food. Many fear that with their only land border shut (that between Qatar and Saudi Arabia), food supplies will run short and prices will skyrocket. The Philippines have already begun restricting migrant workers from going to Qatar for fear that migrant workers will be more marginalized if food shortages become an issue in a country that does not produce any of its own food. Migrant workers have been a source of conflict in Qatar for years and this current crisis could worsen or better the landscape. Unknown

On December 2, 2010, Qatar became the first Middle Eastern country to win a World Cup bid. That World Cup is set for 2022. In preparation, massive construction projects have begun in Doha and the surrounding area, including building new stadiums, renovating old ones, building new ports and rail systems, and renovating current city areas to make Qatar appear a modern metropolis in the heart of a desert. While all of that sounds good, it has come at a steep humanitarian cost. Many migrant workers have died and many modern governments have reprimanded Qatar for its inhumane treatment of people. Unknown

However, the current climate of Qatar is one of isolation from its neighbors—Emirates and Etihad airlines have ceased all travel to Qatar. Migrant workers are already starting to lose jobs. While FIFA, the governing body of soccer worldwide, has stated that the World Cup will continue as planned, if construction materials and workers cannot enter the country, the small country cannot hope to continue hosting the World Cup. No country has ever lost a FIFA World Cup contract after being awarded the bid, but the consequences could be astronomical. Qatar is looking to spend almost $200 billion for the World Cup, and while not all or even most of that money will be recovered by hosting the event, there is an expectation of gain for local businesses and hopefully an increase in tourism following the event. Without the World Cup, Qatar would be out the money and potentially enter a massive contract suit with FIFA. Currently, we can only wait and see how the situation works itself out, but it will be at the forefront of many people’s minds until the current diplomatic situation is resolved.

June 12, 2017 in Commentary, Current Affairs, Sports | Permalink | Comments (2)