Wednesday, May 11, 2016
Contracts preventing consumers from filing class-action lawsuits against banks may soon be illegal if a proposed ruling by the Consumer Financial Protection Bureau takes effect. A hearing on the ruling will be held on Thursday, May 12, 2016.
For quite some time, clauses requiring consumers to arbitrate disputes with banks and banning class action lawsuits against banks in cases of disputes have been common. According to a prominent attorney to testify at Thursday’s hearing, one of the effects of required arbitration has been to make class action lawsuit highly unlikely. Of course, a contractual clause outright prohibiting class action suits means that if a consumer wants to litigate the dispute and arbitration, he or she would have to do so in an individualized suit. Because of the low amounts typical at issue in bank-v-consumer disputes, such clauses have had the effect of preventing litigation. Even if it comes to litigation between banks and consumers, “consumers can easily be outgunned” by savvy banks who additionally are said to “like to drag things out,” a problem when consumers at the same time have to take time off from work to litigate.
The proposed rule would not ban arbitration clauses. Rather, it would prevent contract clauses from including language that bans consumers from joining class-action cases. Such bans are common, and they have become more widely enforced since the United States Supreme Court in 2011 held that the FAA requires state courts to honor bans even if state law prohibits them.
According to Consumer Bureau Director Richard Cordray, "signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong." Cordray also calls the current practice a "contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing." The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness calls the proposed rules a “backdoor ban” on arbitration clauses, said to provide individual consumers the chance for “more financial relief than a class-action suit.” The Pew Charitable Trusts’ Consumer Banking Project states that it is probably true that banks will ditch arbitration clauses if the CFPB’s rules take effect, but “consumers will probably be just fine.”
Friday, May 6, 2016
Nevertheless, the court refused to enforce the provision. The court noted that part of the test in evaluating whether to enforce a choice-of-law provision is to consider whether California's law would be contrary to the "fundamental policy" of Illinois's law and, if so, whether Illinois would therefore have a "materially greater interest" than California in the case at issue. Here, Illinois is one of only a few states with a statute concerning biometrics; California has no such statute. The court found that Illinois's BIPA represented a fundamental policy of Illinois to protect its residents from unauthorized use of their biometrics, and that applying California law here instead of Illinois law would interfere with Illinois's policy. In fact, the court noted, enforcing the choice-of-law provision would effectively eliminate any effectiveness of BIPA whatsoever, because there would be no ability for Illinois residents to protect themselves against national corporations like Facebook. Therefore, the court found, Facebook has to deal with Illinois's BIPA, regardless of Facebook's attempts to limit the relevant laws of its service to only California's laws.
This all leaves for another day whether the Tag Suggestions program actually does violate BIPA.
Monday, May 2, 2016
The answer is a definite... maybe.
Bitcoin, of course, is the original--and many would say at this point, most successful--effort to create a "cryptocurrency," a digital store of value that can be traded electronically without the necessity of a bank intermediary yet can also avoid the problem of double-spending (i.e., digital counterfeiting) that would destroy an electronic currency's value. For purposes of contract law, Bitcoin is most notable because the aforementioned double-spending problem was solved by the creation and implementation of blockchain technology. Blockchain programming allows, among other things, for the maintenance of transactional records in a ledger distributed among numerous and otherwise unrelated computers across the internet rather than in a central location. Contract lawyers have particular reason to care about the blockchain because it raises the looming possibility of "smart contracts," contracts with the technical capability of enforcing themselves.
An enduring mystery of Bitcoin has been the identity of its 2008 creator, who to date has been identified only by the pseudonym "Satoshi Nakamoto." Efforts to identify Nakamoto have been largely unsuccessful, with the most notable misstep being Newsweek's debunked 2014 claim that Satoshi was Japanese-American physicist Dorian Nakamoto.
This rather enduring tech mystery may have been solved, though skeptics remain unconvinced. In an interview with the BBC and other media organizations, Australian tech entrepreneur Craig Wright claims to be the real Satoshi Nakamoto, and other prominent members of the Bitcoin community are backing his claim. The fact that Wright's claim arose on the eve of the digital currency and technology conference Consensus 2016 has allowed for the intriguing circumstance of people in the know reacting and the entire story being live blogged.
So is Craig Wright actually Satoshi Nakamoto? Opinion certainly may shift over the next several days and weeks, but at this point a majority seem to be accepting his claim or profess to be open to accepting it. All in all, an intriguing turn of events out on the periphery of contracts and commercial law.
A class action lawsuit has been filed against Starbucks for negligent misrepresentation, fraud and unjust enrichment in the company’s sale of cold drinks.
The company offers three sizes of drinks — Tall, Grande, Venti and Trenta — which correspond to 12, 16, 24 and 30 fluid ounces, respectively. These fluid ounce measurements are advertised in the store. However, because of the large amounts of ice added to the drinks, customers actually receive much less (at a high price, as is well known).
The complaint claims that "[a] Starbucks customer who orders a Venti cold drink receives only 14 fluid ounces of that drink — just over half the advertised amount, and just over half the amount for which they are paying … In the iced coffee example, a Starbucks customer who orders and pays for a Venti iced coffee, expecting to receive 24 fluid ounces of iced coffee based on Starbucks' advertisement and marketing, will instead receive only about 14 fluid ounces of iced coffee."
A Starbucks spokesperson states that “[o]ur customers understand and expect that ice is an essential component of any ‘iced’ beverage,” adding that the company would remake any beverage if a customer is unsatisfied.
Maybe it would be a better idea to get a beer or a wine. They can’t water those down (I think...). Five Starbucks locations in the D.C. area have started serving booze and tapas as part of a nationwide effort to keep some of its stores open after typical coffee shop hours.
Going to a coffee shop for… tapas and alcohol in order to … what, stay loyal to an already huge brand? Avoid trying a local bar? If you think “only in America,” think again: Starbucks is also enjoying huge success in Europe, home of exquisite coffee shops with excellent pastries and snack. Talk about selling sand to Sahara…
Monday, April 25, 2016
My love for HGTV is real and enduring. It started as a House Hunters addiction when I was a practicing lawyer looking for something mindless to watch when I got home at night and it has seriously spiraled out of control. I find something soothing about the formulaic nature of the shows; their familiarity is like a security blanket to me. And I've also realized that I've actually learned a lot about my taste. For what it's worth, I do feel like HGTV has made me think more about how I decorate my house, even if I can't afford a professional decorator.
So I gobbled up with interest every single article I could find on the recent "Love It or List It" lawsuit. If you don't know the show, it's one of my favorites for the snark between the competing real estate agent and designer. One half of a home-owning couple wants to renovate their existing home; the other half wants to give up and move away. Enter the "Love It or List It" team, showing the couple houses they could buy while simultaneously renovating their home. The theory is that the couple can then decide to love it, or list it.
I entertain no illusions about the "realness" of reality television (really, mostly I've learned from reality television that apparently an enormous number of people are tremendously good actors - while others are decidedly not), but this recent lawsuit attacks not just the "realness" of reality television but practically the *definition* of it: "Love It or List It," the homeowners accuse, were much more interested in making a television show than they were in renovating this couple's home. On at least some level, this lawsuit seems to be a challenge to what "Love It or List It" is: a television show or a general contractor.
As a general contractor, the homeowners weren't too happy with the show's performance. They allege shoddy work on their house, including low-quality product, windows that were painted shut, and holes big enough for vermin to fit through. (They also allege their floor was "irreparably damaged," although I think they can't possibly mean that in the true legal sense of "irreparably," because surely the floor can be repaired?)
It seems to me this is going to come down to the contract between the parties. What did "Love It or List It"'s production company promise? I would love to see what the contract said about the work that was to be performed, how that work was to be performed, and what the financial arrangements were (since part of the couples' allegations is that a large portion of their money was diverted away from the renovations). However, for some reason, I have had an incredibly difficult time locating a copy of the complaint (never mind the contract). None of the stories I've found linked to it, and I have had zero luck finding it through Bloomberg Law's docket search.
Friday, April 15, 2016
(image from IMDB)
Gilmore Girls fandom rejoiced when it was announced that the show would receive a revival on Netflix (and, even better, that it will include Sookie!). But, as often seems to be the case, developments that bring a fandom joy can come with legal entanglements. In this case, producer Gavin Polone's production company Hofflund/Polone has filed a lawsuit against Warner Bros., alleging breach of contract. The lawsuit, Hofflund/Polone v. Warner Bros. Television, Case No. BC616555 (behind paywall), was filed in the Los Angeles County, Central District, Superior Court of California.
The case revolves around the agreement between the parties concerning the original production of Gilmore Girls. The parties agreed, according to Hofflund/Polone, to provide Hofflund/Polone with "$32,500 for each original episode of Gilmore Girls produced in any year subsequent to 2003," along with some percentage of the gross and with "executive producer" credit. With the news of the recent Netflix revival, Hofflund/Polone allegedly reached out to Warner Bros. seeking compensation under the agreement. According to the complaint, Warner Bros. took the position that the Netflix version of Gilmore Girls is a derivative work based on the original series, and so therefore does not trigger compensation to Hofflund/Polone.
It's an interesting question that highlights one of the debates copyright scholars have: What, exactly, is a "derivative" work? Copyright owners have the exclusive right to reproduce their own works or works substantially similar to those works. They also have the right to produce derivative works based on those works, which, in the jurisprudence, has ended up using the same substantially similar standard to elucidate the "based on" language. Which means: what is the point of the derivative work right, if its standard seems the same as the reproduction right? This case has the potential to force confrontation with that problem: Where do we draw the line between infringement of the reproduction right and infringement of the derivative work right? When does a substantially similar work cross the line between reproduction and derivative work?
One thing that's been noted about the derivative work right is it tends to be talked about when there's some kind of change in medium or other kind of adaptation different from the original form (book to film, or translation from one language to another). The definition in the statute points us to that focus. Which raises the question: Is a Netflix revival more like a translation or adaptation of Gilmore Girls than it is like an exact copy of Gilmore Girls? Does this depend on how true it is to the original show?
The "television" landscape has shifted dramatically since Gilmore Girls premiered. It'll be interesting to see how contracts formed pre-Netflix-and-Amazon-production-era function going forward.
Tuesday, April 5, 2016
I recently blogged here about the healthcare insurance problem of patients not knowing ahead of time for what they will ultimately be charged and by whom. California is now introducing a bill (“AB 533”) seeking to prevent the problem of patients being unexpectedly charged out-of-network charges at in-network facilities when the facility subcontracts with doctors that are (allegedly) out-of-network.
The practice is widespread, at least in California. Nearly 25% of Californians who had hospital visits since 2013 have been very unpleasantly surprised with unexpectedly high bills after the fact for “out of network” services. This even after inquiring about the contractual coverage ahead of time and ensuring – or attempting to – that their providers were in network.
I personally had the same experience once as described in my recent blog. I also recently encountered a similar problem in South Dakota when, after asking about billing prices from an emergency room, was assured of one relatively modest price, only to be billed roughly ten times that amount a couple of months later for various unrecognizable items on the bill that the service provider, to add insult to injury, subsequently did not want to even discuss with me. (Yes, that is right: sick and in the emergency room, I was leery of hospital pricing and asked, only to still not get correct information.)
The onus of information-sharing should be on doctors and other medical provider. They should tell their patients if they are not in network, patients shouldn’t have to jump through an almost endless row of hoops just to find out their ultimate contractual obligations. Doctors will know immediately once you swipe your health insurance card, whereas patients have no way of knowing, as these stories show. Making matters even worse: what are patients supposed to do when they often don’t even see all the involved doctors ahead of time? Wake up during anesthesia and ask, “Oh, by the way, are you in network”? This practice is unconscionable and must stop. It is arguably an ethical obligation as well.
Because some hospitals, for instance, only accept employer-provided plans and not individual ones, some patients will always be out of network, thus allowing doctors to bill full charge. “This is a market failure. It allows doctors to exploit the monopoly that they have.”
Although it seems ridiculous, patients may, for now, have to turn the tables on the providers and scrutinize as many providers and facilities as they get in touch with 1) what the prices charged to the patients will be, and 2) if the providers are truly, actually, really in network (!).
Contractually, would patients win if they informed providers that they will only pay for in-network providers and only up to a certain amount? What else can a reasonable patient do in situations of such blatant greed and ignorance as these stories depict? Comment below!
Monday, March 28, 2016
Here, Stacey Lantagne reports on a very sad story of what can happen if health care customers fail to follow accurate procedure and, at bottom, dot all the I’s and cross all the T’s when contracting for health care services.
For me, this speaks to the broader issue of whether or not patients can truly be said to have given consent to all the procedures and professionals rendering services to patients. I think this is often not the case. As you know, Nancy Kim is an expert on this area in the electronic contracting context. She kindly alerted me to this story in the health care field. (Thanks for that.) The article describes the practice of “drive-by doctoring” whereby one doctor calls in another to render assistance although the need for this may be highly questionable. The NY Times article describes an instance in which one patient had meticulously researched his health care insurance coverage, yet got billed $117,000 by a doctor he did not know, had never met, and had not asked for. That doctor had apparently shown up during surgery to “help.”
Of course, this is a method for doctors to make end runs around price controls. Other methods are increasing the number of things allegedly or actually performed for patients. Other questionable practices include the use of doctors or facilities that all of a sudden turn out to be “out of network” and thus cost patients much more money than if “in network.” I personally had that experience a few years ago. I had to have minor surgery and checked my coverage meticulously. The doctor to perform the surgery was in network and everything was fine. She asked me to report to a certain building suite the morning of the surgery. All went well. That is, until I got the bill claiming that I had had the procedure performed by an “out of network” provider. This was because… the building in which the procedure was done by this same doctor was another one than the one where I had been examined! When I protested enough, the health care company agreed to “settle” in an amount favorable to me.
In these cases, patients typically have very little choice and bargaining power. In the emergency context, what are they going to do? There is obviously no time to shop around. You don’t even know what procedures, doctors, etc., will be involved. The health care providers have all the information and all the power in those situations. However, in my opinion, that far from gives them a carte blanche to bill almost whatever they want to, as appears to be the case, increase their incomes in times when insurance companies and society in general is trying to curb spiraling health care costs.
In the non-emergency context, how much of a burden is it really realistic and fair to put on patients who are trying to find out the best price possible for a certain procedure, only to be blind-sighted afterwards? That, in my opinion, far exceeds fair contracting procedure and veers into fraudulent conduct. Certainly, such strategies go far beyond the regular contractual duty to perform in good faith.
Of course, part of this is what health care insurance is for. But even with good health care insurance, patients often end up with large out-of-pocket expenses as well. The frauds in this context are well known too: most health care providers blatantly offer two pricing scheme: one (higher) if they have to bill insurance companies, and a much lower price if they know up front to bill as a “cash price.”
We have a long ways to come in this area still, sadly.
Friday, March 11, 2016
I bet we'd have a lot fewer people fighting arbitration clauses if arbitration = tweeting J.K. Rowling.
As reported around the Internet, a student and her high school science teacher entered into a contract concerning whether Rowling would write another Harry Potter book. The contract called for the loser to declare the victor "Mighty" (a much more charming form of consideration than payment of a sum of money).
The article (from last month) reports that there were two possible Harry Potter pieces of creativity to be contended with. One is the prequel movie Fantastic Beasts and Where to Find Them. Rowling wrote the original textbook (which already existed at the time the contract was entered into and so isn't part of the dispute) and also wrote the screenplay for the movie, which could have been in dispute. However, the article points out that Rowling wrote the screenplay to the movie, and the contract concerns a Harry Potter "novel." Even if you wish to make an argument that screenplays should have been included in the definition of the contractual term "novel," it seems like Fantastic Beasts would fail because it does not "feature the character Harry Potter as part of the main plotline," as required by the contract. (At least, so I assume from what I know about the movie so far.)
The other piece of Harry Potter creativity being debated under the contract, and the one for which Rowling was called in to arbitrate, concerned Harry Potter and the Cursed Child, a play focusing on Harry as an adult and his relationship with his children, especially his son Albus. Cursed Child raised issues: It was a play but it is being billed as "the eighth story," the script will be published in text form, and the website claims it's "based on an original story by J.K. Rowling, Jack Thorne and John Tiffany." It does seem as if, considering this is a "play," even its published script would not be considered a "novel" under the contact. However, the student who was a party to the contract sought further clarification from Rowling.
Using the convenient method of Twitter, the student explained her contract to Rowling and asked for a decision on whether Cursed Child would fulfill the terms of the contract. Rowling responded, confirming that Cursed Child is a play and also noting that, while she had contributed to the story, Jack Thorne was the "writer" of the play.
The student was pleased that her clear contractual terms meant that she was still the victor, but also noted that the term of the contract had not yet run. Since the publication of the article and the arbitration of the Cursed Child dispute, J.K. Rowling has announced a new set of stories to be collected under the title History of Magic in North America. So far, these stories also seem not to fulfill the terms of the contract, as they seem more like "extra books" rather than "an entirely new book," and they do not seem to feature Harry Potter at all. However, Rowling seems to be dancing right around the edges of this contract's terms.
Tuesday, March 8, 2016
Outsourcing work to locations where employees earn even less than many in the United States do has already become commonplace. Now comes the corporate idea of “taskifying” work to people eager to obtain some work, even if just in bits and pieces. “Crowdwork,” as it is known, lets companies use online platforms such as Amazon Mechanical Turk or www.fiverr.com to find people willing to do routine tasks such as drafting standardized reports, filing forms, coordinating events and debugging websites, but also much more complex ones such as designing logos, ghostwriting, etc. Many of today’s work tasks can be broken up into bits and farmed out online, and many employers are already doing so. Could this also come to encompass routine lawyerly work? Quite possibly so. Researchers at Oxford Univesity’s Martin Programme estimate that nearly 30% of jobs in the U.S. could be organized in a crowdwork format within just twenty years.
In this context where few regulations or laws yet govern the contracts, workers would no longer be either “employees” or “contractors,” (which has already proved to be troublesome enough for companies such as Uber), but rather “users” or “customers” of the websites that enable, well, workers and companies (“providers”) to find each other. These transactions would not be governed by employment contracts, but by online “user agreements” and “terms of service” that currently resemble software licenses more than employment contracts. There are few, if any, legal obligations towards employees in the current legal landscape that also offers employees very few means for obtaining and enforcing something so basic pay for the work performed.
Employers today require a flexible and eager workforce that is constantly on the ready and that can maybe even work 24 hours a day. Crowdworkers provide just such availability and demand very low salaries because the name of the game seems to be to compete on prices. The problem is that workers, to have a decent life, need the opposite: stability, higher salaries than what is often currently the case, retirement, salary, and medical benefits. Do these come with crowdwork tasks? Sadly, no.
What could go wrong? Consider this case: Mr. Khan, an Indian man living in India, was eager to make some money. He decided to try Amazon’s Mechanical Turk. On good days, he would make $40 in ten hours; more than 100 times what his neighbors made as farmers. He even outsourced some of his own work to a team that he supervised. This must have violated Amazon’s Participation Agreement as all of a sudden, Mr. Khan received the message that his account was closed and “could not be reopened.”Amazingly, Mr. Khan was also notified that “[a]ny funds that were remaining on the account are forfeited, and we will not be able to provide any additional insight or action.” Talk about lopsided contracts! Using a “Contact Us” link, Mr. Khan was eventually able to get through to Amazon, which simply referred him to a contractual clause stating that Amazon had the “right to terminate or suspend any Payment Account … for any reason in our sole discretion.”
With these types of ad-hoc online agreements, people who should arguably at least have been classified contractors if not, as in some current cases, employees. Of course, this only pertains to U.S. law, but it is important to note that not all jobs are “taskified” to foreign workers. Thus, employees risk being “stiffed” twice: once for losing their jobs to cheaper folks willing to be crowdworkers and, if they chose to work under such contracts and don’t do exactly as the “provider” requires in their apparent almost exclusive discretion, not being paid and not having any effective means of enforcing their contracts. An undisputedly troublesome development both in this nation and beyond.
How could at least the issue with medical and other employee benefits be solved? It might via universal payment systems such as those typical in EU nations. There, when employees change jobs, their vacation time, medical and other benefits travel remain in a centrally administered pool (whether government administered or privately so with tough regulations in place), they do not become discontinued with the employment only to have to be restarted under other plans as typical in this country. This system could potentially be transferred to the crowdwork arena. A percentage of each job (sometimes even called “gigs”) could be centra lly administered in a more employee-centric version than the still American employer-centric solutions. Such systems are, of course, largely seen here in the U.S. as “socialist” and thus somehow inherently negative.
As if the employment situation for workers around the world is not already bad enough, add this new development, called “a tsunami of change for anyone whose routine work can be broken into bits and farmed out online.” Our students’ future work tasks may, at least in the beginning of their careers, constitute just such work. This is a worrying development as workers in our industry and in this country in general are not seeing improved working conditions in general. Crowdworking could add to that slippery slope.
Friday, March 4, 2016
I am pleased to be able to post the following from guest blogger Creola Johnson of the Ohio State University Moritz College of Law:
“His promises are as worthless as a degree from Trump University,” said Mitt Romney during a speech denouncing Donald Trump’s candidacy for the presidency. This statement has prompted additional inquiries into lawsuits filed against Trump University by New York Attorney General Eric Schneiderman and others. (See Petition from New York v. The Trump Entrepreneur Initiative LLC.)
In a class-action lawsuit, many attendees of Trump University alleged that they paid as much as $35,000 to be personally mentored in learning how to earn millions investing in real estate. Despite numerous attempts by lawyers for the Trump defendants to get these lawsuits to dismiss, courts have given the green light for the lawsuits to continue against the Trump defendants. See, e.g., Makaeff v. Trump Univ., LLC, No. 10-CV-940-IEG (WVG), 2010 WL 3988684 (S.D. Cal. Oct. 12, 2010) (refusing to dismiss claims against the for-profit Trump program on educational malpractice grounds because the court was not convinced “Trump University” was “an educational institution to which this doctrine applies.”). For the most recent decision permitting Mr. Schneiderman’s case to proceed, go to: http://www.courts.state.ny.us/courts/AD1/calendar/appsmots/2016/March/2016_03_01_dec.pdf.
What can we say for sure at this juncture about the lawsuits? First, “Trump University” was not a university. There are numerous educational standards and laws that must be complied with for an institution to legitimately claim to be a university. The question then becomes: did the people running Trump’s real estate program (the Trump Program) make promises that arose to level of being a contract. For example, the consumer-plaintiffs alleged that the Trump Program promised that the instructors and mentors running the program would be “hand-picked by Donald Trump.” However, this promise was allegedly breached because most of the instructors and mentors were unknown to Mr. Trump and that they didn’t actually teach any real estate techniques.
We’ll have to wait for a court or jury’s finding regarding what promises were actually made by Donald Trump and the people running the Trump Program. The good news for the plaintiffs and Mr. Schneidermann is that they do not have to prove the existence of a contract. New York, along with every state, has laws that prohibit businesses from engaging in deceptive and unfair business practices.
Consumers should be leery of any language that appears to promise an educational outcome—e.g., “you will earn a six-figure salary after graduation.” While a state’s attorney general, such as Mr. Schneiderman, has the authority to make businesses stop deceptive practices, the attorney general may not be able to get back the money consumers have lost. If it sounds too good to be true, it probably is! For an in-depth discussion of deceptive degrees, see my article, Degrees of Deception: Are Consumers and Employers Being Duped by Online Universities and Diploma Mills?
President’s Club Professor of Law,
The Ohio State University Moritz College of Law
Tuesday, February 23, 2016
American Airlines has nonsuited (i.e., dismissed without prejudice to refilling the lawsuit) its declaratory judgment claim against Gogo. American had recently asked a Texas state court to determine whether the provision of the availability of "better service" (or some similar term) in its 2012 contract had been triggered such that American could force Gogo to submit a competitive bid to retain its service.
As discussed in a previous post, American's negotiating leverage arose as much from the publicity surrounding it filing of a lawsuit as it did from the actual contract term. The term was apparently vague enough that Gogo could (and did) take the position that its rights as American's exclusive in-flight service provider had not been called into question by American's request for a new proposal. Upon American's filing of a declaratory judgment lawsuit in Texas state court, however, Gogo's stock price dropped 27 percent.
Today, the word is out that Gogo has changed its position and accepted American's interpretation of the contract. The Fort Worth Star-Telegram reports:
[American Airlines had said] that its contract with Gogo allowed it to renegotiate or terminate its agreement if another company offered a better service. Gogo had disputed that clause in the contract, but Friday agreed to the contract provision and said it would provide a competitive bid within 45 days.
“American is a valued customer of Gogo, and Gogo looks forward to presenting a proposal to install 2Ku, our latest satellite technology, on the aircraft that are the subject of the AA Letter,” Gogo said in a government filing Friday. “We acknowledge the adequacy of the AA Letter and that our receipt of the AA Letter triggered the 45 day deadline under the agreement for submission of our competitive proposal.”
* * *
Once American reviews Gogo’s proposal, if it does not beat out a competitor’s proposal, American can terminate Gogo’s contract with 60 days’ notice.
Shares of Gogo [ticker: GOGO] jumped on the news of the dropped lawsuit, up almost 10 percent....
The swift manner in which this episode had played out emphasizes the extent to which contract doctrine and interpretation it frequently not the principal driver of business relationships. Gogo could have marshalled a team of lawyers and stood on its interpretation of the contract up to final judgment--likely a summary judgment based on a question of law. But what would be the reputational and business cost? Eventually, the marketplace won't allow contract rights to serve as a substitute for proof of the quality of a product.
A challenge I find in teaching future transactional lawyers is to ensure that they do not become enamored with legal rights as being the be-all and end-all of deal making. Law is important, but a business lawyer must employ practical wisdom, as well. That wisdom includes the fact that law itself is only one part of practicing law... and it sometimes isn't even the most important part.
Saturday, February 20, 2016
Speaking of contract law and Bitcoin, my colleague William Byrnes over at our sister blog, International Financial Law Prof Blog, reports on recent activity by the Federal Trade Commission in this area:
Butterfly Labs and two of its operators have agreed to settle Federal Trade Commission charges that they deceived thousands of consumers about the availability, profitability, and newness of machines designed to mine the virtual currency known as Bitcoin, and that they unfairly kept consumers’ up-front payments despite failing to deliver the machines as promised.
* * *
“Even in the fast-moving world of virtual currencies like Bitcoin, companies can’t deceive people about their products,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “These settlements will prevent the defendants from misleading consumers.”
Read the entire post here. While the federal interest in regulating in the virtual currency space has most prominently been in the area of financial crimes, consumer protection is certainly not off the table as agencies like the FTC and (potentially more prominently) the Consumer Financial Protection Bureau explore their reach.
Friday, February 19, 2016
At any given time, the Uniform Law Commission/NCCUSL is engaged in many important and useful state-law drafting projects, but one of the more interesting ones for me is its current work in drafting a proposed Regulation of Virtual Currency Businesses Act. I have had the fantastic opportunity to act as an observer to the drafting committee and watch the stakeholders and commissioners navigate disparate policy perspectives and try find as-common-as-possible ground, while Chair Fred Miller keeps the group on task and Reporter Sarah Jane Hughes assimilates an incredible amount of debate into a rapidly evolving draft. The experience is a wonder that I would recommend to anyone with a serious interest in legislative policymaking. It also, for present purposes, helps illustrate both the benefits and limits of contract law in a nascent market-space.
The current drafting project arose out of the phenomenon of Bitcoin, the first technologically viable means of electronically transmitting value without the possibility of double spending or the need for a financial intermediary, like a bank. While the use cases for virtual currency technology are still in their relative infancy, states began to consider and enact disparate regulatory schemes, with New York's BitLicense regulatory framework being the most prominent example. While federal regulators and law enforcement have understandably focused on preventing the use of pseudonymous cryptocurrency to advance criminal enterprises and finance international terrorism, the state concerns have tended more toward protection of consumers and other users engaged in perfectly legal transactions. While Bitcoin does not require an intermediary any more than paper cash requires use of a bank, intermediaries--like digital wallet services--have arisen to fill the convenience role analogous to bank accounts. These virtual currency intermediaries are, for the most part, the principal target of state-law regulation and current work of the Uniform Law Commission.
What is the contract law angle here? It's this: In the absence of specially-crafted law of the sort now under consideration, the common law of contracts fills the void to enable some degree of enforceable private ordering. The flexibility of contract law is such that it can allow for the birth of business models no one contemplated as recently as the eve of Bitcoin's creation in 2008. The flexibility of such a legal regime is amazing. Contract law can, nonetheless, only facilitate business so far. Public-protective regulation is necessary to achieve widespread market acceptance beyond the universe of early-adopters and risk takers. Regulation carries its own risks, however, as a heavy-handed approach can stifle innovation and create anti-competitive barriers to market entry.
That--in many different flavors--is the policy question being grappled with in the Regulation of Virtual Currency Businesses Act, and the question is relevant in any other space where rapidly developing technology exceeds the capacity of existing law. Where do we apply protective public law, and what do we keep within the realm of private contracts?
Wednesday, February 17, 2016
American Airlines wants out of its 2012 contract with Gogo to provide internet service for about 200 of American's planes. The Fort Worth Star-Telegram reports on the airline's use of a declaratory judgment claim to construe the contract:
In the lawsuit, American says its contract with Gogo allows it to renegotiate or terminate its agreement if another company offers a better service. The airline is asking a judge to declare that it provided proper notice under its contract and that Gogo’s rejection is without basis.
“After carefully evaluating the new technology and services in the marketplace, American has decided to exercise its rights under the Agreement and recently notified Gogo that ViaSat offers an in-flight connectivity system that materially improves on Gogo’s air-to-ground system,” the suit says.
American says ViaSat offers a faster service that is currently installed on United Airlines, Jet Blue and Virgin America planes. American uses Gogo for its regional aircraft and on domestic flights, primarily Boeing 737s. The carrier uses Panasonic to provide satellite-based Internet services for international flights on its wide-body fleet, including Boeing Dreamliners and 777s.
The story is an interesting object lesson on several fronts. First, the use of an indeterminate term like "better service" or its ilk as the trigger for termination of the original agreement was probably a dispute waiting to happen at its inception. Still, could a 2012 transactional lawyer have really done any better? The most forward-thinking contract lawyer for American Airlines in 2012 could not have known what the state of in-flight wireless technology would be in 2016 beyond what actually happened--something "better" might come along.
A second lesson is that the litigation and attendant publicity may already have accomplished more for American Airlines than the legal system ultimately will. News of the litigation "sent shares of Chicago-based Gogo plummeting on Wall Street. Gogo stock [ticker: GOGO] declined 27 percent, or $3.81 to close at $10.08 on Tuesday." Gogo is now at the bargaining table in a way that apparently was not going to happen before the litigation. Contract law is important to the operation of commerce, but market forces are much more important.
Finally, the publicity also speaks to the wisdom of not including arbitration clauses and confidentiality provisions in certain commercial contracts--at least not without carefully weighing the costs and benefits. Would American be better off if it did not have the court system (Texas state courts, at the moment) available as a forum? The answer is obvious, but certainly not the same one Gogo would reach at the moment. Transactional lawyers have a great deal to consider when judging the mists of an uncertain future. (H/T to my colleague Wayne Barnes for the story).
Monday, February 15, 2016
Forward-thinking deal lawyers draft contracts addressing contingencies that clients might not perceive or address if left to their own devices. Amazon has, however, now taken contingency planning--if I may borrow from esteemed legal scholar Buzz Lightyear---to infinity and beyond.
One of Amazon's many businesses is Amazon Web Services, and one of the available services from AWS is Lumberyard, a game development system which, according to Amazon, "consists of an engine, integrated development environment, and related assets and tools we make available at aws.amazon.com/lumberyard/downloads or otherwise designate as Lumberyard materials (collectively, 'Lumberyard Materials')." See AWS Service Term 57.1.
So far so good. But then, perhaps recognizing the possibility of dire emergencies requiring use of a video-game development engine, we reach section 57.10 (with emphasis added):
57.10 Acceptable Use; Safety-Critical Systems. Your use of the Lumberyard Materials must comply with the AWS Acceptable Use Policy. The Lumberyard Materials are not intended for use with life-critical or safety-critical systems, such as use in operation of medical equipment, automated transportation systems, autonomous vehicles, aircraft or air traffic control, nuclear facilities, manned spacecraft, or military use in connection with live combat. However, this restriction will not apply in the event of the occurrence (certified by the United States Centers for Disease Control or successor body) of a widespread viral infection transmitted via bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh, blood, brain or nerve tissue and is likely to result in the fall of organized civilization.
Here at Texas A&M, my colleague (and Blog Editor Emeritus) Frank Snyder raised some quibbles with this provision's drafting: "First, why does it apply only to a viral infection and not to bacterial infections, mutation-causing chemicals, or (as in Night of the Comet) weird alien space rays? And is the last clause ('likely to result in the fall of organized civilization') modified by the clause that requires CDC certification, or is that an independent determination that can be made by the judge?"
All good questions. I'll also note that the answer to whether a zombie outbreak would constitute commercial impracticability in a sale-of-goods case has just edged a closer to "no." Apparently, this is precisely the sort of contingency that parties can foresee and should contract around with appropriate force majeure clauses.
What are your thoughts on this significant outbreak of zombie-contingency contracting? Leave your answer in the comments below. H/T to Henry Gabriel via Bill Henning for highlighting this provision.
Sunday, February 14, 2016
Change is coming to the energy field, finally. As the realization is broadening that fossil fuels have to be left in the ground, solar and wind energy are becoming more popular to investors and private households alike.
The problem is still the types of contracts and financing options available. An average solar system costs $14,700. If paying that in cash, homeowners would typically save around $50 a month on their electric bills. However, most people cannot afford to pay that in cash. Financing options will reduce the monthly savings to about $20-30 a month. “Net metering,” which allows homeowners to sell electricity back to the utilities, may result in bigger savings.
Problems still loom on the horizon with contracts in this area. A new financing program known as the “Property Assessed Clean Energy” financing program (“PACE”) allows solar panel buyers to finance the system and add the loan to the property as a tax assessment. Some are criticizing that for making it difficult or sell the homes or refinance mortgages.
More importantly, utility companies are complaining that the electric grids were designed to send electricity to consumers, but not receive it back. The utility industry is even referring to individually owned power systems as “disruptive technologies.” This new interaction will force changes in the market and infrastructure. But so what? Utilities have had a chance to make quite a lot of money for years on end, often in pure or monopoly-like situations. Now the market is changing. Utilities must adapt to necessary societal changes. This is clearly one of them. The resentment towards new technological change by parties in an industry that is per se technological is inexpedient and childish. Yes, utilities have invested much money in the existing electricity infrastructure, but they have surely never been promised that the market wouldn’t change and that users won’t demand other product sources than what has been the case for, now, more than a hundred years. Time has come to innovate.
The industry is also complaining that in the future, new rules are going to force the industry to provide more services, which will cost more money and thus result in fewer savings via alternative energy sources. Yeah, let’s see about that one. That still sounds like a contrarian, outmoded argument against inevitable progress.
What could be more troublesome is the expected erosion of benefits such as solar credits. For example, the existing 30% federal solar tax credit will end in 2019 unless, of course, Congress renews it. Hopefully under the new Paris Agreement on climate change and with the looming risks, financial and otherwise, on continually rising global temperatures (2015 was yet another hottest year on record), such and other benefits will be increased, not decreased.
For anyone wishing to buy a solar system, the best deal on the market still seems to be buying outright, even if via a property tax assessment. Many of the still-typical 20-year lease contracts are still too lengthy in nature. Too many things could change in this marketplace to make them seem like a viable option.
It is too bad that with as many hours of sunshine as many parts of this nation has, there still is not a really good, viable option for solar energy contracts for middle- or low-income private homeowners.
Thursday, February 11, 2016
Is the public commercial law of payment systems being displaced by private contract law? The short answer is "yes." Recently, I had the opportunity to write an invited post for the CLS Blue Sky Blog, Columbia Law School's Blog on Corporations and the Capital Markets, and I hope you'll indulge me a moment to share about it here.
Emerging Payment Systems and the Primacy of Private Law is a synopsis of a larger project on how the public law and Uniform Commercial Code aspects of the regulation of payments have become marginalized over the last few decades--and how the marginalization isn't necessarily a bad thing. Contract law is presumptively a better organizing instrumentality, but there still remains a significant and robust role for public regulation. Or, as I state in part of the longer post:
Payment systems have now clearly exceeded the regulatory capacity of public legal institutions to govern them via a comprehensive code like the UCC. Public law protection of the end user, however, has proven so successful and facilitated such industry growth that complete privatization of payments law is not the best response either. Emerging payment systems should be subject to a division between private law and public law in which private law is predominant, but not exclusive.
Private contract law is best equipped to deal with both current and future developments as the primary governance mechanism for emerging systems of payment. This market-friendly primacy of private law is only assured, nonetheless, by ceding to public law specific protections for payment system end users against oppression, fraud, and mistake.
If this particular intersection of contract law and commercial law is of interest to you, read the complete post. Or, if you are a particular glutton for punishment, the draft article on which the CLS Blue Sky Blog piece is based is here.
Sunday, February 7, 2016
In a case that is a sad testament to today’s apparently increasing loneliness in the Western world despite much technological progress that could have alleviated some of that, but instead only seems to have made it worse, a woman created a YouTube channel bearing the rather uncharming name “bulbheadmyass.” On it, she posted 24 music videos of her band. These videos gathered almost half a million views and many favorable comments. There was no commercial component to the videos. The woman was not trying to sell video or audio versions of the band’s music. Instead, her “sole reward was the acclaim that she received from the YouTube community and the opportunity to make new friends.” (The case is Lewis v. YouTube, H041127, California Court of Appeal .)
Claiming that this woman had breached the company’s Terms of Service, YouTube removed the videos from its website. The woman filed suit claiming breach of contract and seeking specific performance. She alleged that YouTube breached the contract with her when it removed her videos from the website against her will and without notice. The trial court sustained YouTube’s demurrer on the basis that the Terms of Service contained a liability limitation stating that “[i]n no event shall YouTube … be liable … for any … errors or omissions in any content.” Plaintiff had argued that the case was not one of errors or omissions in any content, but rather a deletion of content without prior notice. The appellate court, however, held that the liability limitation governed the issue and that the trial court had correctly sustained the demurrer.
YouTube did, though, agree to restore plaintiff’s video content. YouTube, of course, does not charge for featuring anyone’s videos. Rather, it makes money off the advertising it can generate because of the many hits it receives. (Its revenue is several billion dollars a year.) However, YouTube did not restore the videos to their pre-deletion status, i.e. with comments, URLs from other users who had linked to it, and view counts. (Compare this to SSRN resetting your scholarship records: you’ll lose your view count and all other tracking data should that happen). The court contrasted the case with another where the contract had set forth exactly how to grant specific performance in case of a breach (also a technology case). But in the YouTube case, said the court, “no provision in the Terms of Service can serve as the basis for the relief that [plaintiff] seeks.”
Really? Does it take all that much technological savvy by a court to simply ask YouTube to restore plaintiff’s accounts to their “as were” condition? YouTube may actually not simply have deleted the accounts altogether. If they had, they would undoubtedly have backups. Instead, various technological accounts are simply “turned off” and are thus not accessible to the general public, but they still exist. What really seems to have been at issue here was an annoying plaintiff who was unlikeable to both the court and YouTube. It seems that the court was too eager to dismiss plaintiff’s specific performance claim and chose the too-easy way out by claiming lack of technological knowledge. In 2016, it does not seem to strain the imagination too much to expect billion-dollar IT companies to have ways of doing just what plaintiff sought here. Then again: with a name such as “bulbheadmyass,” maybe it was a case of “you got what you asked for.”
Thursday, February 4, 2016
Although some things bear little direct relation to Contracts Law, they are still worth mentioning here for their inherent news value and for potential classroom use by creative law professors. Here’s one such story:
Both British and American studies show that women pay an average of… 48% more for items targeted for women compared to those for men. This “sexist pricing” pattern is reflected in, for example, razors costing 11% more for women than those for men, jeans allegedly 10% more (I would personally have thought more than that, but that’s another story), skin lotion around $15 for women, but similar lotion $10 for men.
A report by the New York City Department of Consumer Affairs, released in December, found similar patterns. It compared nearly 800 products with clear male and female versions from more than 90 brands sold in New York, both online and in stores. It found that women pay more in 42% of cases.
Similarly, a bill in California calling for lawmakers to exempt tampons and sanitary pads from the state sales tax got a big endorsement in January from the board that administers the state's sales taxes. A few other states such as Utah, Virginia and New York have introduced similar bills. Even President Obama seems to subscribe to the notion that women should not have to pay tax on products they simply have to have because of Mother Nature’s demands. When asked in a recent interview if he felt it was right that tampons are taxed, he said, “I have no idea why states would tax these as luxury items. I suspect it's because men were making the laws when these were passed.” Well, not quite: states typically just tax all goods and exempt some. But states such as California don’t tax foods, for example. Time truly seems to have come to exempt some other goods.
British Labor Party MP Paula Sheriff sums up the issue well “[w]omen are paid less and are expected to spend more on products and services ... they are charged more simply for being women.” The only thing that should also be mentioned, in all fairness, is the price of clothing and shoes. I personally find those items much cheaper than men’s clothes, but I’m also not a brand-conscious person. As long as it fits and looks good, I don’t care whether it’s called one thing or another, so my anecdote may not fit into the “pink tax” story and protests which are gaining momentum in several nations.