Monday, September 15, 2014
Last week, I was sitting in a waiting room while awaiting an oil change. CNN was on (too loudly and inescapably for my tastes, but I know my tastes are idiosyncratic). In urgent tones, the anchors repeatedly warned us that they had disturbing and graphic video that we might not want to watch. And then they played it. And then they played it again. They played it at actual speed; they played it in slow motion. They dissected it and discussed it, with experts and authorities, between commercial breaks and digressions into other "news," for the entire time I waited for the mechanics to finish with my car. It took over an hour, but that's another story . . .
The video showed a now-former NFL player hit a woman in an elevator, knocking her unconscious. The woman was his fiancee, Janay Palmer, and she is now his wife. What are we to conclude based on the grainy images that we watch because we can't bring ourselves to look away? My first conclusion is that Janay Palmer would not want us to be watching. My more tentative conclusion would be that every time we watch that video, we add to her humiliation and degradation.
At what point did Ms. Palmer give her consent to be videotaped, and at what point did she give consent to have this videotape used in this manner? Let's assume that the surveillance video had a useful purpose -- policing the premises to create a record in case a crime was committed. Let's also assume that we all are aware that when we are in public spaces, we know that video cameras might be present. If this video tape were shared with the police and used to prosecute a criminal, I think there would be strong arguments that Ms. Palmer gave implicit consent for the use of the surveillance video for such purposes. But how did the tape get to TMZ and then on to CNN? Did somebody profit from trafficking in the market for mass voyeurism?
It may be that we think that her consent is not required. We all know that we can be digitally recorded whenever we appear in public. That's just life in the big city in the 21st century. But perhaps we think that because we suffer from heuristic biases and believe that we and people we care about will never end up being the one being shown degraded and humiliated over and over again on national television and the Internet. Perhaps if we were less blinkered by such biases we would not ask whether Ms. Palmer has a right not to be associated with those grainy elevator-camera images. We would ask whether we have any right to view them.
Thursday, September 11, 2014
This is big - Governor Jerry Brown just signed a bill into law that would prohibit non-disparagement clauses in consumer contracts. The law states that contracts between a consumer and business for the "sale or lease of consumer goods or services" may not include a provision waiving a consumer's right to make statements about the business. The section is unwaivable. Furthermore, it is "unlawful" to threaten to enforce a non-disparagement clause. Civil penalties for violation of the law range from up to $2500 for a first violation to $5000 for each subsequent violations. (Violations seem to be based upon actions brought by a consumer or governmental authority, like a city attorney. They are not defined as each formation of a contract!) Furthermore, intentional or willful violations of the law subject the violator to a civil penalty of up to $10,000.
We've written about the dangers of non-disparagement clauses on this blog in the past. It's nice that one state (my home state, no less!) is taking some action. Will we see a California effect as other states follow the Golden State's lead? As I've said before, those non-disparagement clauses aren't such a good idea- now would be a good time for businesses to clean up their contracts.
Wednesday, September 10, 2014
By Myanna Dellinger
Craigslist has decided to crack down on companies that use data from its websites to generate ads on competing websites.
Technically, this can be and is done by various software programs (“spiders, “crawlers,” “scrapers” and the like) that look through craigslist and automatically cull information that can be reposted outside the Craigslist sites.
Courts broadly uphold liquidated damages clauses as long as they are not punitive in nature. Some of the factors that play into this rule is whether actual damages would be difficult to calculate after the breach occurs and whether they are unreasonably large.
With today’s many links to links to links, cross postings and machines retrieving data and using it for various purposes (not only commercial ones), contractual damages calculations may be too difficult and, for a court of law, too timeconsuming to be worth the judicial hassle. Liquidated damages are known to, among other things, present greater judicial efficiencies, which is very relevant in these kinds of cases. Perhaps Contracts Law needs to move towards an even broader recognition of such clauses and not be so concerned with the potential punitive aspect, at least as regards the “difficulty in calculation” aspect of the rule. After all, damages also serve a deterrent function. Sophisticated businesses operating programs specifically designed to retrieve data from other companies’ websites should - and logically must, in 2014 - be said to be on notice that they may be violating contractual agreements if they in effect just lift data from others without paying for it and without getting a specific permission to do so.
And what about consumer rights? If a person for some reason only wants his or her information posted on one particular site, why should it be possible for other companies to override that decision and post the information on other sites as well?
One thing is unavoidable technological change. Quite another is violating reasonable consumer and corporate expectations. Some measure of “stick” seems to be in order here.
Monday, September 8, 2014
In our first post about the Salaita case, we lamented how few posts really wrestled with the contractual (or promissory estoppel) issues in the case. Professor Kar’s post is the most detailed investigation of the contractual issues to appear to date. We also queried whether Salaita's potential constitutional claims against the University of Illinois might turn on the question of whether or not he had a contract with that institution, which is also the institution at which Professor Kar (pictured, at right) teaches. Kar notes:
Critics of the Chancellor’s decision argue that, even if there was no contract, Salaita’s rights to academic freedom vis-à-vis the University of Illinois should apply with equal force at the hiring as at the firing stage.
Professor Kar seems to disagree. He does not rule out entirely the possibility of constitutional and academic freedom claims in the absence of a contract, but he does note that "the existence of a contract should change the nature of the underlying arguments on both sides of this case."
Peofessor Kar's analysis is both passionate, in dealing with an issue that is creating genuine anguish at his institution, and dispassionate, in treating the Salaita case as a forum for the elaboration of his theory of contract law as empowerment. Based on the publicly-available facts, Professor Kar thinks Salaita's contractual claims are quite strong. As he puts it, "If the publicly known facts are all there is to know about this case, then I believe there very likely was a contract in this case, and that it may well have been breached." This is so because (in short), Salaita's offer letter incorporated by reference the American Association of University Professors' (AAUP) principles of academic freedom, and the AAUP interprets those principles to require (at least) warnings hearings before someone in Salaita's position can have his offer letter revoked. At this point, Professor Kar argues, his view of contract as empowerment becomes relevant to the analysis:
The power of the marketplace—in both academic and non-academic contexts—depends on parties’ capacities to make commitments that have certain objective elements to them. In this particular case, this means that the condition of Board of Trustee approval gave the Board some authority to refuse Salaita’s appointment—but not necessarily the authority it subjectively believes it has. If the Board’s unwillingness to approve this appointment reflects an undisclosed and idiosyncratic understanding of its authority, which diverges too sharply from the shared understandings of the national academic community, then there is likely a contract here. And it may well have been breached.
Professor Kar then proceeds to a discussion of the way out for the University of Illinois, which probably would involve a retreat. If the facts are as Professor Kar believes them to be, the Chancellor should "admit that the Salaita decision was in error and state that this matter is—properly speaking—outside of her hands."
I do not disagree with Professor Kar's analysis but I would like to push him on one point that I think is vital in this case and in his theory of empowerment generally. As a normative theory, I find Professor Kar's theory attractive, but I wonder about its applicability to situations of grossly unequal bargaining power, and I believe the Salaita case is such a situation. Professor Kar takes up this issue in earnest at the end of the second part of his work on contract as empowerment On page 73, Professor Kar acknowledges that parties "rarely enter into contracts from perfectly equal bargaining positions" and he notes that, "[i]t would therefore be significantly disempowering if parties were only bound by contracts negotiated in these circumstances."
But parties are routinely bound in circumstances when they have no real bargaining power. In such circumstances, even if Professor Kar is right that contracts law ought to be about empowerment, much of contract law (and this point has been made at great length by Peggy Radin, Nancy Kim, Oren Bar-Gill and others), is currently extremely disempowering for ordinary consumers and even for small businesses when (as in Italian Colors) they have to contract with corporate behemoths.
Professor Kar's assessment of Salaita's contractual claims turns on communal understandings of the contractual obligations that arise in such circumstances:
The University of Illinois is part of a much larger academic community, which extends well beyond the confines of Illinois. Its contractual interactions with other members of this community will thus be subjected to some tests for consistency with national understandings of how these interactions typically work. This includes national understandings about the appropriate relationship between government-appointed entities, like the Board of Trustees, and faculty decisions about hiring at academic institutions that aim to pursue knowledge impartially and in the absence of political influence.
As the conversation that has been taking place on the blogosphere thus far suggests, there may be no national consensus on the subject. Some contracts scholars will agree with Professor Kar; others, like Dave Hoffman, think that Salaita's contractual and promissory estoppel claims are weak, and they are weak precisely because Salaita lacked the bargaining power to protect himself. And if Salaita's case were to go before an adjudicatory body, it will not be decided based on whether contracts ought to be empowering but on whether the already empowered University of Illinois can escape any contractual obligation that might empower Professor Salaita.
Monday, August 25, 2014
As Jeremy Telman previously noted, the unhiring of Steven Salaita has caused quite a stir in academic circles. There was even an article in the Chronicle of Higher Education briefly discussing the contractual issues, which included the arguments made by Prof. Michael Dorf and Prof. David Hoffman. I think they both have good arguments but I tend to think this is a real contract and not an issue of promissory estoppel. The reason I believe this has to do with what constitutes a "reasonable interpretation" under these circumstances. I think both parties intended a contract and a "reasonable person" standing in the shoes of Salaita would have believed there was an offer. The offer was clearly accepted. What about the issue regarding final Board approval? Does that make his belief there was an offer - which he accepted - unreasonable? I don't think so given the norms surrounding this which essentially act as gap fillers and the way the parties acted both before and after the offer was accepted. I think the best interpretation - really, the only reasonable one given the hiring practices in academia - is that the Board approval was a rubber stamp but one that could be withheld if the hired party did something unexpected, like commit a crime. In other words, I think there was an offer that was accepted and that the discretionary authority of the board to approve his appointment was subject to the duty of good faith and fair dealing - i.e. the Board would only withhold approval for good cause. I don't think this was a conditional offer - the language would have to be much more explicit than it seemed to be and to interpret it that way would constitute a forfeiture (which courts don't like) - and yes, I considered whether it could be a condition to the effectiveness of a contract. That question caused me some angst but I still don't think it was given the hiring norms in general, and the way the parties acted.
There was, however, an implied term in the contract that Salaita would not do anything or that no information would come out that would change the nature of the bargain for the university. For example, if it turned out that he didn't really have a PhD or that he plagiarized some of his work, that would be grounds for the Board to refuse to approve his appointment. In that case, the Board could refuse to approve his hiring without breaching its good faith obligation.
The real dispute here is whether Salaita's tweets constituted a breach of that implied term (i.e. did it undermine the bargain that the university thought it was getting?) I think that's really what the disagreement in the academic community is about and why the real contractual issue has to do with interpretation - and the meaning of academic freedom.
Wednesday, August 6, 2014
Friday, July 18, 2014
By Myanna Dellinger
A woman owes $20 to Kohl’s on a credit card. The debt collector allegedly started to “harass” the woman over the debt, calling her cell phone up to 22 times per week as early as 6 a.m. and occasionally after midnight. What would a reasonable customer do? Probably pay the debt, which the woman admits was only a “measly $20.” What did this woman do? Not to pay the small debt, telling the caller that they had “the wrong number,” and follow the great American tradition of filing suit, alleging violations of the 1991 Telephone Consumer Protection Act which, among other things, makes it illegal to call cell phones using auto dialers or prerecorded voices without the recipient’s consent.
Consumer protection rules also prohibit collection agencies from calling before 8 a.m. and after 9 p.m., calling multiple times during one day, leaving voicemail messages at a work number, or continuing to call a work phone number if told not to.
Last year, Bank of America agreed to pay $32 million to settle claims relating to allegations of illegally using robo-debt collectors. Discover also settled a claim alleging that they violated the rules by calling people’s cell phones without their consent. Just recently, a man’s recorded 20-minute call to Comcast pleading with their representative to cancel his cable and internet service went viral online.
The legal moral of these stories is that companies are not and should, of course, not be allowed to harass anyone to collect on debt owed to them or refuse to cancel services no longer wanted. However, what about companies such as Kohl’s who are presumably owed very large amounts of money although in the form of many small debts? Is it reasonable that customers such as the above can do what she admits doing, simply saying “screw it” to the company and in fact reverse the roles of debtor and creditor by hoping for a settlement via a lawsuit on a questionable background? Surely not.
I once owned a small company and can attest to the difficulty of collecting on debts even with extensive accurate documentation. The only way my debt collecting service or myself were able to collect many outstanding amounts was precisely to make repeat requests and reminders (although, of course, in a professional manner). As a matter of principle, customers should not be able to get away with simply choosing not to pay for services or products they have ordered, even if the outstanding amounts are small. If companies have followed the law, perhaps time has come for them to refuse settling to once again re-establish the roles of debtor and creditor. This, one could hope, would lead irresponsible consumers to live up to their financial obligations, as must the rest of society.
Wednesday, July 16, 2014
It's been hard for me to avert my eyes from the train wreck happening at American Apparel. Yes, I heard the rumors about the shocking behavior of its former CEO, but the revelations of some of the past accusations by former employees are news to me. But, as Steven Davidoff Solomon points out in today's NYT, it's not surprising that the public didn't hear about the most egregious employee claims. American Apparel required all its employees to sign agreements containing arbitration clauses. Davidoff Solomon writes:
"The purpose of these clauses was clear: to ensure that any dispute was kept quiet and protect the company from excessive damages. It certainly didn’t appear to benefit employees.
American Apparel required that the entire proceeding — including the outcome — be kept confidential. Employees were also contractually barred from disparaging or otherwise say anything bad about Mr. Charney or American Apparel. As if this were not enough, employees also were required to agree not to speak to the news media without the approval of American Apparel."
It wasn't just employees - models had to sign egregious, one-sided contracts, too. These contracts also contained arbitration clauses and very broadly worded non-disparagement clauses.
As Davidoff Solomon notes, American Apparel's board could ignore their CEO's misconduct because there was not much public outcry about it, and there was not much public outcry because the employees and models who brought claims, couldn't discuss what happened to them - their contracts prohibited it. My guess is that these "contracts" were also "at will."
All from a company whose public image was based, at least in part, on fair pay for workers.
Tuesday, July 15, 2014
By Myanna Dellinger
The city of Berkeley, California, may become the first in the nation to require that gas stations affix warning stickers to gas pump handles warning consumers of the many recognized dangers of climate change. The stickers would read:
Global Warming Alert! Burning Gasoline Emits CO2
The City of Berkeley Cares About Global Warming
The state of California has determined that global warming caused by CO2 emissions poses a serious threat to the economic well-being, public health, natural resources, and the environment of California. To be part of the solution, go to www.sustainableberkeley.com
Consumers not only in California, but worldwide are familiar with similar warnings about the dangers of tobacco. The idea with the gas pump stickers is to “gently raise awareness” of the greenhouse gas impacts and the fact that consumers have alternatives. In their book “Nudge,” Richard Thaler and Cass Sunstein addressed the potential effectiveness of fairly subtly encouraging individual persons to act in societally or personally improved ways instead of using more negative enforcement methods such as telling people what not to do. Gas pump stickers would be an example of such a “nudge.”
But is that enough? World scientists have agreed that we must limit temperature increases to approximately 2° C to avoid dangerous climate change. The problem is that we are already headed towards a no less than 5° C increase. To stop this tend, we must reduce greenhouse gas emissions by 80% or more (targets vary somewhat) by 2050. Stickers with nudges are great, but in all likelihood, the world will need a whole lot more than that to reach the goal of curbing potentially catastrophic weather-related calamities.
Of course, the oil and gas industry opposes the Berkeley idea. The Western States Petroleum Association claimsthat the labels would “compel speech in violation of the 1st Amendment” and that “far less restrictive means exist to disseminate this information to the public without imposing onerous restrictions on businesses.” Why this type of sticker would, in contrast to, for example, labels on cigarette packaging, be so “onerous” and “restrictive” is not clear. Given the extent of available knowledge of climate change and its potential catastrophic effects on people and our natural environment, the industry is very much behind the curve in hoping for “less restrictive means.” More restrictive means than labels on dangerous products are arguably needed. Even more behind the curve is the Association’s claim that the information on the stickers is merely “opinion” that should not be “accorded the status of ‘fact’”. The Berkeley city attorney has vetted the potential ordinance and found the proposed language to be not only sufficiently narrow, but also to have been adopted by California citizens as the official policy of the state.
It seems that instead of facing reality, the oil and gas industry would rather keep consumers in the dark and force them to adopt or continue self-destructive habits. That didn’t work in the case of cigarettes and likely will not in this case either. We are a free country and can, within limits, buy and sell what we want to. But there are and should be restrictions. In this case, the “restriction” is actually not one at all; it is simply a matter of publishing facts. Surely, in America in 2014, no one can seriously dispute the desirability of doing that.
The Berkeley City Council is expected to address the issue in September.
Wednesday, July 9, 2014
By Myanna Dellinger
Recently, I blogged here on Aereo’s attempt to provide inexpensive TV programming to consumers by capturing and rebroadcasting cable TV operators’ products without paying the large fees charged by those operators. The technology is complex, but at bottom, Aereo argued that they were not breaking copyright laws because they merely enabled consumers to capture TV that was available over airwaves and via cloud technology anyway.
In the recent narrow 6-3 Supreme Court ruling, the Courts said that Aereo was “substantially similar” to a cable TV company since it sold a service that enabled subscribers to watch copyrighted TV programs shortly after they were broadcast by the cable companies. The Court found that “Aereo performs petitioners’ works publicly,” which violates the Copyright Act. The fact that Aereo uses slightly different technology than the cable companies does not make a “critical difference,” said the Court. Since the ruling, Aereo has suspended its operations and posted a message on its website that calls the Court’s outcome "a massive setback to consumers."
Whether or not the Supreme Court is legally right in this case is debatable, but it at least seems to be behind the technological curve. Of course the cable TV companies resisted Aereo’s services just as IBM did not predict the need for very many personal computers, Kodak failed to adjust quickly enough to the digital camera craze, music companies initially resisted digital files and online streaming of songs. But if companies want to survive in these technologically advanced times, it clearly does not make sense to resist technological changes. They should embrace not only technology, but also, in a free market, competition so long as, of course, no laws are violated. We also do not use typewriters anymore simply to protect the status quo of the companies that made them.
It is remarkable how much cable companies attempt to resist the fact that many, if not most, of us simply do not have time to watch hundreds of TV stations and thus should not have to buy huge, expensive package solutions. Not one of the traditional cable TV companies seem to consider the business advantage of offering more individualized solutions, which is technologically possible today. Instead, they are willing to waste money and time on resisting change all the way to the Supreme Court, not realizing that the change is coming whether or not they want it.
Surely an innovative company will soon be able to work its way around traditional cable companies’ strong position on this market while at the same time observing the Supreme Court’s markedly narrow holding. Some have already started doing so. Aereo itself promises that it is only “paus[ing] our operations temporarily as we consult with the court and map out our next steps.”
Thursday, July 3, 2014
Such is the rhetorical power of a contract, even one that nobody reads.
They also say "your trust is important to us."
Did Facebook act in bad faith by manipulating users' data feeds? It's at least arguable that they did.
Now, about the research results - as far as what the results showed, I'm not sure that the study did prove that positive posts enhanced users moods (and vice versa). A user may have changed the nature of a post in order to conform to the prevailing mood, but that doesn't mean they actually felt happier. Positive posts from others might have forced users to "fake it" by writing more positive posts and vice versa. So I'm not convinced that the research refuted the claim that happy Facebook posts depressed some FB users...
Friday, June 27, 2014
Several months back, I blogged about KlearGear's efforts to enforce a $3500 nondisparagement clause in their Terms of Sale against the Palmers, a Utah couple that had written a negative review about the company. It was a case so bizarre that I had a hard time believing that it was true and not some internet rumor. Even though the terms of sale most likely didn't apply to the Palmers --or to anyone given the improper presentation on the website-- KlearGear reported the couple's failure to pay the ridiculous $3500 fee to a collections agency which, in turn, hurt the couple's credit score. The couple, represented by Public Citizen, sued KlearGear and a court recently issued a default judgment against the company and awarded the couple $306,750 in compensatory and punitive damages. Consumerist has the full story here.
Congratulations to the Palmers and Scott Michelman from Public Citizen who has been representing the couple. And let this be a warning to other companies who might try to sneak a similar type of clause in their consumer contracts....
Tuesday, June 10, 2014
By Myanna Dellinger
What would you say if you found out that Facebook used your kids’ names and profile pictures to promote various third-party products and services to other kids? Appalling and legally impossible as minors cannot contract? That’s just what a group of plaintiffs (all minors) attempting to bring a class action lawsuit against Facebook argued recently, but to no avail. Here’s what happened:
Kids sign up on Facebook, “friend” their friends and add other information as well as their profile pictures. Facebook takes that information and display it to your kids’ friends, but alongside advertisements. The company insists that they do “nothing more than take information its users have voluntarily shared with their Facebook friends, and republish it to those same friends, sometimes alongside a related advertisement.” How does this happen? A program called “Social Ads” allows third parties to add their own content to the user material that is displayed when kids click on each other’s information.
The court dismissed the complaint, finding no viable theory on which it could find the user agreements between the kids and Facebook viable. In California, where the case was heard, Family Code § 6700 sets out the general rule for minors’ ability to contract: “… a minor may make a contract in the same manner as an adult, subject to the power of disaffirmance.” The plaintiffs had argued that as a general rule, minors cannot contract. That, said the court, is turning the rule on its head: minors can, as a starting point, contract, but they can affirmatively disaffirm the contracts if they wish to do so. In this case, they had not sought to do so before bringing suit.
Plaintiffs also argued that under § 6701, minors cannot delegate their power to, in effect, appoint Facebook as their agent who could then use their images and information. Wrong, said the court. Kids signing up on Facebook is “no different from the garden-variety rights a contracting party may obtain in a wide variety of contractual settings. Facebook users have, in effect, simply granted Facebook the right to use their names in pictures in certain specified situations in exchange for whatever benefits they may realize from using the Facebook site.”
In its never-ending quest to increase profits, Corporate America once again prevailed. Even children are not free from being used for this purpose. The only option they seemed to have had in this situation would have been to disaffirm the “contract;” in other words, to stop using Facebook. To me, that does not seem like a difficult choice, but I imagine the vehement protests instantly launched against parents asking their kids to stop using the popular website. Of course, kids are a highly attractive target audience. Some already have quite a bit of disposable income. They are all potential long-time customers for products/services not directed only at kids. Corporate name recognition is important in connection with this relatively impressionable audience. But is this acceptable? After all, there is an obvious reason why minors can disaffirm contracts. This option, however, would often require intense and perhaps undesirable parent supervision. In 2014, it is probably unreasonable to ask one’s kids not to be on social media (although the actual benefits of it are also highly debatable).
Although the legal outcome of this case is arguably correct, its impacts and the taste it leaves in one’s mouth are bad for unwary minors and their parents.
Friday, May 23, 2014
By Myanna Dellinger
In California, the Bureau of Reclamation is in charge of divvying up water contracts in the California River Delta between the general public and senior local water rights owners. Years ago, it signed off on long-term contracts that determined “the quantities of water and the allocation thereof” between the parties. About a decade ago, it renewed these contracts without undertaking a consultation with the Fish and Wildlife Service (“FWS”) to find out whether the contract renewals negatively affected the delta smelt, a small, but threatened, fish species. The thinking behind not doing so was that since the water contracts “substantially constrained” the Bureau’s discretion to negotiate new terms, no consultation was required.
Not correct, concluded an en banc Ninth Circuit Court of Appeals panel Ninth Circuit Court of Appeals panel recently. By way of brief background, Section 7 of the Endangered Species Act (“ESA”) requires federal agencies to ensure that none of their actions jeopardizes threatened or endangered species or their habitat. 16 U.S.C. § 1536(a). Among other things, federal agencies must consult with the FWS if they have “some discretion”"some discretion" to take action on behalf of a protected species. In this case, since the contractual provision did not strip the Bureau of all discretion to benefit the species, consultation should have taken place. For example, the Bureau could have renegotiated the pricing or timing terms and thus benefitted the species, said the court.
In 1993, the delta smelt had declined by 90% over the previous 20 years and was thus listed as a threatened species under the ESA. Of course, fish is not the only species vying for increasingly scarce California water. Man is another. The current and ongoing drought in California – one of the worst in history – raises questions about future allocations of water. Who should be prioritized? Private water right holders? People in Southern California continually thirsty and eager to water their often overly water-demanding garden plants? Industry? Farmers? Not to mention the wild animals and plants depending on sufficient levels of water? There are no easy answers here.
The California drought is estimated to cost Central Valley farmers $1.7 billion and 14,500 jobs. While that seems drastic, the drought is still not expected to have any significant effect on the state economy as California is no longer an agricultural state. In fact, agriculture only accounts for 5% of jobs in California. Still, that is no consolation to people losing their jobs in California agriculture or consumers having to pay higher prices for produce in an increasingly warming and drying California climate.
The 1974 movie Chinatown focused on the Los Angeles water supply system. 40 years later, the problem is just as bad, if not worse. The game as to who gets water contracts and for how much water is still on.
Sunday, May 18, 2014
By Myanna Dellinger
Recently, Jeremy Telman blogged here about the insanity of having to pay for hundreds of TV stations when one really only wants to, or has time to, watch a few.
Luckily, change may finally be on its way. The company Aereo is offering about 30 channels of network programming on, so far, computers or mobile devices using cloud technology. The price? About $10 a month, surely a dream for “cable cutters” in the areas which Aereo currently serves.
How does this work? Each customer gets their own tiny Aereo antenna instead of having to either have a large, unsightly antenna on their roofs or buying expensive cable services just to get broadcast stations. In other words, Aereo enables its subscribers to watch broadcast TV on modern, mobile devices at low cost and with relative technological ease. In other words, Aereo records show for its subscribers so that they don’t have to.
That sounds great, right? Not if you are the big broadcast companies in fear of losing millions or billions of dollars (from the revenue they get via cable companies that carry their shows). They claim that this is a loophole in the law that allows private users to record shows for their own private use, but not for companies to do so for commercial gain and copyright infringement.
Of course, the great American tradition of filing suit was followed. Most judges have sided with Aero so far, the networks have filed petition for review with the United States Supreme Court, which granted the petition in January.
Stay tuned for the outcome in this case…
Monday, May 12, 2014
By Myanna Dellinger
The United States Supreme Court recently held that airlines are allowed to revoke the membership of those of their frequent flyers who complain “too much” about the airline’s services (see Northwest v. Ginsberg). Contracts ProfBlog first wrote about the case on April 3.
In the case, Northwest Airlines claimed that it removed one of its Platinum Elite customers from the program because the customer had complained 24 times over a span of approximately half a year about such alleged problems as luggage arriving “late” at the carousel. The company also stated that the customer had asked for and received compensation “over and above” the company guidelines such as almost $2,000 in travel vouchers, $500 in cash reimbursements, and additional miles. According to the company, this was an “abuse” of the frequent flyer agreement, thus giving the company the sole discretion to exclude the customer. The customer said that the real reason for his removal from the program was that the airline wanted to cut costs ahead of the then-upcoming merger with Delta Airlines. He filed suit claiming breach of the implied covenant of good faith and fair dealing in his contract with Northwest Airlines.
The Court found that state law claims for breaches of the implied duty of good faith and fair dealing are pre-empted by the Airline Deregulation Act of 1978 if the claims seek to enlarge the contractual relations between airlines and their frequent flyers rather than simply seeking to hold parties to their actual agreement. The covenant is thus pre-empted whenever it seeks to implement “community standards of decency, fairness, or reasonableness” which, apparently, go above and beyond what airlines promise to their customers.
Really? Does this mean that airlines can repeatedly behave in indecent ways towards frequent flyer programs members (and others), but if the members repeatedly complain, they – the customers – “abuse” the contractual relationship?!.. The opinion may at first blush read as such and have that somewhat chilling effect. However, the Court also pointed out that passengers may still seek relief from the Department of Transportation, which has the authority to investigate contracts between airlines and passengers.
The unanimous opinion authored by J. Alito also stated that passengers can simply “avoid an airline with a poor reputation and possibly enroll in a more favorable rival program.” These days, that may be hard to do. First, most airlines appear to have more or less similar frequent flyer programs. Second, what airline these days has a truly “good” reputation? Granted, some are better than others, but when picking one’s air carrier, it sometimes seems like choosing between pest and cholera.
One example is the airlines’ highly restrictive change-of-ticket rules in relation to economy airfare, which seem almost unconscionable. I have flown Delta Airlines almost exclusively for almost two decades on numerous trips to Europe for family and business purposes. A few times, I have had the good fortune to fly first or business class, but most times, I fly economy. Until recently, it was possible to change one’s economy fare in return for a relatively hefty “change fee” of around $200 and “the increase, if any, in the fare.” - Guess what, the fares always had increased the times I asked for a change. Recently, I sought to change a ticket that I had bought for my elderly mother, also using KLM (which codeshares with Delta) as my mother is also frequent flyer with Delta. I was told that it was impossible to change the ticket as it was “deeply discounted.” I had shopped extensively online for the ticket, which was within very close range (actually slightly more expensive than that of Delta’s competitors. I asked the company what my mother could do in this situation, but was told that all she could do was to “throw out the ticket (worth around $900) and buy another one.” Remember that these days, airfare often has to be bought months ahead of time to get the best prices. In the meantime, life happens. Unexpected, yet important events come about. Changes to airline tickets should be realistically feasible, but are currently not on these conditions.
What airlines and regulators seem to forget in times of “freedom of contracting and market forces” is that some of us do not have large business budgets or fly only to go on a (rare, in this country) vacation. My mother is elderly and lives in Europe. I need to perform elder care on another continent and need flights for that purpose just as much as others need bus or train services. Such is life in a globalized world for many of us. In some nations, airlines feature at least quasi-governmental aspects and are much more heavily regulated than in the United States. Here, airfare seems to be increasing rapidly while the middle (and lower) incomes are more or less stagnant currently. I understand and appreciate the benefits of a free marketplace, but a few more regulations seem warranted in today’s economy. It should be possible to, for example, do something as simple as to change a date on a ticket (if, of course, seats are still available at the same price and by paying a realistic change fee) without having to buy extravagantly expensive first class or other types of “changeable” tickets.
Other “abuses” also seem to be conducted by airlines towards their passengers and not vice versa. For example, if one faces a death in the family, forget about the “grievance” airfares that you may think exist. Two years ago, my father was passing and I was called to his deathbed. Not having had the exact date at hand months earlier, I had to buy a ticket last minute (that’s usually how it goes in situations like that, I think…). The airline – a large American carrier - charged a very large amount for the ticket, but attempted to justify this with the fact that that ticket was “changeable” when, ironically, I did not need it to be as I needed to leave within a few hours.
In the United States, “market forces” are said to dictate the pricing of airfare. In Europe, some discount airlines fly for much lower prices than in the United States (think round-trip from northern to southern Europe for around $20 plus tax, albeit to smaller airports at off hours). Strange, since both markets are capitalist and offer freedom of contracting. Of course, these discount airlines also feature various fees driving up their prices somewhat, although not nearly as much as in the United States. A few years back, one discount European airline even announced that it planned to charge a few dollars for its passengers to use … the in-flight restrooms. Under heavy criticism, that plan was soon given up. In the United States, some airlines seem to be asking for legal trouble because of their lopsided business strategies. Sure, companies of course have to remain profitable, but when many of them claim in their marketing materials to be “family-oriented” and “focused on the needs of their passengers,” it would be nice if they would more thoroughly consider what that means.
Thursday, May 8, 2014
By Myanna Dellinger
On May 8, 2014, Vermont became the first state in the nation to require foods containing GMOs (genetically modified organisms) to be labeled accordingly. The law will undoubtedly face several legal challenges on both First Amendment and federal pre-emption grounds, especially since giant corporate interests are at stake.
Scientists and companies backing the use of GMOs claim that GMOs are safe for both humans and the environment. Skeptics assert that while that may be true in the short term, not enough data yet supports a finding that GMOs are also safe in the long term.
In the EU, all food products that make direct use of GMOs at any point in their production are subjected to labeling requirements, regardless of whether or not GM content is detectable in the end product. This has been the law for ten years.
GMO stakeholders in the United States apparently do not think that we as consumers have at least a right to know whether or not our foods contain GMOs. Why not, if the GMOs are as safe as is said? A host of other food ingredients have been listed on labels here over the years, although mainly on a voluntary basis. Think MSGs, sodium, wheat, peanuts, halal meat, and now gluten. This, of course, makes perfect sense. But why should GMOs be any different? If, for whatever reason, consumers prefer not to eat GMOs, shouldn’t we as paying, adult customers have as much a say as consumers preferring certain other products?
Of course, the difference here is (surprise!) one of profit-making: by labeling products “gluten free,” for example, manufacturers hope to make more money. If they had to announce that their products contain GMOs, companies fear losing money. So why don’t companies whose products don’t contain GMOs just volunteer to offer that information on the packaging? The explanation may lie in the pervasiveness of GMOs in the USA: the vast majority (60-80%, depending on the many sources trying to establish certainty in this area) of prepared foods contain GMOs just as more than 80% of major crops are grown from genetically modified seeds. Maybe GMOs are entirely safe in the long run as well, maybe not, but we should at least have a right to know what we eat, it seems.
Wednesday, April 30, 2014
By Myanna Dellinger
A class-action lawsuit filed recently against Amazon asserts that the giant online retailer did not honor its promise to offer “free shipping” to its Prime members in spite of these members having paid an annual membership fee of $79 mainly in order to obtain free two-day shipping.
Instead, the lawsuit alleges, Amazon would covertly encourage third-party vendors to increase the item prices displayed and charged to Prime members by the same amount charged to non-Prime members for shipping in order to make it appear as if the Prime members would get the shipping for free. Amazon would allegedly also benefit from such higher prices as it deducts a referral fee as a percentage of the item price from third-party vendors.
The suit alleges breach of contract and seeks recovery of Prime membership costs for the relevant years as well as treble damages under Washington’s Consumer Protection Act. Most states have laws such as consumer fraud statutes, deceptive trade practices laws, and/or unfair competition laws that can punish sellers for charging more than the actual costs of “shipping and handling." In some cases that settled, companies agreed to use the term “shipping and processing” instead of “shipping and handling” to be more clear towards consumers.
On the flip side of the situation is how Amazon outright prevents at least some private third-party vendors from charging the actual shipping costs (not even including “handling” or “processing” charges). For example, if a private, unaffiliated vendor sells a used book via Amazon, the site will only allow that person to charge a certain amount for shipping. As post office and UPS/FedEx costs of mailing items seem to be increasing (understandably so in at least the case of the USPS), the charges allowed for by Amazon often do not cover the actual costs of sending items. And if the private party attempts to increase the price of the book even just slightly to not incur a “loss” on shipping, the book may not be listed as the cheapest one available and thus not be sold.
This last issue may be a detail as the site still is a way of getting one’s used books sold at all whereas that may not have been possible without Amazon. Nonetheless, the totality of the above allegations, if proven to be true, and the facts just described till demonstrate the contractual powers that modern online giants have over competitors and consumers.
A decade or so ago, I attended a business conference for other purposes. I remember how one presenter, when discussing “shipping and handling” charges, got a gleeful look in his eyes and mentioned that when it came to those charges, it was “Christmas time.” When comparing what shipping actually costs (not that much for large mail-order companies that probably enjoy discounted rates with the shipping companies) with the charges listed by many companies, it seems that not much has changed in that area. On the other hand, promises of “free” shipping have, of course, been internalized in the prices charged somehow. One can hope that companies are on the up-and-up about the charges. Again: buyer beware.
Friday, April 18, 2014
For those of you unable to attend the "Making the Fine Print Fair" Symposium, hosted by the Georgetown Consumer Law Society and Citizen Works -Fair Contracts.org, here is a link to a Livestream of the program. It was an absolutely terrific event with a great mix of academics, consumer advocates, regulators and practitioners. The amazing line-up of speakers, included FTC Chair Edith Ramirez, consumer advocate Ralph Nader and NYT bestselling author Bob Sullivan.
Monday, March 31, 2014
More on the Fairness of Contractual Penalties
By Myanna Dellinger
In my March 3 blog post, I described how the Ninth Circuit Court of Appeals just held that contractual liquidated damages clauses in the form of late and overlimit fees on credit cards do not violate due process law. A new California appellate case addresses a related issue, namely whether the breach of a loan settlement agreement calling for the repayment of the entire underlying loan and not just the settled-upon amount in the case of breach is a contractually prohibited penalty. It is.
In the case, Purcell v. Schweitzer (Cal. App. 4th Dist., Mar. 17, 2014), an individual borrowed $85,000 from a private lender and defaulted. The parties agreed to settle the dispute for $38,000. A provision in the settlement provided that if the borrower also defaulted on that amount, the entire amount would become due as “punitive damages.” When the borrower only owed $67 or $1,776 (depending on who you ask), he again defaulted, and the lender applied for and obtained a default judgment for $85,000.
Liquidated damages clauses in contracts are “enforceable if the damages flowing from the breach are likely to be difficult to ascertain or prove at the time of the agreement, and the liquidated damages sum represents a good faith effort by the parties to appraise the benefit of the bargain.” Piñon v. Bank of Am., 741 F.3d 1022, 1026 (Ninth Cir. 2014). The relevant “breach” to be analyzed is the breach of the stipulation, not the breach of the underlying contract. Purcell. On the other hand, contractual provisions are unenforceable as penalties if they are designed “not to estimate probable actual damages, but to punish the breaching party or coerce his or her performance.” Piñon, 741 F.3d at 1026.
At first blush, these two cases seem to reach the same legally and logically correct conclusion on similar backgrounds. But do they? The Ninth Circuit case in effect condones large national banks and credit card companies charging relatively small individual, but in sum very significant, fees that arguably bear little relationship to the actual damages suffered by banks when their customers pay late or exceed their credit limits. (See, in general, concurrence in Piñon). In 2002, for example, credit card companies collected $7.3 billion in late fees. Seana Shiffrin, Are Credit Card Law Fees Unconstitutional?, 15 Wm. & Mary Bill Rts. J. 457, 460 (2006). Thus, although the initial cost to each customer may be small (late fees typically range from $15 to $40), the ultimate result is still that very large sums of money are shifted from millions of private individuals to a few large financial entities for, as was stated by the Ninth Circuit, contractual violations that do not really cost the companies much. These fees may “reflect a compensatory to penalty damages ratio of more than 1:100, which far exceeds the ratio” condoned by the United States Supreme Court in tort cases. Piñon, 741 F.3d at 1028. In contrast, the California case shows that much smaller lenders of course also have no right to punitive damages that bear no relationship to the actual damages suffered, although in that case, the ratio was “only” about 1:2.
The United States Supreme Court should indeed resolve the issue of whether due process jurisprudence is applicable to contractual penalty clauses even though they originate from the parties’ private contracts and are thus distinct from the jury-determined punitive damages awards at issue in the cases that limited punitive damages in torts cases to a certain ratio. Government action is arguably involved by courts condoning, for example, the imposition of late fees if it is true that they do not reflect the true costs to the companies of contractual breaches by their clients. In my opinion, the California case represents the better outcome simply because it barred provisions that were clearly punitive in nature. But “fees” imposed by various corporations not only for late payments that may have little consequence for companies that typically get much money back via large interest rates, but also for a range of other items appear to be a way for companies to simply earn more money without rendering much in return.
At the end of the day, it is arguably economically wasteful from society’s point of view to siphon large amounts of money in “late fees” from private individuals to large national financial institutions many of which have not in recent history demonstrated sound economic savvy themselves, especially in the current economic environment. Courts should remember that whether or not liquidated damages clauses are actually a disguise for penalties depends on “the actual facts, not the words which may have been used in the contract.” Cook v. King Manor and Convalescent Hospital, 40 Cal. App. 3d 782, 792 (1974).