September 28, 2012
A New Reward-Style Offer from a Hong Kong Father
A student in my Contracts class shared this story with me regarding a recent offer to enter into a unilateral contract. Cecil Chao Sze-tsung, a wealthy Hong Kong-based property developer, has offered a $65 million "reward" to the man who first woos his daughter into a heterosexual marriage and away from her current lesbian partner.
Mr. Chao described his plan to the BBC as follows (he even uses the word "inducement!"): "It is an inducement to attract someone who has the talent but not the capital to start his own business. I don't mind whether he is rich or poor. The important thing is that he is generous and kind-hearted." He further described his daughter, Gigi, as "a very good woman with both talents and looks" who "is devoted to her parents, is generous and does volunteer work."
In an interview with the BBC (scroll down and click play--the file would not embed), Ms. Chao confirmed that her father is indeed "serious" (there goes the Lucy v. Zehmer argument) and that she views his reward offer as an "expression of fatherly love" from the man she talks to "on a daily basis." Ms. Chao admits that potential suitors face an uphill battle given that she already has committed herself to her longtime partner, Sean Eav. However, because she is not legally "married," she would not rule out someone successfully accepting her father's offer. Specifically, when asked by the BBC reporter, "Are you saying it's a waste of time?," she said, "No" and that it would be "inappropriate for me to outright contradict [my father]."
So, from a ContractsProf perspective, it appears that there is a definite offer that can be accepted by only a single person and only via performance. What is unclear to me, however, is whether the mere act of marriage from any male is actually what Mr. Chao seeks. In her BBC interview, Ms. Chao says that she does not know whether her father has received any offers but confirms that she has received many offers made directly to her. So, if a man were to convince Ms. Chao to marry him, and they were to get married, it's not clear (at least not to Gigi Chao) that he would get his $65 million without first convincing Mr. Chao that he's worthy. Absent clear, unequivocal commitment from Mr. Chao, there may not be a definite offer after all.
[Heidi R. Anderson, hat tip to student Ly Tran]
September 04, 2012
Size May Not Matter, But Placement Does
The Wired article reports on research by Lisa Shu, a psychologist and Visiting Professor of Management and Organizations at Northwestern University's Kellogg School of Management. While earlier research showed that signing (as opposed to printing) our names generally promotes more honesty, Professor Shu's research showed that signing at the top of a document, before one started making factual statements, significantly enhances honesty. In some studies, signing at the bottom has the same effect on honesty as not signing at all.
Professor Shu thinks that most people want to be honest and that signing in advance gives them a reminder or a nudge. Some people will never lie and some people will lie in a cavalier way. The placement of the signature block affects the people in between. The challenge is how to operationalize Professor Shu's insights. If one wants people to sign documents before they fill them out, placing the signature block at the top is not necessarily effective.
It is dangerous to generalize based on one's own idiosyncratic habits. That caveat aside, I don't think I would sign a blank document before I had filled anything in. And I don't think that is because I went to law school. It's just an extension of the reasoning that leads me to sign personal checks only after I have filled in all the relevant information. So, even if the signature block were at the top of a document, I still would sign last.
August 31, 2012
Using the Government's Breach of Contract Suit Against Navy Seal "Mark Owen" in Class?
The U.S. government reportedly is considering filing a breach of contract suit against the Navy Seal (pseudonym "Mark Owen") who wrote a book about the raid and killing of Osama bin Laden. According to a letter obtained by Reuters, the Pentagon has told Owen that his publication of the book would further violate certain confidentiality provisions in agreements between him and the U.S. government. The Huffington Post reports the contents of the letter as follows:
"In the judgment of the Department of Defense, you are in material breach and violation of the non-disclosure agreements you signed....Further public dissemination of your book will aggravate your breach and violation of your agreements."
I recently thought about how I could use this case in class without crossing any lines of impropriety (read: without crossing over into an uncomfortably political discussion). One angle I envisioned was using it when we get to specific performance. A topic closer to the (mythical?) impropriety line would be whether Owen would have any arguments regarding why the agreements should not be enforced, perhaps including public policy or duress. Both are a stretch without more facts. Regardless of specifics, I think it could be a great case to use when discussing the general topics of the limits of contract law and the limits of contract law remedies.
[Heidi R. Anderson]
August 23, 2012
Update Regarding "Earth, Wind & Contract"
In March, we briefly mentioned a contract-based royalty payment dispute between one member of the disco group Earth, Wind and Fire, and the children of a deceased member of the group. According to this story, the defendant, Maurice White, now has responded in court. (It is unclear whether White's response was an answer to the complaint, a motion for summary judgment, or something else). White alleges that there was no oral agreement pursuant to which he was to pay royalties and that, if there was an oral agreement, it is not enforceable. This could end up being a good case to discuss when presenting the statute of frauds. Expect another post if/when I am able to find the court filings.
[Heidi R. Anderson]
August 02, 2012
Social Impact Bonds: “The most interesting government contract written anywhere in the world this year”….
…. And the award goes to… Goldman Sachs and New York City. According to the ABA Journal, Goldman Sachs has loaned $9.6M to New York City to fund a new social services program with the aim of “reducing recidivism among young men at Rikers Island.” Details are to be provided later today (Thursday). The loans are being described as “social impact bonds” and they carry a nice return ($2.1 million) if there is a “significant reduction” in recidivism. If not, Goldman could lose up to $2.4 million (though, we know, Goldman won’t lose the money because, as a “market maker,” it will just turn around and sell the “shitty” bonds to an unwary client).
About the contracts that lie at the heart of the deal, the ABA Journal provides:
“This will get attention as perhaps the most interesting government contract written anywhere in the world this year,” said Jeffrey B. Liebman, a public policy professor at Harvard University. “People will study the contract terms, and the New York City deal will become a model for other jurisdictions.”
Similar programs have been tried in Great Britain and Australia and currently are being considered in Massachusetts.
But the New York Times reports that this program is different because Mayor Bloomberg’s foundation is a guarantor on the loan:
In a twist that differentiates New York’s plan from other governments’ experiments with social impact bonds, Mr. Bloomberg’s personal foundation, Bloomberg Philanthropies, will provide a $7.2 million loan guarantee to MDRC. If the jail program does not succeed, MDRC can use the Bloomberg money to repay Goldman a portion of its loan; if the program does succeed, Goldman will be paid by the city’s Department of Correction, and MDRC may use the Bloomberg money for other social impact bonds, said James Anderson, director of the foundation’s government innovation program.
The social impact bonds are not without critics:
But social impact bonds have also worried some people in the nonprofit and philanthropy field, who say monetary incentives could distort the programs or their evaluations. “I’m not saying that the market is evil,” said Mark Rosenman, a professor emeritus at Union Institute and University in Cincinnati, “but I am saying when we get into a situation where we are encouraging investment in order to generate private profit as a substitute for government responsibility, we’re making a big mistake.”
The proponents argue that this financing model is a transformative way to fund social programs, with benefits to both taxpayers and private investors. They argue that it is a way for government to pay to achieve outcomes.
[Meredith R. Miller]
July 25, 2012
Cast Members of ABC's Modern Family Claim that Their Contracts Are Invalid under "7 Year Rule."
Yesterday, the cast of ABC's hit sitcom, Modern Family, filed a Complaint for Declaratory Relief against the show's production company, Twentieth Century Fox. (Ed O'Neill, previously of Married...with Children fame, who is compensated differently than his co-stars, has not joined the lawsuit but plans to do so, according to The Hollywood Reporter). The stars apparently were negotiating pay increases for future seasons 4 through 9 but were not satisfied with the offers they were receiving. Twentieth Century Fox (and ABC, the network on which the show airs) reportedly offered to increase each cast member's per-episode compensation from around $65,000 to $200,000 for the next few years. As negotiations broke down, the stars filed suit.
The named plaintiffs (including Sofia Vergara, Jesse Tyler Ferguson, Eric Stonestreet, Julie Bowen and Ty Burrell) are relying on an interesting legal strategy. They claim that their employement agreements are "personal service contracts" that are "illegal and void under California law" because they violate the "Seven-Year Rule." The Seven-Year Rule is codified in California's Labor Code section 2855(a), copied below:
"Except as otherwise provided in subdivision (b), a contract to render personal service, other than a contract of apprenticeship as provided in Chapter 4 (commencing with Section 3070), may not be enforced against the employee beyond seven years from the commencement of service under it. Any contract, otherwise valid, to perform or render service of a special, unique, unusual, extraordinary, or intellectual character, which gives it peculiar value and the loss of which cannot be reasonably or adequately compensated in damages in an action at law, may nevertheless be enforced against the person contracting to render the service, for a term not to exceed seven years from the commencement of service under it. If the employee voluntarily continues to serve under it beyond that time, the contract may be referred to as affording a presumptive measure of the compensation."
The complaint itself does not quote from the code section. It merely cites the code section and adds this parenthetical: "(personal service contracts are barred from having terms beyond seven years)." The complaint also does not explain how the law applies to a contract of a shorter duration that provides the employer (Twentieth Century Fox) with the option to extend it beyond seven years. Without citing any cases, it's hard to tell how this law would be interpreted to apply to the cast employment agreements. However, I am not a California lawyer so I should not go further without doing more research. Anyone know anything about this law?
If I never look into it more deeply, I at least hope to use this case as an example of the importance of researching individual state law rather than thinking, "All I really need to know I learned in Contracts class."
[Heidi R. Anderson]
June 28, 2012
How the Supreme Court's Decision on the Affordable Care Act Was All About Contracts After All
Other blogs will tell you that the Supreme Court's healthcare decision was all about the commerce clause, Congress's taxing authority, and John Roberts's identity. But we here at ContractsProf Blog look past all of that and dig deeper. We dig all the way to page 46. Yes, I'm talking about the Medicaid expansion, the part of the Affordable Care Act ("ACA") that says, "it's my turn now, people!" when everyone already has walked away. Buried there is a discussion of an oft-covered Contract law defense to formation known as undue influence.
In case you never heard of are not as familiar with the Medicaid expansion as you are with the individual mandate (or, as I like to call it, the "anti-freeloader provision"), allow me to refresh your memory. (Or, allow me to point you to a great podcast.) Before the ACA, one qualified for Medicaid in most states only if she was a "needy individual" (Roberts's words, not mine), such as a pregnant woman, a child, a member of a needy family, or a blind, elderly, or disabled person. In the ACA, Congress required states to expand Medicaid to cover many allegedly "less needy" people, i.e., childless, non-disabled adults with incomes below a certain level. Actually, Congress didn't require such an expansion. It just said (and I'm paraphrasing), "You, state, can choose not to expand coverage to these other people. But, if you don't cover them, we're taking away ALL of your Medicaid funding, even if that federal money is ten percent of your state's entire revenue stream." In his opinion (which may or may not be the "majority" on this issue, depending on whom you ask), Chief Justice Roberts analyzed whether this directive from the federal government was a proper exercise of its Spending Clause powers. And that's where Contract law takes center stage (or, at least center-left).
The excerpt begins as follows (citations omitted):
"At the same time, our cases have recognized limits on Congress's power under the Spending Clause to secure state compliance with federal objectives. 'We have repeatedly characterized...Spending Clause legislation as "much in the nature of a contract."' The legitimacy of Congress's exercise of the spending power 'thus rests on whether the State voluntarily and knowingly accepts the terms of the "contract."'
And how would one allege that the State did not voluntarily accept the terms of the contract? Undue influence, that's how! The next portion of the opinion continues:
"[This insight regarding contracts] has led us to scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a 'power akin to undue influence.' Congress may use its spending power to create incentives for States to act in accordance with federal policies. But when 'pressure turns into compulsion,' the legislation runs contrary to our system of federalism.'"
Roberts ultimately agrees with the states that the federal government's "take it or leave it" offer rose to the level of coercion. I have not read the rest of the opinion or the other opinions to determine how many votes there were for this holding. It looks like only Breyer and Kagan agreed with Roberts on this point.* However, even if I can't give you certainty, I hope I've at least given you enough ammunition to use in your debates with Con Law professors who think today's decision is all about them.
[Heidi R. Anderson]
* Update: There were 7 votes to toss the Medicaid expansion--Roberts, Breyer and Kagan via the Roberts opinion and Scalia, Thomas, Kennedy and Alito via Scalia's dissent. Scalia's dissent discusses the Spending Clause issue using the same coercion-based Contracts rationale that Roberts used. The dissent's Contract-based discussion begins in earnest on page 33. The most direct excerpt states:
"When federal legislation gives the States a real choice whether to accept or decline a federal aid package, the federal-state relationship is in the nature of a contractual relationship. And just as a contract is voidable if coerced, 'the legitimacy of Congress' power to legislate under the spending power...rests on whether the state voluntarily and knowingly accepts the terms of the "contract."' If a federal spending program coerces participation the States have not 'exercised their choice'--let alone made an 'informed choice.'"
Based on this excerpt and the points that follow, it appears that the anti-expansion argument is better characterized as economic duress than as undue influence.
June 20, 2012
Contracts and Pension Reform
I'm a little late with this post but I'm going to open up a political can of worms here on the blog and talk about pension reform. In California, two cities (including my hometown, San Diego) have voted to approve changes to their city's pension plans. The San Jose measure seems to make changes to plans for retired workers. I can understand how changes to plans for new employees might be legal, but I'm not sure how changes to existing plans and vested benefits can be considered legal. The contract law issues boggle the mind. Not surprisingly, the proposed changes to the San Jose plan are being legally challenged. It's going to get messy....
June 15, 2012
Update on Golden Globes Contract Dispute
I previously blogged about the parol evidence rule and interpretation issues at the heart of a dispute between Dick Clark Productions ("DCP") and the Hollywood Foreign Press Association ("HFPA") over broadcast rights for the Golden Globes. I now have two updates.
First, the District Court has ruled in favor of DCP in a 89-page opinion posted here by the Hollywood Reporter. Pages 65-78 contain the arguments and holdings regarding the "plain meaning" of the modified contract and the use of extrinsic evidence (citing the commonly-used PG&E case). Pages 79-81 review HFPA's argument that there was no consideration for the modified contract. The opinion even contains a helpful discussion of mistake at pages 81-83.
The second update is that Dick Clark Productions reportedly is up for sale (less than two months after Dick Clark's passing). It would be interesting to see the DCP-HFPA contract provisions regarding assignment and change of control. Perhaps there will be a post-sale lawsuit as well.
Ultimately, I predict that this case appears in Contracts casebooks very soon. The combination of issues, the high profile nature of the dispute, and the short contractual provision itself, all make it a great candidate. As one lawyer said to the LA Times,"So much litigation over 12 words...."
Stay tuned (pun intended).
[Heidi R. Anderson]
April 02, 2012
CBS Squashes Production of Original Series Star Trek Episode: "He Walked Among Us"
As reported in The New York Times, the discovery of a lost episode of Star Trek has sparked a, so far, non-litigious debate over CBS’s decision to enforce its right in the material and to prohibit the online airing of an amateur production based on the episode’s script.
Norman Spinrad wrote the episode, He Walked Among Us,” in 1967 after the show’s producers approached him with a four-day deadline and a box of no-doze. The producers thought the episode might provide an opportunity for comedian Milton Berle to work a dramatic role. Tragically, the episode never aired, and Spinrad’s script ended up getting donated to the archives at Cal State Fullerton, where it sat unnoticed for decades.
Years later, Spinrad was approached at a convention by a Trekkie (depicted in the image above) who asked Spinrad to sign a copy of “He Walked Among Us.” Spinrad later teamed up with James Cawley to discuss the possibility of finally producing “He Walked Among Us.” Cawley is senior executive producer for “Phase II,” a web-based production studio that uses unpaid amateur actors to act out Trekkies’ favorite episodes. In these productions, Cawley plays Captain Kirk, which is a bit like putting together a Shakespeare company so that you can play Hamlet. But still . . . .
CBS sent Cawley an email, asking him to cease production of the episode. CBS has been consistently buying merchandising, television and online rights to Star Trek. Cawley and Spinrad apparently have good relations with CBS and want to keep things that way. As Spinrad puts it on his website,
I and CBS have agreed to resolve our disputes concerning the ownership of the Work; as part of the settlement between the Parties, the Parties have agree that there will be no further comment; and CBS is considering opportunities to offer licensed copies of the Work.
Because of the above, I can no longer comment on the He Walked Among Us screenplay myself.
It is uncertain exactly why CBS has allowed Phase II to produce other unaired Trek projects but has decided to stonewall this project. Here are the leading theories:
- The subject matter of “He Walked Among Us” has been mined so thoroughly in other Star Trek episodes, CBS is concerned that further probing in this area could open up a rift in the time/space continuum;
- Due to a holodeck malfunction, the person calling himself Norman Spinrad is really Kirk’s arch-nemesis, Khan, returned to destroy the good name of the Star Trek franchise;
- After consulting with its resident half-Betazoid advisor, CBS concluded that there was something not quite right about the episode – some sort of deception may be involved, or not;
- William Shatner was insisting on playing the Milton Berle part and that the part include a fist-fight;
- CBS producers thought the episode's lower decks discussion of why Star Fleet could mandate health care coverage but not require that all replicators be programmed to synthesize broccoli when receiving requests for "junk food" was too dated; and
- A crucial element in the plot is the possibility of traveling at speeds in excess of light speed, and now that the faster-than-light neutrinos theory has been debunked, CBS thinks viewers will be unable to suspend disbelief
[JT and Justin Berggren]
March 12, 2012
Alabama's Immigration Law and the Contract Clause (Again)
We wondered a few months back whether Alabama's immigration law might give rise to a Contract Clause challenge. Section 27 of that law, with a few exceptions, bars Alabama courts from enforcing a contract to which a person who is unlawfully present in the United States is a party. Section 30 of the law makes it a felony for an alien not lawfully present in the United States to enter into a “business transaction” with the State of Alabama or any political subdivision thereof. The Contract Clause provides that "No State shall . . . pass any . . . Law impairing the Obligation of Contracts." Sections 27 and 30 seem facially problematic, but Contract Clause challenges have rarely succeeded since the Lochner era.
For some more detail, see the Constitutional Law Prof Blog.
The Eleventh Circuit has now enjoined the enforcement of those two provisions, pending the Supreme Court's ruling later this term in a case challenging Arizona's new tough immigration law. In a previous decision (before a different panel for some reason), the Eleventh Circuit also enjoined two other provisions of the law, which do not relate to contracts.
For some more detail, see the Constitutional Law Prof Blog.
For more information on the Supreme Court case, Arizona v. United States, check out the coverage over at the SCOTUSblog. The Arizona law has a provision that makes it a misdemeanor for an undocumented immigration to apply for a job or to work in Arizona. The contracts clause claim does not appear to be part of the Arizona case, but the Supreme Court's ruling (expected this summer) will certainly provide guidance to the 11th Circuit on the question of federal preemption of state immigration laws.
February 09, 2012
General Strike in Israel
We have not gotten much use out of our "Labor Contracts" category on this blog, but we've got a big story to report today, about a union really is flexing its muscles. Today's New York Times, reports that the Israeli labor union, the Histadrut, which represents hundreds of thousands of public sector workers, has called a general strike.that started yesterday and has shut down everything from government offices and the stock exchange to hospitals and even the Ben-Gurion national airport.
Ahh, general strikes! Those were the days. The very words are like a madeleine conjuring up images of Rosa Luxemburg and Karl Liebknecht rousing the forces of the Social Democratic and Independent Social Democratic Parties in post-WW I Berlin (see announcement at left). Meanwhile, closer to home, Mitch Daniels has signed legislation making Indiana a "right-to-work" state.
According to the Times, the central issue in the dispute is the government's increasing use of contract workers, whose pay is considerably less than that of Histadrut members. However, as reported here in Ha'aretz, talks are expected to conclude as early today to reach a deal that will end the general strike. The government has apparently agreed to re-classify some of the contract workers as government employees, thus entitling them to higher salaries and benefits. However, that change in status will effect only a few thousand out of approximately 300,000 contract workers.
January 30, 2012
Waiting for Those College Acceptances Just Became More Stressful....
Dozens of applicants to Vassar College celebrated their acceptances -- but only for a couple of hours. (The link is here - I wonder what Lisa Kudrow and Meryl Streep think about this snafu...?) These applicants were later informed, also electronically, that those acceptances were sent in error. At least Vassar didn't text their rejections....
Did the acceptances create an enforceable contract? Over at Concurring Opinions, Lawrence Cunningham has a post arguing that they probably did not. I don't think the answer is clear without knowing more about the circumstances of the early decision process. Another possibility - could Vassar argue this was merely preliminary negotiations and there was no agreement until the enrollment contract was signed and accepted? (This might not get Vassar off the hook with at least some students since the article indicates that a few paid their deposit and so might have sent in their enrollment contracts....) It's an interesting issue - and one that is bound to arise more often with electronic communications. Speaking of which, I wouldn't be surprised if there is a browse- or clickwrap contract for Vassar's website which covers this scenario. If there isn't, there will be soon.
Vassar's Early Decision Snafu as Contracts Hypo
Could a computerized letter error made by Vassar College (the alma mater of the pictured Meryl Streep) potentially serve as an instructive hypo for students beginning their study of Contracts? My tentative thought is "yes," at least for those who start with formation versus damages. As the NYT reported over the weekend, Vassar College recently emailed decision letters to its "early decision" undergrad applicants. For many of those applicants, euphoria ensued. A few hours later, that euphoria was replaced by anger and grief. Why the emotional switcheroo? Well, it seems that some of the applicants mistakenly received a test-version of an acceptance letter (all of which said, "Congratulations...") instead of their actual decision letter (some of which said, "Congratulations..." but many more of which said, "We are sorry to inform you that..."). Because all of the posted test-version letters were acceptances, many applicants initially thought they had been accepted only to find out later that: (i) the letter they first saw was the wrong one, and (ii) the "right" letter was a denial. What makes this difficult situation particularly interesting from a Contracts perspective is that the early decision applicants reportedly had to commit to attending Vassar if admitted. Thus, one may be able to characterize their applications as binding "offers to attend," which Vassar then arguably accepted via the test-version letter, thereby forming a contract and making Vassar's later attempted revocation invalid. Alternatively, one could view the application as an invitation to deal, with the test-version of the letter as the offer, which Vassar then promptly revoked prior to acceptance. Although the applicants also could emphasize reliance, the short period of time between the posting of the test-version letter and the right letter likely mimimizes that possibility (that said, at least one applicant reportedly considered withdrawing her applications elsewhere upon receipt of the acceptance so perhaps there's more potential reliance here than the time lapse would indicate). As with many stories like this one, the precise facts matter. But that's what class time is for--considering the "what if..." questions using facts of our own creation.
[Heidi R. Anderson, h/t to Anonymous Contracts I student]
January 26, 2012
Garth Brooks wins breach of contract case and punitive damages
Country singer Garth Brooks recently won a breach of contract case against an Oklahoma hospital that the jury found promised to build a women's center in honor of the singer's mother in exchange for $500,000. The jury concluded that Brooks had been defrauded by the hospital. As contracts profs know, fraud it not an easy thing to prove especially where the case involved an oral agreement. The hospital has to return the original $500,000 and also has to pay $500,000 in punitive damages. Punitive damages are not an easy thing to win in breach of contract cases so congrats to Brooks and to his lawyers.
January 23, 2012
News flash: Fine print gets smaller and wordier
Forget the Republican primaries, the real news this week is fine print. As Jeremy Telman blogged, there are some troubling contract issues relating to the Costa Concordia disaster. The Wall Street Journal noted the prevalence of fine print everywhere, and the vast amounts of it. Finally, yesterday's New York Times had plastered on the front page of the Sunday Review this article about the mess of disclosure requirements that often leave consumers more confused and overwhelmed than enlightened.
January 20, 2012
Contracts Issues in the Costa Concordia Wreck
When I was a teenager, I used to read Mad Magazine (when I wasn't reading Dostoevsky, Kafka or Sartre, of course). I retain very few memories of my childhood, but one Mad feature stuck with me, although only vaguely. The idea was to take a story and present it as it would be presented in magazines with very different perspectives on the world. The story that Mad worked with was a football game, so of course one version was just to report on the game. Another version was a medical journal featuring an image of some bone that had been broken during the game. Another version that I remember distinctly featured a photograph of a football taken at very close range. The image was supposed to represent how the football game would be featured in a photography magazine. It described all of the particulars of the way the photograph was taken -- film speed, lens type, etc., and then mentioned that the photograph was of the ball as it soared through the uprights for the winning field goal, just before it smashed the photographer's camera. A nice touch, in the estimation of my 13-year-old mind.
I've often thought that this blog plays out Mad Magazine's idea, as do many other blogs and even the lamestream media. And so, we pick over the carcass of a human and environmental catastrophe for a tidbit of contracts doctrine. But we are not alone. As the New York Times reported yesterday, it will be very difficult for any victims of the Costa Concordia wreck to go after the ship's corporate parent, Carnival Cruise Lines, for reasons that will strike a chord with fans of the civil procedure chestnut, Carninval Cruise Lines, Inc. v. Shute.
According to the Times, at least 70 passengers of the ill-fated cruise ship have signed on to a class-action lawsuit, but their ability to get at the corporate defendant will be greatly hindered by the Convention on Limitation of Liability for Maritime Claims, characterized on the International Maritime Organization Website as “a virtually unbreakable system of limiting liability," and by the terms contained in the 6,400-word contracts attached to their cruise tickets.
The contract could provide great fodder for a few sessions on contractual remedies.
December 20, 2011
U.S. State-to-State Arms Sales Data 2003-2010
Some clues as to how the Greeks have spent all their money are available now from the Congressional Research Service.
A few other random thoughts on the data:
- African governments clearly are not doing all they could to help the U.S. economy through purchases of U.S. weaponry
- Hooray for Canada's unexpected militarism
- And while we're at it, good on ya Australia!
- Eastern Europe (other than Poland), don't look now but there's still a big Russian bear behind you. Can we interest you in some supersonic jets?
Thanks to Steven Aftergood of the Federation of American Scientists' Secrecy News blog for providing the link!
December 11, 2011
"Zip-it" contracts in a brave new world
Last week was a big week for contracts to "keep-your-mouth-shut". The L.A. times had this article about the recent exchange between "The Girl with the Dragon Tattoo" producer, Scott Rudin, and New Yorker film critic, David Denby. It seems that Denby broke his promise not to publish a review of an early screening of the movie. While these "agreements" are common in the film and publishing industry, they are much harder to enforce because of the Internet and the ability to post instantaneously.
On the flip side, more businesses that would otherwise not have considered such agreements are doing so. Paul Levy discusses one type of agreement that has been receiving some attention in the blogosphere, "medical confidentiality" agreements. Dave Hoffman blogged about it as well here. While I can understand, on a personal level, the desire to contain what one considers to be unfair negative reviews on an easily googleable website (not that it's ever happened to me, ahem...), these contracts raise a lot of troubling issues. And while it may seem like bad business for a doctor or dentist to have a patient sign a "zip-it" contract, if these practices are widely adopted, they become standard practice, leaving consumers with no real choice (kind of like the intrusive tracking policies adopted by so many websites which we can't really seem to prevent....).
December 08, 2011
More about those gas well leases
Jeremy Telman recently posted about this front page article in the NYT about oil and gas well leases, and the contractual traps for the unwary. This article mentions and explains some common terms in such leases.
There are additional contract issues that were raised by the article having to do with the bargaining process. There's a bargaining imbalance where you have one party with greater financial resources than the other or one with greater financial need. Another bargaining disparity involves knowledge - the oil and gas companies are much more familiar with these types of transactions and more knowledgeable about what could go wrong. It's their business. The landowners, on the other hand, presumably don't enter into these transactions often.
Unfortunately, contract law doesn't usually recognize these kinds of bargaining disparities, especially outside of the consumer context -- at least not to invalidate the contracts. A court might consider them in interpreting ambiguous contractual clauses. In addition, the landowners might be able to raise a lack of good faith argument that might affect the interpretation or construction of some of the contractual clauses or the parties' performance under the contract. For example, one lease cited in the article contained language that said that "preparation" to drill would allow the gas company to extend the duration of the lease. The landowners had negotiated what they considered a bad deal and planned to renegotiate it after it expired. A day before the expiration date, the gas company "parked a bulldozer nearby and started to survey an access road. A company official informed them that by moving equipment to the site, Chief Oil and Gas was preparing to drill and was therefore allowed to extend the lease indefinitely." I don't know about you, but that strikes me as performance that's not in good faith. I hope a judge would agree.
Something else that struck me in reading about these leases was how they highlight the overconfidence and optimism bias in these types of deals. Landowners are likely to focus on the potential upside of these deals - which can be pretty sky high. But things can and do go wrong in any type of transaction. The long term nature of these contracts makes it even more important to think carefully about the risks and not just the upside -- but a long time horizon also makes it harder to evaluate those risks.
And of course, as Jeremy mentioned in his post, there's the Peevyhouse issue. Even if you carefully draft a "clean up" or similar clause, a court may find performance to be economically wasteful and not enforce it. To safeguard against that, the parties might consider putting clean up costs in an escrow account and including a liquidated damages provision.
While this article was about gas well leases, I can see similar issues arising with other long term contracts, particularly those between landowners and energy companies. I predict we'll see a slew of innovative solutions around alternative energy (such as windfarms on private land) which is great - but again, it's important to take a large dose of caution with that optimism, especially if you are representing the "little guy/gal."