ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, June 5, 2017

Prince's Music: More Contract Disputes

I've already blogged about the contractual disputes around the music that the late artist Prince left behind when he died unexpectedly. They continue with another case in the District of Minnesota, Paisley Park Enterprises, Inc. v. Boxill, Case No. 17-cv-1212 (WMW/TNL). In this dispute, Boxill, a consultant and sound engineer who worked with Prince, had announced that he would release five Prince recordings in his possession on the anniversary of Prince's death. Prince's estate sued, seeking a preliminary injunction against the release, which the court granted. One of the causes of action revolved around the Confidentiality Agreement that Boxill had entered into with Prince. Under the terms of the agreement, Boxill was allowed to enter Prince's home and work with Prince and disclaimed any property interest connected with this work. Yet when Prince's estate demanded return of the recordings in Boxill's possession, he refused to turn them over. This was sufficient to demonstrate a likelihood of success on the merits for breach of the contract. 

Boxill's main argument was that the Confidentiality Agreement only covered his work consulting on the remodel of Prince's music studio; the Confidentiality Agreement did not cover Boxill's work as a sound engineer recording music with Prince. Boxill's reasoning on this was that the Confidentiality Agreement prohibited him recording any of Prince's performances, but he was required to do so when he was working with Prince as a sound engineer. The Prince estate's response to this was that it had waived the recording portion of the Confidentiality Agreement but the rest stayed in force and covered all of Boxill's activities. The Court concluded that either interpretation was plausible, and that Prince's estate had a "fair chance" of prevailing on the merits. 

A motion to dismiss is currently pending in the case, so we'll see what happens!

June 5, 2017 in Celebrity Contracts, Current Affairs, In the News, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, May 26, 2017

Ancestry.com Doesn't Want Your DNA Forever (At Least, Not Anymore)

Earlier this week, Stacey Lantagne wrote a post about Ancestry.com’s Terms and Conditions. Among other things, it gives Ancestry.com a perpetual license to use its customers' DNA for…well, pretty much anything.  Attorney Joel Winston wrote about the terms here and his post quickly went viral. The social media backlash was fast and furious – and Ancestry.com now claims that it didn’t really mean what it said in its terms. They also say that they will take out that provision (although as of this writing, it is still there). It seems that nobody reads wrap contracts – even the companies that draft them.

This is another example of how consumers often do care what’s in the TOS, even if they don’t read them. Not reading (and so not knowing what’s in the terms) is not the same as not caring that the terms apply. It’s also another encouraging example of a company responding to market demand for different contract terms. Shades of General Mills….

May 26, 2017 in Current Affairs, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, May 25, 2017

In Arizona, a Breach of Good Will Does Not Require Spite

A recent case out of Arizona, Russo and Steele, LLC v. Tri-Rentals, Inc., No. 1 CA-CV 16-0042, deals with breach of the covenant of good faith and fair dealing, which is read into every Arizona contract. In the case at issue, though, Tri-Rentals's behavior was not "self-dealing," and Tri-Rentals argued that self-dealing, or spite, or ill will was required to breach the covenant. Not so in Arizona, though. Arizona does not require self-dealing conduct. Rather, the covenant is breached if you prevent the other party from receiving the benefit of the bargain, whether or not you do so out of spite or some advantage to yourself. 

(The case itself is an interesting one, stemming out of collapsed tents at a car show that resulted in damage to several classic vehicles.)

May 25, 2017 in Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 10, 2017

Doing Your Job Well to Benefit Your Employer Doesn't Result in Unjust Enrichment

In a recent case out of the Western District of Pennsylvania, Argue v. Triton Digital, Inc., Civil Action No. 16-133 (behind paywall), Argue, an engineer, brought suit alleging that his employer had been unjustly enriched by Argue's efforts. It's an interesting allegation. The court pointed out that what Argue was characterizing as "unjust enrichment" was really just him performing his job. He received a salary in exchange for his work, which included inventions, and his employer took that work and those inventions and used them to increase the value of its business. That wasn't unjust enrichment; the employer was entitled to do exactly what it did.  

Complicating this further? Argue had an employment agreement. The court pointed out that unjust enrichment is a doctrine that's supposed to be used only when no contract exists between the parties. Here there was a written agreement that provided Argue's employer with the right to Argue's inventions on the job. He could not, therefore, argue unjust enrichment at all. 

May 10, 2017 in Current Affairs, In the News, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Thursday, May 4, 2017

A Mistake Case Results in Rescission of a Contract

Sometimes rights can get passed along like a game of telephone. A recent case out of California, M.U.S.E. Picture Productions Holding Corp. v. Weinbach, B261146 (behind paywall), deals with a mistake that voids the original contract for those rights. 

Muse agreed to develop a film based on the book and screenplay "The Killer Inside Me," which Weinbach claimed to own the rights to. After about a decade during which Muse did not produce the film, Muse sold its rights to Windwings, and then Windwings sold its rights to Kim, who eventually produced a movie. In the meantime, Muse sued Weinbach for intentional misrepresentation during the original negotiation for the right, and Weinbach cross-claimed for breach of the agreement stemming from Kim's production of the movie. (Windwings and Kim were also involved in litigation with Weinbach, not relevant to this blog entry, but you can find a ruling from it here.)

Basically, Muse contended that Weinbach did not have the right to produce the film based on the novel at the time that he transferred those rights to Muse. Weinbach contended, however, that this was not a mistake of fact but rather one of judgment because it relied upon a later court interpretation of the extent of Weinbach's rights. The court agreed with Muse, however. Weinbach had repeatedly told Muse that he had the right to produce a movie from the book and never wavered from that, so it wasn't like Muse ever thought it was negotiating for a dubious right; Muse thought Weinbach had the right, because that's what Weinbach asserted. A later court ruling raised doubts, but Muse had had no reason to ever expect a later court ruling on the question. This mistake was material because Muse would not have entered into the contract if it had thought Weinbach didn't possess the right in question. And there was no evidence that Muse assumed the risk that Weinbach didn't have that right. Therefore, this mistake justified rescission of the contract. 

May 4, 2017 in Current Affairs, Film, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 3, 2017

Forum non conveniens Doesn't Overcome Forum Selection Clauses

A recent case out of Delaware, SRL Mondani, LLC v. Modani Spa Resort, Ltd., C.A. No. N16C-04-010 EMD CCLD, deals with forum issues. In the case, the parties had entered into a number of contracts. The contracts at issue in the dispute between them both contained forum selection clauses that disputes should be brought in Delaware court. A third contract between the parties, not explicitly at issue in the dispute, had a forum selection clause that disputes should be brought in Israeli court. Modani argued that the Israeli forum selection clause should control, but SRL was seeking to enforce the Delaware agreements, not the Israeli one, and so the court found the Israeli forum selection clause didn't matter. 

In the alternative, Modani tried to argue that the action should be dismissed under forum non conveniens. Modani's argument was that the relevant documents were located in Israel. The court, however, noted that "modern methods of communication" meant it was relatively easy to get the documents over to Delaware. While Modani alleged that the relevant witnesses were located in Israel, it failed to explain exactly what testimony those witnesses might have and why they were relevant, so the court was not convinced. The court did acknowledge that Modani's principles were located in Israel and had no ties to Delaware but at all but the court also pointed out that the contracts at issue had resulted from negotiations between two sophisticated businesses with millions of dollars at stake, so it was unpersuaded by Modani's allegations of hardship. Because the dispute was about enforcement of contracts with clauses requiring the application of Delaware law, Delaware was the best forum. 

May 3, 2017 in Current Affairs, In the News, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0)

Tuesday, April 11, 2017

Flying the Friendly Skies after the Suffering Through the Violent Boarding Process?

Everyone is surely, by now, aware of the (most recent) United Airlines scandal.  Numerous questions abound: Was the airline racist in asking a non-white person to give up his seat or was the selection of which passenger to bump truly random? If the latter, was the airline racist in pursing this action after seeing that the selected passenger was not white whereas it might have given up taking such drastic action if it the passenger had been white? Equally importantly, what in the world is going on when law enforcement officers act as they did in this situation?! Is it fair to consider United Airlines responsible for actions that were, after all, not taken by its employees, but rather by the authorities?

While these questions are being addressed in many other locations, I find it interesting that several news sources correctly point out that United was legally entitled to bump a passenger, but that several sources seem to incorrectly state that under Department of Transportation rules, airlines may only pay passengers “up to a” $1,350 limit for delays of more than two hours. I have not had the time to fully research this rule, but as I read the rules, there is nothing saying that there is a limit to how much airlines may choose to pay, only what the DOT rules guarantee a pay-out (that one can, incidentally, insist on getting as payment, not a voucher) of $1,350, not more under the federal rules. The DOT guideline states as follows (from a website version only, admittedly):

“If the substitute transportation is scheduled to get you to your destination more than two hours later (four hours internationally), or if the airline does not make any substitute travel arrangements for you, the compensation doubles (400% of your one-way fare, $1350 maximum).”

If my understanding is correct, United could have chosen to voluntarily pay out a lot more than what they reportedly did ($800-1,000) and, as many correctly point out, most likely found some taker.  Surely, the rules do not prohibit this.  Instead, however, United chose to do what seems to increasingly be the order of the day: stand on their own rights and disregard the interests of their customers in the name of making a few extra dollars. Why am I not surprised?

April 11, 2017 in Commentary, Contract Profs, Current Affairs, Famous Cases, In the News, Travel | Permalink | Comments (0)

Thursday, April 6, 2017

Cyberattack liability

“Fees, fines or penalties” do not cover fraudulent charges incurred on commercial parties during a cyberattack. So ruled the Eight Circuit Court of Appeals in Schnuck Markets, Inc., v. First Data Merchant Serivces Corp., et al., (No. 15-3804, Jan. 13, 2017). 

Schnuck is a retail supermarket chain. First Data served as its credit card processor and Citicorp as its “acquiring bank.” Such a bank is one that pays the merchant and is reimbursed by the issuing bank. The acquiring bank sponsors the merchant into credit card association networks, in this case VISA and MasterCard. It also vouches for the merchant’s compliance with the associations’ rules. Unknown

Schnuck signed a contract with First Data and Citicorp for the credit card arrangement. Among other things, the agreement stated that liability under the relevant section of the contract “shall not apply to Schnucks’ liability for chargebacks, servicers’ fees, third party fees, and fees, fines or penalties … by the Association or any other card or debit card provide under this [agreement].”

In March 2013, a cyberattack against Schnucks compromised cardholder data. First Data and Citicorps subsequently withheld not only the fees and costs that MasterCard assessed against these corporations from payments to Schnucks, but also the fraudulent charges from the cyberattack itself. Schnuck filed suit, alleging breach of contract. At bottom, Schnucks agreed that it was liable for only actual fees and fines, but not the actual losses incurred by the issuing banks. Unknown-1

The court agreed. The payment of a “fee” is a payment for a service, not reimbursement for another party’s losses. Furthermore, since the contract does not mention anything about reimbursement for data compromise events, the banks were not in a legal position to get reimbursed for those. “Fines” and “punishment” describe, more narrowly, only sums imposed as a punishment and not data compromise losses.

Supermarket wins; banks lose. Good thing that the card holders were not involved here. The bigger loss is, of course, that shared by all of us; financiers, vendors, and card users when internet-based losses such as this happen. Another cost that undoubtedly will be built into the pricing scheme will result, but apparently, such is the nature of electronic transactions these days.

April 6, 2017 in Current Affairs, Web/Tech | Permalink | Comments (0)

Monday, April 3, 2017

University Decisions on Disciplinary Procedures Receive Deference; Cannot Be Arbitrary, Capricious, or in Bad Faith

A recent case out of the District of Nevada, Janati v. University of Nevada, Las Vegas School of Dental Medicine, Case No. 2:15-cv-01367-APG-CWH (behind paywall), discusses the leeway universities have in enforcing the policies in their student manuals. The student was suspended from UNLV Dental School for plagiarism, and, in addition to raising constitutional due process and First Amendment issues, she contended that UNLV breached its Student Policy Manual and as such was in breach of contract. UNLV agreed that the Student Policy Manual constituted a binding contract between the school and the student but contended that its decisions on disciplinary procedures under the manual were entitled to "significant deference." 

The court agreed. The standard for determining if the university had violated its disciplinary procedure was "arbitrary, capricious, or bad faith," "without any discernable rational basis." The university's actions did not rise to that level in this case. The complaint concerning the student's Honor Code violations was required by the manual to "include specifics" of the conduct at issue, including any witnesses to the conduct. The complaint against the student here neglected to name two of the faculty members involved and left off the names of some of the witnesses, but the student admitted that she knew who everyone involved with the complaint was, even prior to its filing. There was also some confusion about whether the university failed to solicit information from one of the witnesses during the first Honor Council proceeding, but all of the parties agreed that, to the extent that witness was overlooked, he did provide information during the second proceeding the parties held. 

The court found that none of those rose to the high bar of violation of the disciplinary procedures and therefore the student could not sustain a breach of contract claim. 

April 3, 2017 in Current Affairs, In the News, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Friday, March 31, 2017

Prison Telephone Service Provider Continues to Lose on Enforcing Arbitration Provision

I have already blogged about a related case out of the Western District of Arkansas, in which the court concluded that prison inmates did not consent to arbitrate when they funded their telephone accounts to enable them to make calls. This case out of the Third Circuit, James v. Global Tellink Corp., No. 16-1555, affirms a similar conclusion by the District of New Jersey. To refresh your memory, GTL provides telephone services to prison inmates. Inmates sign up for accounts and deposit funds into the account, either through GTL's website or through its automated telephone service. When interacting with GTL's automated telephone service, users are alerted that their transactions are governed by the terms of use found online but they are not required to indicate their assent to those terms. Inmates have brought a class action alleging that GTL's charges are unconscionable. GTL moved to compel arbitration based on its online terms of use, but the district court found that those who used GTL's automated telephone service never agreed to be bound by those terms of use. 

The Third Circuit agreed with the district court's conclusion. The subject of how to form a binding contract through interactive telephone services was a new and different one, as most of these cases involve websites these days. GTL argued that the inmates manifested the requisite assent by continuing to use the telephone services after being notified there were terms of use. But the inmates never had to perform any affirmative act to indicate their assent, and they were never told that their continued use alone would constitute such assent. None of the inmates in question who used the automated telephone services had ever taken the necessary extra step to access GTL's website to see the terms of use, so they were never presented with the terms of use or the arbitration provision in question. The inmates simply never received the terms, and were never told that use of the telephone system would bind them to the terms. 

March 31, 2017 in Current Affairs, Government Contracting, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, March 27, 2017

NDAs in the Sexual Assault Context

I've blogged a lot about NDAs on this blog, including in the context of allegations of domestic violence. So when I saw this recent essay on Inside Higher Ed discussing NDAs in the context of sexual assault investigations on university campuses, I thought it would be interesting to link to. Confidentiality provisions show up everywhere, and I think the essay is a thoughtful and important rumination on the effect they can have in some situations. 

March 27, 2017 in Commentary, Current Affairs, Law Schools, True Contracts, Weblogs | Permalink | Comments (0)

Sunday, March 19, 2017

The Oxford Comma is (Still) Important

In case you have not yet heard about the recent First Circuit Court of Appeals case discussing the legal importance of a comma, here goes: A Maine statute lists the following activities as not counting for overtime pay: Images

The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.

Does that mean that drivers can get overtime because driving does count for overtime since “packing” covers both “shipment or distribution”? Or should the sentence be read as “packing for storage” as one thing and “distribution” another, thus precluding the drivers from earning overtime pay?

Circuit judge David J. Barron concluded that “the exemption’s scope is actually not so clear in this regard. And because, under Maine law, ambiguities in the state’s wage and hour laws must be construed liberally in order to accomplish their remedial purpose, we adopt the drivers’ narrower reading of the exemption.”

So, commas still matter. Consider too how “I love my parents, Lady Gaga and Humpty Dumpty” and “I love my parents, Lady Gaga, and Humpty Dumpty” are a little different. Language aficionados take note! Precise drafting still matters. Was this an outcome-oriented holding? Perhaps. But if so, a holding in favor of workers over a company in a case of interpretive doubt may, in today’s increasingly tough economy for middle and low-income earners, not be such a bad idea from a public policy point of view.

The case is O’Connor v. Oakhurst Dairy, No. 16-1901 (1st Cir. 2017).

March 19, 2017 in Commentary, Current Affairs, Famous Cases, In the News, Legislation, Miscellaneous, Recent Cases | Permalink | Comments (1)

Friday, March 17, 2017

No Lawsuit for Selling Suboptimally Sized Product

A group of plaintiffs suffering from glaucoma bought eye drops manufactured by six pharmaceutical companies. They claimed that the eye drops were unnecessarily large (no, let’s not go there this time): all drops sold by these manufacturers were larger than 16 microliters (equal to 10% of a tablespoon). The plaintiffs claim that unnecessarily large eye drops are wasteful because the human eye can only contain so much fluid. Anything in excess of that will simply overflow and be wasted, which is a waste of money.

The amount of fluid that the human eye can contain without overflowing varies from person to person. The defendants asserted that the amount often exceeds 16 microliters. Further, the active ingredient in each drop is only about 1% of the drop. The smaller the drop, the less therapeutic effect, they claimed (without explaining why, for example, two drops could not simply be applied by those with larger eyes…). Defendants also claimed that larger drops helps those with unsteady hands, such as the elderly, because “the smaller the drop, the likelier they are to miss.” Now, at least that makes sense… (not!).

As was said on the listserv, this is arguably not even a contract law case at all, especially because no allegation of misrepresentation, breach of contract, or the like was asserted. In the words of opinion author Judge Posner, this is merely a case of “you can do better by us” asserted by plaintiff consumers. “That is all they are arguing.” However, said Posner, “[o]ne cannot bring a suit in federal court without pleading that one has been injured in some way (physically, financially—whatever) by the defendant. That's what's required for standing. The fact that a seller does not sell the product that you want, or at the price you'd like to pay, is not an actionable injury; it is just a regret or disappointment—which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’”

So, what do we have here? No contracts violation, perhaps. Consumer fraud under the respective state acts? Apparently not. What we seem to have, however, is another instance of Corporate America taking advantage of consumers with the consent of even the federal judicial appellate system. Of course any product that is larger than what is needed per “portion” is wasteful and thus arguably taking unnecessary advantage of consumers. Whether or not that can be framed as an actionable legal issue in our system is another story altogether, sadly. Even worse: companies do apparently not want to do right by their own customers, in this case often elderly folks going blind! Episode32

This is, of course, not the only instance of needless and blatant consumer fraud (for that is what these instances are, at least in the common, if not the legal, sense of the word). More examples:

  • When you buy lotion, it is next to impossible to get the last, oh, 20% out of those pump-type containers unless you unscrew the pump and pour out the lotion.
  • Almost all perishable food items are sold in much larger portions than what is needed for most of us – think cottage cheese, yoghurt, lunch meats (OK, apart from those itty bitty bags, those are great), milk, you name it. People needing more could just buy two items! (That’s how it’s done with great success in many European countries, but heaven forbid that we ever learn anything from other countries.) The rest of us often have to throw out much of the food as it doesn’t last that long.
  • How about packaging? Huge bags of chips that are only 1/2 full? Same for cereal boxes? Sun screen spray bottles that are also only 1/3 full?
  • OK, I’m in a crappy mood about companies and organizations today, I admit. Of course the capitalist model is the best one, etc. etc. But it would be nice if more companies would focus more on decency, less waste in packaging and eventual product usage, and consumer needs. This eye drop story really is one of forcing consumers to waste product and thus money. Let’s just call a spade a spade.

On an unrelated note: I apologize for being so inactive on this blog for so long. I have had a disappointing contractual work experience that has drained me and continues to do so, frankly. I am trying the hardest I can to find interesting cases to blog about. Should you hear of any, I’d be delighted to be notified. I also invite guest bloggers to blog here with us. As always: thanks to my co-bloggers for their hard and excellent work!

The case described above is Eike, et al. v. Allergan, et al., No. 16-3334 (Seventh Cir. 2017).

Hat tip to my colleagues on the Contracts listserv for discussing this case.

March 17, 2017 in Commentary, Contract Profs, Current Affairs, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Saturday, March 4, 2017

Inmates Didn't Consent to Be Bound to a Contract Every Time They Used the Telephone

Myanna has already blogged about the problem of inmate telephone rates being set unreasonably high. Myanna's blog post was about a dispute in California but a recent decision out of the Western District of Arkansas, In re Global Tel*Link Corporation ICS Litigation, Case No. 5:14-CV-5275 (behind paywall), deals with the same issue. (There are several of these litigations, as well as other government debates about regulation of these rates.) In the Arkansas decision, the court refuses to compel arbitration. 

Global Tel*Link's allegation was that the inmates consented to the terms of use when they funded their accounts to enable them to make phone calls, and the terms of use contained an arbitration clause. Every time the inmates put money on their accounts with Global Tel*Link, they heard a message similar to the following: 

Please note that your account, and any transactions you complete with GTL or any of its affiliates, are governed by the terms of use and the privacy statement posted at www.connectnetwork.com . The terms of use and the privacy statement were most recently revised on March 30, 2015.

The court determined, however, that a reasonable person would not have understood this message as referring to a contract and as constituting consent to be bound by that contract, since it never used any contract buzzwords like "contract," "consent," "agree," "assent," "offer," "accept," etc. The court said that, as far as the inmate listening to the message was concerned, the terms of use and privacy statements could have been just generally applicable legal rights imposed by regulators. The court characterized Global Tel*Link's behavior as basically hiding the contract ball: Global Tel*Link could have straightforwardly said the inmates were entering into a contract but instead "invite[d] [them] to visit a website where [they] might accidentally stumble across this fact." (I went to connectnetwork.com. The terms of use are located at the bottom of the page and required me to scroll to find them, and I just blogged about a case where the persistent location of the terms of use hyperlink at the bottom of the page didn't constitute enough notice.)

Because the inmates never signed anything, never clicked or punched any button signifying acceptance of contract terms, never had an opportunity to review the terms of use prior to using Global Tel*Link's services, and would not reasonably have understood the message to be referring to contractual terms, the inmates did not assent to the contract and thus are not bound by the contract's arbitration provision. 

March 4, 2017 in Current Affairs, Government Contracting, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Sunday, February 26, 2017

Iowa Bill Proposal: To Get Faculty Position, Must Have Correct Political Affiliation

Just when you think the political debacle in this country cannot get anymore grotesque, here's a recent proposal by Iowa State Senator March Chelgren: to counter the liberal slant at Iowa's three public universities, the job candidates' political affiliations would have had to be considered.   Why?  To ensure "balanced speech" and avoid the "liberal slant" in public universities these days. 

Under SF 288, the universities would use voter registration information when considering job applicants, and could not make any hire that would cause declared Democrats or Republicans on the faculty to outnumber the other party by more than 10%.

Demonstrating the very deep and logical (not!) argument, check this line of thinking: Chelgren said professors who want to be hired could simply change their party affiliation to be considered for the position.  "We have an awful lot of taxpayer dollars that go to support these fine universities," he said. "(Students) should be able to go to their professors, ask opinions, and they should know publicly whether that professor is a Republican or Democrat or no-party affiliation, and therefore they can expect their answers to be given in as honest a way possible. But they should have the ability to ask questions of professors of different political ideologies."

Duh!

February 26, 2017 in Commentary, Contract Profs, Current Affairs, Government Contracting, In the News, Labor Contracts, Legislation | Permalink

Thursday, February 23, 2017

No Deal, No Exchange of Money or Possession, No Ownership in Elvis Guitar

The National Music Museum (“NMM”), located in South Dakota, brought suit against Larry Moss and Robert Johnson asking the court to declare it the legal owner of a Martin D-35 guitar formerly owned by Elvis Presley. Images

Moss and Johnson, both interested in collectibles, have been friends for thirty-five years. In 2007, Johnson contacted Moss stating that he may be interested in acquiring three guitars previously owned by Elvis, which included the D-35. Johnson originally was going to negotiate a deal for Moss to buy all three guitars for $95,000 from a third-party seller. In 2007, a two-part contract for $120,000 was finally drafted stating that (1) Moss would pay Johnson $70,000 and take immediate possession of two of the guitars, and (2) that Johnson would deliver two remaining guitars – including the D-35 – in exchange for the remaining $50,000.

At trial, Moss testified about the 2007 interaction and said, “Well, we never had a deal. I never gave him the money. He never gave me any guitars. There was no deal.” Moss’s actions in 2007 and from 2008-2010 are consistent. Moss never asserted title of the Martin D-35 during either time period because Moss did not believe he had title to the guitar. Moss knew he would not own the Martin D-35 until Johnson delivered it and Moss paid him for it. Because delivery never occurred, Moss never acquired title to the Martin D-35.

Nonetheless, in 2013, Moss contacted a friend of Johnson's inquiring about the status of the D-35. Moss then contacted the NMM where the guitar was on display claiming that he owned the D-35. A lawsuit was filed and removed to federal court seeking declaratory judgment on who was the rightful owner of the guitar.

Under Article 2 of the Uniform Commercial Code, which is the governing law for Tennessee and South Dakota, “[u]nless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes performance with reference to the physical delivery of the goods . . . .” Tenn. Code Ann. § 47-2-401(2) (2008); SDCL 57A-2-401(2). Here, Johnson never physically delivered the Martin D-35 to Moss. Moss never had physical possession of the Martin D-35. Because Johnson never delivered the guitar and Moss never had possession of it, Moss never acquired title to the Martin D-35. Peeps-with-guitar

Furthermore, in spite of Moss's attempt to seek specific performance under a breach of contract theory, the court did not find this persuasive because the contract specifically stated that Moss would not pay the $50,000 balance until there had been delivery of the guitar. Based on the plain text of the contract, delivery was set to be a future date. Additionally, Moss and Johnson exchanged emails for five years, but Moss never asked Johnson to deliver the guitar, nor did he claim to the owner of the guitar. As a result, the court found Johnson had the title to the D-35 guitar, and transferred it to the NMM. Thus, the NMM is the rightful owner of the guitar.

The case is National Shrine Museum; America’s Shrine to Music v. Robert Johnson and Larry Moss.

 

February 23, 2017 in Celebrity Contracts, Current Affairs, Famous Cases, In the News, Music | Permalink | Comments (0)

Monday, February 6, 2017

Federal Law Bans Gag Clauses

We’ve written about non-disparagement or “gag” clauses in wrap contracts on this blog in the past.  These clauses prohibit consumers from writing negative reviews about a company and typically impose a penalty or fee if the consumer does so.  California already has a law which prohibits them and now there’s a federal law.  The Consumer Review Fairness Act (CRFA) prohibits gag clauses and intellectual property transfer clauses in consumer form contracts.  (The prohibition on IP transfers is intended to prevent companies from using the DMCA takedown provisions to get posted content removed).  “Form contract” is defined as a contract with standardized terms “imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms.”  Form contract does not include an employment or independent contractor contract.  The CRFA permits state attorney generals to bring a civil action on behalf of state residents.  The Federal Trade Commission may also institute action or intervene in a pending action.    

The law goes into effect for on March 14, 2017.

February 6, 2017 in Current Affairs, Legislation, Web/Tech | Permalink | Comments (0)

Friday, February 3, 2017

No Class Actions For Investment Fraud Claims in the Eighth Circuit

In Holtz v. JPMorgan Chase Bank (the “Bank”), Judge Easterbook recently held that litigants may pursue state law contracts or fiduciary duty claims in an individualized manner, but not in the form of class action law suits under the Securities Litigation Uniform Standards Act of 1998 (“the Litigation Act,” 15 U.S.C. § 78bb (F)).

In the case, the plaintiffs alleged that the Bank gave its employees incentives to place clients’ money on the Bank’s own mutual funds, even when those funds have higher fees or lower returns than competing funds sponsored by third parties. The Bank allegedly failed to inform the clients of this conflict of interest or lied about it. Plaintiffs also argued that banks have fiduciary duty that they simply cannot contract out of under state contract law. J. Easterbrook recognizes that contract claims survive federal statutory pre-emption standards. Here, the Litigation Act is on point. However, to plead misrepresentations or omissions under the Act, the contract claims must not be “material.” (An omission is “material” when a reasonable investor would deem it significant to an investment decision.) In other words, the gravamen of litigation under the Act must, it seems, be statutory, and not purely contractual, issues. If the contractual issues are material, they must be litigated in the form of state law claims.

Per Easterbrook, “there are plenty of ways to bring wrongdoers to account – but a class action that springs from lies or material omissions in connection with federally regulated securities is not among them … If [the plaintiff] wants to pursue a contract or fiduciary-duty claim under state law, she has only to proceed in the usual way: one litigant against another.”

Another win in the “war” against class actions, it seems.

February 3, 2017 in Contract Profs, Current Affairs, Miscellaneous, True Contracts | Permalink | Comments (0)

Consent to Face Scanning

In a recent case, the video game publisher 2K recently won the right to collect and store gamers biometric data (in this case, face scans) indefinitely.  The face scanning technology is used in at least two of its NBA series games to allow gamers to create "personalized virtual basketball players". 

Plaintiffs agreed to allow them to do so when they agreed to the company’s terms and conditions.  The plaintiffs didn’t dispute that they had agreed to the terms or that they had consented to having their faces scanned; their objection was that they did not know that the scans would be stored “indefinitely” and that 2K could share the biometric data.  The court ruled that there was no harm under the Illinois Biometric Information Privacy Act.  The focus was not on contractual assent to the terms and conditions.  But this made me wonder, given how unobtrusive most terms and conditions are, and how easy it is to "manifest assent," shouldn't there be more stringent assent requirements when it comes to consent with respect to certain terms (such as the permanent storage and sharing of biometric data)?  Isn't it time we moved past the notion of blanket assent?

As more companies move toward biometric data for a wide range of reasons, we’re likely to see more problems with too-easy consent and wrap contracts.

February 3, 2017 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0)

Wednesday, January 25, 2017

No Substitution of Arbitrators by Courts when One Institution Becomes Legally Unavailable

There is split authority on the issue of whether courts can appoint a substitute for an arbitral institution that becomes unavailable after the execution of an arbitration agreement. In the Second Circuit, no such substitution is possible.

In the case, Deborah Moss applied for three payday loans through SFS, an online lender. SFS relied on First Premier Bank serving as the “middleman” in order to debit Moss’ account. The loan application documents with SPS included an arbitration clause listing the National Arbitration Forum (“NAF”) as the arbitral institution.

After receiving the three loans, Moss filed a class action suit against First Premier Bank and Bay Cities Bank alleging violations under the RICO Act by “facilitate[ing] high-interest payday loans that have been outlawed in some states.” The banks moved to compel arbitration arguing they were entitled to enforce the terms that Moss agreed to when she applied for the loans. The district court agreed and granted the motion.

Moss then sent a letter to the National Arbitration Forum (“NAF”) indicating her intent to proceed with arbitration. NAF refused the case stating “it was unable to accept Moss’s dispute pursuant to a consent judgment” it had entered into with the Minnesota Attorney General pursuant to which NAF would no longer accept consumer arbitrations such as Moss’s.

Moss then tried to vacate the district court’s motion to compel arbitration, arguing that she could not arbitrate her claims at all since NAF declined her case. The district court granted this motion, finding that the court could not appoint a substitute arbitrator because the parties had specifically designated NAF and because there was no “lapse in time in the naming of the arbitrator or … some other mechanical breakdown in the arbitrator selection process” under Section 5 of the FAA. The banks appealed, seeking to have the appellate court compel Moss to arbitrate before a different arbitrator.

The Second Circuit found that because the parties had designated an “exclusive arbitral forum, the district court cannot circumvent the intent of the parties nor can it appoint a substitute arbitrator.” Therefore, the Second Circuit held that the district court property declined to compel Moss to arbitrate in a “forum to which she did not agree.”

The case is Moss v. First Premier Bank, 15-2513 (2d Cir. 2016).

January 25, 2017 in Current Affairs, Recent Cases, True Contracts | Permalink | Comments (0)