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

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Friday, July 1, 2011

Protection of Domestic Industry UK Style

Bombardier Train 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.

[JT]

 

July 1, 2011 in Famous Cases, Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 22, 2011

Must See TV: Hot Coffee Premieres on HBO on Monday 6/27

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]

June 22, 2011 in Current Affairs, Famous Cases, Film, Film Clips, Law Schools, Miscellaneous, Teaching, Television | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 20, 2011

Charlie Sheen Claims that Arbitration Provision is Unconscionable.

Charlie-sheen 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. 

[HR Anderson] 

April 20, 2011 in Celebrity Contracts, Famous Cases, In the News, Teaching | Permalink | Comments (1) | TrackBack (0)

Monday, April 18, 2011

A Passover Retreat: Good or Service?

Img_0065 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.

Chag Smaech!

[Meredith R. Miller]

 

April 18, 2011 in Famous Cases, Food and Drink, Miscellaneous, Religion | Permalink | Comments (0) | TrackBack (0)

Monday, March 14, 2011

Audiofile of Interview with Son of Plaintiff in Lucy v. Zehmer

Richmanb Schmelzer_Dennis Barak Richman (pictured, left) and Dennis Schmelzer (pictured right) have a new article up on SSRN on the celebrated case of Lucy v. Zehmer, about which we have posted in the past.  Here is the abstract of the article:
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.
Professor Richman was kind enough to share with us an audiofile of an interview with John C. Lucy's son, John II, recounting his memories of his father's business and the case.  The audio file is available here
[JT]

March 14, 2011 in Famous Cases, Recent Scholarship | Permalink | Comments (1) | TrackBack (0)

Thursday, March 10, 2011

Self Promotion: Telman on the Totten Doctrine

Lincoln 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.

Comments welcome!

[JT]

March 10, 2011 in Famous Cases, Government Contracting, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, March 3, 2011

The Suez Canal and Impracticability - A Video Clip for Class

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]

March 3, 2011 in Famous Cases, Film, Teaching | Permalink | Comments (0) | TrackBack (0)

Friday, December 3, 2010

Wilkes v. Springside Nursing Home: Defendant Dr. Leon Riche

Riche 

It was Riche whose disputes with Stanley Wilkes triggered the freeze-out in the case.  Image courtesy Eric Gouvin (Western New England).

FGS

December 3, 2010 in Famous Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Thursday, December 2, 2010

Wilkes v. Springside Nursing Home: Plaintiff Stanley Wilkes

Wilkes-Wilkes 

A high school grad with a talent for real estate, Wilkes had the vision in the early 1950s that private nursing homes would become a major industry.  Image courtesty Eric Gouvin (Western New England).

FGS

December 2, 2010 in Famous Cases | Permalink | TrackBack (0)

Wednesday, December 1, 2010

Wilkes v. Springside Nursing Home: The images

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.

 Wilkes-Springside Future

FGS

December 1, 2010 in Famous Cases | Permalink | TrackBack (0)

Thursday, November 25, 2010

Happy Thanksgiving!

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.

1908RandallCountyCourthouseCanyonTexas907TJnsn 
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.”

Happy Thanksgiving!

FGS

P.S. In case you're wondering what value chicken feet would have, here's a tasty recipe..

November 25, 2010 in Famous Cases, Food and Drink | Permalink | Comments (0) | TrackBack (0)

Friday, November 12, 2010

What is "chicken"?

Courtesty of a student of Bill Dodge (UC-Hastings), a nice illustration for use when you teach Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp. 116 (S.D.N.Y. 1960).

Aa 

FGS

November 12, 2010 in Famous Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 26, 2010

Red Owl, Professor Kingsfield, and Mary Tyler Moore

Over at Conglomerate, Gordon Smith weaves the connections between growing up in Wisconsin, teaching Hoffman v. Red Owl Stores, and watching The Mary Tyler Moore Show and The Paper Chase.

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.

FGS

P.S. She's wearing Fran Tarkenton's #10 Minnesota Vikings jersey. 

October 26, 2010 in Famous Cases, Film Clips | Permalink | Comments (0) | TrackBack (0)

Monday, May 3, 2010

Business Associations Limerick of the Week: CTS Corporation v. Dynamics Corproation of America

Justice Powell 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?"

[Jeremy Telman]

May 3, 2010 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, April 12, 2010

Guest Post by Deborah Post: Contract and Structural Inequality

[Cross-posted to SALTLAW blog]

Chickens 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.

[Deborah Waire Post (Touro)]

April 12, 2010 in Contract Profs, Current Affairs, Famous Cases, In the News | Permalink | Comments (1) | TrackBack (0)

Wednesday, March 3, 2010

Another UNLV Conference Paper Available on SSRN

Listokin 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.

[Jeremy Telman]

March 3, 2010 in Conferences, Famous Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, February 26, 2010

Spring Contracts Conference: Day One

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]

February 26, 2010 in Conferences, Contract Profs, Famous Cases, Law Schools, Meetings, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, December 7, 2009

Hurley v. Eddingfield: It's the Law and It's Ethical

Physician  I always start my contracts course with Hurley v. Eddingfield, in which the court held that a doctor has no contractual obligation to treat his own patient and need give no reason or excuse for his refusal to do so.  The case illustrates the strength of our notions of freedom of contract and also permits us to discuss the interaction of common law doctrines with other legal or regulatory regimes.  

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.

[Jeremy Telman]

December 7, 2009 in Commentary, Famous Cases | Permalink | Comments (0) | TrackBack (0)

Monday, November 2, 2009

Michelle Triola Marvin, Mother of Palimony, Dead at 76

Michelle Triola Marvin, who lived with Lee Marvin for six years and then sued for her share of the income he had earned during the relationship, has died at the age of 76.  Ms. Marvin was the plaintiff in the landmark Marvin v. Marvin case, which we have had occasion to mention on the blog before, here and here.  The New York Times obituary can be found here.

[Jeremy Telman]

November 2, 2009 in Famous Cases, In the News | Permalink | Comments (0) | TrackBack (0)

Monday, October 19, 2009

Contracts Limerick of the Week: Market Street Associates v. Frey

There has been a lot of interest on the blog lately in the topic of contracts law and morality, e.g. here and here.  Our comments section has been unusually active, which is terrific.  A recent comment got me to thinking about Market Street Associates v. Frey.  

That case involved a lease agreement between GE Pension Trust (GE) and Market Street Associates (MSA) as the assignee of JC Penny.   The lease had a provision that allowed MSA to seek a loan from GE for the purpose of improving the property.  If GE refused, MSA had an option to buy the property for the original purchase price plus 6% annual interest. 

MSA offered to repurchase the property from GE, but GE demanded $3 million, which MSA thought was too much.  MSA then requested financing, and when GE refused on the ground that it was not offering loans in amounts less than $7 million, MSA demanded the sale of the property pursuant to the lease provision.  Under the terms of the lease, MSA would have been entitled to buy the property for about $1 million.  GE claimed that because MSA had failed to remind it of the option in the lease, MSA had acted in bad faith. 

The district court granted summary judgment to GE, finding that under the doctrine of good faith or simply as a matter of contract interpretation, MSA had a duty to remind GE of the option provision.  This led Judge Posner to a lengthy rumination on the nature of terms such as “good faith” in contract law.  Not surprisingly, Judge Posner does not find these terms very useful.  However, he was able to explain the value of the doctrine of good faith in economic terms, and that permitted him to find that in fact MSA's conduct might well have violated the duty to act in good faith.

For Posner, what we call the duty of good faith is really just about reducing transactions costs by creating a disincentive to sharp practices in the course of performance.  Sharp practices, says Judge Posner, are perfectly fine when negotiating a deal, but once the parties enter into an agreement, they are now in a “cooperative relationship” in which each lowers her guard.  The doctrine of good faith thus protects against opportunistic behavior that can arise in the context of the sort of bilateral monopoly that can develop after the parties have committed themselves to a contractual relationship.

As many commentators on the blog have pointed out, there are many reasons to doubt that the moralizing tone underlying terms such as “good faith” could or should be eliminated from contracts law.   But even assuming we were to attempt to understand contracts law entirely in terms of transactions costs, Posner’s position remains highly dubious. 

First, at least since the Restatement (2d) and the UCC, contracts law has been sensitive to the difficulty of attempting to pinpoint the moment at which a threshold from a pre-contractual to a post-contractual relationship has been crossed.  Parties continue to negotiate and change deals as they go.  There is thus little reason to suspect that parties immediately let down their guards once they have entered into a cooperative relationship.

Second, if sharp practices increase transactions costs, then they do so regardless of when they occur.  A party that engages in sharp practices will get a reputation for doing so.  Other parties dealing with that party will be cautious and will engage in extra diligence that will complicate negotiations and may ultimately prevent many deals from occurring because a fundamental mistrust cannot be overcome satisfactorily.  

Finally, if one is really interested in reducing transactions costs, then hold sophisticated, well-resourced parties to the terms of the agreements they sign.  If GE wants a provision requiring notice before its contractual partner triggers its option to purchase, it can very easily write that duty to notify into the contract.  A party like GE should have no recourse to a doctrine like good faith when it had the means and the ability to protect its own interests in both the pre- and the post-contractual moments.

Still, Posner opinions are always stimulating and thus Limerickworthy:

Market Street Associates v. Frey

“Don’t get moralistic with me,”
 Said Judge Posner to trustee, GE.
 “Though when I hear ‘good faith,’
 I reach for my . . .
Wraith.
 Opportunists ain’t my cup o’ tea.”

[Jeremy Telman]

October 19, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)