ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

A Member of the Law Professor Blogs Network

Thursday, August 22, 2013

Revisiting the Contracts Scholarship of Stewart Macaulay, Post IV: Deborah Post

This is the fourth in a series of posts in our online symposium on the Contracts Scholarship of Stewart Macaulay.  More about the online symposium can be found here.  More information about this week's guest bloggers can be found here

PostDeborah Post is Associate Dean for Academic Affairs and Faculty Development and Professor of Law at Touro College Jacob D. Fuchsberg Law Center. 

One Contracts Professor’s Preference for State Court Decisions

In the essay that I contributed to Revisiting the Scholarship of Stewart Macaulay: On the Empirical and the Lyrical, I gave vent to the frustration I experienced over the years reading decisions written by the 7th Circuit Judges Richard Posner and Frank Easterbrook. Stewart wrote to me recently and in two sentences, appropriately lyrical, summed up the source of my frustration:  “In theory, of course, the court applies state law in a diversity situation.  About the one thing that you can expect is that Judges Posner and Easterbrook will be off on a frolic of their own.”

I have a healthy respect these days, and a strong preference for, the decisions of state courts. I try to use the best of these to teach contract law to my students.  I admire the tenacity of state courts that insist, for example, that the commentary to the UCC matters in interpreting that statute.  See e.g. Simcala Inc. v. American Coal Trade, Inc. 821 So.2d 197 (Ala. 2001) (the word “center” in comment 3 to UCC section 2-306 means something when used to describe the way a stated estimate limits the “intended elasticity” of an output or requirements contract). 

Cropped Cover (1)I am particularly gratified by the persistence of courts that have used the unconscionability doctrine to invalidate boilerplate arbitration clauses.  Implicit in these cases is a duality. Oppression exists on two levels.  The terms of the transactions are oppressive and unconscionable, and the terms of the arbitration agreement are oppressive. Two cases I discussed previously at the 8th Annual International Contracts Conference at Texas A & M University Law School.

In Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. 2012), the Missouri Supreme Court describes the terms of a loan agreement. Ms. Brewer borrowed $2,215 and paid back $2000, at which point she had reduced the principal balance on the loan by $.06.  The interest rate on that loan was 300%.  Ms. Brewer brought suit under the Missouri consumer protection statute, the Missouri Merchandising Practices Statute.

In Tillman v. Commercial Credit Loans Inc., 655 S.E.2d 362 (N.C. 2008), Ms. Tillman and Ms. Richardson, the named plaintiffs in a class action, purchased single premium credit insurance from a lender.  Within a year the North Carolina legislature made this species of loan illegal, but the statute was not retroactive.  Ms. Tillman and Ms. Richardson sued under the North Carolina Unfair and Deceptive Trade Practices Act.  The North Carolina Supreme Court found the arbitration clause in the contract, which barred class actions, unconscionable in a 3-2-2 decision.

When the United States Supreme Court vacated the decision in the Brewer case and remanded it to the Missouri court for reconsideration in light of A.T.& T. Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), Chief Justice Richard Teitelman, responded that the unconscionability doctrine in Missouri law was not an “obstacle to the accomplishment of the act’s objectives.”  The arbitration agreement was unconscionable because there was expert testimony that no consumer would pursue a claim against the Title Company.  The cost was too high.  The Tillman court made much the same point.  Of the 68,000 loans that Citifinancial made in North Carolina, no borrower ever pursued arbitration of a claim.  Citifinancial on the other hand, had reserved its right to go to court and had exercised that privilege over 3,000 times in civil suits and foreclosure actions.  The Tillman court also provided information about the actual cost of arbitration, a factual discussion that is missing in a lot of these cases.  It turns out that arbitration is cost prohibitive for most low income consumers. 

Exploitive or predatory contracts saturate the market for credit, housing, furniture for the least well off in our society.  The Montana Supreme Court recently held a payday loan and its arbitration provision unconscionable.  Kelker v. Geneva-Roth Ventures, Inc., 303 P.3d 777 ( Mont. 2013)(780% APR was violation of Montana Consumer Loan Act). If the U.S. Supreme Court grants certiorari in Kelker, the decision in that payday loan case will probably meet the fate of its progenitors, Casarotto v. Lombardi, 886 P.2d 931 (Mont. 1994)(Casarotto I) and Casarotto v. Lombardi, 901 P.2d 596 (Mont. 1995)(Casarotto II). Justice Trieweiler maintained in Casarotto I that the Federal Arbitration Act had not pre-empted state laws addressing arbitration because the federal statute had not addressed every aspect or possibility with respect to arbitration agreements. In Casarotto II he argued that the U.S. Supreme Court’s decision to strike down an Alabama statute that made pre-dispute arbitration agreements unenforceable was irrelevant to the decision in Casarotto I.  He was reversed in an opinion written by none other than Justice Ginsberg. 

Justice Terry N. Trieweiler, the twice rebuked but unrepentant Montana Supreme Court jurist, actually wrote three Casarotto opinions.  He penned a special concurring opinion in Casarotto I to address “those federal judges who consider forced arbitration as the panacea for their “heavy caseloads” and to single out for criticism Judge Bruce M. Selya, First Circuit Court of Appeals, who called the prevalence in state courts of “traditional notions of fairness” an “anachronism.”  886 P.2d at 940. Justice Trieweiler’s  rejoinder was that some federal judges are arrogant. I think of it as hubris.

The number of cases challenging arbitration agreements has not diminished over time.  I can think of at least two reasons for this phenomenon. One is ever expanding disparity in wealth and power in the United States in this post-industrial society.  There are very few ways individuals can challenge those who have power over them or expose what they feel to be an injustice that has been done to them.  We are conditioned to believe that there is “equal justice under the law” and to believe that a citizen may seek redress in court.  The second reason is the failure of federal courts to recognize that the FAA is indefensible when it is applied in consumer cases. That was the subject of the last series of blog posts discussing Margaret Radin’s book, Boilerplate.   The FAA is a statute frozen in time, applied to transactions almost ninety years after Congress held those hearings on the resistance of state courts to arbitration and used to enforce arbitration “agreements” in contracts that were not even dreamed of when the FAA was passed -- online, clickwrap contracts such as the contract in Kelker.  Contract defenses that police agreements where there is no real consent and no real bargaining are rendered impotent by the FAA.  It does not matter if Certiorari is denied in Kelker, because the 9th Circuit has already used a pre-emption argument to defeat the Montana court’s use of “reasonable expectations” and unconscionability doctrines to invalidate arbitration provisions. Mortensen v. Bresnen Communications, LLC,  2013 U.S. App. Lexis 14211.

Timmons-GoodsonThis past weekend I had the pleasure of meeting the judge who wrote the plurality opinion in the Tillman case, Justice Patricia Timmons-Goodson (pictured), who retired from the North Carolina Supreme Court in December 2012.   I did not plan this meeting.  It was completely serendipitous.  I was looking for the meeting room where the Task Force on the Future of Legal Education was discussing the end of law school as we know it.  I asked her for directions, and then I glanced at her name tag. It took me a moment to realize who she was.  I was told by Judge James Wynn, who is now on the 4th Circuit U.S. Court of Appeals, but who once served with Judge Timmons-Goodson on the North Carolina Court of Appeals and the Supreme Court, that she was a recent recipient of the Legend in the Law award at Charlotte School of Law.

I knew that Justice Timmons-Goodson was a black woman. I looked for background information when I decided to write about the case. I knew, courtesy of North Carolina’s Lawyers Weekly, that two lawyers from Raleigh, John Alan Jones and G. Christopher Olson, obtained a judgment in Tillman and two companion cases in the amount of $81.25 million.  Of the borrowers represented in the Tillman case, 759 received approximately $31,291 each.  Another 9,670 received $544 each.

Taking the admonition of Stewart Macaulay seriously, striving to do something that looks like empirical research, I asked Justice Timmons-Goodson if she would consent to an interview. She hasn’t agreed yet, but I hope she will. I would like to know more about the process that she used to reach a decision in the Tillman case; how she persuaded enough of her colleagues to agree that the contract and the arbitration clause were unconscionable, even if two of them relied on a “totality of the circumstances” analysis that they thought sufficiently different from her opinion to merit a separate concurring opinion. Two justices signed her opinion relying on substantive unconscionability; two joined in finding the arbitration clause unconscionable but stressed the importance of deference to the fact-finding of the trial judge under a “totality of the circumstances” approach, and two justices dissented.

The Justice writing the dissenting opinion, appears to believe that the unconscionabiity doctrine is somehow illegitimate.   He noted that it had never been used in North Carolina to invalidate a contract or a term in a contract. If I do interview Justice Timmons-Goodman, I will ask her about her reaction to the most recent U. S. Supreme Court decisions. She has herself written about the importance of state court judges at every level, particularly in the trial courts. 

I am not sure that she would call her own acts as a justice on the Supreme Court “resistance.”  She might simply say that logic and adherence to an ethic of principled decision-making impelled her to write the decision in Tillman as she did. I cannot be sure that she believes, as I do, that the drafters of the FAA never intended to completely pre-empt state law, especially those contract doctrines that are designed to control avarice and unscrupulous behavior.  I do think, however, she will enjoy discussing the decisions of Justice Trieweiler.  

[Posted, on Deborah Post's behalf, by JT]

August 22, 2013 in Books, Commentary, Contract Profs, Famous Cases, Recent Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 29, 2013

Boilerplate Symposium Part XV: Cheryl Preston on Boilerplate and the Role of Courts

Preston
This is the fifteenth in a series of posts reviewing Margaret Jane Radin's 
Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.

Cheryl Preston is the Edwin M Thomas Professor of Law at Brigham Young University's J. Reuben Clark Law School.

Professor Radin’s book is a monumental effort to bring together in one place various facets of the seemly intractable problem of non-negotiated standard term contracts and to offer creative insights at each step. This legal problem is not new: Judge Cowen in Cole v. Goodwin, 19 Wend. 251, 273-74 (N.Y. Sup. Ct. 1838), was adamant that a common carrier could not post a notice of its intent not to be liable at the station and claim that each passenger entering the train gave contractual consent to waiving liability. To hold otherwise would change the deal from “give me a due reward [cost of passage], and I will be accountable as a common carrier” to “‘give me the same reward,’ (for the carrier fixes it; it may be less, but it may also be more,) ‘and yet, I claim to throw all risk upon you, or such a degree of it as I please.’” The judicial mindset later changed, and by the early 1900s courts lined up with businesses in generally enforcing such terms. Nonetheless, early courts ran interference with unconscionability and equivalent doctrines. The evolution to multitudes of daily online contracts hidden behind links, without size limitations, signatures, or someone to explain terms, as well as the increasing reluctance of judges to interfere, requires new analysis such as that offered by Radin.

BoilerplateOnce the problem is exposed, the more difficult endeavor is framing a feasible solution. By characterizing such contracts as a form of “democratic denigration,” Radin suggests that the fundamental remedy is for legislatures, acting as democratic representatives of the people, to draw limits around powerful economic actors’ ability to override the default rules of enlightened contract doctrine. Radin argues that boilerplate schemes make a “sham” of democratic governance because they take away entitlements given through the democratic process “after extended debate and fierce political struggle.” Democratic ordering “at least give[s] us a voice” because politicians can be voted out if people are unhappy with what they enact.

Returning to the polity for a solution is dubious for three reasons. First, outside of copyright and perhaps employment, it is something of a stretch to say that the democratic process has created protections that such contracts “delete.” The regulatory rules that exist are at best default, subject expressly to the right to contract around them. What we seem to have lost, rather, is a judiciary willing to maintain reasonable boundaries of the kind envisioned by Karl Llewellyn and other Realist scholars.

Second, most consumers seem utterly content to be bound to terms they would not read even if such terms were brought forcefully to their attention, could not understand if read, and could not appropriately evaluate as risks. But the same problem applies to voters. Until consumers are educated or fall victim to such a contract, they will not understand the problem enough to vote out politicians who do not protect them. An unorganized few cannot change elections any more than they can convince firms to change undesirable contract terms.

Third, current legislative bodies seem effectively “influenced” by the same business interests that control consumers by contract. Money buys lobbyists, makes campaign contributions, and spins information, just as it hires the lawyers who draft and defend these contracts and the programmers and marketers who decide how to hide them. In the current political climate, consumers’ ability to influence change with election votes seems more of a stretch than consumers’ ability to unite to demand fairness with economic votes.

While Radin leans toward tort law as a solution, in Chapter 10 she offers a range of interesting possibilities for giving consumers the knowledge to make intelligent choices in contracting. Her suggestions include rating agencies, seals of approval programs, and contract term filter technology. Given the irrationality of reading all form contracts, workable initiatives depend on some surrogate to synthesize contract content and create a basis of comparison that a consumer can digest and act upon in seconds. Without a government mandate, how can consumer power be marshaled to organize and fund such programs? What existing organization has the resources to educate consumers or issue legal standards with sufficient credibility? A Statement of Principles issued by the American Law Institute might be influential, but the painful process of birthing a timid Principles of the Law of Software Contracts, and a failed revision to Article 2, show that the same powers and influences compete in that arena as well.

Until social change is possible, the courts remain the best defense of those unable to evoke sufficient power and money on their own behalf. As law professors, we need to train students to value principles of fairness and balance. As legal scholars, we need to encourage judges and contract drafters to stop exploitation.

[Posted, on Cheryl Preston's behalf, by JT]

May 29, 2013 in Books, Commentary, Famous Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 28, 2013

Boilerplate Symposium Part XIV: Peter Linzer, That Was No Contract: That Was My Lunch

This is the fourteenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.

LinzerPeter Linzer is a Professor of Law at the University of Houston Law Center.

Peggy Radin’s book, Boilerplate has got lots of people talking – and blogging, particularly about her argument that boilerplate contracts aren’t contracts at all, and shouldn’t be overseen by contract law.   Peggy was expanding on the theme of the apologists for adhesion who argue that the form contract is simply part of the product; you’d pay less, and we’d analyze the transaction very differently if you were buying a used or dented washer, so why shouldn’t we treat the washer with a disclaimer of merchantability the same way?   Peggy does a good job in undermining the idea that the benevolent sellers (they would say “licensors”) will share their savings with you by reducing the price, but the bigger objection is from those who are offended by the removal of form contracts from the contracts kingdom.  Yet that has been the process throughout the history of products liability, the very area Peggy is pointing to.

BoilerplateThe usual starting point of products liability is Winterbottom v. Wright, an 1842 decision of the Court of Exchequer, in which a coachman who had been injured when a defective mail coach “broke down,” attempted to recover from Wright, who had contracted with the Postmaster-General (who had immunity) to supply the coach and keep it in good repair.  Lord Abinger, the Chief Baron, took considerable care to support his conclusion that no duties were owed that were not “public duties” or violations of the law of nuisance, unless they were created by contract. Since Winterbottom was not in privity of contract with Wright, Winterbottom had no claim against him for his injuries, though caused by Wright’s failure properly to perform his contractual duties.  For nearly seventy-five years, the courts chipped away at this notion that a manufacturer (or, as in Winterbottom’s case, a maintenance contractor) had no tort duty to the ultimate user, until Cardozo, in Macpherson v. Buick Motor Co. destroyed the doctrine, with careful delineation of the caselaw, but really in three sentences: “We have put aside the notion that the duty to safeguard life and limb, when the consequences of negligence may be foreseen, grows out of contract and nothing else. We have put the source of the obligation where it ought to be.  We have put its source in the law.”

This worked well when negligence could be shown, but it didn’t help Bertha Chysky, a waitress who had been furnished as part of her lunch a piece of cake containing a nail that punctured her gum and cost her three teeth. She couldn’t prove negligence against the wholesale baker and sued for breach of warranty. The New York Court of Appeals, only seven years after Macpherson, and with Cardozo joining with the majority, reversed a verdict for her because “privity of contract does not exist between the seller and such third persons [like Bertha], and unless there be privity of contract there can be no implied warranty.”  Yet in the same era, in other states, courts were focusing on the nature of food to expand liability, until it became the widespread law that implied warranties were not limited to a contractual privity, and until Roger Traynor, in 1944, could use the fact that a Coke bottle contained “foodstuffs” to buttress his seminal opinion in Escola v. Coca-Cola Bottling Co., the well-spring of strict products liability. 

By focusing on the subject matter of the transaction rather than the formalities of contract or the assumption that tort is based on fault and wrong, Cardozo, Traynor and many other judges and writers were able to transform the issue to a question of who should bear the cost when a product injures a consumer, regardless of contract, regardless of fault.  Similarly, the courts, Congress and state legislatures should look, not at the mechanics of contract, but at the many factors relied upon by Professor Radin, to restrain the power of sellers to deprive consumers of rights that the social system has granted them and that form contracts attempt to take away.

 [Posted, on Peter Linzer's behalf, by JT]

May 28, 2013 in Books, Commentary, Famous Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, April 25, 2013

What Do Assignments of Rights and Bad Opera Have in Common?

It's the end of the semester which means that I'm finally covering third parties. One of my favorite (and pretty simple) cases in this unit is Rumbin v. Utical Mutual Insurance, Co. Mr. Rumbin, who had settled a personal injury case, was due regular payments under an annuity purchased by Utica and issued by Safeco. When he faced foreclosure and other financial hardships, Rumbin sought a declaratory judgment approving his assignment of rights to J.G. Wentworth. After a student recites the facts, I often pause the class to ask, "How many of you have heard of Mr. Wentworth before?"  Usually, about half of my class has heard of him while the other half is thinking, "J.G. who?"  For those who haven't heard of him, I offer this clip, which sums up Mr. Rumbin's situation rather nicely and features Mr. Wentworth himself at the end as the conductor:

 

If you watch and later find a way to get the "877-CASH-NOW" earworm out of your head, please let me know. I've been stuck with it for nearly 24 hours now.

[Heidi R. Anderson]

April 25, 2013 in Famous Cases, Teaching | Permalink | TrackBack (0)

Monday, April 22, 2013

Thoughts on Tongish v. Thomas and UCC § 2-713

Sunflower seedsA lot of very smart contracts scholars, including to name just a few, Omri Ben-Shahar and Lisa Bernstein (here), Victor Goldberg (here), and Peter Siegelman and Steve Thel (e.g., here), have thought long and hard about the seeming conflict between UCC § 2-713 and the general principles of damages set out in UCC § 1-305 (formerly § 1-106).  Most of them support the ruling in Tongish v. Thomas, to which I have just been introduced in teaching Sales for the first time this semester.  I am uncomfortable with the decision for two reasons, which I will set out below.

But first, a brief summary of the case: Tongish agreed to sell his sunflower seeds to the Decatur Coop Association (the Coop) for a fixed price.  The Coop had a deal with Bambino Bean & Seed, Inc. (Bambino) to sell the seeds to them for whatever price the Coop paid plus $0.55 per 100 pounds.  The price of seeds went up and Tongish breached.  The trial court awarded the Coop its lost profits, which came out to $455.51.  The Court of Appeals vacted that award and remanded the case for a calculation of damages based on UCC § 2-713 (and the Kansas Supreme Court upheld that ruling).  UCC § 2-713 allows a buyer to recover the difference between makret price at the time buyer learned of the breach and the contract price.  Under this section, the Coop would recieve not $455 but something like over $5500, despite the fact that it would not have been able to charge Bambino anything more than what it paid Tongish for his seeds.  In short, under the damages awarded by the appellate courts, the Coop gets about $5000 more than expectation damages.

I do not like the result, at least not based on the court's reasoning.  Subsequent law review articles (cited above) provide more sophisticated defenses of § 2-713 based on economic theory.  I cannot address those arguments here.  Instead, I focus on two issues: fault and contract and the court's characterization of UCC § 2-713 as a "statutory liquidated damages provision."  

FeldmanFirst, the case is grist for the mill of Friend of the Blog, Steve Feldman, who has been trying unsuccessfully for years to persuade me that courts not only do consider moral fault in assessing damages but should do so.  In Tongish, the Kansas Court of Appeals distinguished the case from a California case, Allied Canners Packers, Inc. v. Victor Packing Co.  In Allied, the California court limited the buyer's remedy to actual loss.  That case was different, says the Kansas court, because in Allied, the seller's crop had been destroyed and so it had no goods that it could deliver to buyer.  Here, Tonigish breached simply becasue the price went up, and so "the nature of Tongish's breach was much different" from that in Allied, because the Kansas court found, "there was no valid reason" for Tongish's breach.   Whether or not the court is right that there was no valid reason for the breach depends on one's views on the doctrine of efficient breach.  More to the point, I find no language in the UCC that indicates that the measure of damages turns on the state of mind of the breaching party.  That is, where in the UCC does it say that whether or not one can recover damages in excess of actual loss depends on whether the breach was innocent or willful?

The Kansas court then proceeds to an actual statutory analysis and notes the principle that a specific clause (in this case § 2-713, which the court reads to provide damages in excess of actual loss) trumps a general clause (§ 1-305, which limits damages to expectations).  Allowing the specific clause to trump the general clause generally makes sense, but I would invoke another canon of contruction and read § 1-305 as articulating the general remedial scheme in light of which the remainder of the Code is to be read.  Section 1-305 puts parties on notice that, unless they set out their own remedial schemes, though allocation of risk, liquidated damages and the like, they should expect that traditional expectation damages will be the most they can hope for in case of breach.  

Read in that light, § 2-713 does nothing more than describe the usual mechanism for calculating expectation damages.  It does not contemplate a contract such as the one at issue in Tongish in which the Coop, very far from demanding liquidated damages in the case of breach, has protected itself against loss by linking its purchase price from Tongish to its sale price to Bambino.  In so doing, it invited the very sort of efficient breach in which Tongish engaged, and it is absurd for it to now to claim entitlement to (effectively) a disgorgement remedy when it failed to negotiate such a remedy at the time of contracting.  

ScottThe Kansas court cites to Robert Scott's argument that limiting recovery to lost profits in such cases creates market instability by encouraging breach if the market fluctuates to the seller's advantage.  Applying § 2-713 to permit recovery of damages in excess of actual loss, on the other hand, "encourages a more efficient market and discourages the breach of contracts," says the court.  Once again, that determination turns on one's understanding of efficiency.  In any case, to the extent that the circumstances in Tongish encouraged breach, they were entirely a product of the way the parties drew up their contracts.  They in effect, allocated the risk of breach to the Coop, which had protected itself by finding a buyer who would accept any price so long as it was the same price as what the Coop had paid, plus a $0.55/100 lb. handling fee.  To allow the Coop to recover cover costs on top of lost profits actually creates an incentive for sellers with contractual protections such as the Coop had, to encourage breaches, since the court allowed them recovery ten times in excess of their actual harm.

[JT]

April 22, 2013 in Commentary, Famous Cases, Recent Scholarship, Teaching | Permalink | Comments (2) | TrackBack (0)

Monday, March 4, 2013

Victor Goldberg on Columbia Nitrogen

GoldbergWe posted earlier in the semester about the baffling case Columbia Nitrogen v. Royster.  Victor Golberg (pictured) wrote to us to recommend his book chapter on the subject in his Framing Contract Law (2007).  Professor Goldberg names Columbia Nitrogen, together with Nanakuli Paving as a "Terrible Twosome," that should render law professors apoplectic.  That is so because when courts use course of dealing or custom to set aside fied price terms, contracting parties can have "little confidence in their ability to predict the outcomes if their disputes do end up in litigation" (p. 162).  

John Murray, writing in 1986, praised the decision for evidencing "a sophisticated judicial understanding of the major modifications in contract law" and for its "sophistication with respect to [UCC §] 2-207."  But Professor Goldberg sees a darker story, in which CNC's counsel attempted to undo, by whatever  means necessary, what had turned out to be a bad bargain."  As a result, says Professor Goldberg, the court "converted a straightforward agreement into an incoherent mess" (p. 187). 

Happily, according to Professor Goldberg, Columbia Nitrogen is not followed.  Contractual relationships are governed by two complementary systems: legal enforcement, which has strict rules, and social enforcment, which is governed by informal norms.  The mistake of the court and the "potential cost of Columbia Nitrogen" is to infer legal rules from social rules in a way that allows legal rules to hamstring informal social norms (p. 188).  

It is a nice piece of wisdom to pull out of a troublesome opinion.  The full details of the case, going well beyond what is available in the published opinion, can be found in PRofessor Goldberg's book.

[JT]

March 4, 2013 in Books, Commentary, Contract Profs, Famous Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, February 21, 2013

A Modern Twist on R.R. v. M.H. and Statutory Interpretation?

Jason patricThere's a theory among some of my foodie friends that, when it comes to food, bacon makes everything better.  I'm considering a similar theory for teaching Contracts via hypos: when it comes to Contracts hypos, celebrities make everything better. Hypos work. Sure, they "taste" just fine using names like "Buyer," "Client," and "Sub-Contractor," and I use those names most of the time. But using names like "Jason Patric, you know, the guy from Lost Boys and Narc" often makes the hypo better, at least for the few people over 25 who remember those movies. So, in the interest of making hypos better via celebrity a.k.a. bacon, I bring you this story from TMZ (see, you don't actually have to go to sites of ill repute; you can count on me to go to them for you and only bring you the somewhat good, quasi-clean stuff).  

As TMZ reports, actor Jason Patric is in a custody dispute with his ex-girlfriend, Danielle Schreiber.  Upon their break-up in 2009, Patric allegedly agreed to compensate Schreiber for her troubles via donating his sperm instead of by paying her. Presumably, in exchange for Patric's promised sperm, Schreiber would not sue Patric for support payments. Simple enough (sort of). But wait, there's more! Patric allegedly would donate his sperm to Schreiber only if she also promised not to seek support from him for the child; Schreiber agreed. If this agreement actually was reached, Schreiber must have believed that Patric's sperm was so valuable that she was willing to forgo support payments for herself and for the child that would result. [Insert skepticism here.]

How does this relate to Contracts hypos? It works as a hypo for R.R. v. M.H., which many of us use to teach how a contract can be deemed unenforceable if it violates public policy.  In R.R. v. M.H., the court must decide whether to enforce the surrogacy agreement between a fertile father, married to an infertile wife, and the surrogate mother, who also happens to be married, and who was inseminated with the fertile father's donor sperm. I won't go into the case in more detail here; instead, I would like to focus one part of the case has a direct parallel to the Jason Patric dispute.  

In R.R. v. M.H., a state statute provided that the husband of a married woman inseminated with donor sperm was treated as the legal father of the child, with all of the associated benefits and obligations that fatherhood carried along with it. The statute was supposed to facilitate the common practice of women being inseminated by a (usually anonymous) sperm donor. Strictly applying the statute to the facts in R.R. v. M.H. would have led to an absurd result. Specifically, it would have meant that the legal father of the child born to the surrogate would have been the surrogate's husband, who had no real interest in the child. The court wisely argued its way around that literal application and ruled differently.  

The Patric dispute also involves a law of unintended consequence much like that involved in R.R. v. M.H. A California law states as follows:

"(b) The donor of semen provided to a licensed physician and surgeon or to a licensed sperm bank for use in artificial insemination or in vitro fertilization of a woman other than the donor's wife is treated in law as if he were not the natural father of a child thereby conceived, unless otherwise agreed to in a writing signed by the donor and the woman prior to the conception of the child."

Applying this law to the Patric situation could, like the law in R.R. v. M.H., produce an absurd result. Let's paraphrase the statute with applicable facts in parentheses:

"The donor of semen (Patric) for use in artificial insemenation of a woman (Schreiber) other than the donor's (Patric's) wife (they weren't married) is treated in law as if he (Patric) were not the natural father unless otherwise agreed in a signed writing."

So, even though Patric and Schreiber had been romantically involved, the formalized donation and the couple's unmarried status could negate Patric's claims to custody. It is not clear whether the statute applies and, not being admitted in California, I'd rather not analyze it further. But it always surprises me how what seems like a one-in-a-million kind of case does, in fact, repeat itself.  Eventually.

[Heidi R. Anderson]

 

February 21, 2013 in Celebrity Contracts, Current Affairs, Famous Cases, Television | Permalink | TrackBack (0)

Monday, February 18, 2013

Teaching Sales 7: Valparaiso Students Revolt Against Entrustment Doctrine

Student RevoltMy mild-mannered students became unexpectedly ferocious during last week's class when we discussed entrustment doctrine last week.  UCC § 2-403(3) defines "entrustment" as follows:

"Entrusting" includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law. 

Notwithstanding the clearly expansive nature of the doctrine, my students would not accept that, for example, a mechanic with whom you had left your car for repairs could sell same car and your only remedy against the mechanic (under the UCC) would be a suit for damages.  When I informed them of the true state of the law, their outrage was unquenchable.

"You could still have the authorities pursue criminal charges for theft," I offered.

Not good enough.

Backing away from the lectern and eyeing the emergency exit, I pleaded, "There are likely state statutory protections that would enable you to recover the car.  After all, the buyer is going to have a problem when he tries to register title to the car."

Still not satisfied.

Finally, left with no other choice, I threw Karl Llewellyn under the bus.  "Look, I just teach this stuff," I said.  "I didn't draft the UCC.  Blame Karl! Blame Karl!! Blame Karl!!!!

I put up a white flag from the teaching station that I was hiding behind to avoid the projectiles headed my way, and then it came to me.  "Wait," I said.  "Let's talk about Kahr v. Markland."  In that case, a man gave Goodwill a bag of clothes.  Unbeknowst to him, the bag also included valuable sterling silver.   The court held there had been no entrustment because Kahr intended to donate the clothes but not the silver.  It's reasoning is as follows:

An entrustment requires four essential elements: (1) an actual entrustment of the goods by the delivery of possession of those goods to a merchant; (2) the party receiving the goods must be a merchant who deals in goods of that kind; (3) the merchant must sell the entrusted goods; and (4) the sale must be to a buyer in the ordinary course of business. ( Dan Pilson Auto Center, Inc. v. DeMarco (1987), 156 Ill. App. 3d 617, 621, 509 N.E.2d 159, 162.) The record establishes there was no delivery or voluntary transfer of the sterling silver because plaintiffs were unaware of its place in the bags of clothes.

AtlasShruggedMy students were appeased.  Ahhh.  

But wait!  Whence the court's notion that "there was no delivery or voluntary transfer"?  Saying that there was no delivery in this case is more than a stretch.  It's simply factually untrue.  And saying that the transfer was not voluntary turns on what the term "voluntary," means.  Nobody put a gun to Kahr's head.  He just made a mistake.  In any case, voluntariness is not an element of the test for entrustment as laid out by the Kahr court.  

Of course, I merely thought all these things.  I didn't say them for fear of my students' wrath.  

But how about this hypothetical based on personal experience:  I donate a bunch of books to Goodwill, including an old copy of Atlas Shrugged with a hideous paper cover on it.  One week later, my wife asks me where her copy of Atlas Shrugged is.  Since she is always after me to clear away old books that we are not going to read or re-read, I proudly announce that I delivered it to Goodwill.  

Her jaw drops.  "But that was a first edition bearing the inscription, "I know who John Galt is,  It's you.  Yours, with a passion hot enough to forge Rearden steel, Ayn."  We rush to Goodwill, but we are too late.  The book was snapped up faster than a locomotive powered by an engine that transforms atmospheric static electricity into kinetic electricity.  Did I entrust it to Goodwill?

There is a bit of a discussion of the Kahr case on The Faculty Lounge blog.  

[JT]

February 18, 2013 in Commentary, Famous Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 12, 2013

A Limerick for Locke

The_outlaw_josey_walesI recently covered the implied duty of good faith and fair dealing in part through the fun case of Locke v. Warner Bros.  In Locke, the LA County Superior Court found that Warner Brothers' alleged failure to even consider Ms. Locke's movie proposals could violate the implied duty of good faith and fair dealing in their contract.  Although Warner Brothers was not obligated to produce Ms. Locke's projects, it was obligated to exercise its discretionary power regarding her proposals in good faith.  If Warner Brothers had, as Ms. Locke alleged, never actually considered her proposals, it would have violated their contract.

After Ms. Locke survived summary judgment, the case later settled. Prior to that time, Ms. Locke also had suggested that Warner Brothers never seriously considered her proposals as a favor to her ex, Clint Eastwood. Locke and Eastwood had worked together on the movie, The Outlaw Josey Wales (poster pictured to the right), and cohabitated for several years therafter.  When the two actors split, Eastwood allegedly convinced Warner Brothers to give Locke the "first look" deal as part of his settlement with her and perhaps had even reimbursed Warner Brothers for the money it paid to Locke under its deal with her.  

Inspired by this tale of love and faith lost, student Catherine Witting crafted the following limerick and authorized me to share it with the world. 

Locke sued the Dubya B,

Saying "Don't you patronize me!

Clint may pay the bill,

But discretion is still

Subject to good faith guarantee!"

For a more recent case that tracks the facts of Locke, see this post regarding director John Singleton from 2011.

 

February 12, 2013 in Celebrity Contracts, Famous Cases, Limericks, Teaching | Permalink | TrackBack (0)

Teaching Sales 6: Another Problematic Case

2d CircuitYesterday, I bellyached about a Ninth Circuit opinion with which I disagree.  Today, I would like to complain about a Second Circuit decision with which I disagree, although not quite so passionately.  The case is Bayway Refining Co. v. Oxygenated Marketing and Trading.  The relevant facts are pretty simple.  Oxygenated Marketing and Trading (OMT) send an order to Bayway Refining Co. (Bayway) for 60,000 barrels of a gasoline blendstock.  Bayway sent a conflirmation that specified all of the relevant terms of the agreement and also included the following language:

Notwithstanding any other provision of this agreement, where not in conflict with the foregoing, the terms and conditions as set forth in Bayway Refining Company's General Terms and Conditions dated March 01, 1994 along with Bayway's Marine Provisions are hereby incorporated in full by reference in this contract.

Bayway's General Terms included a "Tax Clause" that required the purchaser to pay all taxes associated with the transaction.  OMT never asked for and Bayway never sent a copy of its General Terms.  Bayway then sent the blendstock and OMT accepted delivery.  The taxes associated with the transaction came to nearly $500,000.  Bayway paid the tax and then sued OMT to recover.

The Second Circuit correctly saw the outcome of the case as turning on the battle of the forms.  Under UCC § 2- 207(1), Bayway's confirmation constitutes an acceptance of OMT's offer even though it contained additional terms.  Under 2-207(2), because both parties are merchants, the additional terms become part of the contract unless one of three exceptions apply.  The relevant exception in this case is materiality.  The Second Circuit correctly noted that the Tax Clause was not per se material, in that there was no clear legal rule that had already determined such clauses to be material.   So the Court proceeded to determine materiality based on a common law test, under which a clause is material if it causes surprise or (perhaps) hardship.  

The court defined "surprise" as meaning that "under the circumstances, it cannot be presumed that a reasonable merchant would have consented to the additional term."  The court found that no surprise occurred in this case because provisions like the Tax Clause were common (although not universal) in the industry.  New York law is not clear on whether hardship is an element of its materiality analysis for the purposes of the battle of the forms.  The Second Circuit did not reach the issue because it found that OMT could not show hardship in this case.  OMT claimed hardship because "it is a small business dependent on precarious profit margins, and it would suffer a loss it cannot afford."  The Second Circuit was unmoved because "any loss that the Tax Clause imposed on OMT is limited, routine and self-inflicted."  

I have two problems with the Second Circuit's analysis.  First, its discussion of surprise did not address the fact that clause at issue was part of an agreement incorporated by reference and never shared with OMT.  While that fact might not change the outcome in the case, since the court found the evidence of industry practice convincing enough to put OMT on constructive notice, it strikes me as at least worthy of mention in the context of a discussion of surprise.  

Second, I think the court could have treated the Tax Clause as relating to price.  Industry practice suggested that sometimes contracts like the one at issue in the case included language like the Tax Clause, but in other cases the tax was just added to the price of the product.  If OMT's original order included a price term, then Bayway's confirmation containing a price term plus the Tax Clause introduces not an additional term but a different term.  I think the best reading of UCC § 2-207(2) suggests that different terms knock each other out.  We then proceed to § 2-207(3) to enforce a contract consisting of the agreed-upon terms plus any additional terms the UCC can provide.  The court should have been able to then determine the fair market price for the 60,000 barrels of a gasoline blendstock.  Such an approach might have resulted in a Solomonic ruling or it might have made clear that one party or the other was trying to pull a fast one.

[JT]

February 12, 2013 in Commentary, Famous Cases, Teaching | Permalink | Comments (2) | TrackBack (0)

Monday, February 11, 2013

Teaching Sales 5: White v. Summers and Diamond Fruit Growers

Last week, I taught an infuriating case called Diamond Fruit Growers v. Krack Corp.  The case infuriates me not only because I think the Ninth Circuit bungled the battle of the forms so as to eliminate the UCC's § 2-207's important innovations and replaced them with with a rule unknown in either the code or the common law, but because James White, co-author with Robert Summers of the standard treatise on the Uniform Commercial Code, endorses the opinion.  I can't understand why.  Summers disagrees with his co-author but without the passion or incredulity that I think the context demands.

The parties to the contract at issue had been doing business together for ten years.  Metal-Matic provided metal tubing for Krack's air conditioning business.  The parties' practice was that Krack would send Metal-Matic an annual estimate of its needs, and Metal-Matic would send back its own acknowledgment form disclaiming warranties and consequential damages.  Moreover, capitalizing on the langauge of § 2-207(1), Metal Matic's form included the following: "Metal-Matic, Inc.'s acceptance of purchaser's offer or its offer to purchaser is hereby expressly made conditional to purchaser's acceptance of the terms and provisions of the acknowledgment form."

9th CircuitThe effect of that language under the UCC should be to make Metal-Matic's response into a counter-offer which would govern the parties' transactions once Krack, having notice of the terms, had accepted delivery.  In this case, we know that Krack had notice of the terms, because it tried to get Metal-Matic to remove the disclaimer of warranties and limitations of damages, and Metal-Matic refused to do so.  Having continued to accept delivery on that basis, Krack should be bound by Metal-Matic's terms.

Krack delivered some air conditioning units to Diamond Fruit Growers, but some of the Metal-Matic tubing failed, causing harm to Diamond Fruit Growers products.  Diamond sued Krack and Krack turned around and filed a third-party complaint againts Metal-Matic.  Metal-Matic's disclaimers and limitations on damages were now in play.

The court noted the important principle of neutrality underlying § 2-207.  In contrast to the common law mirror image rule and last shot rule, the UCC is designed to avoid privileging either the offer or the counter-offer.  Determining that it therefore could not give effect to Metal-Matic's unilaterally imposed terms, it looked to the UCC, as is proper under § 2-207(3), to supply the missing terms of the contract that had been formed by the parties' conduct.  Since the UCC does not provide for limitations of damages and disfavors disclaimers of warranties, the court found that Metal-Matic's terms were out.  

The court was focused on avoiding a return to the common law's last shot rule: 

That result is avoided by requiring a specific and unequivocal expression of assent on the part of the offeror when the offeree conditions its acceptance on assent to additional or different terms. If the offeror does not give specific and unequivocal assent but the parties act as if they have a contract, the provisions of section 2-207(3) apply to fill in the terms of the contract. 

The are numerous problems with this approach.  Most obvsiouly, the UCC does not require a specific and unequivocal expression of assent by the offerer to additional terms.  It certainly could have done so if the framers of the UCC so intended.  More fundamentally, the result at which the court arrives is inconsistent with the principle of neutrality at the heart of the UCC"s approach to the battle of the forms.  Indeed, the court's solution to the problem presented advantages the offeror far more than did the common law.  Under the court's approach, the offeror is not only master of the offer; she is master of the transaction, and the offeree can do nothing through its writings to add terms to the contract.  

The court suggests that allowing Metal-Matic to prevail in this situation would be arbitrary because it would turn only on which party sent the form last.  But that is not so.  Metal-Matic conditioned its acceptance on Krack's assent to its terms.  Krack did not do likewise.  Sticking to the language of the forms at issue in this transaction, Metal-Matic's terms would govern regardless of the order in which the parties exchanged forms.  Here we have two sophisticated parties who knew what they were about.  Metal-Matic insisted on its terms and Krack acquiesced because it needed the tubing.

The outcome of the case thus seems extremely unfair.  Although I don't think it changes the UCC analysis, one might feel differently about the equities in the case if Krack were unaware of the terms and accepted the goods thinking that they were warranted, etc., but that was not the case here.  Krack took the goods knowing the terms on which it accepted them.  The court should not bail out commercial parties in these circustances, and courts do not bail out consumers who are bound by shrink-wrap terms to which they never expressly and unequivocally assent.

But James White, in § 2-13 of the White and Summers Treatise suggests otherwise, apparently on the ground that the UCC does not recognize acceptance by performance in this context.  That's very odd, because the UCC is all about the liberalization of rules, including rules of offer and acceptance.  As Summers points out, even the common law recognizes acceptance by performance and Summers sees no injustice given the parties' conversation about the disputed terms.  White thinks the proper remedy for seller is to refuse to ship until buyer assents to its terms, but since a straight reading of the UCC would give a seller no reason to think such express assent necessary, I do not think Metal-Matic was on notice of that requirement.  

[JT]

February 11, 2013 in Commentary, Famous Cases, Teaching | Permalink | Comments (2) | TrackBack (0)

Tuesday, February 5, 2013

Teaching Webster v. Blue Ship Tea Room

In a previous post, I shared a way to illustrate the differences between certain types of chicken for the frequently-used ambiguity case, Frigaliment.  For today's random teaching tip, I am leaving chicken behind and moving on to fish.  Because I have the luxury of a six-credit Contracts course, I have time to cover warranties, both express and implied, for sales of goods.  The case I use to teach the implied warranty of merchantability, Webster v. Blue Ship Tea Room, involves fish chowder.  The primary issue is whether a fish bone in a cup of New England fish chowder sold to Ms. Webster at the Blue Ship Tea Room resulted in a breach of the implied warranty of merchantability.  The court answered, "no," but not before going into the details of the way chowder is made in New England.  After I call on a student to share the facts of the case, I say that I've unearthed this clip showing exactly how the fish chowder was made (start at 0:17):  

 

I also encourage students to craft their own limericks for cases--just as our own Prof. Telman has done.  The latest student limerick submitted was for Webster.  Kudos to student Sareena Beasley for this one:

—Sat down for a bowl of fish chowder
—Ended up with a bone but they doubt her
—So don't pick a fight
—With the Fishermen's delight
When it's known that there’s bones in the flounder

And to those who say that Contracts is the driest 1L class, I say,"puh-shaw!"

[Heidi R. Anderson]

February 5, 2013 in Famous Cases, Limericks, Teaching | Permalink | TrackBack (0)

Wednesday, January 30, 2013

A New Stambovsky?

Nyack[Edited: Apologies to my co-blogger, Nancy Kim, for posting this before reading our own blog to see that she already covered it. I'll keep this up for the links to the cases but please read Nancy's post for a more in-depth analysis of the materiality issue.]

For professors who teach nondisclosure as a "reason not to enforce a contract," (that's what the book I use calls "defenses"), Stambovsky v. Ackley often is a favorite case due its entertaining facts. In the case, the buyers of a Nyack, NY house (pictured) seek to have the contract rescinded due to the home being haunted by poltergeists. The haunted condition was known by the sellers but was not disclosed to the buyers.

I am particularly fond of the case in part because the opinion is filled with puns such as, "[I]n his pursuit of a legal remedy for fraudulent misrepresentation against the seller, plaintiff hasn't a ghost of a chance, [however,] I am nevertheless moved by the spirit of equity to allow the buyer to seek rescission of the contract of sale and recovery of his down payment.". Puns aside, the case is instructive because it helps students understand the difference between nondisclosure versus misrepresentation and gets some students to question their faith in caveat emptor. The fact that I teach the case right around Halloween is a nice bonus.  

The only potential problem with the case is that it's somewhat dated (yes, something from the 1990s can feel dated to current first-year students).  Thankfully, a student of mine from last semester just sent me a link to this newer version of Stambovsky out of Pennsylvania (what do ghosts love about the mid-atlantic states?).  In this new dispute, the buyer, a recent widow, is seeking to rescind the contract for sale of a home based on the nondisclosure of a murder-suicide in the home in the same year she agreed to purchase it.  The trial court granted summary judgment to the sellers and the appellate court affirmed, finding that, "psychological damage to a property cannot be considered a material defect in the property which must be revealed by the seller to the buyer."  The buyer now has appealed the case to the Supreme Court of Pennsylvania. No one knows how that court will exorcise its discretion (ba-dum-bum).

[Heidi R. Anderson] 

January 30, 2013 in Current Affairs, Famous Cases, Recent Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 22, 2013

Another Visual Aid for Frigaliment, the Chicken Case

We here at ContractsProf Blog can't seem to get enough of the "Chicken Case," also known as Frigaliment.  Many of us use this case when teaching the "ambiguous term" exception to the parol evidence rule.  In the case, the seller argued that the written contract term of "chicken" meant any type and age of chicken of the specified size while the buyer argued that "chicken" meant only "roasters and fryers" of the specified size, which are younger and appreciably better than older "fowl."  

Students who are only familiar with Chick-Fil-A and the packaged chicken parts in the grocery store tend not to appreciate the practical difference between the two sides' meanings.  Confused students? ContractsProf bloggers to the rescue!  

For a picture that says it all, see Prof. Snyder's post from 2010.  For a video-based explanation of the issues in the case from none other than Hitler, see my post from last year. Prof. Miller also has offered another video-based teaching aid to use. Today, I bring you this clip, the source of which I cannot remember.  

 

Apologies to whomever showed this clip to me first (a former student? a previous post on this blog that is not coming up in my search?).  

I like this clip because you only need to take a few seconds of class time and it sticks with the students more than a 2-D picture thanks to Ms. Child's natural charm. 

[Heidi R. Anderson]

p.s. If you're now intrigued by Julia Child and are tempted to watch the recent movie, Julie & Julia, be sure to review Prof. Telman's post first.

January 22, 2013 in Famous Cases, Teaching | Permalink | Comments (1) | TrackBack (0)

Monday, January 21, 2013

Teaching Sales 4: What Could Be Better than Nanakuli?

Mukteswar_templeIn theory, if you are looking for a case to illustrate the UCC's potential liberality in letting in trade usage evidence to modify a written contract, nothing could be better than Nanakuli Paving v. Shell Oil.  One cannot avoid feeling gobsmacked by the Ninth Circuit's insouciance as it uses parol evidence to alter a clear, unambiguous price term.  And it's fun to say "Nanakuli."

But Nanakuli is long.  In order for students to understand it, they have to appreciate the idiosyncrasies of the asphaltic paving industry in Hawaii and they have to know quite a bit of detail about the the relationship between Nanakuli and Shell.  If you have six credits to play with, luxuriate in Nanakuli's details, but if you are on a time budget, do I have a case for you!

Whaley and McJohn's Problems and Materials on the Sale and Lease of Goods includes Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3 (4th Cir. 1971), which is just as outré as Nanakuli but much, much shorter.  The case is about a phosphate sale, most likely for the manufacture of fertilizer.  Despite the image at left, there's nothing sexy about the case, other than the fact that its logical contortions (like those in Nanakuli) are reminiscent of the Kama Sutra.  Still, it's a good way to hammer home the point that, under the UCC, one cannot expect the parol evidence rule to provide much protection against the introduction of course of dealing, course of performance and trade usage evidence.

[JT]

January 21, 2013 in Famous Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Thursday, December 20, 2012

From Our Self-Promotion Department: Telman on Totten (Again)

LincolnThey say that doing the same thing over and over and expecting different results is the hallmark of insanity.  But it's also the hallmark of scholarship.  I have just posted on SSRN the shortest version yet of my argument for why we should not conflate the state secrets privilege with the Totten doctrine.  The good people over at the American University National Security Law Brief have agreed to publish it, so it should be up with them early next year.

Totten establishes a justiciability rule: people who enter into voluntary secret agreemetns with the government cannot sue to enforce those agreements because doing so would violate the implied terms that the agreements are to be kept secret.  Thus, Totten, estate administrator for a man who alleged that he had entered into a spy contract with President Lincoln (here pictured before he became either a vampire hunter or Daniel Day Lewis) but had not been paid, could not recover on the contract.  That basic principle was subsequently expanded in Tenet v. Doe to bar not just suits on contracts but all suits to enforce secret agreements with the government.

So, I have my issues with Totten, which I think has become overbroad, as I explained here.  But the point of the current article is simple and straightforward:  The state secrets privilege is an evidentiary privilege.  It is neither a contracts doctrine nor a justiciability doctrine.  The conflation of Totten with the SSP has resulted in the unwarranted pre-discovery dismissal of colorable claims alleging tort and constittuional violations by the government and its contractors.

But for those who want to see the draft, you can download it on SSRN here.  This is the abstract:

The state secrets privilege (SSP) has become a major hindrance to litigation that seeks to challenge abuses of executive power in the context of the War on Terror. The Supreme Court first embraced and gave shape to the SSP as an evidentiary privilege in a 1953 case, United States v. Reynolds. Increasingly, the government relies on the SSP to seek pre-discovery dismissal of suits alleging torts and constitutional violations by the government. Lower federal courts have permitted such pre-discovery dismissal because they have confused the SSP with a non-justiciability doctrine derived from an 1875 case, Totten v. United States. The Totten doctrine only applies to claims brought by people who have entered into voluntary relationships with the government, but it is now being invoked when the government seeks dismissal of tort claims through the SSP. While the government should invoke the SSP whenever necessary to prevent disclosure of information that might jeopardize national security, such invocations of the SSP should never result in pre-discovery dismissal.

[JT]

December 20, 2012 in Famous Cases, Recent Scholarship | Permalink | Comments (2) | TrackBack (0)

Monday, October 29, 2012

Contracts Limerick of the Week: Bloor v. Falstaff Brewing

BallantineplantAt right is a drawing of the Ballantine brewery in Newark as it appeared in the late 19th century.  Founded in 1840, the brewery grew to be one of the largest in the United States by the end of the 19th century.  Recognizing that nobody without a gut full of beer could enjoy the American passtime, Ballantine cleverly partnered with the New York Yankees.  Through its partnership of that storied team, Ballantine grew to become the third most popular beer  in the United States.  

Sadly, in the 1960s the brand declined.  As Judge Friendly recounts in his opinion for the Second Circuit in Bloor v. Falstaff Brewing Corp., in 1969, the brewery suffered the indignity of acquisition by a real estate conglomerate with no experience in brewing.  After bleeding money for a few years, the conglomerate sold Ballantine to Falstaff Brewing Corporation in return for some cash and a promise to use "its best efforts to promote and maintain a high volume of sales" of Ballantine beer.  If it ceased to sell the beer entirely, the contract provided for liquidated damages.

Falstaff chose not to promote Ballantine beer.  It's marketing strategy was summarized by Falsataff's controlling shareholder as follows: We sell beer, F.D.B. the brewery.  You come and get it.  That didn't work very well for Ballantine, and its volume of sales plummeted.  The trustee of what remained of Ballantine sued alleging breach of the best efforst clause and seeking liquidated damages.  Judge Friendly's conclusion is summarized below:

Bloor v. Falstaff Brewing Corp. Limerick

Falstaff had to adhere
To its deal to sell Ballantine beer.
Volume’s not killer
When there’s Bud, Coors and Miller.
Still, its efforts must be sincere.

[JT]

October 29, 2012 in Famous Cases, Food and Drink, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, October 22, 2012

Larry Cunningham Responds, Part I: Politics in Contracts

Lawrence A. Cunningham is the Henry St. George Tucker III Research Professor of Law at the George Washington University Law School.  He is also the author of Contracts in the Real World.

The following post is cross-posted from an online symposium that previously appeared on Concurring Opnions.  The original post can be found here.

Cunningham_2009Before wrapping up the symposium about Contracts in the Real World, I wanted to offer two posts on main themes of the contributions–which were wonderful.

The first concerns the role of politics in contract law adjudication. It emerged as a theme from several posts, explicitly by Dave and Miriam, implicitly byJake’s discussion of Baby M and by Nancy’s of ProCD, and more obliquely in Tom’s (and Miriam’s) reference to my notion of the “sensible center” in contract law.

Perhaps the safer way to put the point would be to say that the common law of contracts is among the least political of subjects in law. The book does recognize the potential for political factors, of course, including variation among states. And while it celebrates the impressive power of the common law of contracts to deal neutrally with change, it also notes limits.

This is most explicit in the case of Baby M and its contrast with California’s Baby Calvert. I agree with Jake, and his agreement with Dave, that these two cases illustrate the driving role that judicial worldviews, and perhaps local state outlooks, can play in the approach to a case and the outcome.

The pairing of the two cases helps to show such features, in a context where opposition seems particularly acute. This is the context of “public policy,” an area where the common law of contracts is often inferior to administrative or legislative solutions precisely because at stake are exquisitely political decisions. That’s why p. 56 notes that judges on both (or all) sides of the debate about surrogacy contracts “usually concede that better solutions are likely to come from legislation. As magisterial as the common law of contracts is, many of society’s vexing puzzles should be resolved by the legislative branch of government.”

The differences between California and New Jersey on surrogacy contracts reminds me of the differences, to which Dave adverts, between California and New York on the parol evidence rule. In California, Chief Justice Roger Traynor helped to forge a weak parol evidence rule, stressing context and reflecting skepticism of the unity of language, compared to New York, where judges since Andrews and Cardozo (noted at pp 7-8) have shown greater interest in finality and the security of exchange transactions.

Those differences, in the doctrine and underlying attitudes, are real. But as this example shows and Dave notes, this is not so easy to classify in political or ideological terms.  It may be due more to New York’s history as a commercial center and may reflect something about how California is just a more relaxed place in general.

I think the example of ProCD, about which Miriam, Nancy and Jake commented, is an instance of the potential but vague role of politics or judicial worldview in contract adjudication. In the book, I summarize the case as a possible precedent for the main case, which concerned consumers “assenting” to inconspicuous terms in an on-line license—the Netscape spyware case. The ProCD precedent, I note, pointed in opposite directions for the Netscape case, forcing the judge to choose whether to follow in its path or not. The judge chose not to. The related facts seem to support that outcome.  So far so good.

But given the charged setting of electronic commerce, I suspected that readers would have a sneaking suspicion that something else is going on. So I identify the judges—something done rarely in the book, as follows: at page 28 “[ProCD was written by] Frank Easterbrook, the federal judge in Chicago appointed by President Ronald Reagan” . . . and at page 27 “Netscape was written by Judge Sonia Sotomayor for a federal appellate court in New York, several years before her promotion by President [Barack] Obama to the U.S. Supreme Court.”

The real problem with ProCD may be more akin to the real problem with Baby M: even the common law of contracts nods. The issues are so novel and vexing that legislatures should act.  Even the UCC—part of a long tradition in sales law recognizikng the limits of the common law—may not be readily adaptable to the world of electronic commerce, as Miriam’s post about ProCD hints.

But to return to the broader thrust of the sensible center and the generally apolitical quality of contract law, consider two points Jennifer made in her post. The first concerns the political fury that erupted amid the AIG bonus contracts. While politicians were calling for scalps and the company’s PR team intoned about the sanctity of contracts, Jennifer notes the op-ed I wrote summarizing the comparatively cool tools and results recognized by the common law of contracts.

Jennifer also calls attention to the list of conclusions at the end of Contracts in the Real World. Look at those statements of earthy contract law (some listed here) and it will be difficult to deny the truth or to detect a political or ideological edge within the spectrum of American political discourse. Let contract law do its knitting, and my own answer to Dave’s excellent question is that contract law really is pragmatic.

[Posted by JT]

October 22, 2012 in Books, Commentary, E-commerce, Famous Cases, Recent Scholarship, Teaching, Weblogs | Permalink | Comments (0) | TrackBack (0)

Jennifer Taub on Cunningham: “Unpopular” Contracts and Why They Matter

The following post is cross-posted from an online symposium that previously appeared on Concurring Opnions.  The original post can be found here.

Jennifer S. Taub is an Associate Professor of Law at Vermont Law School. Some of her scholarship can be found here.

Taub-150x150Professor Lawrence Cunningham knows the law and his audience. With Contracts in the Real World: Stories of Popular Contracts and Why They Matterhe brings contract doctrine to life.  Cunningham concisely, yet colorfully, covers how courts resolve a variety of deals gone wrong. This book is ideal to help students develop an understanding of how the law is used to sort between those bargains that will be enforced and those that will not, as well as what remedies are available when things do not go as the parties to the agreement initially planned.

Contracts in the Real World has considerable range. It starts with a wrecked wedding party, an event few experience though many may fear.  A dispute between a couple and a banquet hall venue results from a regional power outage during the reception. This fact pattern echoes the type of phone call a recent law graduate might receive from an exasperated family member punctuated with the dreaded question —  you’re a lawyer, can we get our money back?  The book provides a sensible explanation of how the wedding dilemma would resolve, and weaves together this type of personal situation with more public, celebrities’ disputes and classic contract decisions. These classic decisions are better appreciated in this fashion, when they are used to explain the outcomes of more modern disputes. For example, Sherwood v. Walker (the fertile cow – mutual mistake case) dating back to 1887 resonates when it is used to analyze a divorce settlement dispute concerning millions of dollars invested with Bernard Madoff’s Ponzi scheme.

Real WorldWhat makes the book particularly compelling, is that mixed in with relatable fact patterns and entertaining battles are significant matters of policy.Contracts in the Real World  accomplishes this, for example, when it covers some very unpopular contracts. These include the infamous agreements under which American International Group (AIG) paid out $165 million in cash bonuses to roughly 400 employees. According to the New York Times, among those who received more than $1 million a piece were 73 employees of the AIGFP business unit. This was the same business unit that helped enable the housing bubble and related Financial Crisis of 2008 by providing credit protection (selling credit default swaps) on high-risk mortgage-linked securities. The AIG bonuses were announced in 2009, just months after the US government paid $85 billion for a nearly 80% ownership stake in AIG. This was a part of the $182 billion government commitment to rescue the giant insurance firm when it approached insolvency due, in large part, to its inability to make payments to counterparties on its credit default swaps.

The public outrage over the AIG bonuses is included in Chapter 3 which covers the concepts of “excuses and termination.”  These bonus contracts were entered into in early 2008, well before the bailout. The agreements which promised bonus payments in 2009 and 2010 were designed to encourage employees to stay with AIGFP. In response to an irate public, in 2009, AIG which was by then a ward of the state, insisted that the contracts with these employees were ironclad. Yet, the company did not publicly reveal the actual language of the agreements nor were legal theories that would have excused performance discussed. Those opposed to paying the bonuses, including certain members of Congress suggested imposing up to a 100% tax on them. In this manner even the opposition seemed to treat as true the faulty premise that contract law requires all agreements to be performed without any exceptions. Cunningham attempted to correct this misperception. In a contemporary op-ed in the NYT and in Contracts in the Real World he suggested that contract doctrine might have been a moderating measure, an alternative to either unexamined payments on the one hand or  demands for government confiscation, on the other. It also would have been a teachable moment. Though that moment passed, through this book, the lesson is not lost.

Finally, beyond these thoughtful presentations of popular and unpopular contracts, this book includes in the final chapter twenty statements the reader is invited to determine are true or false, to test comprehension of contract law. This useful list serves as a proxy for the book’s (and a course’s) intended learning outcomes. Given the comprehensive scope and easy style of Cunningham’s book, this is a natural choice to assign as a supplement to a casebook. Or, one might be tempted to use it as the primary textbook, and supplement it with the UCC, a number of the referenced cases and other favorites, highlighting where jurisdictions vary. Students may learn faster when they are so guided and engaged. Should this leave extra time in the semester, it might be used for contract negotiation and drafting, skills that nearly all attorneys need but few learn in law school. 

[Posted by JT]

October 22, 2012 in Books, Commentary, Famous Cases, Recent Scholarship, Teaching, Weblogs | Permalink | Comments (0) | TrackBack (0)

Dave Hoffman on Cunningham: Is Contract Law Really Pragmatic?

Dave Hoffman is the James E. Beasley Professor of Law at Temple University's Beasley School of Law.

Hoffman_WebPhotoThe following post is cross-posted from an online symposium that previously appeared on Concurring Opnions.  The original post can be found here.

I’ll begin by joining the others who’ve written in already to praise Larry’s excellent Contracts in the Real World.  It is highly accessible, entertaining, and offers a ream of examples to make concrete some abstract and hard doctrinal problems. Larry has the gift of making complex problems seem simple – much more valuable and rare than the common academic approach of transforming hard questions into other hard questions! This would be an ideal present to a pre-law student, or even to an anxious 1L who wants a book that will connect the cases they are reading, like Lucy, Baby Mor Peevyhouse, to problems that their peers are chatting about on Facebook.

Larry’s typical approach is to introduce a salient modern contract dispute, and then show how the problem it raises was anticipated or resolved in a famous contract case or cases.  Larry often states that contract “law” steers a path between extremes, finding a pragmatic solution. This approach has the virtue of illustrating the immediate utility of precedent for guiding the resolution of current disputes, and comforts those who might Real Worldbelieve that courts are alwayspolitical actors in (caricatured) Bush v. Gore or Roberts/Health Care Cases sense. It has the vice of de-emphasizing state-by-state differences in how contract law works, as well as the dynamic effects of judicial decisions on future contracts. But I think that for its intended audience, these vices can be easily swallowed.

I wanted to offer one question to provoke discussion: is it actually true that politics is as removed from contract law as Larry’s narrative appears to suggest, and how would we know?  The contracts law professor listserve is full of laments about judges turn away from Traynor & his perceived progressive contract doctrines – and I certainly know of colleagues who teach that there are “liberal” and “conservative” versions of the parol evidence rule, for instance. But what does this actually mean, and how does it connect with the scholarship on judicial politics generally?  As it turns out, this question has been understudied, probably because political scientists have yet to find a way carefully operationalize what a “liberal” or a “conservative” outcome in a contracts case would be, and thus to usefully regress case outcomes against a judge’s political priors.  Many authors (Sunstein et al. 2004Christy Boyd and I, 2010) have found ideological effects outside of the typical con law regime (particularly in “business law” areas).  But I’m  aware of a few empirical papers analyzing the political valence of how contract doctrine comes to be. (Snyder et al. n.d.)  Some have suggested that contract law is a particularly hard area to study because selection effects loom so large. I would also note that most contract law “work” occurs at the state court level, where ideological measures are either explicit or very obscure.

If we found good measures, my own hypothesis would be that a particular judge’s worldview matters a great deal to how he or she resolves contract disputes – with priors about how much a person should be responsible for their own choices, and their perspective on market discipline, shaping how they understand the facts and thus apply the law.   Contract cases are powerfully controlled by judges – probably more so than in other areas of private law. Contract doctrine would reflect these individual choices, and we’d thus be left not withone  ”pragmatic” contract law, but rather many competing strands. I’d thus close by urging readers of Larry’s book to think a bit about the cases not picked out and illuminated in the narrative – where the judges are less wise and more human.

[Posted by JT]

October 22, 2012 in Books, Commentary, Famous Cases, Weblogs | Permalink | Comments (0) | TrackBack (0)