Monday, March 7, 2016
As Stacey writes just below this post, much is happening in the arbitration arena currently.
In December, the United States Supreme Court ruled that the 1925 Federal Arbitration Act pre-empts state law. Thus, when parties have executed agreements calling for arbitration rather than court resolutions, the arbiration clause will be upheld. The case was DirectTV, Inc. v. Imburgia, No. 14-462.
In the case, Imburgia’s contract stated that “[i]f ... the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 [the arbitration section] is unenforceable.” http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf
The Supreme Court noted that when DIRECTV drafted the contract, the parties likely believed that the words “law of your state” included California law that then made class-arbitration waivers unenforceable. But the Court’s subsequent holding in AT&T Mobility LLC v. Conception found that the Federal Arbitration Act pre-empts state law on the issue. Thus, parties cannot contractually bind themselves to invalid state law. When they refer to “state law,” this means only valid state law.
These rulings favor businesses, not consumers. This is so particularly so in cases between consumers and banks or credit card companies. A 2007 report found that over four years, arbitrators ruled in favor of the financial institutions in no less than 94% of the cases. Of course, in the typical take-it-or-leave it style contract, consumers have the choice only of agreeing to arbitrate or not getting the desired service.
As for the belief that arbitration saves scarce judicial resources, it is noteworthy that businesses file four times as many lawsuits as individuals. “It is hard to imagine any company giving up its own right to sue another company in a business dispute.” Double standards abound here.
Meanwhile, in early February, Senators Leahy and Franken introduced the Restoring Statutory Rights Act. This would create an exception in the Arbitration Act for disputes involving individuals and small businesses. The only way individuals would enter into arbitration is if they agreed to do so after the dispute has been filed. That’s very different from the current process, which automatically shunts all customer disputes into binding arbitration.
The Consumer Financial Protection Bureau is also considering a ban in mandatory-arbitration provisions in contracts for credit cards and other financial services. The Centers for Medicare and Medicaid Services is looking to do the same in relation to nursing home contracts.
Acts and regulations are highly warranted in this context. We know where the Supreme Court currently stands on the issue. We do not know where it will go with a new justice soon to be appointed, but judicial branch action in this area may not be forthcoming any time soon.
Friday, March 4, 2016
I am pleased to be able to post the following from guest blogger Creola Johnson of the Ohio State University Moritz College of Law:
“His promises are as worthless as a degree from Trump University,” said Mitt Romney during a speech denouncing Donald Trump’s candidacy for the presidency. This statement has prompted additional inquiries into lawsuits filed against Trump University by New York Attorney General Eric Schneiderman and others. (See Petition from New York v. The Trump Entrepreneur Initiative LLC.)
In a class-action lawsuit, many attendees of Trump University alleged that they paid as much as $35,000 to be personally mentored in learning how to earn millions investing in real estate. Despite numerous attempts by lawyers for the Trump defendants to get these lawsuits to dismiss, courts have given the green light for the lawsuits to continue against the Trump defendants. See, e.g., Makaeff v. Trump Univ., LLC, No. 10-CV-940-IEG (WVG), 2010 WL 3988684 (S.D. Cal. Oct. 12, 2010) (refusing to dismiss claims against the for-profit Trump program on educational malpractice grounds because the court was not convinced “Trump University” was “an educational institution to which this doctrine applies.”). For the most recent decision permitting Mr. Schneiderman’s case to proceed, go to: http://www.courts.state.ny.us/courts/AD1/calendar/appsmots/2016/March/2016_03_01_dec.pdf.
What can we say for sure at this juncture about the lawsuits? First, “Trump University” was not a university. There are numerous educational standards and laws that must be complied with for an institution to legitimately claim to be a university. The question then becomes: did the people running Trump’s real estate program (the Trump Program) make promises that arose to level of being a contract. For example, the consumer-plaintiffs alleged that the Trump Program promised that the instructors and mentors running the program would be “hand-picked by Donald Trump.” However, this promise was allegedly breached because most of the instructors and mentors were unknown to Mr. Trump and that they didn’t actually teach any real estate techniques.
We’ll have to wait for a court or jury’s finding regarding what promises were actually made by Donald Trump and the people running the Trump Program. The good news for the plaintiffs and Mr. Schneidermann is that they do not have to prove the existence of a contract. New York, along with every state, has laws that prohibit businesses from engaging in deceptive and unfair business practices.
Consumers should be leery of any language that appears to promise an educational outcome—e.g., “you will earn a six-figure salary after graduation.” While a state’s attorney general, such as Mr. Schneiderman, has the authority to make businesses stop deceptive practices, the attorney general may not be able to get back the money consumers have lost. If it sounds too good to be true, it probably is! For an in-depth discussion of deceptive degrees, see my article, Degrees of Deception: Are Consumers and Employers Being Duped by Online Universities and Diploma Mills?
President’s Club Professor of Law,
The Ohio State University Moritz College of Law
Tuesday, February 9, 2016
Classic Case Corner is an occasional series of posts highlighting staples of the Contracts curriculum and resources related to them. Our motto for CCC is, "If it's new to you, then it's new... even if it's old."
Some cases owe their fame in the law school curriculum, in part, to unusual factual details--consider the hairy hand of Hawkins v. McGee as one prominent example. Today's highlight, Kirksey v. Kirksey, 8 Ala. 131 (Ala. 1845), in contrast, became famous despite, or more likely because of, its factual obscurity.
In less than 550 words, Kirksey tells the story of the widowed "Dear Sister Antillico" who was invited by her brother-in-law to abandon her home based on this promise: "If you will come down and see me, I will let you have a place to raise your family, and I have more open land than I can tend; and on the account of your situation, and that of your family, I feel like I want you and the children to do well.” Two years later, the brother-in-law "notified ['Sister Antillico'] to remove, and put her in a house, not comfortable, in the woods, which he afterwards required her to leave." The Alabama Supreme Court reversed the trial court's verdict for the widow, holding that the brother-in-law's promise was "a mere gratuity, and that an action will not lie for its breach." The brief opinion sheds no great light on the facts beyond the few stated, and it ultimately allows for a great deal of pedagogical flexibility in discussing the doctrine of consideration or the modern availability of promissory estoppel as a substitute.
Professors William Casto (Texas Tech) and Val Ricks (South Texas) filled the information gap and dispelled the much of the surface mystery in their fantastic article, 'Dear Sister Antillico . . .': The Story of Kirksey v. Kirksey, which covers not only the historical background of the case and its litigation, but also the story of how Samuel Williston catapulted a little-known case to its current prominence.
Casto and Ricks' abstract elaborates more on the treasure-trove of facts to be found in the 77-pages of their 2006 Georgetown Law Journal article:
Second, Kirksey is so ordinary - why is it taught at all? It announces no new doctrine. It explains no doctrine. It's author's style is not impressive, and his reputation is obscure. Today courts might reach the opposite result. Few courts have cited Kirksey, and none since 1949.
We resolve these puzzles. First, we answer all the questions raised by the facts. We were surprised by the answers and suggest that no one who has taught the case has had any idea what actually happened. Second, we explain how Kirksey gained fame. Briefly, Williston changed his mind about the case ("right" to "wrong"), and in the process talked about Kirksey so much that it became embedded in his teaching, his treatise, his mind, and his students' minds - until the case became one of contract law teaching's primary sources. Ironically, Williston's change of mind, the reason for the case's rise to fame (the second puzzle), was made possible by the case's ambiguity (the first).
Friday, January 29, 2016
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.”
Thursday, January 21, 2016
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.
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!”
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!
Thursday, January 7, 2016
Recently, Stacey blogged here about whether tenure is a contract. Yesterday, the news broke that a tenured associate political science professor at Wheaton College, a private Christian university, may soon get to test that theory.
Shortly after the San Bernadino, California, shooting massacre, Professor Larycia Hawkins stated on her Facebook account (which listed her profession and employer) that she “stand[s] in religious solidarity with Muslims because they, like me, a Christian, are people of the book. And as Pope Francis stated last week, we worship the same God." She elaborated that “we are formed of the same primordial clay, descendants of the same cradle of humankind--a cave in Sterkfontein, South Africa that I had the privilege to descend into to plumb the depths of our common humanity in 2014.” She also wore a hijab in “embodied solidarity” with Muslim women.
The response by the College is, for now, the equivalent of “You’re fired.” The College placed Professor Hawkins on administrative leave in December "to explore significant questions regarding the theological implications of her recent public statements, including but not limited to those indicating the relationship of Christianity to Islam." Further, "Wheaton College faculty and staff make a commitment to accept and model our institution's faith foundations with integrity, compassion and theological clarity. As they participate in various causes, it is essential that faculty and staff engage in and speak about public issues in ways that faithfully represent the college's evangelical Statement of Faith." According to Wheaton College President Ryken, however, the College also “support[s] the protection of all Americans including the right to the free exercise of religion, as guaranteed by the Constitution of the United States." Professor Hawkins’ legal team is, according to televised news statements on 1/6, exploring the possibility of a lawsuit should the professor’s preferred solution – mediation and an amicable solution – turn out to be impossible.
This case raises serious questions about the academic freedom of tenured professors – even untenured ones - with which we as law professors are also very familiar. This is perhaps even more so in the cases of private colleges. It seems to me that with a message along the lines of what even Pope Francis uttered along with a reasoned (meta)physical explanation of her views and the College’s self-professed acceptance of freedom of religion, Professor Hawkins did not act in a way that should, under notions of academic freedom, get her fired. If we as law professors do not agree with or wish to challenge certain traditional or even untraditional legal views, are we not allowed to do so because the institutions we work for or the majority of our colleagues hold another view? One would hope so. Most of us can probably agree that academic freedom is exactly all about being able to, within reason at least, provoke deeper thought in relation to what we teach. Note that Dr. Hawkins did not teach religious studies, but political science. With the current embittered debate about Muslims and terrorism around the world, Dr. Hawkins arguably raised some interesting points even if one does not agree with her statements from a Christian point of view.
Stay tuned for more news on this case!
Sunday, January 3, 2016
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!
Monday, December 21, 2015
Shoplifting is a major problem to retailers. In 2014, for example, retailers lost $44 billion nationwide to theft by shoplifters, employees and vendors. But how about this for an apparently very popular “solution”: Retailers such as Bloomingdale’s, Wal-Mart, Burlington Coat Factory, DSW Inc. and even Goodwill Industries have signed up with CEC, a company that provides “restorative justice” for profit.
Here’s how it works: Retailers sign a contract with CEC under which CEC will provide “life skills” courses to shoplifters caught by the retailers. The retailers pay nothing for this “service.” Rather, shoplifters must pay the company $500 for a six-hour course and sign a confession. If they refuse to do so, they are threatened with criminal prosecution and allegedly intimidated in several other ways. According to CEC, “over 1 million individuals have gone through the core program.” Do the math (if you trust the company’s statement) and you’ll see that contracting to sell justice and self-help is apparently quite lucrative.
According to CEC, this is all a good thing. In a statement apparently now removed from the company’s website, but reported here, the company purports to give “low-level, first-time shoplifters a valuable opportunity to learn how to make better choices, while saving them a criminal record and sparing law enforcement resources.” According to CEC now [http://www.correctiveeducation.com/home/cec-restore]: “CEC’s Adult Educational Program focuses on developing practical skills that will help achieve social goals. The dual approach of addressing behavior while promoting provident living helps reinforce change.”
What’s the problem with this alleged win-win situation? According to at least the San Francisco city attorney, the conduct is a violation of the California Business and Professions Code. It also alleged to amount to extortion, false imprisonment, coercion and deception. The city attorney has filed suit. CEC defends, claiming that its “vision is to reinvent the way crimes are handled, starting with retail theft.” Indeed. Do we, however, trust companies to sell justice for us via private contracts? Comment below!
Tuesday, October 20, 2015
As reported in The New York Times here, Irwin Schiff, a famous opponent of federal taxation, passed away in prison at the age of 87. He had been sentenced in 2005 for tax evasion. He claimed that he was being truthful when he reported that he had "no income in the constitutional sense."
His life is of interest to contracts profs because of Newman v. Schiff. In 1983, Schiff offered $100,000 to anyone who could cite a section from the Internal Revenue Code (Code) that required an individual to file a federal tax return. Schiff issued this challenge on a CBS new show called "Nightwatch." Mr. Newman heard the challenge on a rebroadcast of the show and responded the next day when he had a chance to look through the Code and identify the relevant sections. Schiff refused to pay, informing Newman that his response was both procedurally and substantively flaws. Newman sued.
The District Court agreed with Schiff that Newman response was procedurally flawed. It construed the offer to be open only until the end of the Nightwatch broadcast. Mr. Newman was late. But he was not wrong. The District Court characterized Schiff's position on taxes as "blatant nonsense." As the Times obituary notes, his son writes on economic topics. The son found his father's positions compelling but impractical. Schiff remained committed to his beliefs right up to the end.
Hat tip to Gonzaga Law's Scott Burnham.
Thursday, October 1, 2015
I know. It's been a while. I thought I had moved on, but just when I thought I was out, they pull me back in.
After we concluded our discussion of Mitchill v. Lath this week, my students demanded a Limerick. I didn't have one. I wrote most of the Limericks in my first few years of teaching, and I didn't start teaching Mitchill until a few years ago. I've used all the easy rhyme schemes, so now any new Limericks I write will just feel recycled. But then one of my students sent me the beginnings of a poem. Her rhymes got my creative juices flowing (sort of) and this is the result.
As the Limerick suggests, I use Mitchill and Masterson v. Sine to illustrate the difference between Willistonian and Corbinian approaches to the parol evidence rule.
Mitchill v. Lath
In Mitchill's land deal with Lath,
He slipped down a cold primrose path.
That icehouse, it blights
His view, and his nights
Are consumed with Corbinian wrath.
Friday, September 4, 2015
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.
Sunday, August 2, 2015
Remember Aereo, the company trying to provide select TV programs and movies using alternatives to traditional cable TV programming? That company went bankrupt after a U.S. Supreme Court ruling last year.
A federal court in Los Angeles just ruled that online TV provider FilmOn X should be allowed to transmit the programs of the nation’s large broadcasters such as ABC, CBS and Fox online, albeit not on TV screens. See Fox Television Stations, Inc. v. FilmOn X, LLC, in the U.S. District Court for the Central District of California, No. 12-cv-6921. Of course, the traditional broadcasters have been aggressively opposing such services and the litigation so far. Recognizing the huge commercial consequences of his ruling, Judge Wu certified the case for an immediate appeal to the Ninth Circuit Court of Appeals.
Said FilmOn’s lawyer in an interview: “The broadcasters have been trying to keep their foot on the throat of innovation. The court’s decision … is a win for technology and the American public.”
The ultimate outcome will, of course, to a very large extent or perhaps exclusively depend on an interpretation of the Copyright Act and not so much contracts law as such, but the case is still a promising step in the direction of allowing consumers to enter into contracts for only what they actually need or want and not, at bottom, what giant companies want to charge consumers to protect income streams obtained through yesteryear’s business methods. Currently, many companies still “bundle” TV packages instead of allowing customers to select individual stations. In an increasingly busy world, this does not seem to make sense anymore. Time will tell what happens in this area after the appeal to the Ninth Circuit and other developments. Personally, I have no doubt that traditional broadcasting companies will have to give in to new purchasing trends or lose their positions on the market.
Thursday, July 30, 2015
I earlier blogged on an American TV personality's contract to hunt and kill one of the most highly endangered species on earth: a black rhino. That hunt has now been completed at a price tag of $350,000. The asserted reasoning for wanting to undertake the hunt: the money would allegedly help the species conservation overall and the local population. Studies, however, show that only 3-5% of that money goes to the local population. Some experts believe that the money could be much better spent for both the local population and the species via, for example, tourism to see the animals alive. This brings in three to fifteen times of what is created through so-called "trophy hunting."
This past week, the world community was again outraged over yet another American's hunt - this time through a contract with a local rancher and professional assistant hunter - of Cecil the Lion. The price? A mere $50,000 or so. This case has criminal aspects as well since the landowner involved did not have a permit to kill a lion. The hunter previously served a year of probation over false statements made in connection with his hunting methods: bow and arrow.
This is also how the locally famous and collared Cecil - a study subject of Oxford University - was initially hunted down, lured by bait on a car to leave a local national park, shot, but not killed, by Minnesota dentist Walter Palmer, and eventually shot with a gun no less than 40 hours after being wounded by Palmer.
Comments by famous and regular people alike have been posted widely since then. For example, said Sharon Osbourne: ""I hope that #WalterPalmer loses his home, his practice & his money. He has already lost his soul."
I recognize that some people - including some experts - argue for the continued allowance of this kind of hunting. Others believe it is a very bad idea for many biological, criminal, ethical, and other reasons to allow this practice. If you are interested in signing a petition to Zimbabwe Robert Mugabe to stop issuing hunting permits to kill endangered animals, click here. It will take you less than 60 seconds.
Thursday, July 23, 2015
You cannot say that we are boring you this week. Our blogs have included considerations on advertising on porn sites and having one’s illicit affairs forgotten contractually. Add to that the news that this week, Roman Catholic nuns, the archdiocese of Los Angeles, the formerly Jesuit student turned California Governor Brown and Pope Francis all had something to say about contracting about major and, admittedly, some minor issues.
To start with the important: Pope Francis famously issued his Encyclical Letter Laudato Si’ “On Care for our Common Home.” In it, he critiques “cap and trade agreements,” which by some are considered to be a mere euphemism for contractual permits to pollute and not the required ultimate solution to CO2 emissions. In the Pope’s opinion, “The strategy of buying and selling carbon credits can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.” Well said.
Governor Brown, however, disagrees: Brown shrugged off Francis' comments. "There's a lot of different ways," he told reporters, "that cap and trade can be part of a very imaginative and aggressive program." Brown, however, does agree with the Pope that we are “dealing with the biggest threat of our time. If you discount nuclear annihilation, this is the next one. If we don’t annihilate ourselves with nuclear bombs then it's climate change. It’s a big deal and he’s on it.”
In less significant contractual news, Roar, Firework, and I Kissed a Girl and I Liked It singer Katy Perry is interested in buying a convent owned by two Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin. Why? Take a look at these pictures. The only problem is who actually has the right to sell the convent to begin with: the Sisters or the archdiocese. When two of the sisters found out the identity of the potential buyer (Perry), they became uninterested in selling to her because of her “public image.” They now prefer selling to a local restaurateur whereas the archdiocese prefers to complete the sale to Perry, although she bid less ($14.5 million) on the property than the restaurateur ($15.5 million). Perry may be about to learn that image is indeed everything in California, even when it comes to the Divine. Perry is no stranger to religion herself as she was, ironically, raised in a Christian home by two pastor parents.
Monday, July 20, 2015
In 2014, the Court of Justice of the European Union famously held that “[i]ndividuals have the right - under certain conditions - to ask search engines to remove links with personal information about them. This applies where “the information is inaccurate, inadequate, irrelevant or excessive” for the purpose of otherwise legitimate data collection. “A case-by-case assessment is needed considering the type of information in question, its sensitivity for the individual’s private life and the interest of the public in having access to that information.”
A few days ago, infamous adultery-enabling website Ashley Madison and “sister” site (no pun intended) EstablishedMen.com, which “connects ambitious and attractive young women with successful and generous benefactors to fulfill their lifestyle needs,” was hacked into by “The Impact Team,” a group of apparently offended hackers who threatened to release “all customer records, including profiles with all the customers’ secret sexual fantasies and matching credit card transactions, real names and addresses, and employee documents and emails” unless the owner of the sites, Avid Life Media, removes the controversial websites from the Internet permanently.
Notwithstanding legal issues regarding, perhaps, prostitution, do customers have a right to be forgotten? Not in general in the USA so far. Even if a provision similar to the EU law applied here, it would only govern search engines. Ashley Madison had, however, contractually promised its paying users a “full delete” in return for a fee of $19. The problem? Apparently that the site(s) still kept purchase details with names. Further, of course, that the company promised and still promises “100% discreet service.” Both seemingly clear contractual promises.
Although the above example may, for perhaps good reason, simply cause you to think that the so-called “clients” above have only gotten what they asked for, the underlying bigger issues remain: why in the world, after first Target, then HomeDepot and others, can companies not find out how to securely protect their customers’ data “100%”? And why should we, in the United States, not have a general right to be deleted not only from companies’ records, but from search engines, if we want to? I admittedly live a very boring life. I don’t have anything to hide. But if I once in a blue moon sign up for something as simple as Meetup.com to go hiking with others, my name and/or image is almost certain to appear within a few days online. I find that annoying. I don’t want my students, for example, to know where I occasionally may meet friends for happy hour. But unless I invest relatively large amount of time in figuring out how to use and not use new technology (which I see that I have to, given the popularity of LinkedIn and the like), I may end up online anyway. That’s not what I signed up for.
As for Ashley Madison, the company has apparently been adding users so rapidly that it has been considering an initial public offering. You can truly get everything on the Internet these days, perhaps apart from data security.
Monday, June 29, 2015
Given the major U.S. Supreme Court opinions that were released last week, it's no surprise that the one involving contracts, Kimble v. Marvel Entertainment, LLC, didn't make the headlines. The case involved an agreement for the sale of a patent to a toy glove which allowed Spidey-wannabes to role play by shooting webs (pressurized foam) from the palm of their hands. Kimble had a patent on the invention and met with an affiliate of Marvel Entertainment to discuss his idea --in Justice Elena Kagan's words--for "web-slinging fun." Marvel rebuffed him but then later, started to sell its own toy called the "Web Blaster" which, as the name suggests, was similar to Kimble's. Kimble sued and the parties settled. As part of the settlement, the parties entered into an agreement that required Marvel to pay Mr. Kimble a lump sum and a 3% royalty from sales of the toy. As Justice Kagan notes:
"The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids want to imitate Spider-Man (by doing whatever a spider can)*."
It wasn't until after the agreement was signed that Marvel discovered another Supreme Court case, Brulotte v. Thys Co. 379 U.S. 29 (1964) which held that a patent license agreement that charges royalties for the use of a patented invention after the expiration of its patent term is "unlawful per se." Neither party was aware of the case when it entered into the settlement agreement. Marvel, presumably gleeful with its discovery, sought a declaratory judgment to stop paying royalties when Kimble's patent term expired in 2010.
In a 6-to-3 opinion written by Justice Kagan (which Ronald Mann dubs the "funnest opinion" of the year), the Court declined to overrule Brulotte v. Thys, even though it acknowledged that there are several reasons to disagree with the case. Of interest to readers of this blog, the Court stated:
"The Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire."
In other words, the intent of the parties doesn't matter when it runs afoul of federal law. Yes, we already knew that, but in cases like this - where the little guy gets the short end - it might hurt just the same to hear it. In the end, the Court viewed the case as more about stare decisis than contract law and it was it's unwillingness to overrule precedent that resulted in the ruling.
Yet, I wonder whether this might not be a little more about contract law after all. The Court observed in a footnote that the patent holder in Brulotte retained ownership while Kimble sold his whole patent. In other words, Brulotte was a licensing agreement, while Kimble was a sale with part of the consideration made in royalties. This made me wonder whether another argument could have been made by Kimble. If Kimble sold his patent rights in exchange for royalty payments, and those royalty payments are unenforceable, could he rescind the agreement? If the consideration for the sale turns out to be void ("invalid per se"), was the agreement even valid? The question is probably moot now given the patent has expired....or is it? Although Kimble did receive royalty payments during the patent term, he presumably agreed to a smaller upfront payment and smaller royalty payments in exchange for the sale of the patent because he thought he would receive the royalty payment in perpetuity. So could a restitution argument be made given that he won't be receiving those royalty payments and the consideration for the sale of the patent has turned out to be invalid?
*Yes, I made an unnecessary reference to the Spiderman theme song so that it would run through your head as you read this - and maybe even throughout the day.
Tuesday, May 26, 2015
We have previously blogged about “sharing economy” short-term rental company Airbnb at various times here. Time for an update: The City of Santa Monica, California, just passed an ordinance that prohibits property owners and residents from renting out their places unless they remain on the property themselves. This is estimated to prohibit no less than 80% of Airbnb’s Santa Monica listings (1,400 would be banned).
The city plans to spend $410,000 in the first year to enforce the rule using three new full-time employees. Violators may be fined by up to $500. However, because Airbnb does not list addresses, staff will have to look at photos of the properties and drive around the city streets to try to identify the violators. Doing so sounds awfully invasive and awkward, but that is nonetheless the plan. Adds Assistant Planning Director Salvador Valles: “We can issue citations just based on the advertisement alone when we're using our business regulations.” Other major cities are also trying to crack down on short-term rentals.
But why, you ask? Good question. In times when, as I have blogged about before and as is common knowledge, medium- and low-income earners are falling behind higher-income earners to a somewhat alarming extent, you would think the government could let people earn some additional money on what is, after all, their own property. Cities, however, claim that short-term rentals drive up the rental prices by cutting into the number of residences that are available for long-term rentals. “Even a study commissioned by Airbnb itself earlier this year found that Airbnb increases the price of a one-bedroom apartment in San Francisco by an average of $19 a month.” Traffic concerns are also often mentioned in this context as are potential tax avoidance issues, although Airbnb has now started to deduct taxes from rental fees before transferring these to the landlords.
Airbnb’s end goal? To go IPO. The goal for at least some landlords? Eighty-year-old Arlene Rosenblatt, for example, rents out her home in Santa Monica whenever she and her husband leave town to visit their seven grandchildren. She charges anywhere from $115 to $220 a night for her home, listing it on Airbnb and other sites and thus earning as much as $20,000 a year. "I'm a retired schoolteacher," Rosenblatt says. "We don't get a lot of retirement income. My husband, all he has is his Social Security."
Time will tell what happens in this latest clash between private property and contractual rights and government regulations.
Tuesday, May 19, 2015
Yesterday, I blogged here about a proposed Labor Department rule that would require investment brokers to contractually bind themselves as fiduciaries of their clients.
Somewhat relatedly, the United States Supreme Court just issued an opinion finding employers to be fiduciaries in relation to the employment plans offered to their employees. The petitioning employees argued that respondent employers acted imprudently by offering six higher priced retail-class mutual funds as 401(k) plan investments when materially identical lower-priced institutional-class mutual funds were available. The higher-priced funds also carried higher fees. The Ninth Circuit Court of Appeals applied the ERISA statute of limitations to the initial selection of funds without considering whether there is also a continued duty to monitor the funds. There is. The Supreme Court found that because the fiduciary duty can be traced to trust law, there is “a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely. The Ninth Circuit erred by applying a 6- year statutory bar based solely on the initial selection of the three funds.”
Wednesday, May 6, 2015
This week, Los Angeles City Attorney Mike Feuer famously filed suit against Wells Fargo claiming that the bank's high-pressure sales culture set unrealistic quotas, spurring employees to engage in fraudulent conduct to keep their jobs and boost the company's profits.
Allegedly (and in my personal experience as I bank with Wells Fargo), the bank would open various bank accounts against its customer’s wills, charge fees for the related “services,” and refuse to close the accounts again for various official-sounding reasons, making it very cumbersome to deal with the bank. The bank’s practices often hurt its customers' credit rankings.
Employees have described “how staffers, fearing disciplinary action from managers, begged friends and family members to open ghost accounts. The employees said they also opened accounts they knew customers didn't want, forged signatures on account paperwork and falsified phone numbers of angry customers so they couldn't be reached for customer satisfaction surveys.”
The city's lawsuit alleges that the root of the problem is an unrealistic sales quota system enforced by constant monitoring of each employee — as much as four times a day. "Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas," the lawsuit claims. Last year, 26% of the bank’s income came from fee income such as from fees from debit and credit cards accounts, trust and investment accounts. The banking industry is currently set up in such a way that around 85% of institutions would go bankrupt if they do not have fee income.
This comes only three years after Wells Fargo agreed to pay $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom and treated these borrowers in predatory ways.
All this in the name of “growth,” traditionally thought of as the sine qua non of industrialized economies, even in financially tough times where simply maintaining status quo – and not going out of business - would seem to be acceptable for now from at least a layman’s, logical standpoint.
In recent years, more and more economists have advanced the view that unbridled growth or even growth per se may simply not be attainable or desirable. After all, we live on a planet with limited resources – financial and environmental - and limited opportunities. This especially holds true in relation to the “1% problem.” Nonetheless, questioning growth has been said to be “like arguing against gasoline at a Formula One race.” So I’m making that argument here, although I acknowledge that I am not an economist: by setting our national (and personal) economies up for ever-continuing growth, we are playing with fire. There is only so much of a need for various things and services, as the above Wells Fargo suit so amply demonstrates. Granted, the global population is growing, but much of that growth is in developing nations where people frankly cannot afford to buy many of the products and services often so angrily pushed by modern companies worldwide. In the Global North, C-level managers are often rewarded via measurements of growth and if they cannot produce the expected growth results, they risk being fired. Sometimes, simply doing the right thing by customers and employees may actually be enough as long as the company would remain sound and in business. Of course, this requires a shift in thinking by shareholders who contribute greatly under our current investment models to the demand for never-ending growth. Overconsumption and waste is a vast ecological problem as well. It has been said that “we must reform economics to reflect ecological reality: nature is not, after all, just a pile of raw materials waiting to be transformed into products and then waste; rather, ecosystem integrity is a precondition for society's survival.”
Growth is, of course, good and desirable if possible. But if, as seems to be the case, it’s coming to a point where we destroy our own chances of healthy long-term survival and wreck the emotional and financial lives of employees and clients in the meantime, something is seriously wrong.
Wednesday, April 22, 2015
On Monday, a California Appellate Court declared the tiered water payment system used by the city of San Juan Capistrano unconstitutional under Proposition 218 to the California Constitution. The California Supreme Court had previously interpreted Prop. 218’s requirement that “no fees may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question” to mean that water rates must reflect the “cost of service attributable” to a particular parcel.
At least two-thirds of California water suppliers use some type of tiered structure depending on water usage. For example, San Juan Capistrano had charged $2.47 per “unit” of water (748 gallons) for users in the first tier, but as much as $9.05 per unit in the fourth. The Court did not declare tiered systems unconstitutional per se, but any tiering must be tied to the costs of providing the water. Thus, water utilities do not have to discontinue all use of tiered systems, but they must at least do a better job of explaining just how such tiers correspond to the cost of providing the actual service at issue. This could, for example, be done if heavy water users cause a water provider to incur additional costs, wrote the justices.
The problem here is that at the same time, California Governor Jerry Brown has issued an executive order requiring urban communities to cut water use by 25% over the next year… that’s a lot, and soon! Tiered systems are used as an incentive to save water much needed by, for example, farmers. The California drought is getting increasingly severe, and with the above conflict between constitutional/contracting law and executive orders, it remains to be seen which other sticks and carrots such as education and tax benefits for lawn removals California cities can think of to meet the Governor’s order. Happy Earth Day!