Monday, October 31, 2011
The WSJ reports on the volatile cotton market and the record number of contract disputes that have arisen as a result. Here's a sample:
Just how binding is a binding agreement?
In the cotton market, dozens of remorseful buyers are putting that question to the test.
Since they agreed earlier this year to buy thousands of bales of cotton when prices were at record highs, cotton mills have seen prices tumble 54%. So, as delivery time nears and bills come due, some have decided not to pay up.
In a phenomenon that may be unique to the cotton market, contracts are considered by many buyers to be little more than a message of intent, with any agreement up for negotiation. And because the market is so farflung—merchants in the U.S. often trade with thousands of small buyers in Bangladesh or Indonesia—regular legal battles can be costly and lengthy.
Thanks to the wild swings in cotton prices, the industry is facing a record number of contract disputes. The International Cotton Association has received 168 requests for arbitration this year. That is the most since the industry's self regulator starting keeping track in 2000.
This year, it is mostly mills and other buyers backing out, industry officials and traders say. They bought when cotton was as pricey as $2.1515 a pound, the record hit in March. On Monday, cotton for December delivery rose 0.9% to close at 97.94 cents a pound on ICE Futures U.S.
Shrugging off those contractual obligations has made cotton prices jumpy. Having backed out of deals struck in the futures market, buyers have gone into the spot, or cash, market to get what they needed to spin thread for T-shirts, underwear and the like. Those reverberations have been felt by clothing makers of all sizes, whose margins were squeezed by the run-up in prices and now have to decide whether they can lower prices ahead of the holiday season.
"Both the textile mills [and] the merchant...have had a great deal of trouble in managing their risk," said Joe Nicosia, chief executive of Allenberg Cotton Co., the cotton arm of French trading house Louis Dreyfus Group, during an industry conference call in July.
When mills don't live up to their end of the deal, cotton merchants, including big, multinational commodity-trading firms, are at times left holding the bag.
Each year, 100,000 to 200,000 cotton contracts are signed, said Terry Townsend, executive director of the International Cotton Advisory Committee, a group that advises cotton-growing nations. For the crop year that ended July 31, about 10% of contracts have been defaulted on, said Mr. Townsend.
Defaults are a fixture in the cotton market.
You mean the buyer and seller didn't agree to shipment of the cotton on the Peerless?
For more (including a snazzy graphic with data), scale the WSJ paywall and read the article. As one commenter wrote: "A deal's a deal until a better deal comes along."
[Meredith R. Miller]
Tuesday, August 23, 2011
I've survived a contracts conference shipwreck. And now I can say I've experienced an earthquake in the middle of teaching Lucy v. Zehmer. Apparently the epicenter is in Mineral, Virginia, population 500. Coincidentally, this looks to be only about a two-hour drive from MCKenney, Virginia, home of the Ye Olde Virginnie.
I hope everyone and everything nearby is safe.
[Meredith R. Miller]
Friday, July 1, 2011
Today's Guardian has a story about two cabinet ministers who have sent a carefully worded letter of complaint to British Prime Minister David Cameron protesting the award of a £3 billion contract for the manufacture of train carriages (cars) to the German company, Siemens. The ministers are upset that the contract was not awarded to Bombardier, which employs 3,000 people in Derby and is the last remaining train factory in Britain.
The ministers apparently express concern that Britain EU partners do not play fair. After all, the German government recently awarded a £5.4 billion high-speed train contract to German-based Siemens. And just last year, the French government awarded a £540 million contract to Siemens rather than to Paris-based Alstom.
Wait a minute. Doesn't this suggest that Siemens always wins these big contracts rather than that member states of the EU engage in favoritism? Moreover, Bombardier is not even a UK company. It's Canadian! A union representative in Derby is quoted by the Guardian as expressing concern that Bombardier will shut down operations in England. After all, if it can't win a UK contract, what's the point of even having a factory there? Simple solution. Sell the factory to Siemens. They seem pretty busy.
Wednesday, June 22, 2011
Trust me when I tell you that it is very difficult to get friends, family, students and acquaintances engaged in a meaningful discussion of "mandatory arbitration." Trust me further that there is now a wonderful documentary that manages to make this and other civil justice topics interesting and engaging for everyone. (Indeed, my viewing companion, proudly not a lawyer, turned to me at one point in the movie and whispered "didn't you write a paper about something like that?")
Last night, I was fortunate enough to invite myself via twitter get invited to a screening of Hot Coffee at HBO. Hot Coffee is a must see documentary about the way that business interests, "tort reform," judicial elections and "mandatory arbitration" have systematically worked in concert to deny plaintiffs access to civil justice. It is the work of the energetic and passionate director Susan Saladoff who spent 25 years as a trial lawyer before becoming a filmmaker. The documentary is well-conceived and thought provoking. It takes some very complex topics and organizes them and presents them through compelling personal stories.
The title "Hot Coffee" refers to the iconic case that is ubiquitous in pop culture as a symbol of the frivolous lawsuit: the woman who sued McDonalds because she was served a coffee that was too hot. The film starts very strong by retelling this story through interviews with the plaintiff's family. This challenged me (and from the gasps in the theater, I suspect everyone else viewing the film) to see the case in an entirely different light. With that strong start, the viewer is engaged and ready to hear about damage caps, judicial elections and mandatory arbitration in consumer and employment contracts.
Here's the trailer:
After the film, there was a Q&A session moderated by Jeffrey Toobin. He appeared to receive the movie very favorably, noting that the fine print in a cell phone contract is not one of the sexy topics that CNN hires him to discuss on the evening news segments (which reminded me of this Dahlia Lithwick piece in Slate, which seemed to begrudgingly report on AT&T v Concepcion).
Toobin did mention one frustration, which could be leveled as a critique of the film -- that it only presents one point of view. Notably absent and/or unwilling to participate were voices from the "other side," i.e., those in favor of damage caps and mandatory arbitration. Saladoff's response, I thought, hit the nail on the head: in so many words, she said that she wanted to tell this side of the story, and the voices in favor of these reforms already had a well-financed platform (and, indeed, overtaken the public consciousness). Perhaps I am partial to her response because her film paints a picture in line with my world view, and I am just so thrilled to finally see an engaging and accessible presentation explaining the systematic erosion of civil justice at the behest of corporate interests.
Our students come to law school generally ignorant of or misinformed about tort reform, mandatory arbitration and many of the other topics presented in this film. However, they do at least know of handful of cases -- OJ, Bush v Gore and, of course, the hot coffee case. I have no doubt that this film will be used in the classroom. It is masterfully done and captivates those uninitiated with these topics as well as those who have studied them (and even includes a few clips of interviews with George Lakoff). Please tune in to HBO on Monday night.
[Meredith R. Miller]
Wednesday, April 20, 2011
Just when I thought that the Charlie Sheen saga was over (at least from a Contract Law blogging perspective), this comes along. Charlie Sheen--entangled in a contractual dispute with his employer, Warner Brothers--first claimed that his contract had no morals clause (which turned out to be false) and later claimed (and said) all sorts of much crazier things. Now, Sheen and his lawyers are arguing that the provision in his contract requiring any dispute to be resolved via arbitration is unconscionable. Yes, you read that correctly. Charlie Sheen--whom many have described as having no conscience--is claiming unconscionability.
When I teach the concept of unconscionability, I emphasize that a provision is unconscionable only if there is both procedural unconscionability (one party has substantially more bargaining power than the other, among other factors) and substantive unconscionability (the term itself unreasonably favors one party). I also state that there is a sliding scale--the more procedural unconscionability you can show, the less substantive unconscionability you need to show, and vice versa. Admittedly, these are generalizations, but they're the kind of generalizations that tend to work well for first-year Contracts students.
I doubt Charlie Sheen could show either procedural or substantive unconscionability here. As Warner Brothers' lawyers note, the procedural element likely is lacking when the party claiming that he had little bargaining power was able to bargain for "$2 million dollars for [every] 22 minute[s] of television." To counter that point, Sheen's lawyers understandably emphasize that Sheen's contract was "non-negotiable" and, on the substantive side, was quite "onerous." I am not familiar with the nuances of California law on this subject so it will be interesting to see how this particular case is decided.
It's not unheard of for courts to rule that arbitration provisions are unconscionable (see our earlier post regarding the AT&T case recently heard by the Supreme Court). However, if you are tired of hearing about Mr. Sheen, you should hope that the court finds that the arbitration term was valid. That's because...if it is unconscionable, the case most likely will be heard in a California court, where the whole thing will be filmed and potentially broadcast to us all. Yikes.
For previous ContractsProf Blog posts about other Sheen-focused Contract Law topics, see here (Warner Brothers' termination notice), here (Warner Brothers' complaint), here (Sheen's countersuit alleging interfence with contractual relations), here (Sheen's bargaining power--perhaps relevant to his unconscionability claim), and here. At this point, I'm wondering if I could teach every Contract Law topic via Charlie Sheen. The textbook, entitled, "Winning at Contract Law!" sure would be fun to write.
Monday, April 18, 2011
It is time to get into the Passover spirit by revisiting Fallsview Glatt Kosher Caterers v. Rosenfeld, 7 Misc.3d 557 (Civ. Ct. Kings County, NY, 2005), which gave us the opportunity to pause and consider: is a “Passover retreat” predominantly a good or service under the UCC? (Which, also came to be known as an added, fifth question for the youngest child at the seder).
Plaintiff Fallsview operated a retreat during Passover at Kutscher’s Country Club. (A Jewishy resort in the Catskills where, as a young child, I spent all of my grandmother’s laundry quarters on Ms. Pac-Man). For those that did not grow up going to B’nai Brith conventions in “The Country” (that’s what the NYC Jews called it), see this video, which comports with my memory.
Fallsview’s “retreat” included accommodations, entertainment and kosher food service. Willie Rosenfeld allegedly reserved spaces for 15 members of his family and agreed to pay $24,050 for the retreat. Fallsview made necessary arrangements, but Rosenfeld failed to appear at the hotel and did not remit the payment. Fallsview sued Rosenfeld for breach of contract.
Rosenfeld moved to dismiss, pointing to the statute of frauds. Rosenfeld argued that there was no agreement and, even if there was, it was oral and did not satisfy UCC 2-201, which requires that contracts for the sale of goods for the price of $500 or more be in writing. Fallsview’s response: the UCC does not apply because the Passover retreat is a service, not a good.
Because the alleged contract called for accommodations, entertainment and food, it was a hybrid transaction, and the court looked to whether goods or services predominated. Rosenfeld argued that the retreat was about food, a conclusion that he argued was “compelled by the very nature of the Passover holiday”:
The essential religious obligation during this eight day period- and the principal reason why people attend events similar to the Program sponsored by plaintiff- is in order to facilitate their fulfillment of the requirement to eat only food which is prepared in strict accordance with the mandate of Jewish law for Passover, i.e., food which is ‘Kosher for Passover’. It is the desire to obtain these ‘goods'-and not the urge for ‘entertainment’ or ‘accommodations'-that motivates customers to subscribe to such ‘Programs.’
But the court noted all of the possible daily activities at the retreat included “tennis, racquetball, swimming, Swedish massage, ‘make over face lift show,’ ‘trivia time,’ aerobics, bingo, ice skating, dancing, ‘showtime,’ ‘power walk,’ arts and crafts, day camp, ping-pong, Yiddish theater, board games, horse racing, horseback riding, wine tasting, and indoor bocci-and that is only through Wednesday.” There were also “ traditional and Orthodox religious services, lectures on religious and other subjects (presumably with a religious or cultural perspective), and a series of activities that are clearly designed to be of interest to families of observant Jews during a highly significant period in their calendar. “ The all-inclusive price covered these activities, as well as accommodations and food.
The court (Battaglia, J., who coincidentally, used to teach at my home institution), sided with Fallsview and decided the essence of the retreat was a “family and communal ‘experience’” and, therefore, was defined primarily by services and not by goods. Rodenfeld’s motion to dismiss was denied.
[Meredith R. Miller]
Monday, March 14, 2011
This article reexamines Lucy v. Zehmer, a staple in most contracts courses, and makes the following discoveries: (1) Lucy, acting as a middleman for southern Virginia’s burgeoning pulp and paper industry, sought the Ferguson Farm for its rich timber reserves; (2) Lucy was one of scores of aggressive timber middlemen eager to purchase timberland across the region, in what amounted to a chaotic land grab that left a wake of shady transactions and colorful litigation; and (3) Within the eight years of winning injunctive relief from the Virginia Supreme Court and purchasing the Ferguson Farm from Zehmer for $50,000, Lucy earned approximately $142,000 from the land and its natural resources. These findings bring into question the opinion’s assertion that $50,000 was a fair price, its conclusion that Zehmer’s actions indicated contractual intent, and its confidence that the objective method captured the relevant background in which Lucy’s and Zehmer’s exchange took place. More generally, they suggest that conclusions reached by the objective method are highly dependent on the facts that are retold and the context in which they occur.
Thursday, March 10, 2011
I have floated my ideas about Totten on this blog before here and here. My students booed and hissed when I scolded Honest Abe for having breached his promise to pay William Lloyd for espionage services provided during the Civil War. "Too soon," they howled. Undeterred, I have developed my ideas about Totten in a new article, Intolerable Abuses: Rendition for Torture and the State Secrets Privilege, now available for dowload on SSRN. The discussion of the Totten doctrine takes up pages 15-45 of the draft.
That part explores the ambiguities of the case and decries its deployment in the state secrets privilege context in cases that do not involve contractual claims. The case is ambiguous because in the space of a two page opinion, the Supreme Court gives numerous reasons for refusing to enforce the government's alleged promise to Mr. Lloyd. Perhaps there was an implied promise of secrecy. Perhaps public policy forbids the disclosure and thus the enforcement of such a policy. Perhaps there is some sort of evidentiary privilege that prevents the claim from going forward, but if so, its operation is unlike that of any other evidentiary privilege. And then in the end, what is the Totten doctrine? Is it simply the application of one of the above-mentioned contracts or evidentiary doctrines or is it a principle of non-justiciability?
The discussion of Totten takes up about 1/3 of the piece. Here is the abstract for the whole thing:
In Mohamed v. Jeppesen Dataplan, Inc., the Ninth Circuit, sitting en banc, issued a 6–5 opinion dismissing a complaint brought by five men claiming to have been victims of the U.S. government’s extraordinary rendition program, alleged to involve international kidnapping and torture at foreign facilities. Procedurally required to accept plaintiffs’ allegations as true, the court nonetheless dismissed the complaint before discovery had begun based on the state secrets privilege and the Totten doctrine, finding that the very subject matter of plaintiffs’ complaint is a state secret and that the defendant corporation could not defend itself without evidence subject to the privilege. This Article contends that courts should almost never dismiss suits based on the state secrets privilege and should never do so in a case like Jeppesen Dataplan, in which plaintiffs did not need discovery to make out their prima facie case alleging torts by the government or its contractors.
While much has been written on the state secrets privilege since 9/11, this Article focuses on the role of the Totten doctrine in transforming the state secrets privilege into something like a government immunity doctrine. The Article first argues that Totten was wrongly decided because it is overprotective of state secrecy and requires dismissal with prejudice of suits that would more appropriately be dismissed without prejudice, subject to re-filing when the relevant secrets are declassified. The Article next contends that Totten is a very narrow doctrine that cannot and should not have any role in informing cases such as Jeppesen Dataplan in which plaintiffs did not contract with the government.
In addition, the Article argues that the state secrets privilege, as laid out in the 1953 Reynolds case and subsequently expanded by lower courts, permits pre-discovery dismissal of suits based on the state secrets privilege and thus exacerbates the pro government bias already present in Reynolds. The Article explores seven ways in which lower court decisions have all tended to make it easier for the government to assert the state secrets privilege, while the lack of penalties for overly aggressive assertion of the privilege results in intolerable abuses.
While the Article thus offers fundamental critiques of both the Totten doctrine and the state secrets privilege, it does not advocate disclosure of state secrets. Rather, in a concluding section, the Article draws on federal statutory schemes relating to the introduction of classified information in criminal trials and offers numerous alternatives to judgment in favor of the government and its contractors before discovery has begun in cases implicating state secrets. Congress has repeatedly empowered courts to make decisions that protect government secrecy while facilitating limited access to secret information when necessary in the interests of justice and open government. In some cases, the government’s inability to defend itself may necessitate the socialization of the costs associated with national security secrets, but that result is preferable to forcing plaintiffs to bear all the costs of government secrecy.
Thursday, March 3, 2011
Given the current political turmoil in Egypt, a discussion of the Suez Crisis and impracticability may actually meet with fewer yawning students this year. In preparing to present a hypothetical based on the cases (e.g., American Trading and Production v. Shell Int'l Marine Ltd, 453 F.2d 939 (2d Cir. 1972), I discovered some newsreel footage from 1956, which may help tell the story:
There are many other clips, but this one seemed like just the right length for class. Coincidentally, today, Reuters reports that Egypt's Suez Canal Authority announced that it will leave transit fees unchanged until the end of 2011.
[Meredith R. Miller]
Friday, December 3, 2010
Thursday, December 2, 2010
Wednesday, December 1, 2010
Courtesy of Eric Gouvin (Western New England) we're delighted to publish some of the images of the case he collected as part of his recent (and highly enjoyable) conference on that staple of Business Associations casebooks, Wilkes v. Springside Nursing Home. We'll be publishing one a day. Enjoy!
Here's the Springside Nursing Home before renovations.
Thursday, November 25, 2010
On a day like today, when the first icy (45° F) blast of winter is coming down the verdant Brazos Valley, chilling the rattlesnakes and rattling the Mexican junipers at Château Snyder, it's nice to sit in front of a fire with a steaming Tom & Jerry and think about . . . chicken feet.
Why chicken feet? Because they (along with chicken skin) are prominent features of what I think is the only U.S. Supreme Court case about Thanksgiving turkeys. The case is M. Kraus & Bros., Inc. v. United States, 327 U.S. 614; 66 S. Ct. 705; 90 L. Ed. 894 (1946). It's a criminal case, but it does have something to do with contract law.
The case takes us back to Thanksgiving 1943, when wartime price controls have led to a serious shortage of meat (and lots of other things) in the U.S. Because turkeys are in short supply, prices naturally tend to rise. The Roosevelt Administration responds with the Emergency Price Control Act of 1942, which makes it a criminal offense to sell certain things (including turkeys) prices above a price "established" by the Office of Price Administration. Because that price is fairly low, demand for turkeys at Thanksgiving 1943 far exceeds the supply.
The defendant operates a wholesale meat and poultry business in New York City. In prior years it has usually received 100-150 rail cars of turkeys, but in 1943 it only gets one (1) car, and must decide how to divide that relative handful among its customers. Because it can't raise prices, it decides to bundle the turkeys with chicken feet, chicken skin, and chicken gizzards, so that its customers who buy turkeys must also buy the other products.
The defendant is indicted. The prosecution claims that by tying the turkeys to other products of dubious value the seller had violated the Price Administrator's regulations, which provided:
Price limitations set forth in this Revised Maximum Price Regulation No. 269 shall not be evaded whether by direct or indirect methods, in connection with any offer, solicitation, agreement, sale, delivery, purchase or receipt of, or relating to, the commodities prices of which are herein regulated, alone or in conjunction with any other commodity, or by way of commission, service, transportation, or other charge, or discount, premium, or other privilege or other trade understanding or otherwise.
The jury convicted and the Second Circuit affirmed. The Supreme Court -- perhaps still not as friendly and accomodating to economic regulations as it would later become -- reversed the conviction 5-3 (Jackson did not participate), although the justices issued four separate opinions. Relying heavily on the fact that the Administrator in other regulations had specifically mentioned "tying agreements" but did not do so in Regulation 269, Justice Murphy,Stone, Rutledge, Frankfurter, and Douglas all more or less agreed that a tying arrangement in which the goods had some value was not an "evasion" of the regulations, although Douglas and Rutledge (joined by Frankfurter) wrote concurrences as well. Black wrote the dissent, joined by Burton and Reed.
It's interesting that only ten ears after unanimously striking down poultry price regulations in A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S. Ct. 837; 79 L. Ed. 1570 (1935), not a single justice even questioned the government's authority to set the price of every turkey in the United States. As Mr. Dooley noted, "No matther whether th' constitution follows th' flag or not, th' supreme coort follows th' iliction returns.”
P.S. In case you're wondering what value chicken feet would have, here's a tasty recipe..
Friday, November 12, 2010
Tuesday, October 26, 2010
Turns out that MTM went shopping at a Red Owl store in Minneapolis -- as you can see on the video of the show's opening he's posted on the site. I'm older than Gordon, but I enjoyed the show, too, though the bit of trivia I recall is "Whose jersey is she wearing while washing the car?"
Unlike Gordon, I wasn't a fan of The Paper Chase, I was more into a short-lived show called The Storefront Lawyers. I don't have a video, but here are the Ventures with the show's VERY cool opening theme -- which fortunately doesn't sound anything like Seals & Crofts:
Speaking of Hoffman, be sure to check out Bill Whitford's and Stewart Macauley's fascinating backgrounder, Hoffman v. Red Owl Stores: The Rest of the Story.
P.S. She's wearing Fran Tarkenton's #10 Minnesota Vikings jersey.
Monday, May 3, 2010
I turned up a Limerick from a case I haven't taught in a few years, so I thought I would share it. The connection to contracts law is pretty attenuated, but I'm sure we could find one if we looked hard enough. The issue in the case was whether or not Indiana's anti-takeover statute, the Control Share Acquisitions Chapter of Indiana's Business Corporation law, should be struck down as inconsistent with the Williams Act and the Commerce Clause.
The Williams Act provides for disclosure when any party gains control of over 5% of an issuer's shares. It also provides for certain procedural and substantive limitations on tender offers. The Indiana Act provided additional protections against tender offers for Indiana corporations by requiring a shareholder vote on whether or not the acquiror would be permitted to vote its shares once it crossed certain thresholds of ownership: 20%, 33.3%, 50%.
Judge Posner, writing for the Seventh Circuit and following the Supreme Court's plurality decision in Edgar v. MITE Corp., struck down the Indiana Act as inconsistent with the Williams Act and also with the Commerce Clause. Justice Powell (pictured), writing for the majority of the Supreme Court, reversed. While the Illinois statute at issue in MITE favored existing management over the rights of acquirors and shareholders alike, the Indiana Act was consistent with the aims of the Williams Act, in that it favored neither acquirors nor incumbent management and sought only to protect the rights of shareholders. It's impact on interstate commerce was negligible, and even if there was some slight discriminatory effect, that discrimination was acceptable in light of the internal affairs doctrine, that for the most part leaves the regulation of corporations to the state legislators that create corporations in the first place.
Justice Scalia concurred. He had no disagreement with Justice Powell on the law, but he was irked that Justice Powell ventured a judgment on the aim of the statute. He regarded it as "extraordinary to think taht the constitutionality of the Act should depend on" whether the Court thought that the Indiana Act aimed to protect shareholders of incumbent management. Justice Scalia seemed open to the view that the Indiana Act was idiotic but lawful and should be upheld regardless of its folly. Three dissenting Justices, following Posner's reasoning, would have found the Indiana Act to be a kind of unlawful folly.
CTS Corporation v. Dynamics Corporation of America
The Williams Act does not preclude
A state from protecting its brood.
Posner dislikes it;
Scalia won't strike it:
"It's law, so what if it's crude?"
Monday, April 12, 2010
[Cross-posted to SALTLAW blog]
Last week we learned that Jim Perdue, Chairman of Perdue Foods Inc., spoke to Maryland legislators on behalf of the small farmers he claimed would be forced out of business if the environmental law clinic at University of Maryland Law School is allowed to sue Perdue and one of its growers. I was familiar with Perdue’s relationship with small farmers. Some years ago — in 1998, to be precise — I wrote a contracts exam using the pleadings filed in Monk v. Perdue Farms, Inc., 12 F. Supp.2d 508 (D.Md. 1998), by plaintiff’s attorney, Roger L. Gregory, then partner in the firm of Wilder and Gregory, now judge on the Fourth Circuit Court of Appeals.
Monk was a case about racial discrimination. Several black farmers alleged that they were not accorded the same treatment under the terms of Perdue’s standard form contract as white farmers. In that respect, the Monk case bore some resemblance to Reid v. Key Bank of Southern Maine, Inc., 821 F.2d 9 (1st Cir. 1987), a case I cover in contracts when I teach students about the implied duty of good faith. Mr. Reid was the only borrower at the bank to have his line of credit cut off, his note accelerated, his collateral seized without the bank officers first calling him in to the bank for a meeting. Reid is still mentioned in other casebooks in notes about lender liability or the subjective test for good faith, but these notes appear to sidestep the issues of race and motive altogether. The relationship between motive, malice and racial prejudice is admittedly somewhat ambiguous in Reid because the jury found there was no racial discrimination by the bank. Nevertheless, Reid is still a case that calls attention on the disparate treatment one black businessman received and the inferences that could be drawn from that fact.
But I chose the Monk case for my final examination because it was not just a case about discrimination and bad faith. The pleadings alleged behavior by Perdue that could be analyzed variously as misrepresentation, economic duress, bad faith unrelated to any allegation of racial prejudice, and failure to perform many of its obligations under the contract.
The genesis of all of these claims was the ironclad control Perdue had over the manner in which the farmer ran his business. The farmer was contractually obligated to take chicks supplied by Perdue, use the food or grain supplied by Perdue, build housing for the chickens or purchase equipment if Perdue decided it was necessary, administer antibiotics to the chickens as required by Perdue. The chickens were collected, weighed and delivered to the plants by Perdue employees (the status and plight of chicken collectors is a story for another day). According to the pleadings, a rider to the contract, not negotiated with the farmers but unilaterally imposed by Perdue, shifted all risk of disaster – flood or disease or excessive heat – to the farmers. If the chickens died, there would be no compensation forthcoming, although the practice in the past had been to pay a minimum amount per chicken received and raised.
The current conflict with Perdue reminded me of that old exam because back then chicken manure was part of the problem. Perdue has known for some time that farmers were storing chicken manure on their property. In Chapter 3 of a 2001 report , Professor Neil D. Hamilton of the Drake University Agricultural Law Center reviewed the terms in several contracts used by producers, noting that whether the contracts were silent on the issue of chicken manure or expressly placed responsibility for disposal on the farmer, the cost of the removing chicken manure fell on the farmer. By most reports, chicken growers don’t make much money, somewhere between $16,000 -$18,000 a year. Perdue, in contrast, reports on its website that it has annual sales of $4.6 billion a year. Perdue had to have known that the cost of removing manure would be significant for famers whose profit margin is so slim.
Apparently, Perdue did see and plan for a future when environmental regulation would prohibit the use of chicken manure as fertilizer and require its removal from poultry farms. Perdue Farms is now trumpeting its environmental stewardship and its farsightedness in constructing the Perdue AgriRecyle plant. The plant has been in operation for nine years and was built, says Perdue, to offer the growers the option of taking poultry litter ( chicken manure) somewhere at “no cost to them.” In fact, Jim Perdue proudly claims that Perdue was willing to bear that cost “in order to help the growers satisfy the new rules around nutrient management in the Chesapeake Bay region.” The ‘cost’ to Perdue of taking the growers’ manure without charging those growers a fee is questionable. This manure is the raw material Perdue uses to manufacture MicroStart 90, a fertilizer that that it sells to the Scotts Co., golf course management companies and organic farmers as “processed manure.” Chicken manure may well become a new profit center for Perdue.
Perdue offered the plaintiffs in Monk a standard form contract on a take-it-or-leave-it basis that gave Perdue control over production and placed much of the risk of loss associated with growing poultry on the farmer. The power differential, the structural inequality between farmer and producer, is explicit in the contractual terms that governed their relationship, in the asymmetry of duties and obligations, and in the disparity in wealth perpetuated by the method and terms of compensation.
Farmers fought for fairer terms in their contracts, but were thwarted by contractual terms that made the provisions of the Packers and Stockyards Act inapplicable to to producers like Perdue. In the 1980s, a grower in North Carolina filed suit against Perdue claiming that the company was violating a provision of the Act which prohibited “live poultry dealers from engaging in or using “ any unfair, unjustly discriminatory, or deceptive practice or device.” Wiley B. Bunting Jr. v. Perdue Inc., 611 F. Supp. 682 (EDNC 1985). The plaintiff lost the case because Perdue does not sell poultry to the growers. It retains title to the chickens and the growers are paid for the service they provide in raising the chickens. The court found no legislative history to support an expansive interpretation of the term “live poultry dealer.”
More recently, arbitration provisions in the standard form contracts drafted by producers thwarted the efforts of farmers, like the plaintiffs in Monk, to challenge the terms or the manner in which the contract was performed by Perdue.
Fortunately, agrarian sentiment worked to the benefit of poultry growers when Congress passed the last farm bill. Under the amended version of the Packers and Stockyards Act, a poultry farmer cannot be coerced into assenting to an arbitration provision. ”Any livestock or poultry contract that contains a provision requiring the use of arbitration to resolve any controversy that may arise under the contract shall contain a provision that allows a producer or grower, prior to entering the contract, to decline to be bound by the arbitration provision.” 7 U.S.C.S. Section 197(c).
The revised statute and new regulations effect a redistribution of power between grower and producer; they address structural inequality by regulating the process of contract formation in a situation where the terms otherwise would not have been negotiable. The statute restored to farmers the freedom of contract that contemporary contract jurisprudence has theorized out of existence. Maybe this is a development that judges need to think about. Why was legislation needed to remedy the abuses that stem, inexorably and inevitably, from structural inequality?
Which brings me back to contracts and to the final examination I gave in the Spring of 1998. A final examination matters to students. They probably read it more carefully than any case they read all year. If questions of social justice have been explored in class, students may reflect, as they construct their answer, on the meaning of power, the reason why a drafter would include terms that are extremely favorable, perhaps even ‘disproportionately favorable,’ to a client, the strength or weakness of doctrines which arguably restrain the use or abuse of power. A final examination is an instrument that assesses what students learn. If we truly want our students to learn something about social justice, a final examination should raise issues about the inequities and the inequality that law perpetuates and the potential the law might have to address or even remedy them.
Wednesday, March 3, 2010
Yair Listokin presented his paper, "Bayesian Contractual Interpretation" at the Spring Contracts Conference at UNLV last week. Yesterday, the written version showed up in my e-mail via a Social Science Research Network notice. The paper is downloadable from the site here. Get it while it's hot; it's already climbed to #5 on SSRN's Top Ten. Here is the abstract:
Courts seeking the most likely intent of contracting parties should interpret contracts according to Bayes’ Rule. The best interpretation of a contract reflects both the prior likelihood (base rate) of a pair of contracting parties having a given intention as well as the probability that the contract would be written as it is given that intention. If the base rate of the intention associated with the simplest reading of the contract is low, then Bayes’ Rule implies that the simplest reading is not necessarily the interpretation of the contract that most likely captures the parties’ intentions. The Bayesian framework explains when default rules should be more or less “sticky” and helps define the appropriate role of boilerplate language in contractual interpretation.
The piece is fun in part because it applies the Bayesian framework to Cardozo's classic opinion in Jacob & Youngs v. Kent, a case we have mentioned on occasion on this blog, e.g., here, here and here. The popularity of the case meant that everyone at the conference had a strong opinion about what Cardozo was really saying and how Bayesian analysis, to which many of us were introduced at the conference, is properly applied to the timeless question of Reading v. Cohoes pipe.
Friday, February 26, 2010
The 2010 Spring Contracts Conference begins today at UNLV's William S. Boyd School of Law. Here's Friday's line-up:
The Contract Law System and Power – Past, Present, and Future
Chair: Jay M. Feinman (Rutgers-Camden)
Hila Keren (Hebrew U. of Jerusalem), Considering Affective Consideration
Nancy S. Kim (Cal Western), ‘Wrap Contracts as Sword, Shield, Crook, and Drawbridge
Amy J. Schmitz (Colorado), Pizza-Box Contracting: An Empirical Exploration of Consent
Danielle Kie Hart (Southwestern), Smoke, Mirrors & Contract Law
Incomplete Information and Contract Law
Chair: Keith A. Rowley (UNLV)
Robert Anderson (Pepperdine), Information, Incentives, and Disclosure in the Law of Contracts
H. Allen Blair (Hamline), No-Reliance Clauses
Yair Listokin (Yale), Bayesian Interpretation
Shawn J. Bayern (Florida State), Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law
Contract Law’s Intersection with Business Law
Chair: Nancy B. Rapoport (UNLV)
Daniel S. Kleinberger (William Mitchell), Battle Report from the Undiscovered Territory – The Law of “Contractual Organizations” Continues its Silent War on the Common Law of Contract
Andrew A. Schwartz (Colorado), A “Standard Clause Analysis” of the Frustration Doctrine and the Material Adverse Change Clause
Lydie N. Pierre-Louis (St. Thomas (FL)), Mini-Tender Offers: The Lack of Federal Jurisdiction and the Failure of Fundamental Contract Law Principles to Protect Investors
Keynote: Omri Ben-Shahar (U. of Chicago), The Failure of Mandated Disclosure
Arbitration and Unconscionability in Rent-a-Center West v. Jackson and Elsewhere
Chair: Jean R. Sternlight (UNLV)
Charles L. Knapp (UC-Hastings), Blowing the Whistle on Mandatory Arbitration: Unconscionability as a Signaling Device
Karen Halverson Cross (John Marshall (IL)), Letting the Arbitrator Decide? Unconscionability and the Allocation of Authority Between Courts and Arbitrators
Christopher R. Drahozal (Kansas), Rent-A-Center and Institutional Arbitration Rules
Thomas J. Stipanowich (Pepperdine), Contracts and Conflict Management: Another Look
Forming Contracts and Similar Relationships
Chair: James W. Fox, Jr. (Stetson)
Michael Pratt (Queen's U. (Ontario)), What is a Promise?
Val D. Ricks (South Texas), The Continued Relevance of Consideration
Janet Ainsworth (Seattle), Beyond Status and Contract: Relational Estoppel as a Source of Rights and Obligations in Intimate Relationships
Andrea B. Carroll (LSU), Reviving Proxy Marriage
Vive la Différence!: Comparative Contract Theory
Chair: Daniel D. Barnhizer (Michigan State)
Robin J. Effron (Brooklyn), Revisiting The Death of Contract: Gilmore’s Thesis in Comparative Perspective
Wayne R. Barnes (Texas Wesleyan), French Subjective Theory of Contract: Separating Rhetoric from Reality
Tadas Klimas (Kaunas, Lithuania), Lessons American and Continental Contract Theory Can Teach One Another
Franklin G. Snyder (Texas Wesleyan), Cross-Cultural Adoption of Legal Rules: The Case ofHadley v. Baxendale
[Keith A. Rowley]
Monday, December 7, 2009
Now I have in the past crossed swords with The New York Times Magazine's ethicist, Randy Cohen. I have chided him for too readily conflating the lawful with the ethical. Mr. Cohen has always responded to my criticisms, which is all one can ask for, but he gives no ground. Still, I was cheered by a recent column addressing the etiquette of car phones. The writer boasted of her hands-free car phone and of her habit of informing people when other people are in the car. Cohen responded, in part, as follows:
This should be handled by never using the phone while driving. To do so increases your chance of an accident fourfold, akin to driving drunk. And there is no significant difference between speaking on a hand-held or hands-free device. (As your local legislators knew or should have known when they legalized the latter. Ignorant or cynical? Let’s not rush to judgment. They might merely have been possessed by demons.)My point exactly. But the comment applies to much of what emerges from our legislature.
In any case, having criticized Mr. Cohen in the past. I must now give him his props for his nuanced response to a Hurley-like question that arose in yesterday's column. The writer is a doctor who did not want to take on a notorious med-mal attorney who had in the past sued the doctor's wife. Cohen answered as follows:
As to this particular would-be patient, you acted reasonably. Because you and your wife have a history that causes you to resent him and his cohort, your ability to view him dispassionately and thus act in his best medical interest may be compromised. Therefore, not only may you decline to take him on; you should decline. I might feel different if you practiced medicine in a provincial town on the Russian steppes, like some brooding doctor out of Chekhov, with no other physician within a thousand miles. But in your actual situation, go forth guiltlessly.And the good doctor can do so all the more easily, as the attorney found some other sucker -- oops, typo -- doctor to treat him.