Tuesday, September 20, 2016
New York Attorney General Eric Schneiderman has launched an investigation into whether now-notorious EpiPen manufacturer Mylan inserted potentially anticompetitive terms into its EpiPen sales contracts with numerous local school systems.
EpiPens are carried by those of us who have severe allergies to, for example, bee stings. The active ingredient will help prevent anaphylactic shocks that can quickly result in death. In 2007, a two-pack of EpiPens sold for $57. Today, the price is $600. The company touts various coupons, school purchase programs and the like, but in my experience, at least the coupons are mere puffery unless you are very lucky to fit into a tiny category of users that I have not been able to take the time to identify.
However, there is finally hope for some real competition in this field: Minneapolis doctor Douglas McMahon has created an EpiPen alternative that he is trying to market. This doctor claims that Mylan and companies like it have lost sigh of patient needs and are catering to investors. In his opinion, that is the true reason for the skyrocketing prices. Well said.
The doctor is even resorting to something as unusual as a fundraising website to raise money for the required FDA testing and other steps.
Another contractual issue seems to be why customers have to buy at least two Epipens at a time. The active ingredient only lasts for one year. Those of use who carry EpiPens hope never to have to use them, but if we will, it is extremely unlikely that we will have to do so twice in a year! But alas, in the United States at least, you have to buy this product in a two-pack (EpiPens are sold individually in countries such as Canada and the UK). It may be a regulatory and not a pure contractual issue, but if the company truly sticks to its current story that it is on the up-and-up in all respects in this context, they should at least enable people to offer to buy only what they need, which in many cases would be only one EpiPen at a time.
Hat tip to Professor Carol Chomsky of the University of Minnesota School of Law for the information on the Minnesota doctor.
Monday, September 19, 2016
A now formerly tenured teacher with the Saint Paul Public School District http://www.spps.org/domain/1235 had several complaints lodged against him by students. The teacher was alleged to have been racially discriminative towards certain students and to have exhibited “other inappropriate conduct towards students.”
The story continued as follows: the district placed the teacher on paid administrative leave pending further investigations. The teacher obtained legal representation from a union attorney. The school’s investigations uncovered “additional issues” in relation to the teacher and notified the teacher that his termination would be proposed at a school board meeting. The teacher’s attorney advised him that he could (1) acquiesce in the termination, (2) negotiate a separation, or (3) attend a hearing.
The teacher subsequently testified that he felt like a gun had been placed to his head and that he had been forced to resign. Prior to the district taking any action against him, he sent a draft resignation letter to the district, requesting that in exchange for his resignation, he would be allowed to take his sick days, would receive a clean employment file, a letter of recommendation, and an opportunity to continue teaching driver’s education.
The dispute took some other twists and turns, but ended up with the teacher being upset that he could not continue as a driver’s ed teacher and attempting to withdraw a resignation letter that he had submitted. The district declined this. The teacher filed suit for duress and misrepresentation.
As for the duress, the teacher claimed that the district didn’t have the actual intent to fire him and no grounds to do so either. He also alleged that the district had promised not to report him if he resigned, which was a violation of Minn. Stat. § 122.A.20. He also claimed economic duress.
Strangely, economic duress is not recognized in Minnesota. Only “when an agreement is coerced by physical force or unlawful threats … which destroys the victim’s free will and compels him[/her] to comply with some demand of the party exerting the coercion” may suit lie. Bond v. Charlson, 374 N.W.2d 423, 428 (Minn. 1985); Wise v. Midtown Motors, 42 N.W.2d 4040, 407 (1950).
As for the regular duress, the court found that the teacher could not demonstrate that his free will had been destroyed. The court found that doing so requires more than “a scintilla of evidence” and that the teacher simply had not presented enough evidence of any wrongdoing by the district. The court also emphasized the fact that the teacher was represented by and received counsel from a union attorney skilled in these very matters. The court found no misrepresentations made by the school district.
Intimidating procedures or not: if one wishes to retain a chance to keep a job even in times of severe allegations, it becomes necessary to stand by one’s rights at all times until, perhaps the bitter end. The duress claim does indeed seem very weak here - almost fabricated after the fact.
What seems more surprising is the fact that Minnesota does not recognize economic duress. In times when the employment situation for many is still not the easiest (understatement), that’s a tough limitation on the legal rights of employees. This is exacerbated by the fact that employees have recognized property interests in both their jobs and teaching licenses. But of course, “where there’s smoke, there’s [often] fire.” At least in this case, it does seem that there was underlying wrongdoing by the teacher, so it’s a bit difficult to feel too sorry for him as well.
The case is Olmsted v. Saint Paul Public Schools, 2016 WL 4073494.
An interesting recent case out of Texas, Deuell v. Texas Right to Life Committee, Inc., No. 01-15-00617-CV (behind paywall), deals with political advertisements, cease-and-desist letters, First Amendment free speech rights, and yes, contract.
In the case, Deuell was a candidate for state senate. Texas Right to Life Committee (TRLC) ran some radio ads stating, among other things, "Bob Deuell sponsored a bill to give even more power to . . . hospital panels over life and death for our ailing family members. Bob Deuell turned his back on life and on disabled patients." Deuell's lawyers sent cease-and-desist letters to the radio stations stating that the ads were defamatory and "respectfully demand[ing]" that the radio stations cease airing the ads. The radio stations, upon receipt of the letters, contacted TRLC and told it they were suspending the ads. TRLC then produced a new advertisement that the radio stations found acceptable to air, and also contracted "for additional airtime to compensate for the lost advertising time." TRLC then sued Deuell for tortious interference with contract and sought recovery of the amount it expended to produce the new ad and buy more airtime. Deuell moved to dismiss, arguing that the Texas Citizens Participation Act (TCPA) protected his cease-and-desist letter as free speech and that TRLC's allegations were not sufficient to overcome this.
The court disagreed and denied the motion to dismiss. The court found that TRLC had adequately alleged the existence of contracts with the radio stations and that the cease and desist letters were "clear and specific evidence" (the relevant standard under the TCPA) that Deuell had intentionally and willfully interfered with these contracts that proximately caused TRLC to suffer the damages it alleged. The TCPA and Deuell's free speech rights therefore did not operate to prohibit TRLC's cause of action.
Deuell did attempt to argue other things, including that TRLC's ads were illegal under the Texas Election Code, rendering TRLC's contracts with the radio stations to run the ads illegal contracts that could not result in tortious interference, as "a defendant cannot be held liable for tortiously interfering with an illegal contract." The court concluded, however, that there was no basis for declaring the contract illegal because the section of the Texas Election Code at issue had actually been declared unconstitutional.
There was a dissent in this case that would have held that Deuell's cease-and-desist letter implicated free speech rights under the TCPA and that TRLC did not provide the "clear and specific evidence" that would permit its case to survive in the face of those free speech implications.
Friday, September 16, 2016
A British start-up company called Luminance, which is also the name of its flagship due diligence analysis, “promises” to read documents and speed up the legal process around contracting, “potentially cutting out some lawyers.” (See here and here).
Luminance says that its software “understands language the way humans do, in volumes and at speeds that humans will never achieve. It provides an immediate and global overview of any company, picking out warning signs without needing any instruction.” Really? When I was working in the language localization things more than a decade ago, I heard the same promises then… but they never come to fruition. We’ll see how this program fares.
The software is said to be “trained by legal experts.” Talk about personification of an almost literary-style. We see the same trend in the United States, though. Just think about phone and internet programs that pretend to be your “assistant” and use phrases such as “Hi, my name is [so-and-so], and I’m going to help you today…”
Meanwhile, if a law firm used software to analyze documents, would it not be subject to legal malpractice if it did not discover contracting or other issues that a human would have, in this country at least? It would seem so… and for that reason alone perhaps also be a breach of contract unless clients were made aware that cost-cutting measures include having computers analyze documents that attorneys normally do.
Tuesday, September 6, 2016
Vast Majority of Consumers Prefer Court Procedure over Arbitration
We have discussed arbitration clauses in this blog several times. Now, a Pew Charitable Trust survey of more than 1,000 individuals shows that 95% of consumers prefer judge or jury trials regarding questionable bank fees and similar practices over arbitration clauses. 89% want to be able to join a class action lawsuit. At the same time, no less than 93% of banks include jury (but not bench) trial waivers in their checking account agreements.
What about the argument that the only thing that consumers get out of this is higher fees and fewer services to cover increased litigation costs? First, consumers are not prohibited from choosing arbitration, it’s the option to have class action suits that is at issue here. And as the Los Angeles Times reported, “if banks keep their noses clean, they won’t end up in court” in the first place. Besides, it’s not so much consumers that choose to litigate, businesses file four times as many lawsuits as individuals. Maybe this is for good reason: arbitrators ruled in favor of banks and credit card companies 94% of the time in disputes with California consumers. Maybe it is not: since banks are the ones who pay for the arbitration process, a recurring concern is that arbitrators may be reluctant to find against the banks.
Of course, class action lawsuits is the only feasible way for consumers to have their legal rights vindicated because of the small individual amounts involved. For the banks, however, this is big business – literally: In April, the Supreme Court let stand a decision that Wells Fargo had deliberately arranged checking-account payments in order to “maximize the number of overdrafts” resulting in fees of $25-35. http://www.scotusblog.com/wp-content/uploads/2016/03/13-16195.pdf
Monday, September 5, 2016
A few days ago, I posted a blog here on Amtrak raising the rent on backyard lots neighboring Amtrak's railroad lines in New York. The rent in some cases went up by 100,000% (!) according to the website of Congressman Joseph Crowley.
Professor Bruckner posed the relevant question of whether the now hotly contested leases are truly new leases or the renegotiation of existing ones. I've been trying to find out, but not having seen the actual letter from Amtrak (yet), I've dug through news reports and website of legislators. This is the upshot as best as I can find out right now: It looks like Amtrak is upping the price on _existing_ leases after having had very low prices for years. See, e.g., these statements: "For decades, Amtrak has leased the property underneath the trusses to homeowners for a nominal fee which releases the agency from the burden of maintaining the premises. Residents were given a 30-day notice to accept an unconscionable annual rent increase – in some cases as much as 100,000 percent or tens of thousands of dollars" and "[i]n a letter addressed to homeowners, Amtrak argues that a review of the lease and the premises it covers, indicates the lease is substantially undervalued. For some, the rent will go up from $25 annually to over $26,000 annually. Failure to approve the new rental amount would result in the termination of the lease 30 days from the notice."
To me, that does indeed seem if not outright unconscionable, then certainly in violation of reasonable contractual expectations and the contractual terms what appears to be an already existing contract.
As mentioned, Amtrak does have a good argument in its prices having been exceptionally low for decades, but perhaps market prices should be introduced over time as the lessees get replaced over time with the existing leases somehow being grandfathered in? Granted, the turnover in the NYC real estate market may not be high in the case of lucrative deals, but on the other hand, nobody lives in any home forever. Underlying this story does seem to be the fact that Amtrak got upset not so much about the low rents per se, but the fact that some renters were making profits off them.
Saturday, September 3, 2016
You heard about Epipen, the “price of which has climbed sixfold over the last several years. At drug price-comparison website GoodRx, the cheapest price today is $614 for a package containing two, or more than $300 per EpiPen, up from about $100 for two.”
Now there’s Amtrak. The company just raised the prices for renting backyard spaces underneath the Hell Gate Bridge in New York from, in one case, $25 to $25,560 a year (that’s not a typo) and, in another, from $50 to $45,000 a year.
The homeowners that rent these “additional” spaces have been given 30 days to accept the new leases or else give up the land. Some use it for recreational purposes but others rent it out as parking lots, which has allegedly caused Amtrak to reconsider these contracts. The company has confirmed the rent hikes, stating that “some lease holders have not seen an increase in more than 70 years” and that renters can still expect to pay only “a fraction (less than 1 percent) of the fair market rental rates.” Amtrak will be “working with each person individually to determine the exact terms of their lease.”
Is this fair? Many of the renters have decks, pools, and established plants on the land. They also clear snow, remove falling bricks and other debris from the land. They’ve been able to enjoy the land for years, perhaps creating a reasonable “course of performance” expectation that the rents would not be increased to such a high extent.
On the other hand, the rent is exceptionally low for New York and has not been increased for many decades. Then again, if the intent of these contracts was for them to serve mainly recreational purposes, what about people that now convert the land into commercial use (parking lots, of all things)? Does that matter?
This case raises interesting issues of contract interpretation, unilateral contract modification, good faith obligations by both parties, etc. It seems to me that Amtrak might, depending on the wording of these contracts, be able to now increase the rent somewhat, but to the extent done here, the intent seems to be an arguably contractually impermissible penalty rather than, perhaps, a good-faith renegotiation of contract terms.
Hat tip to Shubha Ghosh for alerting my attention to this issue.
Monday, August 29, 2016
Allow me to highlight my most recent article on the questionable ecosystem viability and contractual common law validity of so-called “trophy hunting” contracts. With these contracts, wealthy individuals in or from, often, the Global North contract for assistance in hunting rare animals for “sport.” Often, these hunts takes place in the Global South where targeted species include giraffes, rhinos, lions, and other vulnerable if not outright threatened or endangered species.
A famous example of this is Minnesota dentist Walter Palmer killing “Cecil the Lion” in 2015 causing widespread outcry in this country and around the world. Trophy hunting also takes place in the USA and Canada, where targeted animals include polar bears, grizzly bears, and big horn sheep.
Trophy hunting should be seen on the background of an unprecedented rate of species extinction caused by several factors. Some affected species are already gone; others are about to follow. Western black rhinoceroses, for example, are already considered to have become extinct in 2011. The rest of the African rhinoceros population may follow suit within the next twenty years if not sufficiently protected. In the meantime, more than 1.2 million “trophies” of over 1,200 different kinds of animals were imported into the United States just between 2004 and 2015. In addition to the extinction problem, the practice may also have ecosystem impacts because, among many other factors, the trophies often stem from or consist of alpha animals.
Of course, no one is arguing that rare species should be driven to extinction, in fact, quite the opposite: both trophy hunters and those opposing the practice agree that such species should be conserved for the future. However, the question lies in how to do so. Some argue that trophy hunting creates not only highly needed revenue for some nations, but also brings more attention to the species conservation issue.
I argue that at least until there is much greater certainty than what is currently the case that the practice truly does help the species in the long run (and we don’t have much time for “the long run”!), legal steps must be taken against the trophy hunting. Even when positive law such as hunting laws and/or the Endangered Species Act (“ESA”) do not address the issue (yet), common law courts may declare contracts that have proved to be “deleterious effect upon society as a whole,” “unsavory,” “undesirable,” “nefarious,” or “at war with the interests of society” unenforceable for reasons of public policy.
In the case of Cecil, African lions had been proposed for listing under the ESA when the animal was killed, but the listing did not take effect until a few months later. The case, others like it, and several studies demonstrate that a sufficient and sufficiently broad segment of the population have come to find the killing of very rare animals so reprehensible that common law courts can declare them unenforceable should litigation on the issue arise. This has been the case with many other contracts over time. The same has come to be the case with trophy hunting. As long as doubt exists as to the actual desirability of the practice from society’s point of view – not that of a select wealthy individuals – the precautionary principle of law calls for nations to err on the side of caution. The United States prescribes to this principle as well.
The article also analyzes how different values such as intrinsic and existence values should be taken into account in attempts to monetize the “value” of the practice. Instead of the here-and-now cash that may contribute to local economies (much revenue is also lost to corruption in some nations), other practices such as photo safaris are found by several studies to contribute more, especially in the long term. (Note that Walter Palmer paid a measly USD 50,000 for his contract with the landowner and local hunting guide).
Trying to save rare animals by shooting them simply flies in the face of common sense. It also very arguably violates notions of national and international law.
Friday, August 26, 2016
I have witnessed with interest the evolving story of what exactly happened in Rio involving Ryan Lochte the morning of August 14. Initially Lochte claimed he had been robbed at gunpoint. I later heard through the gossip mill that that story was untrue and that Lochte had in fact beat up some security guards. That turned out, it seems, just to be rumor-mongering, but the story has continued to evolve from there, with both Lochte and the Rio police making statements that later seem untrue, or only partially true, or exaggerated. Slate has a good run-down of the changing versions of Lochte's story, although it's from a week ago. Now Lochte has been charged with filing a false police report, since it does seem clear at this point that no robbery happened. Even that, however, is confusing to parse if you read a lot of articles about it: It seems like the crime is more accurately making a false communication to police, as some articles have eventually stated, since there are conflicting reports about whether a police report was ever filed.
In the wake of this whole mess, Lochte has lost several of his sponsorship deals (although he's also picked one up). It's unclear, because the contracts don't seem to be public, whether this is a choice of just not renewing the contract (apparently that's the case with Ralph Lauren) or if a violation of a morals clause is being invoked to allow cancellation of the contract (which might be what's going on with Speedo). All of this provokes an interesting morals-clause conversation to me, and we had a bit of discussion about it on the Contracts Professors listserv. It seems clear that Lochte engaged in some sort of inappropriate behavior, and it seems also clear that whatever that behavior was, even the most minor version of the story is arguably a violation of any morals clause out there.
What is most clear is that, no matter what really happened, this has definitely served to tarnish his reputation, and that's is what's striking to me. This story has taken on an enormous life of its own, with many differing versions of it floating around the Internet. This situation has been caused, of course, by Lochte's many differing stories, together with some apparent conflicting statements by the Rio police, coupled with reporting that may have been less than precise itself in describing what was going on. One online story details all the conflicting information and asks the individual reader what they believe about the story.
While this particular maelstrom seems to have some basis in fact, it's not difficult to imagine something like this getting out of control without such justifying behavior at the root of it. Morals clauses tend to be about perception, but does that mean you can manipulate the perception of someone, through no real fault of their own? Take, for instance, the "Ted Cruz is the Zodiac Killer" meme that was popular on the Internet earlier this year. Ted Cruz wasn't born until after some of the Zodiac killings had happened, so he obviously could not have been the Zodiac Killer, and in fact some people interviewed about the meme noted that was the point: what they were saying was impossible. Nevertheless, it was reported that polls indicated 38% of those surveyed thought he might, in fact, be the Zodiac Killer, despite the impossibility. If a substantial number of people start thinking you did something you absolutely did not do, is that enough for a morals clause to be violated, because of the perception that you did it?
Thursday, August 25, 2016
The New York Times reports here (paid access) on the increasing use of so-called “rent-to-own” housing contracts. Under these contracts, companies from big Wall Street giants to a slew of small landlords hoping to strike it rich lend or, should I say, purport to sell homes to tenants who contractually commit to make all repairs on the homes no matter how major or minor (yes, you read that right: all repairs… and it gets more extreme than that, read on!). Typically, tenants under such contracts are not told what repairs are needed, yet face a contractual deadline for making sure that the houses in question are brought up to local code. Unlike most typical home purchases, rent-to-own contracts do not require the tenant/buyer to obtain an independent home inspection.
We probably all know how many things can go wrong with older homes, even newer ones. Examples of how bad things can go in this context thus abound. One tenant moved into a home not having been told that it had several unresolved building code violations and had to remain vacant by city order. Another moved into a home that had no heat, no water, and major problems with its sewage system that led to nearly $10,000 in repairs (many of these homes have been purchased by the lender for less than $10,000 and are not worth very much more than that, if any). A third example describes a woman moving into a home with her three children and partner in Michigan, living in the house during cold winter with the only heat sources being one electric heater and a wood-burning stove in the kitchen, only to be evicted and charged $3,100 in overdue rent after she stopped paying rent because of the heat issue.
People who accept these kinds of contracts often do not qualify for mortgages. Banks have virtually stopped making mortgages on homes worth less than $100,000, which leaves millions of people with few options for - now or one day - owning their own homes.
One company that rents homes on a rent-to-own basis does so “as is,” calling the contracts “hybrid leases” that allow people to build up “implied equity.” If tenants are evicted during the contract (typically of a seven-year-duration), they get no credit for money spent on repairs or renovations. Neither do they receive any equity unless they actually end up buying the home at the end of the contract term. At that point, they still need financing for the home which, as mentioned, many people just cannot obtain.
A number of legal questions arise in this context, among them several contractual ones such as the role of caveat emptor vs. the violation of a possible duty to disclose. If the landlords know of the problems from which many of these houses suffer, should they disclose this knowledge? On the other than, shouldn’t these potential (long-term) buyers be presumed to have at least enough savvyness to not promise to bring a home that they do not own outright up to Code by a certain deadline? Then again, are landlords fraudulent in their dealings with these folks when the landlords require such potentially extensive repairs when, as the owners of the homes, they presumably if not actually have actual knowledge of the problems from which these houses suffer? What about the statement that renters get “implied equity?” What in the world does that mean, if anything? Do low-income folks that may never have been homeowners truly understand what it means to bring a home “up to Code” and buying “as is?” Does it matter? And what about the doctrine of unconscionability, which is alive and well in some states such as California? If nothing else, this case seems to smack of both procedural and substantive issues.
In some states, landlords are required to keep homes and apartments in habitable condition. But rent-to-own contracts have, for good reason, been said to reside in a gray area of the law: are they rental contracts? - Or purchase contracts? Or something else?
Further, rent-to-own contracts may, to some extent, resemble contracts for deeds. However, the latter are subject to basic consumer-lending regulations such as the Federal Truth in Lending Act.
The housing market again seems to host highly questionable practices. This story almost reads as a contract or property law issue-spotting exam. Meanwhile, housing sharks seem to be swimming relatively freely in some areas of the nation.
For further information, see Alexandra Stevenson and Matthew Goldstein, Rent-to-own Homes: A Win-Win for Landlords, a Risk for Struggling Tenants, the New York Times, Aug. 21, 2016.
Monday, August 22, 2016
In a move that demonstrates how contracts for various aspects of marijuana products and services are going mainstream, Microsoft Corp. has accepted a contract to make marijuana-tracking software available for sale on its cloud computing platform. The software is developed by “cannabis compliance technology” Kind Financial and allows regulators to track where and how much marijuana is being grown, sold or produced in real time. In turn, this lets the regulators know how much sales and other tax they should be collecting and from whom (maybe this is the beginning of the end of some growing marijuana plants in state and national parks to hide their activities from the government).
This contract – called a “breakthrough deal” because it is the first time that Microsoft ventures into the marijuana business - may end up enabling the software developer to capture as much as 60% of this very lucrative market. (Other companies with government contracts often end up with such a large market share.)
How did the company strike such a lucrative deal? You guessed it: by networking. Kind’s CEO was introduced by a board member to an inside contact in Microsoft.
Thursday, August 11, 2016
Which is exactly what Australia's swimming sisters Bronte and Cate Campbell have tried to do. Apparently after their father gave a number of effusive interviews to the press, the sisters turned to contract law in an attempt to protect them from further such events. As this article reports, the sisters entered into a contract with their father in which he promised, "to the best of [his] ability," "not to embarrass [his] daughters on national television."
No word on what their father received in exchange for this promise.
Wednesday, August 3, 2016
Yesterday, Stacey noted how employers should be careful not to be too greedy when dealing with employees. Another example of the backlash – judicial or legislative – that may be the result if employers overstep what ought to be reasonable limits in interactions with their employees is a new law in Massachusetts that prohibits employers from asking job candidates about their salary history as part of the screening process or during an interview.
Why indeed should they be able to do so?! In a free market, freedoms cut both ways: just as an employee can, of course, not be sure to get any particular job at any particular salary, the employer also cannot be sure to be able to hire any particular employee! There is no reason why employers should enjoy financial insight about the employee when very often, employees don’t know about the salaries at the early stages of the job negotiation process. Both parties should be able to come to the negotiation table on as equal terms as possible, especially in this job market where employers already often enjoy significant bargaining advantages.
Massachusetts also requires Commonwealth employers to pay men and women equally for comparable work.
Contract-based payment systems have substantially supplanted the check-oriented payments contemplated by the Uniform Commercial Code over a half-century ago. Is there another commercial revolution waiting in the wings with mobile payments? In an insightful industry-focused piece at PYMNTS.com, Karen Webster shares observations on what enabled the mid-1990s success of debit cards and how those ingredients have not fallen into place (yet) today for mobile payment systems such as Apple Pay, Android Pay, and Samsung Pay. Some of the key paragraphs:
Debit ignited by leveraging existing technologies that could be easily enabled at merchants – or that already existed at those merchants – to enable payment via a checking account using a plastic mag stripe card. Mastercard and Visa simply used the technology merchants already had and paid for while the EFTs subsidized the technology that merchants would need to use their cards. No one expected merchants to go sink money in a new technology out of their own pockets.
That has not been the case with NFC and mobile payments.
We’ve unfortunately spent the last 10 years forcing mobile payments into an in-store NFC technology mold that hasn’t knocked the socks off of consumers by simply substituting a tap for a swipe and asked merchants to foot the bill. We’ve let technology drive mobile payment’s ignition strategy, instead of the value created when a consumer with a mini computer in her hand encounters a merchant who’d like to use that computing power to help him sell more stuff to her.
NFC as an ignition strategy has also ignored the many, many dependencies that such a strategy requires to get the critical mass needed to achieve ignition: enough merchants with enough NFC-enabled terminals, enough consumers with enough of the right handsets or cards and enough of a value proposition for both to care. Absent all three, mobile payments ignition is left up to chance: the hope that one day *something* might happen to move things along, and at that point, there’d be infrastructure in place to support it.
This view of the payments market and place of innovation strikes me as largely correct, though I must admit some of my sympathy comes from having recently written here about what payments law can learn from its past.
Despite all the technological innovation sweeping the payments arena, past comparison of the law and the markets suggest that Solomon got it right with the observation that there really is "nothing new under the sun."
Wednesday, July 20, 2016
How often do those of us in the contracts realm get to string together "commercial law," "U.S. Supreme Court," and "original jurisdiction" in the same sentence? If your answer is, "not nearly often enough!" then you may want to keep tabs on a lawsuit filed last month by Arkansas, Texas, and 19 other states against Delaware and MoneyGram. At issue is the appropriate recipient of unclaimed property, the property in this case being the proceeds from unused MoneyGram payment instruments, which, after a time, are ultimately subject to escheat to the state.
The Dallas Morning News described basic facts in covering the rollout of the litigation by the Texas Attorney General:
Attorney General Ken Paxton today accused the state of Delaware of swiping up to $400 million in unclaimed checks that rightfully belong to Texas and the 48 other states.
Texas’ share, he said, would be about $10 million.
For the last four or five years, Paxton said, announcing a lawsuit against Delaware that was filed directly at the U.S. Supreme Court, Delaware has been requiring financial institutions incorporated under its laws — in particular MoneyGram – to turn over unclaimed funds only to Delaware.
But under a 1974 federal law, Paxton asserted, such funds belong to the state in which a transaction originated. MoneyGram lets people pay a fee to purchase a check they can send to someone else.
“The state of Delaware elected to begin playing by a different set of rules,” Paxton said, calling the practice both illegal and unfair. “Delaware has our money.”
He cited an audit released in February 2015 that found that Delaware had claimed more than $150 million in unclaimed checks that originated in 20 other states. Extrapolating to the whole country, he said, the tally could be $400 million.
This group of 21 states is not the first to take issue with Delaware's appropriation of the unclaimed property. Wisconsin and Pennsylvania brought a similar lawsuit in federal district court in which defendant Delaware ultimately invoked the original jurisdiction of the Supreme Court to resolve disputes between states. SCOTUSblog provides some helpful detail on the legal background and procedural posture of these state-v.-state cases:
The core legal issue in each of the new filings is whether a 1974 law with an assignment of priority of state ownership for unclaimed tangible property applies to the new instrument, which some 1,900 banks or other institutions across the country are using instead of cashier’s or teller’s checks. Delaware says the law does not apply; the other states disagree.
The Supreme Court has issued three rulings on competing state claims to unclaimed intangible property; Congress has overruled one of those, in a 1974 law known as the Disposition of Abandoned Money Orders and Traveler’s Checks Act. That law is at the center of the cases that have reached the Court under its “original” jurisdiction — that is, its authority to decide, in the fashion of a trial court, a legal dispute not decided by a lower court. This jurisdiction is often implicated in resolving disputes between states — as in the new filings over unclaimed property.
The Court has no binding obligation to take on such a case. However, if it does, it customarily names a “special master” to act like a junior judge to gather facts and make a recommendation for a decision. A special master’s report is not final unless it becomes the ruling of the Supreme Court.
The large dollar amount in dispute arises from an aggregation of small transactions that will be familiar to anyone who has studied the "money order" species of negotiable instrument:
While Delaware’s claims are at the center of this new financial fight between the states, the controversy actually turns on the specific financial instrument involved, and the Texas company that has been issuing those items, which it calls “official checks.” That company, MoneyGram Payments Systems, Inc., has its main business office in Texas but it is incorporated in Delaware. It does business in all fifty states.
Its main business is as a kind of financial partner to banks and other institutions that prefer not to issue cashier’s checks or teller’s checks in their own name. MoneyGram does it for them, so it acts as the financial backer of its “official checks.”
That kind of transaction is conducted for some of the same reasons that stores do a business in money orders or traveler’s checks. The idea is that, in the form of a money order or traveler’s check, the piece of paper is a guaranteed form of payment that works like cash; in other words, it won’t “bounce” for lack of sufficient funds behind it. Typically, this kind of instrument is in fairly small amounts.
The Supreme Court does not frequently consider issues intersecting with commercial law in quite the way that this case does, so the outcome will certainly bear watching.
Monday, July 11, 2016
A group of 1L students recently caused a stir-up at an anonymous law school by posting an anonymous complaint after their criminal law professor wore a "Black Lives Matter" t-shirt "on campus" (not "to class," apparently). See the letter and the professor's great response here. (For full disclosure, our colleagues on the TaxProf Blog also wrote about the story here ).
Do students, because they enter into a contract with a private law school (or even a public one), have a legitimate reason to complain that their professors wear t-shirts with a socially and legally provocative or at least thought-provoking message? The students wrote, "We do not spend three years of our lives and tens of thousands of dollars to be subjected to indoctrination or personal opinions of our professors."
Is this reasonable, in your opinion? First, this comparison is not apt. In fact, it is an extreme over-exaggeration that barely needs commenting on. The students also comment that the "BLM" movement does not have anything to do with the law, which demonstrates the sad state of ignorance about the law and society in which many of our students - and perhaps especially those in conservative areas such as Orange County, California - find themselves (that's where the anonymous law school is thought to be located). The movement is clearly about very little but the law and policy. Second, students can and should expect to get a quality legal education when attending an ABA-accredited law school, but simply because they pay money for it does not entitle them to only hear about the version of the law that _they_ prefer. In fact, as the professor so correctly notes in his response, the consumer theory should not apply to the content of one's legal education. In other words, students don't pay to only hear part of the message. And as the professor said: students certainly don't pay us _not_ to have an opinion about the classes we teach (note that the Tshirt was worn in connection with a criminal procedure class).
What are your thoughts on this? And why does the law school not publish its name?
The circumstances surrounding this lawsuit, LMNO Cable Group, Inc. v. Discovery Communications LLC, Case No. 2:16-cv-4543 (behind paywall), in the Central District of California, could be a television show in its own right.
LMNO, a producer of a number of reality television shows (most importantly for this case "The Little Couple"), allegedly found itself the victim of embezzlement by its accountant, who then later, according to the complaint, threatened to destroy LMNO's professional relationships unless LMNO kept quiet about the alleged embezzler and gave him $800,000. LMNO apparently refused to comply with this request, instead reporting the alleged embezzler to the authorities.
In the meantime, however, the accountant had evidently been in contact with Discovery Communications, whose station broadcasts "The Little Couple." LMNO alleges in this lawsuit that Discovery used the accountant's help to try to drive LMNO out of business by stealing "The Little Couple" from LMNO.
The alleged stealing of "The Little Couple" involved the alleged breach of a number of contracts between LMNO and Discovery about "The Little Couple." As usual with entertainment contracts, they're complicated, consisting of many amendments, and there's an implied contract angle as well. And, predictably, there are copyright and trademark implications, too.
According to the complaint, Discovery directly employs the actors in "The Little Couple," but the contract has a clause preventing Discovery from using these actors to produce shows without LMNO. Allegedly, that is exactly what Discovery is now attempting to do. Specifically, Discovery and LMNO had discussed making a special episode of "The Little Couple" set in Scotland and England. LMNO alleges that Discovery went ahead and filmed the episode without LMNO's involvement, in violation of an additional implied contract between them with regard to that particular episode. In addition, LMNO is alleging that Discovery's actions have breached the covenant of good faith and fair dealing and interfered with LMNO's abilities to obtain all of its benefits under the contracts.
Wednesday, July 6, 2016
Yesterday, I blogged here about ticketscalping “ticketbots” outperforming people trying to buy tickets with the result of vastly increased ticket prices.
Now Ashley Madison – dating website for married people – has announced that some of the “women” featured on its website were actually “fembots;” virtual computer programs. In other words, men who paid to use the website in the hope of talking to real women were actually spending cash to communicate with computers (men have to pay to use the website, women don’t).
Why the announcement? The new leadership apparently wanted to air the company’s dirty laundry, so to speak.
Ashley Madison was hacked last year, revealing who was using the website to cheat on their husband, wife or partner. It was a devastating hack, ruining lives and even leading a pastor to commit suicide.
This seems to be a clear breach of contract: if you pay to communicate with real women, the contract must be considered breached if all or most of the contact attempts went to and/or from computers only. Perhaps even worse for Ashley Madison is the fact that the company is under investigation by the U.S. Federal Trade Commission. The FTC does not comment on ongoing cases, but “it could be investigating whether Ashley Madison properly attempted to protect the identity of its discreet customers -- which it promised to keep secret. Or it could be investigating Ashley Madison for duping customers into paying to talk to fake women. On Monday, the company also acknowledged that it hired a team of independent forensic accounting investigators to review past business practices around bots and the ratio of male and female U.S. members who were active on the site."
Tuesday, July 5, 2016
Have you ever tried buying concert tickets right when they were made available for sale on the Internet, only to find out mere minutes later that they were all sold out? Or, for that matter, highly coveted camping reservations in national or some state parks?
Where once, we all competed against the speed of each other’s fingertips and internet connections, nowadays, “ticket bots” quickly snatch up tickets and reservations making it virtually impossible for human beings to compete online. Ticket bots are, you guessed it, automatic computer programs that buy tickets at lighting speed. They can even read “Captcha boxes;” those little squiggly letters that you have to retype to prove that you are not a computer. Yah, that didn’t work too well for very long.
“A single ticket bot scooped up 520 seats to a Beyonce concert in Brooklyn in three minutes. Another snagged up to more than 1,000 U2 tickets to one show in a single minute, soon after the Irish band announced its 2015 world tour.”
Ticket bots scoop up tickets for scalpers who then resell them on other websites, marking the tickets up many times the original price. (I’m actually not saying that state and national parks are cheated that way, maybe camping reservations in those locations are just incredibly popular as hotel prices have increased and incomes are staggering. I personally used to be able to, with t he help of a husband and several computers, make campground reservations for national holidays, but those days are long gone…”we are now full.”).
Ticket bots are already illegal in more than a dozen states. New York is considering cracking down on this system as well. However, the most severe penalty under New York law is currently fines in the order of a few thousand dollars where ticket scalpers make millions of dollars. A new law proposes jail time for offenders. This is thought to better deter this type of white-collar crime in the ticket contract market.
Everyone else is talking about Donald Trump, so I guess why shouldn't we hop in, right?
This recent New Yorker Talk of the Town piece introduced me to an ongoing contract dispute involving Trump that I hadn't been paying attention to, even though now I see it's been widely reported by various news outlets, including food blogs, because it involves restaurants. So if you don't normally like to read political stuff but you consider yourself a foodie, this blog entry is also for you!
It turns out that Trump is embroiled in breach of contract lawsuits with a couple of famous chefs who pulled out of commitments to put restaurants into one of Trump's new developments. According to the reports, the impetus for pulling out of the business deal was Trump's anti-immigrant rhetoric during his presidential campaign. Jose Andres, himself an immigrant, was not too happy about Trump's statements. As seems to be the case with Trump, his business concerns don't necessarily track his political rhetoric when the bottom line is at issue. Faced with an immigrant refusing him rather than the other way around, Trump sued Andres for breach of contract. Andres counter-sued, alleging that Trump's many derogatory remarks about Hispanics rendered Andres's proposed Spanish restaurant "extraordinarily risky."
The chefs sought partial summary judgment, which a court recently denied, finding that material facts were still in dispute.
The crux of this lawsuit revolves around the covenant of good faith and fair dealing: Did Trump breach that covenant when he made his remarks, which would make him the one in breach of contract? Or were Trump's remarks not a breach of the covenant, either because they're not relevant to the contract or because they did not harm the prospects for success of Andres's restaurant? I don't know if the parties will continue to litigate this question but I'm curious what the result would be. In the current climate where rhetoric is frequently extremely inflammatory, could there be contract implications to such statements? How far, policy-wise, do we want the covenant of good faith and fair dealing to extend?
The case is Trump Old Post Office LLC v. Topo Atrio LLC, 2015 CA 006624 B (behind paywall), in District of Columbia Superior Court.