Friday, August 21, 2015
Earlier this summer, I blogged on cheating website Ashley Madison promising to provide "100% discreet service" and a group of hackers threatening to reveal the website's customers if the website was not removed. Well, it was not, and this past week, the group made good on its promise or threat, depending on how one views the issue, to make the stolen database easily available to the general public.
In spite of Ashley Madison's promise to be "100% discreet" (whatever that means), the fine print used in its contracts also states, "We cannot ensure the security or privacy of information you provide through the Internet." No contractual promises seen to have been breached if that had been the only promise made. But as Steve Hedley wrote in his comment (see below), some of those inconvenienced by the hack include a number who paid a fee of $19 specifically for a "full delete". Does US contract law really allow Ashley Madison to take their money and then rely on fine print to justify a complete failure? That is a very good point and indeed does not seem to be the case. It could, of course, be that those who paid for a full delete got it and were _not_ among the ones in the publicized batch, but judging solely from media reports on this account, complaints have been made that the promised "full deletes" were not undertaken, so it seems that at least some that paid _additional_ money to become deleted from the website did not get what they paid for. That's a breach. Thanks, Steve Hedley, for that comment.
But the matter is more serious and sad than that: the website was/is apparently also used for finding homosexual partners, which is illegal and carries the death penalty in countries such as Iran, Saudi Arabia, and the United Arab Emirates, where two users were listed.
Not surprisingly, this story again shows the importance of internet data security. One would think that after the recent HomeDepot, Target and other database breach episodes, people would have learned, but apparently, this is not the case.
Thursday, August 13, 2015
According to this report in the Chicago Sun Times, The Chicago Teachers' Union (CTU) is calling "strikeworthy" a proposal by Chicago Public Schools (CPS) CEO Forrest Claypool that teachers pay their full pension contributions. The proposal would result in a seven percent pay cut according to CTU PresidentKaren Lewis. The CTU had previously agreed to a seven percent "pension pick-up" in lieu of a pay raise. Claypool now claims that there is no solution to CPS's $9.5 billion pension crisis that does not involve an end to the pick-up. Chicago teachers will likely return to work without a contract and could strike at any time. Mayor Rahm Emanuel (pictured) has proposed phasing out the pick-up over a period of years in an attempt to ease the blow.
The Los Angeles Times reports that UC San Diego and the University of Southern California (USC) have filed competing lawsuits in a battle over control of a long term research project that seeks to develop treatments for Alzheimer's. A researcher at UC San Diego switched his affiliation to USC and has sought to take some of the project's funding with him. In early rounds, a San Diego judge has sided with UC San Diego on ownership of the project, including databases relevant to the project's ongoing research. Eli Lilly & Co. had pledged up to $76 million to UC San Diego to test a new Alzheimer's medication that the company is developing. Lilly now plans to move those fund to USC's new institute. The future of this research project seems caught in the cross-hairs of competing claims to contractual entitlement to both funding sources and intellectual property.
The Business Insider reported last week that Fox Sports analyst Craig James is suing the network, alleging that he was fired for voicing his opposition to gay marriage. James alleges breach of contract and discrimination. His termination, days after he was hired, allegedly relates to a statement he made in 2012 when he was running for U.S. Senate that gays and lesbians would have "to answer to the Lord for their actions."
Tuesday, August 4, 2015
A new Los Angeles Times investigation has revealed that nine out of ten students drop out of unaccredited law schools in California. Of the few students that graduate, only one in five ultimately become a lawyer. In other words, a mere 2% of the people that initially enroll in an unaccredited law school end up being attorneys. Shameful at best. One example of one person who did not make it as an attorney is former Los Angeles mayor Antonio Villaraigosa who went to “People’s College of Law” and took the bar four times, but never passed.
Unaccredited law schools are said to flourish in California. The state is one of only three in the nation that allow students from unaccredited law schools to take the bar test (the others are Alaska and Tennessee). Unaccredited schools in California are held to very few academic standards by regulatory bodies and, by their very nature, none by accrediting agencies.
Most of the unaccredited law schools are owned by small corporations or even private individuals. One, for example, is owned by a“Larry H. Layton, who opened his school in a … strip mall above a now-shuttered Mexican restaurant. He thought the Larry H. Layton School of Law, which charges about $15,000 a year, would grow quickly. But according to the state bar records, he has had six students since 2010.”
Experts again say that action must be taken. For example, Robert Fellmeth, the Price Professor of Public Interest Law at the University of San Diego School of Law, has stated that unaccredited schools “aren't even diploma mills, they are failure factories. They're selling false hope to people who are willing to put everything out there for a chance to be a lawyer."
As before, the problem goes beyond unaccredited law schools. Several ABA accredited law schools also demonstrate both poor employment and bar passage statistics, although the problem seems to be the most severe when it comes to unaccredited schools.
This story is not new to your or many others. However, it serves as a reminder of the continued importance of both insiders and outsiders taking a renewed look at regulations for (and broader expectations of) law schools in California and beyond. As always, purchasers of anything including educational “services” (which, as the above other and many other studies show, can all too easily turn out to be disservices) should be on the lookout for what they buy. A great deal of naivety by new students seems to be contributing to the problem. However, that does not justify the tactics and perhaps even the existence of some of these educational providers. Having said that, I also – again – cannot help ask myself what in the world some of these students are thinking in believing that they can beat such harsh odds. Hope springs eternal, it seems, when it comes to wanting to become a California attorney.
Sunday, August 2, 2015
Remember Aereo, the company trying to provide select TV programs and movies using alternatives to traditional cable TV programming? That company went bankrupt after a U.S. Supreme Court ruling last year.
A federal court in Los Angeles just ruled that online TV provider FilmOn X should be allowed to transmit the programs of the nation’s large broadcasters such as ABC, CBS and Fox online, albeit not on TV screens. See Fox Television Stations, Inc. v. FilmOn X, LLC, in the U.S. District Court for the Central District of California, No. 12-cv-6921. Of course, the traditional broadcasters have been aggressively opposing such services and the litigation so far. Recognizing the huge commercial consequences of his ruling, Judge Wu certified the case for an immediate appeal to the Ninth Circuit Court of Appeals.
Said FilmOn’s lawyer in an interview: “The broadcasters have been trying to keep their foot on the throat of innovation. The court’s decision … is a win for technology and the American public.”
The ultimate outcome will, of course, to a very large extent or perhaps exclusively depend on an interpretation of the Copyright Act and not so much contracts law as such, but the case is still a promising step in the direction of allowing consumers to enter into contracts for only what they actually need or want and not, at bottom, what giant companies want to charge consumers to protect income streams obtained through yesteryear’s business methods. Currently, many companies still “bundle” TV packages instead of allowing customers to select individual stations. In an increasingly busy world, this does not seem to make sense anymore. Time will tell what happens in this area after the appeal to the Ninth Circuit and other developments. Personally, I have no doubt that traditional broadcasting companies will have to give in to new purchasing trends or lose their positions on the market.
Thursday, July 30, 2015
I earlier blogged on an American TV personality's contract to hunt and kill one of the most highly endangered species on earth: a black rhino. That hunt has now been completed at a price tag of $350,000. The asserted reasoning for wanting to undertake the hunt: the money would allegedly help the species conservation overall and the local population. Studies, however, show that only 3-5% of that money goes to the local population. Some experts believe that the money could be much better spent for both the local population and the species via, for example, tourism to see the animals alive. This brings in three to fifteen times of what is created through so-called "trophy hunting."
This past week, the world community was again outraged over yet another American's hunt - this time through a contract with a local rancher and professional assistant hunter - of Cecil the Lion. The price? A mere $50,000 or so. This case has criminal aspects as well since the landowner involved did not have a permit to kill a lion. The hunter previously served a year of probation over false statements made in connection with his hunting methods: bow and arrow.
This is also how the locally famous and collared Cecil - a study subject of Oxford University - was initially hunted down, lured by bait on a car to leave a local national park, shot, but not killed, by Minnesota dentist Walter Palmer, and eventually shot with a gun no less than 40 hours after being wounded by Palmer.
Comments by famous and regular people alike have been posted widely since then. For example, said Sharon Osbourne: ""I hope that #WalterPalmer loses his home, his practice & his money. He has already lost his soul."
I recognize that some people - including some experts - argue for the continued allowance of this kind of hunting. Others believe it is a very bad idea for many biological, criminal, ethical, and other reasons to allow this practice. If you are interested in signing a petition to Zimbabwe Robert Mugabe to stop issuing hunting permits to kill endangered animals, click here. It will take you less than 60 seconds.
Thursday, July 23, 2015
You cannot say that we are boring you this week. Our blogs have included considerations on advertising on porn sites and having one’s illicit affairs forgotten contractually. Add to that the news that this week, Roman Catholic nuns, the archdiocese of Los Angeles, the formerly Jesuit student turned California Governor Brown and Pope Francis all had something to say about contracting about major and, admittedly, some minor issues.
To start with the important: Pope Francis famously issued his Encyclical Letter Laudato Si’ “On Care for our Common Home.” In it, he critiques “cap and trade agreements,” which by some are considered to be a mere euphemism for contractual permits to pollute and not the required ultimate solution to CO2 emissions. In the Pope’s opinion, “The strategy of buying and selling carbon credits can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.” Well said.
Governor Brown, however, disagrees: Brown shrugged off Francis' comments. "There's a lot of different ways," he told reporters, "that cap and trade can be part of a very imaginative and aggressive program." Brown, however, does agree with the Pope that we are “dealing with the biggest threat of our time. If you discount nuclear annihilation, this is the next one. If we don’t annihilate ourselves with nuclear bombs then it's climate change. It’s a big deal and he’s on it.”
In less significant contractual news, Roar, Firework, and I Kissed a Girl and I Liked It singer Katy Perry is interested in buying a convent owned by two Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin. Why? Take a look at these pictures. The only problem is who actually has the right to sell the convent to begin with: the Sisters or the archdiocese. When two of the sisters found out the identity of the potential buyer (Perry), they became uninterested in selling to her because of her “public image.” They now prefer selling to a local restaurateur whereas the archdiocese prefers to complete the sale to Perry, although she bid less ($14.5 million) on the property than the restaurateur ($15.5 million). Perry may be about to learn that image is indeed everything in California, even when it comes to the Divine. Perry is no stranger to religion herself as she was, ironically, raised in a Christian home by two pastor parents.
Monday, July 20, 2015
In 2014, the Court of Justice of the European Union famously held that “[i]ndividuals have the right - under certain conditions - to ask search engines to remove links with personal information about them. This applies where “the information is inaccurate, inadequate, irrelevant or excessive” for the purpose of otherwise legitimate data collection. “A case-by-case assessment is needed considering the type of information in question, its sensitivity for the individual’s private life and the interest of the public in having access to that information.”
A few days ago, infamous adultery-enabling website Ashley Madison and “sister” site (no pun intended) EstablishedMen.com, which “connects ambitious and attractive young women with successful and generous benefactors to fulfill their lifestyle needs,” was hacked into by “The Impact Team,” a group of apparently offended hackers who threatened to release “all customer records, including profiles with all the customers’ secret sexual fantasies and matching credit card transactions, real names and addresses, and employee documents and emails” unless the owner of the sites, Avid Life Media, removes the controversial websites from the Internet permanently.
Notwithstanding legal issues regarding, perhaps, prostitution, do customers have a right to be forgotten? Not in general in the USA so far. Even if a provision similar to the EU law applied here, it would only govern search engines. Ashley Madison had, however, contractually promised its paying users a “full delete” in return for a fee of $19. The problem? Apparently that the site(s) still kept purchase details with names. Further, of course, that the company promised and still promises “100% discreet service.” Both seemingly clear contractual promises.
Although the above example may, for perhaps good reason, simply cause you to think that the so-called “clients” above have only gotten what they asked for, the underlying bigger issues remain: why in the world, after first Target, then HomeDepot and others, can companies not find out how to securely protect their customers’ data “100%”? And why should we, in the United States, not have a general right to be deleted not only from companies’ records, but from search engines, if we want to? I admittedly live a very boring life. I don’t have anything to hide. But if I once in a blue moon sign up for something as simple as Meetup.com to go hiking with others, my name and/or image is almost certain to appear within a few days online. I find that annoying. I don’t want my students, for example, to know where I occasionally may meet friends for happy hour. But unless I invest relatively large amount of time in figuring out how to use and not use new technology (which I see that I have to, given the popularity of LinkedIn and the like), I may end up online anyway. That’s not what I signed up for.
As for Ashley Madison, the company has apparently been adding users so rapidly that it has been considering an initial public offering. You can truly get everything on the Internet these days, perhaps apart from data security.
On July 14th, American Honda Finance Corporation (Honda) and the Consumer Financial Protection Bureau (CFPB) entered into a consent order (the Order). The CFPB and the Civil Rights Division of the Department of Justice (DOJ) alleged that Honda had violated the Equal Credit Opportunity Act (ECOA) and its implementing legislation by permitting dealers to charge higher interest rates on auto loans on the basis of race and national origin.
According to the Order, after a joint investigation, the DOJ and the CFPB made found that, during the time period covered, on average, African-American borrowers were issued loans that resulted in an extra $250 in interest payments over the course of the loan compared to loans issued to non-Hispanic whites. Hispanics paid an extra $200 and Asians and Pacific Islanders paid an extra $150. This result was the product of Honda's specific policy and practice.
The Order gives Honda three options that it can pursue in order to prevent future violations of the ECOA in the future. Honda will also pay $24 million into an escrow account. The funds will be used to compensate borrowers for the excessive interest payments they were required to make.
As the CFPB notes on its website:
Today’s action is part of a larger joint effort between the CFPB and DOJ to address discrimination in the indirect auto lending market. In December 2013, the CFPB and DOJ took an action against Ally Financial Inc. and Ally Bank that ordered Ally to pay $80 million in consumer restitution and an $18 million civil penalty.
Monday, June 29, 2015
Given the major U.S. Supreme Court opinions that were released last week, it's no surprise that the one involving contracts, Kimble v. Marvel Entertainment, LLC, didn't make the headlines. The case involved an agreement for the sale of a patent to a toy glove which allowed Spidey-wannabes to role play by shooting webs (pressurized foam) from the palm of their hands. Kimble had a patent on the invention and met with an affiliate of Marvel Entertainment to discuss his idea --in Justice Elena Kagan's words--for "web-slinging fun." Marvel rebuffed him but then later, started to sell its own toy called the "Web Blaster" which, as the name suggests, was similar to Kimble's. Kimble sued and the parties settled. As part of the settlement, the parties entered into an agreement that required Marvel to pay Mr. Kimble a lump sum and a 3% royalty from sales of the toy. As Justice Kagan notes:
"The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids want to imitate Spider-Man (by doing whatever a spider can)*."
It wasn't until after the agreement was signed that Marvel discovered another Supreme Court case, Brulotte v. Thys Co. 379 U.S. 29 (1964) which held that a patent license agreement that charges royalties for the use of a patented invention after the expiration of its patent term is "unlawful per se." Neither party was aware of the case when it entered into the settlement agreement. Marvel, presumably gleeful with its discovery, sought a declaratory judgment to stop paying royalties when Kimble's patent term expired in 2010.
In a 6-to-3 opinion written by Justice Kagan (which Ronald Mann dubs the "funnest opinion" of the year), the Court declined to overrule Brulotte v. Thys, even though it acknowledged that there are several reasons to disagree with the case. Of interest to readers of this blog, the Court stated:
"The Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire."
In other words, the intent of the parties doesn't matter when it runs afoul of federal law. Yes, we already knew that, but in cases like this - where the little guy gets the short end - it might hurt just the same to hear it. In the end, the Court viewed the case as more about stare decisis than contract law and it was it's unwillingness to overrule precedent that resulted in the ruling.
Yet, I wonder whether this might not be a little more about contract law after all. The Court observed in a footnote that the patent holder in Brulotte retained ownership while Kimble sold his whole patent. In other words, Brulotte was a licensing agreement, while Kimble was a sale with part of the consideration made in royalties. This made me wonder whether another argument could have been made by Kimble. If Kimble sold his patent rights in exchange for royalty payments, and those royalty payments are unenforceable, could he rescind the agreement? If the consideration for the sale turns out to be void ("invalid per se"), was the agreement even valid? The question is probably moot now given the patent has expired....or is it? Although Kimble did receive royalty payments during the patent term, he presumably agreed to a smaller upfront payment and smaller royalty payments in exchange for the sale of the patent because he thought he would receive the royalty payment in perpetuity. So could a restitution argument be made given that he won't be receiving those royalty payments and the consideration for the sale of the patent has turned out to be invalid?
*Yes, I made an unnecessary reference to the Spiderman theme song so that it would run through your head as you read this - and maybe even throughout the day.
Tuesday, June 23, 2015
Last week, the Federal Communications Commission acted to approve a number of proposals that update the TCPA (Telephone Consumer Protection Act), popularly known as the "Do Not Call" law that prohibits companies from interrupting consumers' dinner time conversations with pesky telemarketing calls. They closed a number of existing loopholes and clarified that phone companies can now block robocalls and robotexts to cell phones. The ruling also makes it easier for consumers who have previously consented to withdraw consent.
So what does this have to do with contracts? We all know how easy it is to consent to online terms. PayPal does, too. PayPal recently informed its customers that it was unilaterally amending its User Agreement. As anyone reading this blog knows, there are serious problems with unilateral modification clauses, especially in the context of wrap contracts that nobody reads. Yet, some courts have found that these clauses are enforceable (others have found they are not because they lack consideration and/or notice/assent). PayPal's recent announced modifications caught the attention of the Federal Communications Commission. The FCC Chief expressed concern that PayPal's prospective agreement may run afoul of federal law. The TCPA requires express written consent before any company can make annoying prerecorded telemarketing calls to consumers. The written consent, however, isn't the ridiculous version of consent that suffices as contractual consent in some courtrooms. There are certain requirements including that the agreement be "clear and conspicuous" and that the person is "not required to sign the agreement...as a condition of purchasing the property, goods, or services." In other words, it can't be a "take it or leave it" situation. Pay Pal's amended User Agreement, however, appears to contain "take-it-or-leave-it" language as it doesn't indicate how customers may refuse to consent to receive calls without having their account shut down. Furthermore, unlike contract law where blanket assent is okay, blanket consent is not okay under the FCC rules. (This blog post provides a nice overview of the issues and also notes that eBay (PayPal's soon-to-be former parent) encountered similar problems with the New York Attorney General).
PayPal's agreement is not the only reason the FCC acted last week, but as Bob Sullivan points out in this post here, it may have been the reason it acted so quickly. Expect to see an updated version of PayPal's agreement in the near future.
Monday, June 8, 2015
I wanted to follow up on Jeremy Telman's posts about two cases, Andermann v. Sprint Spectrum and Berkson v. Gogo. Both cases involved consumers and standard form contracts. Both Sprint and Gogo sought to enforce an arbitration clause in their contracts and both companies presumably wanted to do so to avoid a class action. In Andermann v. Sprint Spectrum, there was no question regarding contract formation. The contract issue in that case involved the validity of the assignment of the contract from US Cellular to Sprint. The court found that the assignment was valid and consequently, so was the arbitration clause.
In Berkson v. Gogo, on the other hand, the issue was whether there was a contract formed between the plaintiffs and Gogo. As Jeremy notes in his post, this is an important case because it so thoroughly analyzes the existing wrap contract law. It also has important implications for consumers and the future of class actions.
Many arbitration clauses preclude class actions (of any kind). Judge Posner notes in his opinion in Andermann v. Sprint Spectrun:
"It may seem odd that (Sprint) wants arbitration....But doubtless it wants arbitration because the arbitration clause disallows class arbitration. If the Andermann's claims have to be arbitrated all by themselves, they probably won't be brought at all, because the Andermanns if they prevail will be entitled only to modest statutory damages."
Judge Posner may have been troubled by this if the facts were different. The Andermanns are claiming that Sprint's calls to them are unsolicited advertisements that violate the Telephone Consumer Protection Act, but Sprint needed to inform them that their service would be terminated because U.S. Cellular's phones were incompatible with Sprint's network. How else would they be able to contact their customers whose service would soon be terminated, Posner rhetorically asks, "Post on highway billboards or subway advertisements?....Post the messages in the ad sections of newspapers? In television commercials?" Sprint's conduct here "likely falls" within an exception to the law and hence, Posner notes "the claims are unlikely to prevail."
It's a different situation in Berkson v. Gogo. In that case, Gogo is allegedly charging consumers' credit cards on a monthly recurring basis without their knowledge. The plaintiffs were consumers who signed up to use Gogo's Wi-Fi service on an airplane, thinking it was only for one month. When Welsh, one of the plaintiffs, noticed the recurring charges, he was given a "partial refund." Welsh then hired a lawyer. Welsh's lawyer sent Gogo a letter notifying the company of the intent to file a class action lawsuit if it did not correct its practices and notify everyone who might have been charged in this manner. Gogo then allegedly sent a refund check directly to Welsh, not his lawyer (which would violate the rule not to directly contact someone represented by counsel). When Berkson, another plaintiff, noticed the charges and complained, the charges stopped; however, when he requested a refund for the period he was charged for the service but did not use it, the company allegedly refused.
I think that most people would agree that, if the facts alleged are true, Gogo likely violated consumer protection statutes. It also acted poorly by making it so hard to get a refund. Companies should not be permitted to act like this and consumers shouldn't have to threaten class action lawsuits to get their money back. (Gogo doesn't seem to dispute that they were charged during months they did not use the service).
This is where contract formation becomes so important. The class action in Berkson v. Gogo was allowed to proceed because the court found that there was no valid contract formation.
If there was a contract formed between Gogo and the plaintiffs, the arbitration clause would likely have been effective. (I say "would likely have been" because it wasn't even included until after Berkson signed up for the service. But let's put that aside for now and continue....). The arbitration clause - you guessed it - contained the following clause:
"To the fullest extent permitted by applicable law, NO ARBITRATION OR OTHER CLAIM UNDER THIS AGREEMENT SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SITE OR THE SERVICES, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED. In the event that this CLASS ACTION WAIVER is deemed unenforceable, then any putative class action may only proceed in a court of competent jurisdiction and not in arbitration.
WE BOTH AGREE THAT, WHETHER ANY CLAIM IS IN ARBITRATION OR IN COURT, YOU AND GOGO BOTH WAIVE ANY RIGHT TO A JURY TRIAL INVOLVING ANY CLAIMS OR DISPUTES BETWEEN US."
Now, under the recent line of federal cases (AT&T Mobility v. Concepcion, American Express v. Italian Colors, etc) interpreting the FAA, if a contract contains a mandatory arbitration clause, an arbitrator pretty much decides everything unless (1) the arbitration agreement is unconscionable; or (2) the agreement to arbitrate was never formed
Regarding (1), this doesn't mean that a court may determine whether any other contract provision was unconscionable - only the arbitration clause. So, if there's another clause that you want to argue is unconscionable -- let's say a recurring billing provision that is not conspicuous just as a random example -- you have to take that to the arbitrator. Furthermore, it's much harder now (after the line of US Supreme cases noted above) to argue that an arbitration clause is unconscionable. While many state courts had previously found mandatory arbitration clauses and class action waivers unconscionable, they may no longer find them unconscionable just because they impose arbitration. In other words, in order to be found unconscionable, the arbitration clauses have to be one-sided (i.e. only the consumer has to arbitrate) or impose hefty filing fees, etc. This, as I mentioned in a prior post, is why so many of these clauses contain opt-out provisions. Gogo's arbitration clause also contained an opt-out provision. But, as readers of this blog know, NOBODY reads wrap contract terms and I would be surprised if anyone opted out. The clause was also in capitalized letters and so would be conspicuous -- if only anyone clicked on the link and scrolled down to see it.
This is why Judge Weinstein's opinion is so important -he recognizes the burden that wrap contracts place on consumers:
"It is not unreasonable to assume that there is a difference between paper and electronic contracting....In the absence of contrary proof, it can be assumed that the burden should be on the offeror to impress upon the offeree -- i.e., the average internet user - the importance of the details of the binding contract being entered into...The burden should include the duty to explain the relevance of the critical terms governing the offeree's substantive rights contained in the contract."
If a contract contains a mandatory arbitration clause, a consumer who has been wronged and wants to argue that a standard form contract is unconscionable, would probably have to take it to an arbitrator unless there was no agreement to arbitrate in the first place. If there was no agreement formed at all, that would mean no agreement to arbitrate.
This is why it is so important not to find contract formation so easily and expect unconscionability to do all the heavy lifting of consumer protection. An arbitrator very well might do a good job - but we don't know that because an arbitration is a closed hearing. Arbitrators also don't go through the rigorous screening process that judges go through (both elected and appointed judges are thoroughly scrutinized). Furthermore, arbitral decsions are not generally made public, and so arbitration doesn't help with providing guidelines for acceptable business behavior. Judge Posner notes in his opinion, "It's not clear that arbitration, which can be expensive...and which fails to create precedents to guide the resolution of future disputes, should be preferred to litigation." Furthermore, if the arbitration clause contains a "no class" provision, it also forces a consumer to face a company's intimidating attorneys all alone ((because no lawyer is taking this type of case on a contingency basis and no consumer is going to pay a lawyer to attend this type of arbitration).
Berkson v. Gogo is notable for recognizing that website design and contract presentation matter in determining contract formation. Not every click is perceived the same way by consumers -- scrollwraps (where scrolling is required to read through all the terms) provides more notice than a "sign-in-wrap" which is merely a hyperlink next to a SIGN UP button. The reality is that nobody clicks on the Terms hyperlink with a sign-in wrap. As Judge Weinstein notes:
"The starting point of analysis must be the method through which an electronic contract of adhesion is formed. The inquiry does not begin, as defendants argue, with the content of the provisions themselves."
There are some who think that there's no harm in finding contract formation so easily because courts and the doctrine of unconscionability will protect consumers from really bad contract terms. They should think again. Mandatory arbitration clauses affect consumers' ability to seek redress which is why we should start taking contract formation seriously.
Thursday, May 28, 2015
Tuesday, May 26, 2015
We have previously blogged about “sharing economy” short-term rental company Airbnb at various times here. Time for an update: The City of Santa Monica, California, just passed an ordinance that prohibits property owners and residents from renting out their places unless they remain on the property themselves. This is estimated to prohibit no less than 80% of Airbnb’s Santa Monica listings (1,400 would be banned).
The city plans to spend $410,000 in the first year to enforce the rule using three new full-time employees. Violators may be fined by up to $500. However, because Airbnb does not list addresses, staff will have to look at photos of the properties and drive around the city streets to try to identify the violators. Doing so sounds awfully invasive and awkward, but that is nonetheless the plan. Adds Assistant Planning Director Salvador Valles: “We can issue citations just based on the advertisement alone when we're using our business regulations.” Other major cities are also trying to crack down on short-term rentals.
But why, you ask? Good question. In times when, as I have blogged about before and as is common knowledge, medium- and low-income earners are falling behind higher-income earners to a somewhat alarming extent, you would think the government could let people earn some additional money on what is, after all, their own property. Cities, however, claim that short-term rentals drive up the rental prices by cutting into the number of residences that are available for long-term rentals. “Even a study commissioned by Airbnb itself earlier this year found that Airbnb increases the price of a one-bedroom apartment in San Francisco by an average of $19 a month.” Traffic concerns are also often mentioned in this context as are potential tax avoidance issues, although Airbnb has now started to deduct taxes from rental fees before transferring these to the landlords.
Airbnb’s end goal? To go IPO. The goal for at least some landlords? Eighty-year-old Arlene Rosenblatt, for example, rents out her home in Santa Monica whenever she and her husband leave town to visit their seven grandchildren. She charges anywhere from $115 to $220 a night for her home, listing it on Airbnb and other sites and thus earning as much as $20,000 a year. "I'm a retired schoolteacher," Rosenblatt says. "We don't get a lot of retirement income. My husband, all he has is his Social Security."
Time will tell what happens in this latest clash between private property and contractual rights and government regulations.
Wednesday, May 20, 2015
Should salary levels be regulated or mainly left to individual contractual negotiations between the employee and his/her employer? The former, according to the Los Angeles City Council and governance entities in several other cities and states.
On Tuesday, Los Angeles decided to increase the minimum salary to $15 an hour by 2020. Other cities such as San Francisco, Chicago, New York, and Seattle have passed similar measures. Liberal strongholds, you say? Think again. Republican-leading states like Alaska and South Dakota have also raised their state-level minimum wages by ballot initiative. Some companies such as Walmart and Facebook have raised their wages voluntarily.
But the effect is likely to be particularly strong here in Los Angeles, where around 50% of the work force earn less than $15 an hour. That’s right: in an urban area with super-rich movie studios, high-tech companies, hotels, restaurants, health companies and much more, half of “regular” employees barely earn a living salary. In New York state, around one third of workers make less than $15 an hour. Take into consideration that the cost of living in some cities such as Los Angeles and maybe even more so San Francisco and New York is very high. In fact, studies show that every single part of Los Angeles is unaffordable on only $15 an hour if a person spends only the recommended one third on housing.
“Assuming a person earning $15 an hour is also working 40 a week, which is rare for a minimum wage employee, and that they're not taking any days off, they'd be earning $31,200 a year. An Economic Policy Institute study released in March found that a single, childless person living in Los Angeles has to make $34,324 a year just to live in decent conditions (and that was using data from 2013).”
Opponents, however, say that initiatives such as the above will make some cities into “wage islands” with businesses moving to places where they can pay employees less. Others call the initiative a “social experiment that they would never do on their own employees” (they just did...) But “even economists who support increasing the minimum wage say there is not enough historical data to predict the effect of a $15 minimum wage, an unprecedented increase. A wage increase to $12 an hour over the next few years would achieve about the same purchasing power as the minimum wage in the late 1960s, the most recent peak.”
Time will tell if the sky falls from the above initiative or if the system in a rich urban area such as Los Angeles can cope. Said Gil Cedillo, a councilman who represents some of the poorest sections of the city and worries that some small businesses will shut down, “I would prefer that the cost of this was really burdened by those at the highest income levels. Instead, it’s going to be coming from people who are just a rung or two up the ladder here.”
This is, of course, not only an issue of the value of low-wage work and fending for yourself to not end up at the bottom of the salary chain. It is a matter of alleviating urban poverty and improving the nation’s overall economy for a sufficient amount of people to better get the economy back on track for more than the few.
Tuesday, May 19, 2015
Yesterday, I blogged here about a proposed Labor Department rule that would require investment brokers to contractually bind themselves as fiduciaries of their clients.
Somewhat relatedly, the United States Supreme Court just issued an opinion finding employers to be fiduciaries in relation to the employment plans offered to their employees. The petitioning employees argued that respondent employers acted imprudently by offering six higher priced retail-class mutual funds as 401(k) plan investments when materially identical lower-priced institutional-class mutual funds were available. The higher-priced funds also carried higher fees. The Ninth Circuit Court of Appeals applied the ERISA statute of limitations to the initial selection of funds without considering whether there is also a continued duty to monitor the funds. There is. The Supreme Court found that because the fiduciary duty can be traced to trust law, there is “a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely. The Ninth Circuit erred by applying a 6- year statutory bar based solely on the initial selection of the three funds.”
Monday, May 18, 2015
Under a United States Labor Department plan, investment brokers may be required to bind themselves contractually as fiduciaries for their clients in the future. Only a few states such as California and Missouri require brokers to act as fiduciaries at all times. In others, brokers must simply recommend investments that are “suitable” for investors based on various factors, but are not required to adhere to the higher fiduciary “best-interest” standard.
The contemplated advantages are two-fold. First, the rule is thought to better protect investors from broker recommendations that, if followed, would help the brokers earn more or higher fees, but fail to meet investors’ best interests. A contractually stipulated duty would also help “deflate arguments that brokerages typically raise to deflect blame for bad advice, such as that an investor has in-depth financial know-how.
Second, arbitration cases would be easier to prove. This is so because arbitrators currently rely on state laws when determining the standard of conduct to be followed by the brokers, which is one of the threshold issues to be analyzed in investor cases. A uniformly required fiduciary standard would, it is thought, be more investor-friendly.
Needless to say, there are also contrary views. For example, some attorneys fear that investors’ lawyers will start or increase a hunt for more retirement account cases to represent. Others worry about an increased amount of class action cases.
Regardless, given the complexity of today’s investment world, requiring brokers to act as fiduciaries for their clients does indeed seem like the “good step in the right direction” as the president of the Public Investors Arbitration Bar Association recently called the initiative.
Wednesday, May 6, 2015
This week, Los Angeles City Attorney Mike Feuer famously filed suit against Wells Fargo claiming that the bank's high-pressure sales culture set unrealistic quotas, spurring employees to engage in fraudulent conduct to keep their jobs and boost the company's profits.
Allegedly (and in my personal experience as I bank with Wells Fargo), the bank would open various bank accounts against its customer’s wills, charge fees for the related “services,” and refuse to close the accounts again for various official-sounding reasons, making it very cumbersome to deal with the bank. The bank’s practices often hurt its customers' credit rankings.
Employees have described “how staffers, fearing disciplinary action from managers, begged friends and family members to open ghost accounts. The employees said they also opened accounts they knew customers didn't want, forged signatures on account paperwork and falsified phone numbers of angry customers so they couldn't be reached for customer satisfaction surveys.”
The city's lawsuit alleges that the root of the problem is an unrealistic sales quota system enforced by constant monitoring of each employee — as much as four times a day. "Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas," the lawsuit claims. Last year, 26% of the bank’s income came from fee income such as from fees from debit and credit cards accounts, trust and investment accounts. The banking industry is currently set up in such a way that around 85% of institutions would go bankrupt if they do not have fee income.
This comes only three years after Wells Fargo agreed to pay $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom and treated these borrowers in predatory ways.
All this in the name of “growth,” traditionally thought of as the sine qua non of industrialized economies, even in financially tough times where simply maintaining status quo – and not going out of business - would seem to be acceptable for now from at least a layman’s, logical standpoint.
In recent years, more and more economists have advanced the view that unbridled growth or even growth per se may simply not be attainable or desirable. After all, we live on a planet with limited resources – financial and environmental - and limited opportunities. This especially holds true in relation to the “1% problem.” Nonetheless, questioning growth has been said to be “like arguing against gasoline at a Formula One race.” So I’m making that argument here, although I acknowledge that I am not an economist: by setting our national (and personal) economies up for ever-continuing growth, we are playing with fire. There is only so much of a need for various things and services, as the above Wells Fargo suit so amply demonstrates. Granted, the global population is growing, but much of that growth is in developing nations where people frankly cannot afford to buy many of the products and services often so angrily pushed by modern companies worldwide. In the Global North, C-level managers are often rewarded via measurements of growth and if they cannot produce the expected growth results, they risk being fired. Sometimes, simply doing the right thing by customers and employees may actually be enough as long as the company would remain sound and in business. Of course, this requires a shift in thinking by shareholders who contribute greatly under our current investment models to the demand for never-ending growth. Overconsumption and waste is a vast ecological problem as well. It has been said that “we must reform economics to reflect ecological reality: nature is not, after all, just a pile of raw materials waiting to be transformed into products and then waste; rather, ecosystem integrity is a precondition for society's survival.”
Growth is, of course, good and desirable if possible. But if, as seems to be the case, it’s coming to a point where we destroy our own chances of healthy long-term survival and wreck the emotional and financial lives of employees and clients in the meantime, something is seriously wrong.
Monday, April 27, 2015
If it were up to General Motors, it may soon be illegal for you to tinker with your own car. That’s because the Digital Millennium Copyright Act (“DMCA”), an Act that started as anti-piracy legislation about a decade ago, now also protects coding and software in a range of products more broadly. Your car is one such product if it, as many cars do nowadays, it has an onboard computer. Vehicle makers promotes two arguments in their favor: first, that it could be dangerous and even malicious to alter a car’s software programming. Second, per the tractor maker John Deere, that “letting people modify car computer systems will result in them pirating music through the on-board entertainment system.” “Will”?! As the Yahoo article mentioning this story smartly pointed out, “[t]hat’s right— pirating music. Through a tractor.”
Isn’t that an example of a company getting a little too excited over its own products? Or am I just an incurable city girl (although one that occasionally likes country music)? Judging from the lyrics to a recent Kenny Chesney hit (“She Thinks My Tractor’s Sexy"), I see that opinions differ in this respect. To each her own.
Hat tip to Professor Daniel D. Barnhizer of the AALS listserve for sharing this story.
Thursday, April 23, 2015
As for the series on law school instruction and law schools in general that Jeremy started here recently: count me in!
I agree with Jeremy’s views that issue-spotting is very important in helping students develop their “practical skills,” as the industry now so extensively calls for. As Jeremy and Professor Bruckner do, I also never give up trying to have the students correctly issue spot, which in my book not only means spotting what the issues are, but also omitting from their tests and in-class analyses what I call “misfires” (non-issues). In my opinion, the latter is very necessary not only for bar taking purposes, but also in “real life” where attorneys often face not only strict time limits, but also word limits.
But I’ll honestly admit that my students very often fail my expectation on final tests. Some cannot correctly spot the issues at all. Many have a hard time focusing on those aspects of the issues that are crucial and instead treat all issues and elements under a “checklist” approach overwriting the minor issues and treating major issues conclusorily. Yet others seem to cram in as many issues as they can think of “just in case” they were on the test (yes, I have thought about imposing a word limit on the tests, but worry about doing so for fear of giving any misleading indication of how many words they “should” write, even if indirectly so on my part).
Maybe all this is my fault … but maybe it isn’t (this too will hopefully add to Professor Bruckner’s probably rhetorical question on how to teach issue-spotting skills). Every semester, I post approximately a dozen or so take-home problems with highly detailed answer rubrics. I only use textbooks that have numerous practice problems long and short. I review these in class. I also review, in class, numerous other problems that I created myself. I give the students numerous hints to use commercial essay and other test practice sources. Yes, all this on top of teaching the doctrinal material. All this is certainly not “hiding the ball.” Frankly, I don’t really know what more a law professor can realistically do (other than, of course, trying different practice methods, where relevant, to challenge both oneself and the students and to see what may work better as expectations and the student body change).
So what seems to be the problem? As I see it, it doesn’t help that at least private law schools at the bottom half of the ranking system have to accept students with lower indicia of success than earlier. But even that hardly explains the problem (who knows what really does). Some law schools have to offer remedial writing classes and various other types of extensive academic support to students in their first semesters and beyond. Some of the problem, in my opinion, clearly stems from the undergraduate-level education our students receive. In large part, this makes extensive use of multiple-choice questions for assessments and not, as future lawyers would benefit from, paper or essay-writing tests or exercises. Thus, undergraduate-level schools neither teach students how to spot "issues" from "scratch" nor do they teach them how to write about these. Numerous time have my students told me that they have not really written anything major before arriving in law school.
Why is that, then? Isn’t that problem one of time and resources; in other words, the fact that not just law professors, but probably most university professors, are required to research and write extensively in addition to teaching and providing service to their institutions? For example, see Jeremy’s comments on his busy work schedule here. Something has to give in some contexts. At the undergraduate level, maybe it’s creating and grading essays and instead resorting to machine-graded multiple-choice questions and not challenging students sufficiently to consider what the crux of a given academic problem is. Just a thought. I am, of course, not saying that we should not conduct research. I am saying, though, that I find it frustrating that lower-level educations, even renowned ones, cannot seem to figure out how to use whatever resources they do, after all, have to train their students in something as seemingly simple as how to write and how to think critically.
At the law school level, some “handholding” and various types of practical assistance is, of course, acceptable. But to me, the general trend in legal education seems to be moving towards a large extent of explaining, demonstrating, giving examples, setting forth goals, assessments, and so forth. I agree with what Jeremy said in an earlier post that we should at some point worry about converting the law school education process into one that resembles undergraduate-style (or high school style!) education.
Recall that the United States is not an island unto itself. Many studies show that our educational system is falling behind international trends. Where in many other nations in the world (developed and developing), students are expected to come up with, for example, quite advanced research and writing projects for their degrees, we are - at least in some law schools - teaching students just how to write, and what to write about. This is a sad slippery slope. Until the American educational sector as such improves, I agree that we should do what we can to motivate and help our students. But I also increasingly wish that our “millennial” students would take matters into their own hands more and take true ownership of learning what they need to learn for a given project or class with less handholding, albeit of course still some guidance. Nothing less than that will be expected from them in practice.
Wednesday, April 22, 2015
On Monday, a California Appellate Court declared the tiered water payment system used by the city of San Juan Capistrano unconstitutional under Proposition 218 to the California Constitution. The California Supreme Court had previously interpreted Prop. 218’s requirement that “no fees may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question” to mean that water rates must reflect the “cost of service attributable” to a particular parcel.
At least two-thirds of California water suppliers use some type of tiered structure depending on water usage. For example, San Juan Capistrano had charged $2.47 per “unit” of water (748 gallons) for users in the first tier, but as much as $9.05 per unit in the fourth. The Court did not declare tiered systems unconstitutional per se, but any tiering must be tied to the costs of providing the water. Thus, water utilities do not have to discontinue all use of tiered systems, but they must at least do a better job of explaining just how such tiers correspond to the cost of providing the actual service at issue. This could, for example, be done if heavy water users cause a water provider to incur additional costs, wrote the justices.
The problem here is that at the same time, California Governor Jerry Brown has issued an executive order requiring urban communities to cut water use by 25% over the next year… that’s a lot, and soon! Tiered systems are used as an incentive to save water much needed by, for example, farmers. The California drought is getting increasingly severe, and with the above conflict between constitutional/contracting law and executive orders, it remains to be seen which other sticks and carrots such as education and tax benefits for lawn removals California cities can think of to meet the Governor’s order. Happy Earth Day!