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Wednesday, January 30, 2013

A New Stambovsky?

Nyack[Edited: Apologies to my co-blogger, Nancy Kim, for posting this before reading our own blog to see that she already covered it. I'll keep this up for the links to the cases but please read Nancy's post for a more in-depth analysis of the materiality issue.]

For professors who teach nondisclosure as a "reason not to enforce a contract," (that's what the book I use calls "defenses"), Stambovsky v. Ackley often is a favorite case due its entertaining facts. In the case, the buyers of a Nyack, NY house (pictured) seek to have the contract rescinded due to the home being haunted by poltergeists. The haunted condition was known by the sellers but was not disclosed to the buyers.

I am particularly fond of the case in part because the opinion is filled with puns such as, "[I]n his pursuit of a legal remedy for fraudulent misrepresentation against the seller, plaintiff hasn't a ghost of a chance, [however,] I am nevertheless moved by the spirit of equity to allow the buyer to seek rescission of the contract of sale and recovery of his down payment.". Puns aside, the case is instructive because it helps students understand the difference between nondisclosure versus misrepresentation and gets some students to question their faith in caveat emptor. The fact that I teach the case right around Halloween is a nice bonus.  

The only potential problem with the case is that it's somewhat dated (yes, something from the 1990s can feel dated to current first-year students).  Thankfully, a student of mine from last semester just sent me a link to this newer version of Stambovsky out of Pennsylvania (what do ghosts love about the mid-atlantic states?).  In this new dispute, the buyer, a recent widow, is seeking to rescind the contract for sale of a home based on the nondisclosure of a murder-suicide in the home in the same year she agreed to purchase it.  The trial court granted summary judgment to the sellers and the appellate court affirmed, finding that, "psychological damage to a property cannot be considered a material defect in the property which must be revealed by the seller to the buyer."  The buyer now has appealed the case to the Supreme Court of Pennsylvania. No one knows how that court will exorcise its discretion (ba-dum-bum).

[Heidi R. Anderson] 

January 30, 2013 in Current Affairs, Famous Cases, Recent Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 29, 2013

Murder-suicide and the new homeowner

A Pennsylvania homeowner is suing the seller of the house and a real estate agent, claiming fraud and misrepresentation, for failing to tell her that the home she recently purchased had been the scene of a murder-suicide the previous year.  The homeowner had moved to Pennsylvania from California with her two children after her husband's death.  She learned of the murder-suicide from a neighbor, several weeks after moving in.  You can read about it here.

I don't know about you, but I think a murder suicide is pretty material, although there aren't enough facts here to indicate whether the seller and agent deliberately concealed the fact or whether the buyer inquired as to any unusual events happening in the house....  With respect to the seller, it might be one of those "tough luck" situations where the law just doesn't help the buyer even if the court feels sympathetic toward the buyer's situation.  It's not clear whether the agent is the buyer's agent - if so, the agent should have disclosed this as a fiduciary.  But it's more likely that the agent was actually the seller's agent, and not the agent of the buyer or a dual agent.  (Got that?  Just because someone has the word "agent" in their job title doesn't make that person your agent.  Who is paying the commission?  When in doubt about where the agent's loyalties lie - ASK the agent).

The lesson here - especially relevant given the recent rise in home sales - is BUYER BEWARE.  I wonder if a quick online search of the address would have uncovered the grisly events that took place in it.  It would probably be prudent for all potential home buyers to expressly ask, "Did anything unusual ever happen in this house that we should know about such as any crimes?"  A buyer should also ask how long the current sellers have lived in the house and why they are moving. [In this case, such a question probably wouldn't have helped the homeowner.  The immediate sellers were not the owners of the house when the murder-suicide took place, but subsequent owners who bought it, presumably at a low price given what had just happened in it, and then turned around and sold it to the out-of-state buyer].  The seller's failure to disclose in a situation where the buyer has specifically asked is entirely different from a failure to affirmatively disclose unasked for (albeit material) information.

N.B.  Under California real estate law (which imposes a duty to disclose facts materially affecting the value of real property where the facts would be hard to uncover), the result would probably have been different.  See Reed v. King, 145 Cal. App. 3d 261 (1983) involving a failure to disclose a multiple murder by a home seller.  Interesting, given that the PA home buyer was from California and might have expected a bit more from the seller based upon her real estate experiences there...

[Nancy Kim]


January 29, 2013 in Current Affairs, In the News, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 15, 2013

Conde Nast and Writers Rights

The N.Y. Times reports that Conde Nast has issued new contracts to its writers with changes that diminish their right to profits from articles.  Conde Nast is the publisher for magazines like Wired, Vanity Fair and The New Yorker.  (You remember magazines, right?  They’re printed on paper and you can usually find them at airports.  Unlike newspapers, they don’t leave inky residue on your fingers).  Conde Nast writers typically lack job security and benefits, signing one-year contracts – but they are (or were) allowed to keep the rights to their work. These rights could be valuable if an article becomes a movie, like “Argo” or “Brokeback Mountain.”  Under the new contracts, however, Conde Nast has exclusive rights to articles for periods of time ranging from thirty days to one year and option rights where payments to the writer top out at $5K. If the article is turned into a movie, there is also a cap on what writers can receive.

It would be easy for me to demonize Conde Nast given my association with writers.  Yet, it’s no secret that the demand for glossies is diminishing and that publishers need to figure out a way to monetize their content better – otherwise, there won’t be any magazine writers at all.  Perhaps Conde Nast could bargain employee benefits for these rights, the way newspapers do.  Maybe they could increase the cap based on different variables.  Maybe they could lift the exclusivity for certain writers after a period of time (or a designated number of successes).  Maybe they could commission articles that they conceived in-house, so that the work is a traditional work for hire, and the cap isn’t tied to an idea that originated with the writer.  In any event, it’s clear that Conde Nast needs to evolve with the marketplace; what’s not so clear is that this is the way to do it.

[Nancy Kim]

January 15, 2013 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 19, 2012

Thoughts on the Instagram Kerfuffle

Stop me if you've heard this one before - Facebook changes its Terms in a way that its users find offensive and invasive of their privacy.  Uproar ensues and Facebook promises that the changes are harmless and everyone is just overreacting.  Facebook backs off, a little, and then pushes the boundaries a little further next time, regaining even more ground against its users.  Sound familiar? 

When Facebook bought Instagram for (approximately) $750 million dollars, we should have known the time was coming when Instagram would piss off its users, too.  Well, that time is here.  Instagram posted changes to its Terms of Use this week which made users concerned that the company could use their content (i.e. photos) in advertisements.  So that lovely picture you took of your sweet grandmother could be used in an ad for Depends. The media was all over it, and you can read about it here, and here, and here

I think the public backlash is a very good thing since it reminds companies that there are at least some people who are reading their online agreements.  Unfortunately, they are usually only reading the terms of companies that already have a monopoly in the marketplace.  It's not easy for unhappy Facebookers, Googlers or Instagramers to pick up their content and go elsewhere - where would they go? 

What makes my skin crawl, however, is the misleading reassurances doled out by companies when they are called on their online agreements.  Instagram, for example, states on its blog that users shouldn't fear, because it respects them, really it does:

"Instagram users own their content and Instagram does not claim any ownership rights over your photos. Nothing about this has changed. We respect that there are creative artists and hobbyists alike that pour their heart into creating beautiful photos, and we respect that your photos are your photos. Period.

I always want you to feel comfortable sharing your photos on Instagram and we will always work hard to foster and respect our community and go out of our way to support its rights."

While it may be true that Instagram users own their content, Instagram does take a pretty broad license from its users:

"Instead, you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service, except that you can control who can view certain of your Content and activities on the Service as described in the Service's Privacy Policy, available here:"

As Instagram knows, it doesn't need to own your content in order to use it as if it owned it.  All it needs is a broad license, like the one it has.  Note that it has the right to "use" the content - and doesn't define what that means or restrict that use very much.

The Privacy Policy states that Instagram may use the information to in the following ways:

  • "provide personalized content and information to you and others, which could include online ads or other forms of marketing
  • provide, improve, test, and monitor the effectiveness of our Service
  • develop and test new products and features
  • monitor metrics such as total number of visitors, traffic, and demographic patterns"

I found this sentence particularly sneaky:

"We will not rent or sell your information to third parties outside Instagram (or the group of companies of which Instagram is a part) without your consent, except as noted in this Policy"

Did you like the "except as noted in this Policy" ?  And, as Contracts profs know, "consent" means something other than what a layperson might think - it can mean just using a website in many cases.  There is similar broad language here:

"We may also share certain information such as cookie data with third-party advertising partners. This information would allow third-party ad networks to, among other things, deliver targeted advertisements that they believe will be of most interest to you." 

I'm not as concerned about the targeted advertisements (which doesn't mean I'm not concerned at all) as I am about the "such as" and "among other things."

And remember, the Terms do expressly state:

"Some or all of the Service may be supported by advertising revenue. To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you."

The company reassures its users, on its blog that it is not their "intention" to "sell" user photos.  The company says it is working on language to make that clear.  Let's hope so, but my guess is that they are probably going to use more mealy language like "at the moment" or "sell as a good defined under the UCC," or something that leaves wide open the possibility that it can make money off user photos by selling them to third party advertisers. 

I'd suggest you save Granny some embarrassment and delete that photo now.

[Nancy Kim]


December 19, 2012 in Commentary, Current Affairs, Miscellaneous, True Contracts, Web/Tech, Weblogs | Permalink | Comments (0) | TrackBack (0)

Thursday, October 25, 2012

Can You Trump This Unilateral Contract Offer?


Although I am loathe to increase publicity for someone as publicity-hungry as "The Donald," I am confident that our loyal readers will permit me this one post. A few first semester Contracts students sent me a link to the above video and suggested that this was a great example of an offer to enter into a reward-style unilateral contract. I told them I'd oblige them and post it here.  It clearly identifies the one person who can accept, the manner and mode of acceptance, and the performance sought in return for Trump's promise.  In case you've been living under a rock ignoring anything political lately, the performance he seeks is President Obama's submission of passport and college application records (which Trump reportedly believes indicate a place of birth of Kenya).  The offered reward is Trump's promise to donate $5 million to a charity of the president's choice.

The president's fantastic response from The Tonight Show is posted below.


Not to be outdone, Stephen Colbert has offered up his own reward, the nature of which was, well...see for yourself (viewer discretion strongly advised).


[Heidi R. Anderson]

October 25, 2012 in Celebrity Contracts, Current Affairs, In the News | Permalink | TrackBack (0)

Thursday, October 11, 2012

Sausage or Pepperoni?

On the way in to work this morning, I heard on the radio that Pizza Hut is making an offer for a unilateral contract  (okay, that’s not exactly the way the d.j. put it, but anyway…).  The offer is free pizza for life to anyone who manages to ask either one of the presidential candidates during the town hall debate, “Do you prefer sausage or pepperoni on your pizza?”  The debate will take place October 16 at Hofstra University.  (It turns out that the offer is not actually “free pizza for life” it’s actually a $520/year gift card for up to 30 years).  A silly contest, of course -- but a good example to illustrate the difference between a unilateral and bilateral contract and related issues having to do with effective offers and acceptances.  Often, it doesn’t really matter if an offeree accepts by performing by by promising to perform– but in some cases (i.e. bets, dares), it really does.  I used to refer to the bet in the book, HOW TO EAT FRIED WORMS to explain the difference between a unilateral and bilateral contract (15 worms in 15 days for $50).  This year I might use the more election -season- friendly example of the Pizza Hut offer.

[Nancy Kim]

October 11, 2012 in Current Affairs, Food and Drink, In the News, Miscellaneous | Permalink | Comments (1) | TrackBack (0)

Tuesday, October 9, 2012

Challenge to Religious Arbitral Bodies Referred to European Court of Justice

As reported in The Guardian here, a challenge to a series of UK rulings permitting parties to specify the religion of their arbitrator is being referred to the European Court of Justice.  The UK Supreme Court case at issue, Jivraj v. Hashwani, was decided in July 2011.  The two parties to the dispute are members of the Ismaili Muslim community, and they agreed that any disputes involving their joint venture would be decided by an arbitrator who belonged to that same community.  

ECJThe parties fell out and, after some complicated litigation, their chosen arbitrator resigned.  Hashwani wanted to replace the Ismaili arbitrator with a retired judge, but Jivraj objected that the nomineed was not Ismaili.  Hashwani contended that the part of the paties agreement specifying the ethnicity of the arbitrator is s unenforceable under European legislation and the Equality Act 2010 because it unfairly discriminates against non-Ismaili arbitrators.  The Supreme Court ruled in Jivraj's favor, finding that the Equality Act does not apply to arbitrators and, even if it did, the requirement that the arbiter be Ismaili was a "genuine occupational requirement" and thus permissible.  

A new, Ismaili arbiter was appointed, but he too resigned, and Hashwani then asked the European Commission to refer the issue to the European Court of Justice.  Given that the dispute is clearly commercial, rather than religious in nature, Hashwani believes that there is no need for the arbitrator to be from the Isamili Islamic community.  The Guardian suggests that an ECJ ruling could have far-reaching consequences for religious arbitration, but it would seem that there is room for a narrow holding that religious arbitration is perfectly appropriate when there are issues of religious law to be adjudicated.  

[JT, with hat tip to my student, Alex Seciuch]

October 9, 2012 in Current Affairs, In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 2, 2012

Lawyer Who Forgets About "Offeror is King" Wins, Then Loses, Contest

CrownWhile teaching the concept of "offeror is king" this semester, I said something like, "I wish I had a crown.  One of you should bring me a crown!  There might be some participation points in it for you if you do."  (It sounded less entitled than that quote but you get the point.)  Shortly thereafter, two students brought me a crown--one from Burger King (of course!) and one from a party supply store.  The first one was just slipped under my door but the second one had "terms of acceptance" attached.  The terms stated that I had to use the crown in class and not disclose the student's name in order to accept.  I did both, and my acceptance was deemed substantively valid and timely by the entire class.  

Another student recently alerted me to a New York Times story about a lawyer victimized by the "offeror is king" concept.  The lawyer, Theodore Scott, reportedly produced a winning video and essay in response to a contest offer from Gold Peak Tea.  The contest winner would receive  $100,000 to take a year off and enjoy life (presumably over some tea).  However, after Mr. Scott's video received the highest number of votes and was declared the grand prize winner, Gold Peak Tea had a change of heart.  Apparently, Mr. Scott had requested votes for his contest entry via a crowdsourcing website on which people, well, request votes for things like this.  Gold Peak Tea took the position that Mr. Scott's online plea for votes violated the contest rules.  Because Mr. Scott accepted in a way other than that specified by the offeror, there was no deal, and a different winner was selected. 

As an interesting side note, many folks appear to be bombarding Gold Peak Tea's Facebook page with comments supporting Mr. Scott, the original winner.  The Facebook response from Gold Peak Tea reads as follows: 

    "Gold Peak appreciates input from the community on our Facebook page. The Take the Year Off     program was created to reward a Gold Peak Tea fan with the opportunity to refresh, renew and     refocus. By devoting more time to his three special needs children and bettering his community with     the development of a local equine therapy program, Michael Simpson will take the year off in a     deserving fashion. We’d like to address some of the feedback shared about the Take the Year Off         promotion and how the winner was determined:


Michael Simpson was declared the winner after we fully vetted his submission to ensure all content was in adherence with Official Contest Rules (

Unfortunately, Theodore Scott was disqualified when it was determined during the verification process that he had attempted to inappropriately induce members of the public to vote for his submission, a violation of Official Contest Rules (

The House Rules for the Gold Peak Tea Facebook page state that users will not “publish, post, distribute or disseminate any defamatory, infringing, obscene, indecent, misleading or unlawful material or information.” Certain posts addressing the Take the Year Off promotion do not abide by these Rules and have been removed ("

Gold Peak hopes the members of this community will join us in wishing Michael Simpson well in his year off."

Perhaps the ultimate message, then, is not "offeror is king" but, rather, "read the fine print."

[Heidi R. Anderson, hat tip to Ly Tran]




October 2, 2012 in Current Affairs, Games, In the News, Teaching | Permalink | Comments (0) | TrackBack (0)

Friday, 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]

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September 28, 2012 in Current Affairs, In the News, Teaching, True Contracts | Permalink | Comments (1) | TrackBack (0)

Tuesday, September 4, 2012

Size May Not Matter, But Placement Does

This just in from Wired Magazine via Eric Goldman of the Santa Clara Law:

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.


September 4, 2012 in Commentary, Current Affairs | Permalink | Comments (0) | TrackBack (0)

Friday, August 31, 2012

Using the Government's Breach of Contract Suit Against Navy Seal "Mark Owen" in Class?

PentagonThe 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 31, 2012 in Current Affairs, In the News, Teaching | Permalink | Comments (7) | TrackBack (0)

Thursday, 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 23, 2012 in Celebrity Contracts, Current Affairs, Teaching | Permalink | TrackBack (0)

Thursday, August 2, 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] 

August 2, 2012 in Current Affairs, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 25, 2012

Cast Members of ABC's Modern Family Claim that Their Contracts Are Invalid under "7 Year Rule."

Modern family
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] 

July 25, 2012 in Celebrity Contracts, Current Affairs, In the News, Television | Permalink | Comments (1) | TrackBack (0)

Thursday, June 28, 2012

How the Supreme Court's Decision on the Affordable Care Act Was All About Contracts After All

RobertsOther 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 28, 2012 in Current Affairs, In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, 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....


[Nancy Kim]




June 20, 2012 in Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0) | TrackBack (0)

Friday, June 15, 2012

Update on Golden Globes Contract Dispute

220px-Dick_Clark_American_Bandstand_1961I 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]

June 15, 2012 in Celebrity Contracts, Current Affairs, Film, In the News, Recent Cases, Teaching, Television, True Contracts | Permalink | TrackBack (0)

Monday, April 2, 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]

April 2, 2012 in Current Affairs, In the News, Television, Web/Tech | Permalink | Comments (2) | TrackBack (0)

Monday, March 12, 2012

Alabama's Immigration Law and the Contract Clause (Again)

Border WarningWe 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.


March 12, 2012 in Current Affairs, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, February 9, 2012

General Strike in Israel

General StrikeWe 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.


February 9, 2012 in Current Affairs, In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)