Tuesday, January 23, 2018
A recent case out of Minnesota, Oberfoell v. Kyte, A17-0575, reminds all of us that noncompete agreements need to have a justification. Kyte worked for Oberfoell's online-auction business and signed a contract that contained a noncompete clause. He later left to start his own online-auction business and Oberfoell sued.
The lower court found the noncompete agreement to be unenforceable and this appellate court agreed. Oberfoell simply couldn't justify its necessity because he failed to assert a legitimate business interest protected by the noncompete clause. Oberfoell made general allegations that Kyte had personal relationships with many of Oberfoell's customers and thus possessed goodwill belonging to Oberfoell. But Oberfoell never identified any customers who he was worried about, nor did he ever introduce any evidence that Kyte had used any of Oberfoell's customer lists improperly. The court concluded that Kyte did not seem to be the "face" of the business nor was he the exclusive contact the customers had with the business. There was no evidence that any of Oberfoell's customers were concerned about Kyte leaving and no evidence that any of them followed Kyte to his new business. Therefore, Oberfoell failed to prove that the noncompete was protecting a legitimate business interest.
Oberfoell also tried to assert that his customer lists and other materials were taken by Kyte and qualified as a violation of the noncompete. The court pointed out that the customer lists weren't secret and weren't treated as secrets by Oberfoell, and so couldn't qualify as trade secrets. The other materials suffered from the same lack of confidential protection.
Finally, the noncompete also failed on the basis of reasonableness. It prohibited Kyte from competing in a radius of 150 miles for five years. The court found the 150-mile restriction to be "arbitrary," and Oberfoell produced no evidence justifying his choice of such a large radius. The five-year restriction was also unreasonable because the evidence showed Oberfoell could have replaced Kyte easily and quickly, so there was no reason to keep Kyte from competing for so long (in fact, Oberfoell apparently never hired anyone to replace Kyte, delegating his responsibilities to already-existing employees). There was no evidence that Kyte had received any extensive training that gave him an advantage in establishing his business, which took him a few months to get started.
Thursday, January 18, 2018
Everyone is talking about HQ Trivia right now, it seems. I'll be honest, though: Last week was the first time I've ever heard of the app. "It's a live trivia show," I was told. "You play twice a day with hundreds of thousands of your closest friends and try to win money."
I downloaded the app because I was curious, and everything about it was an odd, surreal experience. I hadn't expected there to be a live host making uncomfortable one-sided banter to fill time while the start of the game was delayed. Then, when the questions started up, I...had no idea what to do, because nothing about my screen ever changed. I was just staring at the host the whole time. I couldn't figure out how to answer a question.
I found out later that the question is supposed to pop up on your screen. It didn't on my screen, an issue that I saw other people online complaining about, so I know it at least wasn't my own incompetence. I didn't really stick around for more, though. I deleted the app, thinking it was just something that didn't seem to be my kind of thing.
While I was Googling my app experience, though, I came across this pretty wild article from The Daily Beast and it made me think about a thought exercise I like to make my contracts students engage in at the very beginning of the semester: What does each party to a transaction want from the relationship they're about to enter into, and how will that translate into the contract? The article recounts an interview the Daily Beast conducted with the app's main host, and then their interactions with the app's CEO. At the end, it's revealed that the app is in a negotiation for a long-term contract with the main host. The rest of the article provides a lot of meat for speculation as to how those negotiations might go, based on the comments of both the main host and the CEO. The CEO appears to be very worried about the app's trade secrets being revealed, so one can assume that the contract would be very strict about the host's interactions with the media. Doubtless the parties will discuss a non-competition clause as well. And how much will the negotiations be impacted by the newness of the HQ app phenomenon; the uniqueness of its setup; and the fuzziness of its future plans? All interesting things to consider.
Monday, December 4, 2017
If you're looking for fact patterns involving consideration, a recent case out of the Northern District of New York, West v. eBay, Inc., 1:17-cv-285 (MAD/CFH) (behind paywall), has one for you.
The following allegations appeared in the complaint: West worked as a consultant for eBay. As a consultant, West told eBay about a business plan he had which represented a "unique business model" for virtual marketplaces. West said he was cautious about sharing his business plan, and eBay promised to keep the business plan confidential. West then sent the business plan to eBay. eBay subsequently promised to compensate West if it used the business plan. eBay then developed a mobile app that West alleged used the business plan. eBay, however, stated that the app was "independently conceived" by other eBay employees. This lawsuit followed, and eBay moved to dismiss West's complaint.
One of eBay's asserted grounds for dismissal was a lack of adequate consideration for the contract alleged in West's complaint. eBay claimed that the business plan was not "novel" and so had no value and could not serve as consideration. The court noted that under New York law, a not-novel idea can be adequate consideration if it was novel to the party to whom it was being disclosed. This requires a fact-specific inquiry. At the motion to dismiss stage, West had asserted enough facts that the business plan was idea was novel to eBay, meaning that it could serve as adequate consideration for the contract.
There were other causes of action and arguments involved that I'm not going to get into here, but the complaint also contained promissory estoppel and unjust enrichment claims that also survived the motion to dismiss, if you're interested.
Tuesday, September 19, 2017
The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.
Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale.
Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).
The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).
Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”
So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.
Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”
I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter?
I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.
The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).
Tuesday, September 12, 2017
The U.S. Court of Appeals for the Second Circuit recently reversed a district court’s decision to deny Uber’s move to compel arbitration in a contract with one of its passengers, Spencer Meyers.
The district court had found that Meyer did not have reasonably conspicuous notice of Uber’s terms of service (which contained the arbitration clause) when he registered a user, that Meyer did not unambiguously assent to the terms of service, and that Meyer was not bound by the mandatory arbitration provision contained in the terms of service.
The Second Circuit summed up the usual difference between clickwrap agreements, which require a user to affirmatively click on a button saying “I agree” and which are typically upheld by courts, and browsewrap agreements, which simply post terms via a hyperlink at the bottom of the screen and which are generally found unenforceable because no affirmative action is required to agree to the terms.
In the case, Meyer had been required to click on a radio button stating “Register,” not “I agree.” But in contrast to browsewrap agremeents, Uber also informed Meyer and other users that by creating an account, they were bound to its terms. Uber did so via a hyperlink to the terms on the payment screen.
Meyer nonetheless claimed that he had not noticed or read the terms. The Court thus analyzed whether he was at least on inquiry notice of the arbitration clause because of the hyperlink to the terms. This was the case, found the court, because the payment screen was uncluttered with only fields for the user to enter his or her payment details, buttons to register for a user account, and the warning and related hyperlink. Further, the entire screen was visible at once and the text was in dark blue print on a bright white background. Thus, the fact that the font size was small was not so important.
Mayer was bound to the arbitration clause because he had assented to that term after getting “reasonably objective notice.”
Thursday, August 24, 2017
As first reported on Above the Law, the Federal Circuit Court of Appeals has just ruled that Amazon is nothing but a simple purveyor of “online services” and does not make “sales” of goods. Although the issue in the case was one of intellectual property infringement and thus not the UCC, the differentiation between “goods” and “services” is also highly relevant to the choice of law analyses that our students will have to do on the bar and practitioners in real life.
How did the Court come to its somewhat bizarre decision? Amazon, as you know, sells millions, if not billions, of dollars worth of tangible, physical products ranging from toilet paper to jewelry, books to toys, and much, much more. They clearly enter into online sales contracts with buyers and exchange the products for money. “Amazon” is the name branded in a major way in these transactions whereas the names of the actual sellers – where these differ from Amazon itself – are listed in much smaller font sizes. Often, it is Amazon itself that packages and ships the products to the buyers, whereas at other times, third party buyers are responsible for the shipping. Amazon “consummates” the sale when the buyer clicks the link that says “buy” on the Amazon website. Amazon then processes the payments and receives quite significant amounts of money for this automated process.
Clearly a “sale,” right? Nope. I guess “a sale is not a sale when a court says so.” As regards the IP dispute, the crucial issue was whether or not Amazon could control the acts of the third-party vendors. You would think that even that would clearly be the case given the enormous control Amazon has over what is marketed on its website and how this is done. Amazon, however, argued that it sells so many items that it cannot possibly police all of them. Thus, it won on its argument that it was not liable under IP law for a knock-off item that had been sold on the Amazon website as the real product (cute animal-shaped pillowcases).
Had this been an issue of contracts law and had the court still found that the transaction was not a sale of goods under UCC Art. 2, would it have erred? Arguably so. Under the “predominant factor test” used in many, if not most, jurisdictions, courts look at a variety of factors such as the language of the contract, the final product (or service) bought and sold, cost allocation, and the general circumstances of the case. When you buy an item on Amazon, it is true that you obtain the service of being able to shop from your computer and not a physical location, but at the end of the day, it is still the product that you want and buy, not the service. Apart from the relatively small service fee (which gets deducted from the price paid to the seller), the largest percentage of the sales price is for the product. Modernly, online buyers have become so used to that “service” being provided that it is arguably not even that much of a service anymore; it is just a method enabling buyers to buy… the product. Clearly, it seems to me, a “sale” under Art. 2.
Again, this was not a UCC issue, but it does still show that courts apparently still produce rather odd holdings in relation to e-commerce, even in 2017.
The case is Milo & Gabby LLC v. Amazon.com, Inc., (Fed. Cir. 2017)
Wednesday, March 8, 2017
A recent case out of the Second Circuit, McCabe v. ConAgra Foods, Inc., 16-3301-cv, adds to the jurisprudence on promotions and offers and unilateral contracts.
ConAgra ran an annual promotion whereby it pledged to donate to a charity every time a certain code from its packaging was entered on its website, up to a certain maximum amount. McCabe alleged that this promotion created a contract and alleged that ConAgra breached the contract. A promotion is generally not considered an offer to enter into a contract unless it is clear, definite, and explicit, leaving nothing left to negotiate. ConAgra's promotion did not rise to that level, not least because the promotion was clearly limited to a certain maximum amount. For that reason, a person entering the code into ConAgra's website would never have any way of knowing if its code would trigger a donation on ConAgra's part, because the maximum donation amount might have already been achieved. ConAgra's promotion was not an offer, and McCabe could not accept it.
McCabe then tried to characterize the promotion as an invitation for offers, with people "offering" when they input the code onto ConAgra's website, and ConAgra "accepting" when it acknowledged receipt of the code. However, the promotion was too indefinite to set any terms for the "offer," and the code entry itself did not clarify any of the terms further.
At any rate, even if there had been a contract, the court found that there weren't sufficient allegations ConAgra had breached it. There was no allegation that ConAgra did not donate to the charity every time it received the code, up to the maximum amount. McCabe's disagreement was really with the charity's own methodology, which was not ConAgra's issue.
You can listen to the oral argument in this case here.
Sunday, February 26, 2017
We have blogged about arbitration clauses in contracts lots of times before, including in the Internet context, and including in the diet pill context. Now a recent case out of Florida, Vitacost.com, Inc. v. McCants, No. 4D16-3384, adds to the pile, in the Internet diet pill context. In this case, McCants sued Vitacost, from which he purchased dietary supplements that he alleged seriously damaged his liver. In response, Vitacost sought to compel arbitration based on the arbitration clause in the terms and conditions on its website. In Florida, the enforceability of Vitacost's "browsewrap" terms and conditions was a matter of first impression.
Vitacost claimed that the hyperlink to its terms and conditions was located at the bottom of every page of its website and that that was sufficient to put McCants on notice of them. However, the court noted that the constant positioning of the hyperlink at the bottom of the page required every user to have to scroll to the bottom of the page to notice the terms and conditions. Even upon buying something and "checking out," the hyperlink remained positioned toward the bottom of the page. McCants alleged that he had not seen the terms and conditions, and the court found that the hyperlink's location was not conspicuous enough to put McCants on notice.
Wednesday, October 26, 2016
Scholarship Spotlight: "Trust and Enforcement in Banking, Bitcoin, and the Blockchain" (Catherine Christopher - Texas Tech)
Bitcoin and other alternative currencies have been of particular interest in the contracts scholarly community for many reasons, including the potential elimination of intermediaries in electronic financial transactions and also the possibility of self-enforcing "smart contracts." In both cases, the major touted feature of the blockchain technology underlying bitcoin is that it allows for transactions to be "trustless." Catherine (Cassie) Christopher (Texas Tech) suggests in a new article, however, that the purported lack of need for trust is overblown and that intermediaries still have an important role to play.
Here is Professor Christopher's abstract:
Bitcoin has long been touted as a currency and a payment system that relies on cryptography and mathematics rather than trust. But is Bitcoin really trustless? And if so, would that be a good thing? This article under-takes a critical deconstruction of Bitcoin and the blockchain, their themes of democracy and transparency, and the idea that they are trustless. The article then proposes a new conceptualization of the role of trust in business and contracting: the bridging model, which allows for a more nuanced understanding of the interplay between enforcement and trust in contract formation. The bridging model is applied first to traditional banking, to illustrate and analyze the enforcement mechanisms underpinning the U.S. dollar as currency and the banking system as a whole, and to demonstrate that the enforcement mechanisms (government backing and regulation) are not as robust as generally believed. The bridging model is then applied to Bitcoin, to show not only that the system requires more trust than is generally understood, but also that both currency and payment systems benefit from the involvement of trusted intermediaries in response to problems and crises.
"The Bridging Model: Exploring the Roles of Trust and Enforcement in Banking, Bitcoin, and the Blockchain" is published in the Nevada Law Review at 17 Nev. L. Rev. 1 (2016), and is available for SSRN download here.
Friday, September 30, 2016
Yesterday, the United States Supreme Court granted certiorari in the case of Expressions Hair Design v. Schneiderman, which could result in a significant change in the way end users perceive credit card use. The issuing banks and card networks would, for obvious reasons, prefer a system in which the costs of card usage are borne by merchants and are hidden from the card-using customers who then perceive card use as free. Since that preference has found its way into the law of several states, it has raised a First Amendment issue.
Tony Mauro of law.com summarizes the case as follows:
In the Expressions case, the court will be asked to decide the constitutionality of laws in 10 states that allow merchants to charge customers more for credit-card transactions—but require them to call the difference a cash “discount,” not a credit-card “surcharge.” California, Connecticut, Florida, Massachusetts, New York and Texas are among the states with similar statutes on the books.
The credit-card industry has lobbied for such laws since the 1980s, critics say, because using the word “surcharge” would discourage shoppers from using credit cards.
“A ‘surcharge’ and a ‘discount’ are just two ways of framing the same price information—like calling a glass half full instead of half empty,” Deepak Gupta of Gupta Wessler wrote in his petition challenging New York’s law. “But consumers react very differently to the two labels, perceiving a surcharge as a penalty for using a credit card.”
Expressions Hair Design posted a sign that said it would charge three percent more for paying by credit “due to the high swipe fees charged by the credit-card industry.” It and other merchants challenged the law as a violation of their First Amendment speech rights. The U.S. Court of Appeals for the Second Circuit rejected the claim, finding that the law regulates “merely prices,” not speech.
* * *
A coalition of large merchants including Albertsons, Rite Aid and Spirit Airlines sided with the petitioners in urging the court to take the case.
Friday, September 16, 2016
A British start-up company called Luminance, which is also the name of its flagship due diligence analysis, “promises” to read documents and speed up the legal process around contracting, “potentially cutting out some lawyers.” (See here and here).
Luminance says that its software “understands language the way humans do, in volumes and at speeds that humans will never achieve. It provides an immediate and global overview of any company, picking out warning signs without needing any instruction.” Really? When I was working in the language localization things more than a decade ago, I heard the same promises then… but they never come to fruition. We’ll see how this program fares.
The software is said to be “trained by legal experts.” Talk about personification of an almost literary-style. We see the same trend in the United States, though. Just think about phone and internet programs that pretend to be your “assistant” and use phrases such as “Hi, my name is [so-and-so], and I’m going to help you today…”
Meanwhile, if a law firm used software to analyze documents, would it not be subject to legal malpractice if it did not discover contracting or other issues that a human would have, in this country at least? It would seem so… and for that reason alone perhaps also be a breach of contract unless clients were made aware that cost-cutting measures include having computers analyze documents that attorneys normally do.
Sunday, August 28, 2016
The Second Circuit just ruled in a case involving Amazon that "reasonable minds could disagree on the reasonableness of the notice" of the arbitration agreement provided by Amazon.
In 2013, the plaintiff, Dean Nicosia, bought diet pills on Amazon containing the ingredient sibutramine, a controlled substance that was withdrawn from the market by the FDA in 2010 because of concerns over severe health risks. Mr. Nicosia stated that the presence of sibutramine was not disclosed to him and that he was never notified nor offered a refund, even after Amazon stopped selling the product. Amazon moved to dismiss on the grounds that Nicosia's claims were covered by a mandatory arbitration provision. The district court granted that motion, finding that Nicosia had constructive notice of the arbitration clause.
When Nicosia bought the product, the final checkout screen stated “Review your order” and “[b]y placing your order, you agree to Amazon.com’s privacy notice and conditions of use.” The words “conditions of use” were hyperlinked to the actual text of the terms including the arbitration agreement, but were “not bold, capitalized, or conspicuous in light of the whole webpage.” Proximity to the top of a webpage also does not necessarily make something more likely to be read in the context of an elaborate webpage design. Additionally, said the court, “[a]lthough it is impossible to say with certainty based on the record, there appear to be between fifteen and twenty‐five links on the Order Page, and various text is displayed in at least four font sizes and six colors (blue, yellow, green, red, orange, and black), alongside multiple buttons and promotional advertisements. Further, the presence of customers’ personal address, credit card information, shipping options, and purchase summary are sufficiently distracting so as to temper whatever effect the notification has.”
The court made the further analogy:
“It is as if an apple stand visitor walks up to the shop and sees, above the basket of apples, a wall filled with signs. Some of those signs contain information necessary for her purchase, such as price, method of payment, and delivery details, and are displayed prominently in the center of the wall. Others she may quickly disregard, including advertisements for other fruit stands. Among them is a sign binding her to additional terms as a condition of her purchase. Has the apple stand owner provided reasonably conspicuous notice? We think reasonable minds could disagree.”
The Amazon case raises some interesting questions, I think. First and as always: is an online customer – a consumer in this case - truly put on notice just because of a hyperlink on a website? The Second Circuit will now get a chance to resolve that issue. Second, and perhaps much more troubling here is the weight the district court gave to the mere fact that Mr. Nicosia had “signed up for an account” with Amazon. In today’s day and age, we all sign up for numerous accounts to conduct all sorts of life matters from the simple to the complex. I, for one, don’t like to shop or conduct much other business online, but I have an entire spreadsheet full of usernames and passwords to various websites that I have used or still sometimes use. In and of itself, that hardly means that I am aware of any contractual terms contained anywhere on those websites. In my opinion, holding users to such “notice” is unreasonable and unrealistic in today’s busy world (it is simply too time-consuming to study all possible legal requirements listed on all these website in detail to do by far most of the things I do online, and I am sure many other consumers are in my situation.). Even worse, the district court seemed willing to hold consumers to the very high burden of having to familiarize themselves with perhaps frequently changing terms online after having created an online account with a certain company. Again, that is just not realistic with the modern barrage of necessary and/or required website usage. Finally, the court found that users do not actually have to read the terms to be bound by them. It is apparently enough that they could have “inquired” of these terms. That’s giving an online company tremendous legal weight and, arguably, presents split authority in comparison with that of the Ninth Circuit.
The case is Nicosia v. Amazon.com, Inc.
Hat tip to Matthew Bruckner of Howard Univesity School of Law for bringing this story to my attention. http://www.law.howard.edu/1831
Thursday, August 4, 2016
I might wish that more places would just tell me the end price without the extra fees, but, for now, I think the widespread acceptance of these fees in the course of transactions indicates they're here to stay for the time being.
Wednesday, August 3, 2016
Yesterday, Stacey noted how employers should be careful not to be too greedy when dealing with employees. Another example of the backlash – judicial or legislative – that may be the result if employers overstep what ought to be reasonable limits in interactions with their employees is a new law in Massachusetts that prohibits employers from asking job candidates about their salary history as part of the screening process or during an interview.
Why indeed should they be able to do so?! In a free market, freedoms cut both ways: just as an employee can, of course, not be sure to get any particular job at any particular salary, the employer also cannot be sure to be able to hire any particular employee! There is no reason why employers should enjoy financial insight about the employee when very often, employees don’t know about the salaries at the early stages of the job negotiation process. Both parties should be able to come to the negotiation table on as equal terms as possible, especially in this job market where employers already often enjoy significant bargaining advantages.
Massachusetts also requires Commonwealth employers to pay men and women equally for comparable work.
Wednesday, July 20, 2016
How often do those of us in the contracts realm get to string together "commercial law," "U.S. Supreme Court," and "original jurisdiction" in the same sentence? If your answer is, "not nearly often enough!" then you may want to keep tabs on a lawsuit filed last month by Arkansas, Texas, and 19 other states against Delaware and MoneyGram. At issue is the appropriate recipient of unclaimed property, the property in this case being the proceeds from unused MoneyGram payment instruments, which, after a time, are ultimately subject to escheat to the state.
The Dallas Morning News described basic facts in covering the rollout of the litigation by the Texas Attorney General:
Attorney General Ken Paxton today accused the state of Delaware of swiping up to $400 million in unclaimed checks that rightfully belong to Texas and the 48 other states.
Texas’ share, he said, would be about $10 million.
For the last four or five years, Paxton said, announcing a lawsuit against Delaware that was filed directly at the U.S. Supreme Court, Delaware has been requiring financial institutions incorporated under its laws — in particular MoneyGram – to turn over unclaimed funds only to Delaware.
But under a 1974 federal law, Paxton asserted, such funds belong to the state in which a transaction originated. MoneyGram lets people pay a fee to purchase a check they can send to someone else.
“The state of Delaware elected to begin playing by a different set of rules,” Paxton said, calling the practice both illegal and unfair. “Delaware has our money.”
He cited an audit released in February 2015 that found that Delaware had claimed more than $150 million in unclaimed checks that originated in 20 other states. Extrapolating to the whole country, he said, the tally could be $400 million.
This group of 21 states is not the first to take issue with Delaware's appropriation of the unclaimed property. Wisconsin and Pennsylvania brought a similar lawsuit in federal district court in which defendant Delaware ultimately invoked the original jurisdiction of the Supreme Court to resolve disputes between states. SCOTUSblog provides some helpful detail on the legal background and procedural posture of these state-v.-state cases:
The core legal issue in each of the new filings is whether a 1974 law with an assignment of priority of state ownership for unclaimed tangible property applies to the new instrument, which some 1,900 banks or other institutions across the country are using instead of cashier’s or teller’s checks. Delaware says the law does not apply; the other states disagree.
The Supreme Court has issued three rulings on competing state claims to unclaimed intangible property; Congress has overruled one of those, in a 1974 law known as the Disposition of Abandoned Money Orders and Traveler’s Checks Act. That law is at the center of the cases that have reached the Court under its “original” jurisdiction — that is, its authority to decide, in the fashion of a trial court, a legal dispute not decided by a lower court. This jurisdiction is often implicated in resolving disputes between states — as in the new filings over unclaimed property.
The Court has no binding obligation to take on such a case. However, if it does, it customarily names a “special master” to act like a junior judge to gather facts and make a recommendation for a decision. A special master’s report is not final unless it becomes the ruling of the Supreme Court.
The large dollar amount in dispute arises from an aggregation of small transactions that will be familiar to anyone who has studied the "money order" species of negotiable instrument:
While Delaware’s claims are at the center of this new financial fight between the states, the controversy actually turns on the specific financial instrument involved, and the Texas company that has been issuing those items, which it calls “official checks.” That company, MoneyGram Payments Systems, Inc., has its main business office in Texas but it is incorporated in Delaware. It does business in all fifty states.
Its main business is as a kind of financial partner to banks and other institutions that prefer not to issue cashier’s checks or teller’s checks in their own name. MoneyGram does it for them, so it acts as the financial backer of its “official checks.”
That kind of transaction is conducted for some of the same reasons that stores do a business in money orders or traveler’s checks. The idea is that, in the form of a money order or traveler’s check, the piece of paper is a guaranteed form of payment that works like cash; in other words, it won’t “bounce” for lack of sufficient funds behind it. Typically, this kind of instrument is in fairly small amounts.
The Supreme Court does not frequently consider issues intersecting with commercial law in quite the way that this case does, so the outcome will certainly bear watching.
Wednesday, July 6, 2016
Yesterday, I blogged here about ticketscalping “ticketbots” outperforming people trying to buy tickets with the result of vastly increased ticket prices.
Now Ashley Madison – dating website for married people – has announced that some of the “women” featured on its website were actually “fembots;” virtual computer programs. In other words, men who paid to use the website in the hope of talking to real women were actually spending cash to communicate with computers (men have to pay to use the website, women don’t).
Why the announcement? The new leadership apparently wanted to air the company’s dirty laundry, so to speak.
Ashley Madison was hacked last year, revealing who was using the website to cheat on their husband, wife or partner. It was a devastating hack, ruining lives and even leading a pastor to commit suicide.
This seems to be a clear breach of contract: if you pay to communicate with real women, the contract must be considered breached if all or most of the contact attempts went to and/or from computers only. Perhaps even worse for Ashley Madison is the fact that the company is under investigation by the U.S. Federal Trade Commission. The FTC does not comment on ongoing cases, but “it could be investigating whether Ashley Madison properly attempted to protect the identity of its discreet customers -- which it promised to keep secret. Or it could be investigating Ashley Madison for duping customers into paying to talk to fake women. On Monday, the company also acknowledged that it hired a team of independent forensic accounting investigators to review past business practices around bots and the ratio of male and female U.S. members who were active on the site."
Tuesday, July 5, 2016
Have you ever tried buying concert tickets right when they were made available for sale on the Internet, only to find out mere minutes later that they were all sold out? Or, for that matter, highly coveted camping reservations in national or some state parks?
Where once, we all competed against the speed of each other’s fingertips and internet connections, nowadays, “ticket bots” quickly snatch up tickets and reservations making it virtually impossible for human beings to compete online. Ticket bots are, you guessed it, automatic computer programs that buy tickets at lighting speed. They can even read “Captcha boxes;” those little squiggly letters that you have to retype to prove that you are not a computer. Yah, that didn’t work too well for very long.
“A single ticket bot scooped up 520 seats to a Beyonce concert in Brooklyn in three minutes. Another snagged up to more than 1,000 U2 tickets to one show in a single minute, soon after the Irish band announced its 2015 world tour.”
Ticket bots scoop up tickets for scalpers who then resell them on other websites, marking the tickets up many times the original price. (I’m actually not saying that state and national parks are cheated that way, maybe camping reservations in those locations are just incredibly popular as hotel prices have increased and incomes are staggering. I personally used to be able to, with t he help of a husband and several computers, make campground reservations for national holidays, but those days are long gone…”we are now full.”).
Ticket bots are already illegal in more than a dozen states. New York is considering cracking down on this system as well. However, the most severe penalty under New York law is currently fines in the order of a few thousand dollars where ticket scalpers make millions of dollars. A new law proposes jail time for offenders. This is thought to better deter this type of white-collar crime in the ticket contract market.
Monday, June 13, 2016
Stories such as this [https://www.washingtonpost.com/lifestyle/travel/i-flew-to-abu-dhabi-for-265-round-trip-heres-how-you-can-do-the-same/2016/06/07/fc33cbea-29a3-11e6-b989-4e5479715b54_story.html] about finding incredibly cheap airlines to both national and international destinations because of airline computer pricing mistakes (real or otherwise…) have become commonplace. In 2012, the Department of Transportation established clear rules against changing the price of a ticket after purchase. But in a new decision by the U.S. Department of Transportation, that rule will no longer be enforced:
“As a matter of prosecutorial discretion, the Enforcement Office will not enforce the requirement of section 399.88 with regard to mistaken fares occurring on or after the date of this notice so long as the airline or seller of air transportation: (1) demonstrates that the fare was a mistaken fare; and (2) reimburses all consumers who purchased a mistaken fare ticket for any reasonable, actual, and verifiable out-of-pocket expenses that were made in reliance upon the ticket purchase, in addition to refunding the purchase price of the ticket.
Travelers’ websites thus now recommend that people hold off making further travel plans until a ticket and confirmation number have actually been issued. Some have further said about the glitch fares that “[t]ravel is not something that is only for the elite or [people] from certain economic brackets.” Of course, it shouldn’t be, but with the deregulation of the airline industry and steadily increasing prices and fees, history seems to be repeating itself: air travel is, for many, becoming unaffordable. This in spite of record-breaking profits for the airline industry benefiting from low oil prices and, I want to say of course, fares increasing, holding steady or certainly not decreasing very much. Airline executives say they are sharing the wealth with passengers by investing some of their windfalls into new planes, better amenities and remodeled terminals. They're also giving raises to employees and dividends to investors. Right… And whereas some years have been marked by bust, many more have been booming for the airlines.
Given that, why would the DOT be amenable to help out the airlines, and not passengers? Under contract law, mistakes that are not easily “spottable” have, traditionally, not been grounds for contract revocation. If one considers the contract to have been executed when the airline accepts one’s online offer, why should the airline, absent a clear error or other mitigating factors, not be expected to follow the common law of contracts as other parties will, depending on the circumstances, of course, likely have to? That beats me.
Some airlines are, however, choosing the honoring the mistake fares. Others don’t. Bad PR, you say? That also does not seem to matter. The most hated airline in the U.S. a few years back – Spirit Airlines – was also (at least then) the most profitable.
Hat tip to Matt Bruckner of Howard University School of Law for bringing this story to my attention.
Monday, May 30, 2016
Watching terms and conditions litigations continue to play out is an interesting exercise. One of the things we learn is that the terms and conditions mean what they say, which should be obvious, but of course ignores the fact that basically nobody reads what they say. Consumers seem to be consistently caught off-guard by some of the terms. A recent Ninth Circuit decision, Geier v. M-Qube Inc., No. 13-36080, reinforces this (you can watch the oral argument here).
Geier sued m-Qube based on a mobile game it marketed called Bid and Win. m-Qube was not the provider of the game; rather m-Qube merely marketed the game. The other defendants in the case were all similarly removed from the actual content of the game, serving as "intermediaries" and "gateways." The game's actual content provider, Pow! Mobile, was not sued by Geier.
The dispute in the case was over whether m-Qube and the other defendants were third-party beneficiaries of the terms and conditions of the game. Allegedly, when signing up for the game, subscribers, under the terms and conditions, waived all claims against Pow! Mobile's "suppliers." Despite this clause, Geier was attempting to sue m-Qube, et al., over text message abuses in violation of Washington law. (Geier, incidentally, was not alone in suing over this. A class action in the District of Nebraska was complaining about the same behavior.)
The Ninth Circuit's decision in this case is a matter of straightforward contract law: If you are an intended third-party beneficiary of the contract, you can enforce the contract. There is no real surprise there, except maybe to the consumer here, because it may sink Geier's entire case, which now hinges on whether m-Qube and the other defendants are Pow! Mobile's "suppliers." If they are, then they are intended third-party beneficiaries of the terms and conditions' waiver clause and can seek to enforce it. We may not be reading those terms and conditions, but we may be waiving lots of our rights nonetheless.
Friday, May 27, 2016
Scholarship Spotlight: What We Buy When We 'Buy Now' (Aaron Perzanowski - Case Western & Chris Jay Hoofnagle - Cal-Berkeley)
Contracts in the digital age continue to raise novel issues of mutual assent and interpretation, and misunderstanding by individual users crosses over into consumer law as well. In What We Buy When We 'Buy Now, authors Aaron Perzanowski (Case Western) and Chris Jay Hoofnagle (California - Berkeley) generate and analyze empirical data on consumer understanding of contracts for digital wares, concluding that this area is ripe for action by the Federal Trade Commission. Here is the authors' abstract:
This article presents the results of the first-ever empirical study of consumers' perceptions of the marketing language used by digital media retailers. We created a fictitious Internet retail site, surveyed a nationally representative sample of nearly 1300 online consumers, and analyzed their perceptions through the lens of false advertising and unfair and deceptive trade practices. The resulting data reveal a number of insights about how consumers understand and misunderstand digital transactions. A surprisingly high percentage of consumers believe that when they “buy now,” they acquire the same sorts of rights to use and transfer digital media goods that they enjoy for physical goods. The survey also strongly suggests that these rights matter to consumers. Consumers are willing to pay more for them and are more likely to acquire media through other means, both lawful and unlawful, in their absence. Our study suggests that a relatively simple and inexpensive intervention — adding a short notice to a digital product page that outlines consumer rights in straightforward language — is an effective means of significantly reducing consumers’ material misperceptions.
Sales of digital media generate hundreds of billions in revenue, and some percentage of this revenue is based on deception. Presumably, if consumers knew of the limited bundle of rights they were acquiring, the market could drive down the price of digital media or generate competitive business models that offered a different set of rights. We thus turn to legal interventions, such as state false advertising law, the Lanham Act, and federal unfair and deceptive trade practice law as possible remedies for digital media deception. Because of impediments to suit, including arbitration clauses and basic economic disincentives for plaintiffs, we conclude that the Federal Trade Commission (FTC) could help align business practices with consumer perceptions. The FTC’s deep expertise in consumer disclosures, along with a series of investigations into companies that interfered with consumers’ use of media through digital rights management makes the agency a good fit for deceptions that result when we “buy now.”
Professors Perzanowski's and Hoofnagle's article is forthcoming in the University of Pennsylvania Law Review in 2017, but you can download their current draft here.