ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Sunday, January 31, 2016

On Artificial Intelligence and Contract Law

SmartcontractsIan Kerr of the University of Ottawa's Centre for Law, Technology and society has an interesting post from last September on a topic of that has been of occasional discussion on this blog, and which I came across only recently.  In "The Arrival of Artificial Intelligence and 'The Death of Contract,'" Kerr outlines some of the foreseeable challenges facing today's students of contract law due to disruptive technology:

On the market today are a number of AI products that carry out contract review and analysis. Kira, an AI system used to review and analyze more than US$100 billion worth of corporate transactions (millions of pages), is said to reduce contract review times by up to 60%. Likewise, a Canadian product called Beagle (“We sniff out the fine print so you don’t have to”) is faster than any human, reading at .05 seconds per page. It reads your contract in seconds and understands who the parties are, their responsibilities, their liabilities, how to get out of it and more. These are amazing products that improve accuracy and eliminate a lot of the “grunt work” in commercial transactions.

But hey—my Contracts students are no dummies. They can do the math. Crunch the numbers and you have a lot of articling students and legal associates otherwise paid to carry out due diligence who now have their hands in their pockets and are looking for stuff to do in order to meet their daily billables. What will they do instead?

In some ways, such concerns are just teardrops in an ocean full of so-called smart contracts that are barely visible in the murky depths of tomorrow. Their DRM-driven protocols are likely to facilitate, verify, and enforce the negotiation and performance of contracts. In some cases, smart contracts will obviate the need for legal drafting altogether—because you don’t actually need legal documents to enforce these kinds of contracts. They are self-executing; computer code ensures their enforcement.

Kerr's concludes that smart contracts and their technological relatives are no more the death of contract than what Grant Gilmore pronounced, but that the change is worrisome, including to our relational understanding of contract doctrine and its practice:

I suspect we will face some significant changes and I am not sure that it’s all good. Self-executing contracts, like the DRM-systems upon which they are built, are specifically designed to promote the wholesale replacement of relational aspects of contract such as trust, promise, consent and enforcement. As such, they do injury to traditional contract theory and practice. While I have no doubt that an AI-infused legal landscape can to some extent accommodate these losses by creating functional equivalents where historical concepts no longer make sense (just as e-commerce has been quite successful in finding functional equivalents for the hand-written signature, etc.), I do worry that some innovations in AI-contracting could well have a negative effect on human contracting behavior and relationships.

The entire post is worth a read for anyone interested in the impact of technology on contracts.

January 31, 2016 in Commentary, Contract Profs, E-commerce, Web/Tech | Permalink | Comments (0)

Mobile Carriers Give up Two-year Contracts

Mobile carriers seem to have grown tired of, effectively, being in the loan business funding people’s new phones. American consumers were used to this model, which was a way for phone companies to hide the large price of a new phone into a monthly bill.

More recently, consumers want to change their phones more often than every two plus years, so many prefer paying up front for their phones to be able to change plans whenever they want to instead of having to wait out a long-term contract (or risk sanctions if breaching it).

All the major carriers – T-Mobile, Verizon, Spring and now AT&T – have now shifted away from two-year contracts. The question now is whether consumers will truly choose to pay for their phones in full at the point of purchase or, as has been mentioned, opt for installment plans that lets them upgrade more often than before remains to be seen. Given the price of phones, but also the seemingly insatiable need by many for new technology, installment contracts may be the likely end result. If so, it will be interesting to see how carriers will avoid tying people into long-term contracts, which has proved to be undesirable, but at the same time trying to do, at bottom, some of that via “installment contracts.”

January 31, 2016 in Current Affairs, E-commerce, In the News, Web/Tech | Permalink

Friday, January 29, 2016

Confusing Contracts Language as Litigation Strategy?

The class action lawsuit against Uber for allegedly misclassifying its drivers as “independent contractors” instead of regular “employees” is growing in scope and importance. (O’Connor v. Uber Technologies Inc., 13-cv-03826, Northern District of California). It now covers more than 100,000 drivers. If Uber loses, the case could mean the end of the so far highly lucrative business ride share model that is currently valued at a whopping $60 b worldwide. http://www.bloomberg.com/news/articles/2015-12-18/uber-faulted-by-judge-for-confusing-drivers-with-new-contract

A recent contractual twist developed as follows: Judge Chen had previously found certain contractual language between Uber and its drivers to be unconscionable and unenforceable. Uber claims it tried to fix those issues in a new set of contracts prohibiting its drivers from “participating in or recovering relief under any current or future class action lawsuits against the company.”  (Link behind a sign-in request). The drivers were, instead, required to resolve potential conflicts via arbitration.  The new contract did, however, purport to give drivers 30 days to opt out of the arbitration provision.

Judge Edward Chen stated about this contractual language that “it is likely, frankly, to engender confusion.” The potential for confusion stems from the fact that numerous drivers have, obviously, already joined the class action lawsuit just as many still may want to do so. Hundreds of drivers are said to have called the plaintiffs’ lawyer, Shannon Liss-Riordan, to find out whether they have to opt out of the new contract to join the lawsuit. Ms. Liss-Riordan called the updated contract an attempt to “trick her clients into relinquishing their rights to participate in the class action.”

Uber, however, claimed that it was just trying to fix previous problematic contractual language and that it would “not apply the new arbitration provisions to any drivers covered by the class action.” The contractual language, though, does not say so.

Whether this is an example of deliberate strong-arming or intimidating the drivers into not joining the lawsuit or simply unusually poor contract drafting may never be known. Judge Chen did, however, order Uber to stop communicating with drivers covered by the class action suit and barred the company from imposing the new contract on those drivers.

The saga continues with trial set for June 30.

Meanwhile, Lyft settled a very similar lawsuit by its drivers in the amount of $12 million. Under that settlement, Lyft will still be able to classify its drivers “independent contractors.”

January 29, 2016 in E-commerce, Famous Cases, In the News, Labor Contracts, Web/Tech | Permalink | Comments (0)

Thursday, January 21, 2016

Fired for Posting Critical Comments about Employer on Facebook

On Thursday, the U.S. Circuit Court of Appeals for the D.C. Circuit heard arguments about whether a clothing company illegally fired three retail store employees for their Facebook posts criticizing the employer. The case involves the as-of-yet little developed area of how labor law applies to social media usage as well as other complex issues of contracts and employment law. The case is Design Technology Group v. NLRB, Case Number 20-CA-035511.  The case also demonstrates the issue of poor workplace conditions and how little employees can do under contracts law or other bodies of law against this, which I have blogged about before (most recently here). I am not an employment law expert.  I simply find this case very interesting from the point of view of how social media law is developing in relation to what is, after all, also an employment contract.

In the case, three employees repeatedly brought various safety concerns to the attention of the store manager. Among other things, the employees felt that the area of San Francisco where the store was located was relatively unsafe at certain times of the evening and that, perhaps, store hours could thus be changed to alleviate this problem. Homeless people would also gather in numbers outside the store to watch a burlesque video that the store played on a big TV screen right inside a window, thus potentially also attracting various (other) unsavory characters. Images

Allegedly, the store manager did not respond to these safety concerns and treated the employees in an immature and unprofessional way. The three employees discussed the events not at the water cooler, which is so yesteryear, but on Facebook. These posts included messages such as

  • “It’s pretty obvious that my manager is as immature as a person can be and she proved that this evening even more so. I’m am unbelieveably [sic] stressed out and I can’t believe NO ONE is doing anything about it! The way she treats us in NOT okay but no one cares because everytime [sic] we try to solve conflicts NOTHING GETS DONE!!... “
  • “800 miles away yet she’s still continues to make our lives miserable. phenomenal!”
  • “hey dudes it’s totally cool, tomorrow I’m bringing a California Worker’s Rights book to work. My mom works for a law firm that specializes in labor laws and BOY will you be surprised by all the crap that’s going on that’s in violation 8) see you tomorrow!” Unknown

One of the employees did bring the California worker’s rights book—which covered issues such as benefits, discrimination, the right to organize, safety, health, and sanitation—to work and put it in the break room where other employees looked through it, noticing that they were entitled to water and sufficient heat.

This same employee also (naïvely) sent resumes from the company computer in spite of company rules allowing only sporadic computer access (the store manager had allegedly set a bad example by using the store computer for personal purposes herself). The company discovered this as well as the Facebook posts, and fired the three employees.

The company argues that the workers commented on Facebook only in order to create a pretext for filing a claim with the NLRB. The smoking gun, according to the company, is the following exchange of (select, but most salient) Facebook postings:

  • “OMG the most AMAZING thing just happened!!!! J”
  • “What … did they fire that one mean bitch for you?”
  • “Nooooo they fired me and my assistant manager because “it just wasn’t working out” we both laughed and said see yaaah and hugged each other while giggling ….Muhahahahaha!!! “So they’ve fallen into my crutches [sic].”

The use of the expression “Muhahaha” is, according to the company, the smoking gun indicating the employee’s desire to get fired. It does indeed seem to indicate _some_ reveling in the turn of events, but arguably not a desire to be fired.  The “top definition” of the phrase on the user-created online “Urban Dictionary” is, today, “supost [sic] to be an evil laugh when being typed in a game.” Case briefs list it as “An evil laugh. A laugh one does when they are about to do something evil. Such as when a villain has a plot to take over the world, he does this laugh right before it goes into effect. Also a noise made by people who have just gotten away with an evil deed or crime….” The “evil laughter” entry on Wikipedia describes the phrase Muhahaha as being “commonly used on internet Blogs, Bulletin board systems, and games. There, [it is] generally used when some form of victory is attained, or to indicate superiority over someone else.”

The company appeals a ruling from the National Labor Relations Board (“NRLB”) finding the terminations unlawful because the employees’ discussions of working conditions were protected concerted activities under the National Labor Relations Act. The company claims that the comments were not legally protected because they were part of a scheme to manufacture an unfair labor practice claim.

It will be interesting to see how the Court of Appeals will address the social media aspect of this case. One the one hand, it does seem exceptionally naïve to expect to be able post anything in writing on the internet – Facebook, no less – without it potentially being seen by one’s current or future employer. I’m sorry, but in 2016, that should not come as a surprise to anyone (note that the company also used email monitoring software to discover whether its employees applied for jobs with competitors, which at least one of the employees here did). Note to employees who may not have a home computer or internet access: use a library computer.

On the other hand: does it really matter what employees post to their “friends” about their jobs, absent torts or other clear violations of the law (not alleged here)? Isn’t that to be expected today just as employees previously and still also talk in person about their jobs? Isn’t the only difference in this case that the posts are in writing and thus traceable whereas “old-fashioned” gossip was not? If employees merely state the truths, as seem to have been the case in this instance perhaps apart from the last “Muhahaha” comment, isn’t it overreaching by the employer to actually _fire_ the employees if they, of course, otherwise provided good services? Even if the employees are exaggerating, boasting, or outright lying, should employers be able to fire employees merely because of private comments on Facebook posted to one’s online “friends”?

An alternative idea might be to consider whether the employees were actually on to something that (gasp!) could help improve a poor work situation for the better.

The National Federation of Independent Business’ Small Business Legal enter has filed an amicus brief in support of the company, alleging that the NLRB decision “allow[s] employees regardless of their motive or actual misconduct to become termination-proof simply by making comments relating to their employment online.”

That’s hardly what the employees are arguing here. They do, however, argue a right to discuss their employment situation online without a snooping employer terminating them just for doing so. In this case, the employees had, noticeably, tried to improve highly important workplace issues in a fruitful way. The situation did, however, escalate. In and of itself, however, the “fallen into my clutches” comment, although of admittedly debatable intent, does not seem to indicate that the employees were attempting to manufacture an unfair labor practice claim. The employees seemed to have been primarily concerned with safety issues and working conditions, but were fired in retaliation for their critical online arguments. That, to me, seems like a fair argument.

Stay tuned for the outcome of this case!

January 21, 2016 in Commentary, E-commerce, Famous Cases, Labor Contracts, Science, Web/Tech | Permalink | Comments (0)

Sunday, January 3, 2016

Legal Rights to Give up Your Travel Tickets

Exactly one year ago, I blogged here about United Airlines and Orbitz suing a 22-year old creator of a website that lets travelers find the cheapest airfare possible between two desired cities. Travelers would buy tickets to a cheaper end destination, but get off at stopover point to which a ticket would have been more expensive. For example, if you want to travel from New York to Chicago, it may be cheaper to buy one-way airfare all the way to San Francisco, not check any luggage, and simply get off in Chicago.

The problem with that, according to the airline industry: that is “unfair competition” and “deceptive behavior.” (Yes, the _airline industry_ truly alleged that.) Additionally, the plaintiffs claimed that the website promoted “strictly prohibited” travel; a breach of contracts cause of action under the airlines’ contract of carriage.

It seems that the United Airlines attorneys may not have remembered their 1L Contracts course well enough, for a contracts cause of action must, of course, be between the parties themselves or intended third party beneficiaries. The website in question was simply a third party with only incidental effects and benefits under the circumstances. Without more, such a party cannot be sued under contract law. (This may also be a free speech issue.)

Orbitz has since settled the suit.  Recently, a federal lawsuit was dismissed for lack of personal jurisdiction over the now 23-year old website inventor. United Airlines has not indicated whether it plans further legal action.  

Along these lines, cruise ship passengers are similarly not allowed to get off a cruise ship in a domestic port if embarking in another domestic port unless the cruise ship is built in the United States and owned by U.S. citizens. This is because the Passenger Vessel Services Act of 1866 – enacted to support American shipping – requires passengers sailing exclusively between U.S. ports to travel in ships built in this country and owned by American owners. Thus, cruise ships traveling from, for example, San Diego to Alaska and back will often stop in Canada in order not to break the law. But if the vessel also stops in, for example, San Francisco and you want to get off, you will be subject to a $300 fine which, under cruise ship contracts of carriages, will be passed on to the passenger. See 19 CFR 4.80A and a government handbook here.

Convoluted, right? Indeed. Necessary? In this day and age: not in my opinion. As I wrote in my initial blogs on the issue, if one has a contract for a given product or service, pays it in full, and does not do anything that will harm the seller’s business situation, there should be no contractual or regulatory prohibitions against simply deciding not to actually consume the product or use the service one has bought. Again: if you buy a loaf of bread, there is also nothing that says that you actually have to eat it. You don’t have to sit and watch all sorts of TV channels simply because you bought the channel line-up. In my opinion, United Airlines and Orbitz were trying to hinder healthy competition and understandable consumer conduct. What is still rather incomprehensible to me in this context is why in the world airlines would have anything against passengers getting off at a midway point. It’s less work for them to perform and it gives them a chance to, if they allowed the conduct openly, resell the same seat twice. A win-win-win situation, it seems, for the original passenger, the airline, and the passenger that might want to buy the second leg at a potentially later point in time at whatever price then would be applicable. The same goes for the typically unaffordable “change fees” applied by most airlines: if they charged less (a change can very easily be done by travelers on a website with no airline interaction) and the consumer was willing to pay the then-applicable rate for the new date (prices typically go up, not down, as the departure dates approach), the airlines might actually benefit from being able to sell the given-up seat. Of course, they don’t see it that way… yet.

In many ways, traveling in this country seems to be going full circle in that it is becoming an expensive luxury. Thankfully, new low-cost airlines also appear on the market to provide much needed competition in this close-knit industry that, in the United States, seems to be able to carefully skirt around anti-trust rules without too many legal allegations of wrongdoing. (See here for allegations against United, American, Delta and Southwest Airlines for controlling capacity in order to keep airline prices up).

Happy New Year and safe travels!

January 3, 2016 in Commentary, Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, December 10, 2015

Five Flavors of Legal Services

Will the legal hiring and general business situation never change for the better? Maybe, but commentators still think that future change on the legal market will come from structural and innovative, rather than cyclical, change. For example, in addition to relatively simple steps such as hiring outside staffing agencies and sharing office centers, some firms are launching their own subsidiaries providing legally related services such as contract, data and cyber security management along with ediscovery.

Until recently, law firms offered these and other services. As outside service providers have proved to be able to provide certain key services more efficiently and cost effectively than traditional law firms, the latter have lost business that they are now desperately trying to recoup.

Imitation is still the most sincere form of flattery. It is not only on the market for legal services that copycats abound; this has also proved to be the case with, for example, many shared economy service websites such as Uber, Lyft, Airbnb, VRBO and others. As soon as one company idea and website turns out to be successful, others just like it seem to shoot up within weeks or months.  However, instead of simply trying to do what others are already doing and doing well, it would be nice if companies – law firms among them – would try to think about how they could do things better instead of just trying to, as often seems the case, (re)gain business by taking market shares from others. Exactly how law firms should do so is, of course, the million-dollar question, but it seems clear that innovation is prized both within and beyond the legal field. That will benefit our students if jobs are created by actual law firms rather than by service providers not hiring people with JDs.

December 10, 2015 in Commentary, Current Affairs, E-commerce, Labor Contracts, Miscellaneous, Web/Tech | Permalink | Comments (0)

Monday, December 7, 2015

A Settlement Targeted Toward Banks?

 

Target_Data_Breach_GraphicCommercial class-action practitioner Kevin M. McGinty here describes the final settlement of the infamous 2013 theft of credit and debit card data from retail giant Target's point-of sale terminals:

On Tuesday, December 1, Target entered into a settlement agreement with a class of banks and financial institutions that issued the credit and debit cards that were compromised in the 2013 event.  The settlement was the result of negotiations following closely on the heels of an order by the court certifying a card issuer class.  This last settlement resolves card issuers’ claims that were not previously resolved in Target's August 2015 settlement with Visa, which provided $67 million to resolve claims made by Visa card issuing banks under Visa’s fraud resolution process.  Also separate from this settlement is the $10 million settlement of the claims of consumers whose cards were compromised by the data theft, which Target concluded with the consumer class in March 2015.

The current settlement provides for payment of an additional $39,357,939.38 for the benefit of class member banks.  Of that amount, $19,107,939.38 will be used to fund settlements under MasterCard’s fraud resolution process....

Target-data-breach-sadThe $10 million paid in the consumer settlement may seem at first blush to be grossly disproportionate to the roughly $107 million allocated to the card networks and their issuing banks. It actually isn't. The card payment system is built on private contracts that are themselves heavily impacted by federal consumer protection laws like the Truth-in-Lending Act and the Electronic-Funds-Transfer Act. Together, the contracts and federal law place liability for unauthorized purchases squarely on the issuer banks acting through the card networks.  Thus, we should expect the consumer losses from Target's data breach to be minimal compared to those borne by the banks, who were obligated to fund the consumer losses pending recovery from Target as the ultimately responsible party for this particular data breach.

Sometimes the legal system works more-or-less how it is intended. The consumers actually were protected in this instance.

December 7, 2015 in Commentary, Current Affairs, E-commerce, In the News | Permalink | Comments (0)

Saturday, December 5, 2015

What's in YOUR Wallet? (Maybe not an EMV-chip card...)

CapOne Viking TV

While checks have long been governed by the Uniform Commercial Code, credit and debit cards are primarily creatures of private contract. Some of the most important contracts controlling card-based payment systems are ones to which you, as a mere end user, are not a party. Both consumers who use cards and merchants who accept them generally do so through their banks. These banks, in turn, are contracting members of credit card networks, like MasterCard and Visa. Most of us will never actually see these bank-to-network contracts, but they are hugely important for allocating liability among the parties handing a payment card transaction.

On October 1, 2015, these network agreements underwent a major change known as the "EMV Liability Shift." In general terms, this meant the liability for unauthorized was allocated to incentivize the adoption of EMV-chip cards that would ultimately replace the outdated magnetic-stripe cards long popular in the United States.  "EMV," if you are wondering, stands for "EuroPay, MasterCard, Visa," who were the three original adopters of the standard, but all major cards are onboard with EMV today.

I knew that the October 1 shift was coming and that it was a big deal to players in the payment-card industry. This is why I was greatly surprised that, as of October 1, I had received precisely ONE card containing an EMV chip, and that was for the travel credit-card issued to me by my university employer. I to this day have heard nary a peep from my personal card-issuer banks, when I thought they would be tripping over themselves to give me a chip-enabled replacement card. Many point-of-sale card terminals now have a slot in which to insert an EMV card, albeit still retaining the traditional mag-stripe swipe capability. But my cards are still chipless.  How can this be, when the EMV Liability Shift was clearly going to be a big deal?

I may have found the answer to this mystery in this short piece by practicing attorney Christopher H. Roede, who described the liability shift with an important detail (underlined) that I had somehow missed until now:

Under these new credit card network rules, the liability for certain types of unauthorized or fraudulent credit card transactions shifted from the issuing bank and the credit card networks to the party that adopted the lowest level of EMV compliant technology. If, for example, a bank issued a cardholder an EMV compliant card, the merchant had not installed EMV compliant card readers, and an unauthorized transaction occurred at the merchant's location by use of a counterfeit card, the merchant (and not the issuing bank) is liable for the fraud.

To me, that explains a great deal about the card-issuing banks' non-urgency to move customers over to EMV-chip cards. They just aren't worried enough about the cost of having non-compliant technology to issue new cards in an expedited manner.  While EMV will improve the card-issuer's position as against non-adopting merchants, failure to adopt is not putting them in any worse position than they were in before October 1.  Under the Truth-in-Lending Act and Regulation Z [12 C.F.R. §1026(b)(1)], the issuer banks were already liable for most unauthorized use of consumer credit cards. My employer-issued card is not subject to TILA as it isn't a consumer credit card, so my university had significant incentive to make sure that its bank upgraded all employee credit cards were replaced before October 1.  And that is exactly what happened.

Consumers, I suppose, will get chip-based credit cards when the issuer banks feel like getting around to it. It's apparently not THAT urgent for them.

December 5, 2015 in Current Affairs, E-commerce, Web/Tech | Permalink | Comments (5)

Thursday, December 3, 2015

Restatement (Third) of Presumptively Unread Contracts

This post from yesterday linked to a funny video where several people unwittingly agreed to some onerous "terms and conditions" in exchange for a chance to win a free iPad and, befitting a "pranked" setup, the people looked a bit foolish in the process.

But they really weren't foolish. While the surface joke is "ha, ha, look what you get for not reading the contract," the signing parties were behaving perfectly rationally. When faced with an adhesion contract in a sidewalk-passer-by setting, no one has an opportunity to read much of anything, and the terms aren't negotiable, anyway. Some 99% of us (or more) scrolled through the last End User License Agreement we saw and hurriedly checked the box labeled, "I have read and understood the foregoing terms," when we had in fact done nothing of the sort.

The moral of the story--now that we have killed the joke by dissecting it--is that Margaret Jane Radin, our co-blogger Nancy S. Kim, and others have gotten something fundamentally correct: clickwrap and other adhesion contracts really are different, and evaluating them under one-size-fits-all contract doctrine makes little sense.  Perhaps the time has come for a Restatement (Third) of Presumptively Unread Contracts.

December 3, 2015 in Commentary, E-commerce, Web/Tech | Permalink | Comments (7)

Tuesday, December 1, 2015

Joining the Team: Mark Edwin Burge (Texas A&M)

Changes are underway at the ContractsProf Blog, and I am delighted to be one of them.  Thanks to Myanna Dellinger for giving me the opportunity to join a team building on over a decade of quality content established by our founder (and my faculty colleague) Frank Snyder, outgoing editor Jeremy Telman, and many others throughout the years.

Who is this guy, anyway? Glad you asked. I am an Associate Professor of Law at Texas A&M University School of Law in Fort Worth, proud home for two years of the esteemed International Conference of Contracts that, as Jeremy mentioned here, has been closely associated with this blog since its inception. My major scholarly interests are in contracts (seriously, did you think I would NOT say "contracts" here?), commercial law (especially payment systems), and the interaction of both fields with legal skills and practice. I came to the academy after eight years of practice in the areas of business and commercial litigation and related transactions. Despite some occasional flirtations with theory, I have yet to shake off my greater interest in how lawyers actually make things work. So I've learned to live with that, and I'm most fortunate to be at a law school with colleagues and an administration who support the grab-bag of things I do.

My current work, which I hope to discuss here occasionally (while skillfully avoiding off-putting narcissism in the process), involves the intersection of private contract law with public regulation in the rapidly developing area of emerging payment systems. Where exactly are the best dividing lines between private and public law, especially in an age where the lag between technology and law seriously strains the institutional capacity of legal systems? Perhaps we can find some answers to that overarching question and have some fun along the way. I should, in the interest of full disclosure, confess that I think contract law is fun.

I look forward to the adventure, and I appreciate anyone who is along for the ride.

 

December 1, 2015 in About this Blog, Commentary, Conferences, Contract Profs, E-commerce | Permalink | Comments (0)

Friday, November 13, 2015

Airline Change Fees

A few days ago, the Los Angeles Times published an article on airline change fees. At bottom, the article asked whether customers are entitled to a refund of their tickets if they discover that the price has been dropped for the route and time in question so that they can buy the cheaper fare. Most of us probably buy the cheapest form of tickets, i.e. “nonrefundable” ones. For those, the answer lies in the name: they are simply not refundable. Under Department of Transportation rules, however, airfare is fully refundable within 24 hours of making the purchase.

The article misses an important legal issue, namely whether it is unconscionable that airlines typically charge $200-$300 dollars in change fees plus any increase in the actual price (and as we all know, when the departure time approaches, prices typically go up). To the best of my knowledge, only Southwest Airlines does not charge any change fees. Kudos to them for that.

Unconscionability requires the familiar inquiry into whether the substance of the contract is oppressively one-sided and whether the complaining party had any meaningful choice when entering into the contract. In my opinion, such steep change fees are unconscionable, at least in cases where customers change for a reason other than simply trying to get a refund in cases of cheaper fares. Because apparently all airlines other than Southwest charge these high change fees for economy-class, no-frills tickets, and because it is not always possible to fly Southwest Airlines (they only fly to certain locations, most of them within the United States), customers in effect have no choice in avoiding such fees if they have to change the tickets. Often, tickets have to be bought months ahead of time to either get the best prices and/or to get the desired departure dates and times. In today’s ever-changing work environment, many people may have to change their tickets for valid work-related reasons, not to mention changing private circumstances. If that is the case, one may simply have to give up an existing ticket as the rules are today since buying a new one may well be cheaper than trying to change the existing one. And while it is possible to get insurance for illness-related cancellations, travel insurance covering work reasons typically only covers changes in employment and the like and thus not changes required by changed circumstances one’s current position, even though those may be outside one’s control.

Substantively, it seems uniquely and highly oppressively one-sided for airlines to charge hundreds of dollars for a change that a customer can, with a few clicks on a secure website, implement in minutes himself/herself. Even if the airline had to have an actual person make the change (and those days seem gone), that person would similarly only require minutes, if not only seconds, to do so.

Until someone challenges the airlines on this account, they seem intent on continuing this profit-increasing device. As Hans Christian Anderson said: “To travel is to live.” For now, it seems that we have to live with not being able to change our airline tickets once purchased.

November 13, 2015 in Current Affairs, E-commerce, Travel, True Contracts | Permalink | Comments (0)

Wednesday, October 21, 2015

Online Reviews – Are You Hot or Not?

Amazon is suing approximately 1,000 individuals who are allegedly in breach of contract with the Seattle online retailer for violating its terms of service.  Amazon is also alleging breach of Washington consumer protection laws.  

In April, Amazon sued middlemen websites offering to produce positive reviews, but this time, Amazon is targeting the actual freelance writers of the reviews, who often merely offer to post various product sellers’ own “reviews” for as little as $5.  (You now ask yourself “$5? Really? That’s nothing!”  That’s right… to most people, but remember that some people don’t make that much money, so every little bit helps, and numerous of the freelancers are thought to be located outside the United States.)  The product sellers and freelancers are alleged to have found each other on www.fiverr.com, a marketplace for odd jobs and “gigs” of various types.

There are powerful incentives to plant fraudulent reviews online. About 45 percent of consumers consider product reviews when weighing an online purchase.  Two-thirds of shoppers trust consumer opinions online.  For small businesses, it can be more economical to pay for positive reviews than to buy advertising. For example, a half-star increase in a restaurant's online rating can increase the likelihood of securing, say, a 7 p.m. booking by 15 to 20 percent. “A restaurateur might be tempted to pay $250 for 50 positive reviews online in the hopes of raising that rating.”

As law professors, we are not beyond online reviews and thus potential abuses ourselves. See, for example, www.ratemyprofessor.com.  There, anyone can claim that they have taken your course and rank you on your “Helpfulness,” “Clarity,” and “Easiness,” give you an overall grade as well as an indication of whether you are hot or not (clearly a crucial aspect of being a law professor…) To stay anonymous, people simply have to create a random anonymous sounding email address. Not even a user screen name appears to be required. Hopefully, that website does not have nearly as much credibility as, for example, Yelp or TripAdvisor, but the potential for abuse of online reviews is clear both within as well as beyond our own circles.

As shown, though, some companies are taking action.  TripAdvisor claims that it has a team of 300 people using fraud detection techniques to weed out fake reviews.  But fraudulent reviews aren't thought to be going away anytime soon. One source estimates that as many as 10-15% of online reviews are fake (to me, that seems a low estimate, but I may just be a bit too cynical when it comes to online reviews).

So, next time you are reading reviews of a restaurant online, I suppose the learning is that you should take the reviews with a grain of salt.

October 21, 2015 in Current Affairs, E-commerce, Food and Drink, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, October 12, 2015

Sears Makes a Mistake

Some shoppers on Sears.com thought it was their lucky day when they saw expensive play sets and fancy toys available for the low price of $11.95.  Consumerist has the story here.  If you saw a storybook cottage that typically costs hundreds of dollars listed for sale at the low, low price of $11.95, what would you think?  That's right.  Unless it was advertised as a huge blowout sale, you would probably guess it was a mistake.  Apparently, Sears lists items sold by third parties and gets a cut - and this time, a third party had made a pricing error on its items.  Of course, some Sears sellers were upset - even though Sears refunded their money and gave them a $5 gift card.  So, for all those upset sellers, let's run through the mistake scenario to see whether the law would be on your side:

Was this a mistake of a basic assumption?  - Yes, it was a pricing error and pricing errors are generally considered basic assumption mistakes.

Was the mistake made by one or both parties (was it a mutual or unilateral mistake?) - Here, Sears mistakenly believed that the prices listed on its website were accurate (not all $11.95) while the customers saw what the prices were - $11.95 -  so it was a unilateral mistake made by Sears. 

Did it have a material effect?  Yes, there's a big difference between $11.95 and hundreds of dollars so Sears would make less money on the transaction.

Did the non-mistaken party (the Sears customers) know or should they have known of the mistake?  - Yes, because they should know that expensive playsets are typically not sold for such a low price unless it is part of a promotion or clearance sale.

Did the mistaken party bear the risk of the mistake?  You might think Sears would, since it is their website.  But based upon existing case law (i.e. Donovan v. RRL Corp), since there's no lack of good faith here and Sears presumably acted reasonably in managing its website - it does not constitute "neglect of a legal duty" and Sears likely doesn't bear the risk of the mistake.

So - there you have it.  Sorry kids - guess you'll just have to go outside and build your own play castles with branches and old bed sheets...

 

October 12, 2015 in Commentary, E-commerce, In the News, Web/Tech | Permalink | Comments (4)

Friday, September 18, 2015

Emailed Links to Forum Selection Clauses Constitute Sufficient Notice

Nancy Kim is, as you probably know, one of the nation’s, if not the world’s, leading experts on internet contracting.   She is a contributor to this blog as well.  Among other issues, Professor Kim rightfully questions whether consumers are put on sufficient notice of various contractual terms and conditions when they purchase goods or services via the Internet.

The Second Circuit has just held that emails sufficiently direct a purchaser’s attention to a service provider’s terms and conditions including a forum selection clause when a hyperlink is provided along with language “advising” the purchaser to click on the hyperlink.  (The case is Starkey v. G Adventures, Inc., 796 F.3d 193 (Second Cir. 2015).  Said the court, “This method serves the same function as the method of cross-referencing language in a printed copy promotional brochure and sufficed to direct [the purchaser’s] attention to the Booking Terms and Conditions. Both methods may be used to reasonably communicate a forum selection clause.”

The background is this:  A customer purchased a ticket for a vacation tour of the Galápagos Islands operated by a tour operator. Shortly thereafter, the tour operator sent the customer three emails: a booking information email, a confirmation invoice, and a service voucher.  The booking information email contained the statement, “TERMS AND CONDITIONS: ... All Gap Adventures passengers must read, understand and agree to the following terms and conditions.”  This statement was followed by a hyperlink with an underlined URL.  The confirmation invoice and service voucher each also contained hyperlinks, which were preceded immediately by the following text: “Confirmation of your reservation means that you have already read, agreed to and understood the terms and conditions, however, you can access them through the below link if you need to refer to them for any reason.”  The hyperlinks in all three emails linked to a document entitled “…. Booking Terms and Conditions.” The second paragraph of that document stated that “[b]y booking a trip, you agree to be bound by these Terms and Conditions.... These Terms and Conditions affect your rights and designate the ... forum for the resolution of any and all disputes.” The customer did not dispute that she received the relevant emails.  Instead, she alleged, as often happens, that she never read the Booking Terms and Conditions because she never clicked on the hyperlinks.

The customer alleged that she was sexually assaulted on the tour by one of the tour operator’s employees.  Instead of being able to pursue her negligence claim in a New York court, she must now pursue her claim in Ontario, Canada.  The court also held that it was not unreasonable and unjust to enforce the forum selection clause, stating that such clauses will only be set aside if (1) its incorporation was the result of fraud or overreaching; (2) the law to be applied in the selected forum is fundamentally unfair; (3) enforcement contravenes a strong public policy of the forum in which suit is brought; or (4) trial in the selected forum will be so difficult and inconvenient that the plaintiff effectively will be deprived of his day in court.  The plaintiff failed to meet any of those requirements.

This case shows how some courts still ignore the fact that, as Professor Kim has pointed out and as the case obviously shows, even though the attention of purchasers (online or otherwise) is directed towards certain crucial contractual clauses, they in fact do not read these.  Such is reality in a society such as ours with numerous and often lengthy and complicated legal notices and disclaimers.  Are purchasers then truly given sufficient notice in such modern cases?  But from  a contrary viewpoint, what else can sellers and service providers possibly do to make purchasers aware of key terms?  For more on this, read Professor Kim’s scholarship or book.

September 18, 2015 in E-commerce, Recent Cases, Web/Tech | Permalink | Comments (0)

Friday, September 4, 2015

Uber's Employees: Employees or Independent Contractors?

Yesterday, we blogged here about important considerations regarding whether an employee will be seen as an employee or a contractor.

In O'Connor v. Uber Technologies, U.S. District Judge Edward Chen just ruled that Uber's drivers may  pursue their arguments that they were employees in the form of a class-action suit. One of the reasons was that Uber admitted that they treated a large amount of its drivers "the same."

Of course, millions of dollars may be at stake in this context.  Profit margins are much higher for companies such as Uber, Lyft, Airbnb and other so-called "on demand" or "sharing economy" companies. That is because the companies do not have to pay contractors for health insurance benefits, work-related expenses, certain taxes, and the like.  But seen from the driver/employee's point of view, getting such benefits if they are truly employees is equally important in a country such as the United States where great disparities exist between the wealthy (such as the owners of these start-up companies) and the not-so-wealthy, everyday workers.

Plaintiffs are represented by renowned employee-side attorney Shannon "Sledgehammer" Liss-Riordan who represented and won a major suit by skycaps against American Airlines some years ago, so sparks undoubtedly will fly in the substantive hearings on this issue.

September 4, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Tuesday, September 1, 2015

Uber’s Safety Checks

Uber.  It just seems to always be in the news for one more lawsuit, doesn’t it.  In late August, the district attorneys for San Francisco and Los Angeles filed a civil complaint against the company alleging that it is making misrepresentations about its safety procedures.  The complaint, i.a., reads that Uber’s “false and misleading statements are so woven into the fabric of Uber’s safety narrative that they render Uber’s entire safety message misleading.” 

On its website, Uber promises that “from the moment you request a ride to the moment you arrive, the Uber experience has been designed from the ground up with your safety in mind” and that “Ridesharing and livery drivers in the U.S. are screened through a process that includes county, federal, and multi-state criminal background checks. Uber also reviews drivers’ motor vehicle records throughout their time driving with Uber.”

However, Uber does not use fingerprint identication technology, which means that the company cannot search state and federal databases, only commercial ones. 

The result? People with highly questionable backgrounds end up being on Uber’s payroll.  For example, one “Uber driver was convicted of second-degree murder in 1982. He spent 26 years in prison, was released in 2008 and applied to Uber. A background report turned up no records relating to his murder conviction. He gave rides to over 1,100 Uber customers.” Yikes.  Another “Another driver was convicted on felony charges for lewd acts with children. He gave over 5,600 rides to Uber customers.” 

Add this to the ongoing lawsuit about whether Uber’s drivers should be legally classified as “employees” or “contractors,” and Uber is in a mound of legal trouble.

Certainly, a misrepresentation seems to have been made if the company deliberately touts its safety and its “industry-leading background check process” yet only uses a commercial database that does not even necessarily ensure that its drivers are who they say they are.

Still, Uber remains one of the most valuable start-ups in the world.  It and similar “sharing economy” companies such as Airbnb have gained a good foothold on a market with a clear demand for new types of services.  So far, so good.  But initial success should not and does not equate with a “free-for all” situation just because these new companies are highly successful, at least initially.  It seems that they are learning that lesson.  Lyft, for example, already settled with prosecutors in regards to its safety.  Perhaps Uber will follow suit.

September 1, 2015 in Commentary, Current Affairs, E-commerce, In the News, Labor Contracts, Web/Tech | Permalink | Comments (0)

Friday, August 21, 2015

They Did It!

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.

 

August 21, 2015 in Commentary, Current Affairs, E-commerce, In the News, Web/Tech | Permalink | Comments (2)

Sunday, August 2, 2015

The Legal War on Traditional Cable Companies Continues

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.

August 2, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Television, Web/Tech | Permalink | Comments (0)

Monday, July 20, 2015

Statutory and Contractual Rights to be Forgotten - Also in Naughty Cases

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.

July 20, 2015 in Commentary, Current Affairs, E-commerce, Famous Cases, In the News, Web/Tech | Permalink | Comments (0)

Friday, July 3, 2015

Weekly News Roundup

Trump
By Michael Vadon via Wikimedia Commons

Late night comedians everywhere celebrated when Donald Trump (pictured) announced his candidacy for President.  We too are grateful for the blog fodder.  Politico reports that the Donald is suing Univision over its decision to withdraw from a five-year $13.5 contract to broadcast the Miss USA and Miss Universe Pageants, which Trump co-owns.  As Time Magazine reports here, NBC has also backed out of airing the Miss USA Pageant, and several people involved have also given the Donald their notice.  Trump's partners were upset by statements he made as part of his Presidential campaign that disparaged Mexico and Mexicans.  Never fear, the pageant will still be broadcast on Reelz (whatever that is).  

Meanwhile, London's The Guardian reports that Harvey Keitel is suing E*Trade for withdrawing from a commitment with Keitel to feature him in a series of three commercials for $1.5 million.  According to The Guardian, E*Trade really wanted Christopher Walken for the spots.  It was willing to settle for Keitel, until Kevin Spacey became available.  E*Trade offered Keitel a $150,000 termination fee, but Keitel says that's not enough.

Students are often astonished that major corporations sometimes operate through informal arrangements such as letters of intent.  The fact that they do -- and that they can get in trouble by doing so -- is illustrated in Belfast International Airport's (BIA) attempt to enforce a letter agreement with Aer Lingus.  As reported by the BBC, BIA read the letter as embodying a ten-year commitment from Aer Lingus to fly out of BIA.  The court found that the agreement merely covered pricing should Aer Lingus continue to fly out of BIA for ten years.  Aer Lingus decided to switch to Belfast City Airport, claiming that its arrangement with BIA was no longer financially viable.

July 3, 2015 in Celebrity Contracts, E-commerce, In the News, Television, Travel | Permalink | Comments (0)