ContractsProf Blog

Contracts Limerick of the Week: Bloor v. Falstaff Brewing

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

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

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

Bloor v. Falstaff Brewing Corp. Limerick

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

[JT]

Sausage or Pepperoni?

On the way in to work this morning, I heard on the radio that Pizza Hut is making an offer for a unilateral contract  (okay, that’s not exactly the way the d.j. put it, but anyway…).  The offer is free pizza for life to anyone who manages to ask either one of the presidential candidates during the town hall debate, “Do you prefer sausage or pepperoni on your pizza?”  The debate will take place October 16 at Hofstra University.  (It turns out that the offer is not actually “free pizza for life” it’s actually a $520/year gift card for up to 30 years).  A silly contest, of course -- but a good example to illustrate the difference between a unilateral and bilateral contract and related issues having to do with effective offers and acceptances.  Often, it doesn’t really matter if an offeree accepts by performing by by promising to perform– but in some cases (i.e. bets, dares), it really does.  I used to refer to the bet in the book, HOW TO EAT FRIED WORMS to explain the difference between a unilateral and bilateral contract (15 worms in 15 days for $50).  This year I might use the more election -season- friendly example of the Pizza Hut offer.

[Nancy Kim]

"Hot Dogs Don't Have Contracts...."

Yup, an ad for internet service:

[Meredith R. Miller]

Snyder on How to "Dine and Ditch" Under the UCC

The ABA Journal reports that The Cheesecake Factory will begin posting drink prices in Massachusetts after a lawyer threatened suit.  According to the article, the lawyer "threatened to sue under the Massachusetts Consumer Protection Act on behalf of a friend who was charged $11 for a margarita at a Cheesecake Factory in Chestnut Hill. The price was not on the menu and the server was only able to provide a range of drink costs."  

The ABA Journal looks to our very own founder, Franklin Snyder, for guidance.  Previously, Frank had commented in a New York Times column about Nello.  This Manhattan restaurant has (had?) a practice of not mentioning the price of a white truffle pasta lunch special.  This practice shocked a recent diner when he turned over a bill charging $275 for the dish.  To the New York Times, Snyder commented:

“You might be interested in letting your readers know that a restaurant meal is a ‘sale of goods’ under Article 2 of the Uniform Commercial Code,” he wrote. “The code provides that where the buyer and seller have agreed to a contract but have not agreed on the price, the price is not what the seller subsequently demands. It’s a reasonable price for the goods at issue. Thus a customer has no obligation to pay for anything more than the reasonable price of a pasta meal at a trendy restaurant.”

He continued: “In this circumstance, a customer should make a reasonable offer for the value of the meal, then walk out and wait to be sued for breach of contract. Be sure to leave the restaurant full contact information so they can’t claim that you’re trying to steal something.”

Thanks for the tip, Frank! I'm heading over to Nello for the truffle pasta dish.  I hope there isn't a price listed on the menu.

[Meredith R. Miller]

NY Appellate Division Upholds Dismissal of Franchisee's Claims

In 2003, Jeffrey Yamin and others (Yamin) entered into an agreement with Moe's Southwest Grill (Moe's -- see official logo at left) to open up to three restaurants in Albany County by 2005.  This establishment is not to be confused with Moe's Tavern, which has only one location in Springfield and is operated by the gentleman at right.  After that agreement terminated, and only one restaurant had been established, the parties entered into a second agreement permitting Yamin to establish two more restaurants by the end of 2006.  Moe's rejected one location, as it was permitted to do under the agreement, but a second restaurant opened in December 2006.  Negotiations continued as to whether the parties would negotiate a new agreement.

Meanwhile, Moe's had entered into a separate agreement with Jonathan Trager permitting Trager to open restaurants nearby.  In 2007, Moe's and Trager renewed their agreement, this time granting Trager exclusive rights to open restaurants within a five-mile radiius of his area of responsibility.  Under this agreement, Trager opened a restaurant on the same street (although at a different place on that street) as the location Moe's had rejected when Yamin had suggested it.  Yamin sued for breach of contract and for bad faith in refusing to approve his proposed location.  

Applying Georgia law, the court had to determine what constituted "bad faith" in rejecting a proposed restaurant site where the agreement provided that the decision: 1) was in Moe's "sole discretion" and 2) was to be made in accordance with Moe's "then-current site selection policies and procedures."  The court's gloss on this language is that Moe's retained discretion to reject a site based on virtually any reason.  Moe's provided some factual justifications for its decision, and as those facts were undisputed, the trial court found no breach of the duty of good faith, and the Appellate Division affirmed.  

The Appellate Division also affirmed the trial court's ruling that Moe's did not breach its agreement with Yamin by entering into an exclusive agreement with Trager because the former agreement had expired at the time that Moe's entered into the latter agreement.

The opinion is Yamin v. Moe's Southwest Grill, LLC.

[JT & Jared Vasiliauskas]

Supreme Court of Texas Decides Merger Clause Issue

One year after argument, the Supreme Court of Texas issued its opinion on April 15, 2011 in Italian Cowboy Parnters, Ltd. v. The Prudential Insurance Company of America.  The Court's 6-3 majority concluded that a contract's merger clause does not prevent a party from bringnig a claim based on fraudulent inducement.  The Court reversed teh judgment of the court of appeals and remanded.  It also rendered judgment in favor of Italian Cowboy on its claim for rescission prmised on a breach of the implied warranty of suitability. 

lacking an image of an actual Italian Cowboy, we make do with this image of a set from a Spaghetti Western

The case arose when Jane and Francesco Secchi (the Secchis) sought to rescind the lease on their "Italian Cowboy" restaurant because of a persistent sewer gas odor.  The landlord, Prudential, counterclaimed for breach of contract.  During the negotiations of the lease, representatives fro the property management company repeatedly told the Secchis that there was absolutely nothing wrong with the property.  The lease agreement included standard clauses stating that the landlord and its agents had made no representations about the property other than those contained in the agreement and that the lease constitutes the entire agreement between the parties.

While the Secchis were renovating the property for their restaurant, they learned that the previous tenant had been a hamburger restaurant that was plagued by a "very, very bad odor."  The representatives for the property manager denied any knowledge of an odor problem but eventually conceded that a sewage smell did now plauge the Italian Cowboy.  The Secchis eventually learned from the previous tenants that the property manager's representatives were in fact well aware of the odor problems, which were the cause of the demise of the previous tenants' restaurant.  The trial court thus found for Italian Cowboy on all of its claims, awarding over $600,000 on the lease, plus attorneys' fees, prejudgment interest and $50,000 in exemplary damages because "lyin's bad, mmkay?"  The court of appeals reversed.  It did not permit rescission and it found in favor of Prudential on its counterclaim for breach of cotnract.

The Supreme Court first held that the lease contract did not effectively preclude the Secchis from relying on Produential's representations and that the language in the lease could not negate Italian Cowboy's fraudulent inducement claim.  The Court cited case law going back 50 years to the effect that a merger clause does not stand in the way of a fraudulent inducement claim.  Because the court of appeals did not address all of the factual elements of that claim, the Court remanded Italian Cowboy's fraud claim back to the court of appeals. 

The Court also found that nothing in the contract relieved Prudential from liability for breach of the implied warranty of suitability and that the sewage odor was a latent defect vital to Italian Cowboy's use of the premises.  Accordingly, the Court rendered judgment in favor of Italian Cowboy on its claim asserting a breach of the implied warranty of suitability.  The Court thus reinstated teh trial court's ruling on rescission and remanded to the court of appeals for additional consideration of the amount of damages owed to Italian Cowboy. 

Three Justices dissented.  While the majority treated the contractual provisions at issue as a standard merger clause, superceding any prior agreements, the dissenting Justices focused on what they viewed as a simple factual statement that the defendants had not made any representations about the property on which the Secchis had relied other than those contained in the written agreement.  They were sophisticated parties and they signed an agreement that contained this factual statement.  The dissenters would not permit them to now come into the court and make a different -- and self-interested -- factual claim that there had indeed been representations made and that they had relied on these representations to their detriment.  The dissenters would also have ruled against Italian Cowboy on the implied warranty of suitability since, in the dissenters' view, the odor problem was covered under the lease which assigned to Italian Cowboy resopnsibility "for all repairs to the interior and non-structural components of the Premises, including . . . all . . . ventilating . . . systems."

[JT]

A Passover Retreat: Good or Service?

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]

 

Nugget Trouble in Tennessee

A Tennessee family is suing McDonald’s for breach of contract, promissory estoppel, negligence, and consumer protection violations for playing keep away with a chicken nugget.  The case is Howell v. McDonald's Food Corp.

This bizarre case began when father and son went to McDonald’s for dinner and the boy order a chicken nugget happy meal.  The 6-year old boy realized that last chicken nugget that looked “redish”  and refused to eat it.  The local McDonald’s offered a fresh chicken nugget- which the parents declined.  That might have been because when their child glimpsed the nugget, he made the sign of the cross and began reciting the lyrics to Beatles' albums backwards.  For some reason, the family preserved the crimson nugget.  Over the next couple days the child was sick with various stomach ailments, and the parents became concerned.  After notifying the local health department, they froze the suspect nugget until they could send it to a nugget testing facility.

McDonald's' insurer, Traveler’s Insurance, offered and the Howells agreed to send the nugget out for tests.  The family was assured that they would be notified of the results.  The nugget was sent for testing in November of last year.  In January, defendants notified the Howells that defendants would not share the test results.  Instead, the family received what remained of the nugget -- which was about 20% of the original nugget, now "ashy and charcoal-like" in appearance.

The Howells seek an order compelling McDonald’s to give them the results.  They also seek pain and suffering damages, punitive damages, and treble damages for the consumer protection claim.  The real damages to the family likely will not be known unless the court compels McDonald's to release the test results.  Assuming that the chickens that went into the nugget were not free-range Chernobyl hens, there's probably no reason to think that the Howell's son will face serious long-term effects not already foreseeable from having consumed food.purchased at a McDonald's.  One wonders what information defendants are trying to keep concealed.

[Katherine Freeman & JT]

 

The Gates of Hell[ish Mandatory Arbitration]?

Thanks to Michigan State University's Daniel Barnhizer and his student Christpher Anderson, we have the picture at right, which Mr. Anderson found taped to a local burger franchise while he was home in Texas for the holidays.

If you can't read the text, here it is in full: 

"Arbitration Notice"

"By entering these premises, you hereby agree to resolve any and all disputes or claims of any kind whatsoever, which arise from the products, services or premises, by way of binding arbitration, not litigation. No suit or action may be filed in any state or federal court. Any arbitration shall be governed by the FEDERAL ARBITRATION ACT, and administered by the American Mediation Association.

"Arbitration Notice"

Further research by contracts profs provides further information regarding the aforementioned American Mediation Association on this website.  Even as we speak, contracts profs are debating the effectiveness of this notice and of the counter-notice suggested by Ian Ayres here.  

[JT]

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.

 
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..

Miller on the Law of the Turkey

Judge Frank Easterbrook may h as written the most famous article on The Law of the Horse, but ContractsProf blogger Meredith Miller (Touro) has no peer when it comes to the Law of the Turkey.  Past Tanksgivings have featured her analysis of legal turkeys.  Or rather, turkeys involved in legal disputes.

Here are some of her greatest hits from Turkey Days past.  Enjoy!

 Turkeys, Oral Contracts, and Mr. Gouge (2005)

Turkeys, Damages, and Alternative Damages (2005)

The Law of the Turkey (2006)

ContractsProf Is Not Chicken (2008)

The Law of Turkey Leftovers (2008)

FGS 

One Happy Meal™, Hold the Cadmium

Friday, the Consumer Product Safety Commission(CPSC), in conjunction with fast-food giant McDonald’s®, voluntarily recalled about 12 million Shrek Forever After™ collectible drinking glasses (photo courtesy of the CPSC) sold or awaiting sale at McDonald’s® locations throughout the U.S. after someone in Representative Jackie Speier's(D-CA) office alerted the CPSC that the movie-character illustrations on the glasses contained cadmium, prolonged exposure to which may pose a serious long-term health risk.

Millville, NJ-based Durand Glass Manufacturing Co.(DGMC), a subsidiary of Arques, France-based Arc International, manufactured the movie-themed glasses, which another Arc International subsidiary, Millville-based Arc International North America, distributed exclusively to McDonald's. McDonald's locations nationwide sold the glasses in May and early June 2010.

McDonald's web site addresses the recall through a series of FAQs (and answers). (For the benefit of those with short attention spans, every answer to which the statement would be germane includes the statement "the CPSC has said the glassware is not toxic.") Arc International deployed a press release. Representative Speier posted a statement on her web site, which also includes a link to a Los Angeles Times article about the recall. Only DreamWorks™ appears to be mum on the subject -- so far, at least. (Perhaps the Shrek-iverse's creators didn't retain all of the product licensing-rights like George Lucas did, not so long ago and not so far away, with the original Star Wars™ trilogy or they made McDonald's pay a non-refundable lump sum to market the glassware.) Rumors of a replacement glass featuring an image of McDonald's CEO Jim Skinnerthat transmogrifies into a Shrek-alike when filled with any non-Coca-Cola® brand soft or sport drink appear to be completely unfounded.

So, what's the contract law angle on collectible glassware manufactured for and sold to McDonald's for resale to McDonald's retail customers?

It should go without saying that the most interesting legal issues arising out of this scenario involve (1) what express and implied UCC Article 2 warrantieseach seller in the chain from DGMC (or DGMC's ingredient supplier) to McDonald's made to anyone who purchased or used the glassware; (2) to what extent, if any, each seller in that chain may have disclaimed some or all of its warranty liability, limited the remedies available to the buyer, user, or other person affected by the glassware's use, or both; (3) whether one or more warranty-making sellers breached one or more warranties to one or more buyer, user, or other person affected by the glassware's use; and (4) what remedies Article 2 affords any person to whom any seller is liable for breach of warranty.

For those wanting to add some international flavor to the mix, the CBC reports here that the recall has spread to include all Canadian McDonald's restaurants. Information from the Associated Press and Reuters, reported here, indicates that recalling the glassware sent to Canadian McDonald's restaurants raises the total number of recalled glasses to 13.4 million. Both the U.S. and Canada are partiesto the U.N. Convention on Contracts for the International Sale of Goods (CISG). To the extent that the Canadian McDonald's restaurants purchased their Shrek Forever After™ collectible glassware from New Jersey-based DGMC or New Jersey-based Arc International North America, that transaction constituted a sale of specially-manufactured goods (CISG art. 3(1)), purchased for resale, rather than personal, family, or household use (CISG art. 2(a)), by a buyer located in one CISG "contracting state" from a seller located in a different "contracting state" (CISG art. 1(1)(a)). Therefore, unless the Canadian McDonald's buyers and New Jersey-based DGMC or New Jersey-based Arc International North America effectively opted out of the CISG (CISG art. 6), any breach of warranty claim the Canadian buyers might have (CISG art. 35), the extent to which any U.S. seller disclaimed any warranty or limited its liability for breaching any warranty (CISG arts. 6 & 35), and the available remedies (CISG arts. 45-52 & 74-78), will be matters for the CISG to resolve.

[Keith A. Rowley] (partially cross-posted on the Commercial Law blog)

Follow-up on Pizza Hut, Inc. v. Papa John's International, Inc.

 Last week, my video-savvy colleague posted a Domino's Pizza commercial in which Domino's crows about the results of a recent national taste test and slams Papa John's for engaging in puffery with its "Better Ingredients, Better Pizza" slogan.  Domino's is so enamored of this new ad campaign that it has a definition of "puffery" on its homepage, as well as a link that blows up to show a page from the real Papa John's deposition testimony in which he admits that the slogan -- "Better Ingredients. Better Pizza" -- is puffery; a claim that does not have to be proven.   

Okay, my interest is sufficiently piqued.  I got the case -- Pizza Hut, Inc. v. Papa John's International, Inc., 227 F.3d 489 (5th Cir. 2000).  As to the puffing, our colleagues on the contracts professors' Listserv have pointed out that, although the case is brought under the Lanham Act and so is not a contracts dispute, its discussion of puffery could very well apply in the context of disputes over warranties and contractual misrepresentation claims.  The Fifth Circuit found that the statement "Better Pizza" is classic puffery, the kind of statement on which no consumer would reasonably rely.  The court also found the "Better Ingredients" claim to be typical puffery.  The court found that the two combined -- a puff plus a puff -- did not add up to an actionable misrepresentation.  

But the inquiry does not end there.  The slogans must be placed in their contexts -- each 30-second ad is a chapter in an advertising book spun out over several years.  The slogan was used in connection with sauce and dough ads, on which more below, which were found to be misleading.  When used in connection with ads that made specific claims about its ingredients being "better," Papa John's slogan did indeed become misleading, said the court.  However, the court reversed the jury's award of damages on that issue because Pizza Hut had produced no evidence that the now-misleading slogan was material to the consumers to whom it was directed.  

There is a lot of interesting material in the case, and much of it is very good for Papa John's.  As the date of the Fifth Circuit opinion suggests, the Papa John's ad campaign that Domino's now attacks was launched about 15 years ago, so Domino's response hardly qualifies as a quick-witted rejoinder.  Perhaps Domino's is actually claiming that its pizza tastes better than 15-year-old Papa John's leftovers.  If so, its ad is credible.  Second, Papa John followed up its campaign from last century with a taste test in which it beat Pizza Hut.  Papa John's was apparently unconcerned with #2, Domino's -- it was going after the big guns.  Papa John's also made specific and unchallenged non-puffing claims in its ad campaign, arguing that its ingredients were actually better because Papa John's used canned tomatoes rather than tomato paste, filtered water rather than tap water in making dough, and fresh rather than frozen dough.  Pizza Hut did not challenge any of these factual claims, it only contended that these ingredients were not better or did not result in better pizza.  

Papa John's counterclaimed, alleging that Pizza Hut had engaged in false advertising in its responsive ads.  The jury found for Papa John's with respect to two of the three commercials challenged in the counterclaims, and Pizza Hut did not appeal that decision.  

As indicated above, the Fifth Circuit found Papa John's claims that its sauce and crust were "better" misleading because there was no significant difference between Papa John's sauce and crust and that of Pizza Hut pizzas.  Using filtered water rather than tap water does not seem to effect the quality of pizza dough.  In addition, as Judge Ella put it, "You say 'canned tomatoes,' I say 'tomato paste,' let's call the whole thing 'sauce.'" 

The companies distinguish themselves in various ways, but I wonder if there is anybody out there who really feels strongly that any of the big three is significantly different from the other two when it comes to the quality of the pizza?  Do people order Papa John's or Domino's or Pizza Hut pizza because they think one of those companies makes the "best" pizza?

 [Jeremy Telman]

A Whopper of a Franchise Dispute

Is it possible for food to be too cheap?  For example, Burger King has a “value menu,” which includes a double cheeseburger for 99 cents.  Even if economies of scale purports to explain how Burger King can still profit while selling its products at a lower price than other, smaller food establishments, 99 cents seems too cheap to me for a double cheese burger.  The price does not turn me on; rather, it turns me off.  I just can’t believe that a quality, tasty meal can be made at such a low production cost.  I assume the worst about all of its ingredients. 

Well, based on an ongoing dispute between Burger King and its franchisees, the franchisees also are not thrilled about the price of the double cheeseburger.  Maybe Burger King is able to turn a profit at this price point, but the franchisees claim that they are not.  According to a recent WSJ article, Burger King insists that “its two beef-patty sandwich” be sold for no more than $1 on its “Value Menu.”   The franchisees claim that they are losing money on the sales, and they have sued.  The issue comes down to the terms of the boilerplate franchise contracts, and whether those contracts allow Burger King to dictate prices.  Here’s a taste from he WSJ:

Most franchisees are following orders for now, but the National Franchisee Association for Burger King, which represents restaurant operators across the U.S., filed a lawsuit last fall in U.S. District Court in Florida, asserting that the company's franchise agreements don't allow it to dictate prices.

Burger King, a unit of Burger King Holdings Inc., Miami, says it sees the value promotion as key to competing effectively in the current consumer environment. Franchisees who ignore its pricing instructions "may be declared in default of their franchise agreement," the company says.

The court has yet to rule on Burger King's request to dismiss the case.

A ruling that's favorable to Burger King could embolden other franchisers to mandate prices. Many franchisees have long regarded their power to set prices as testament to their independence.

* **

It used to be that franchisers weren't allowed to impose maximum prices, says Francine Lafontaine, who teaches the economics of franchising at the University of Michigan's Stephen M. Ross School of Business. But a 1997 Supreme Court case involving a Chicago service station dealer and his gasoline wholesaler opened the door for the practice.

Still, many have chosen not to do it, and left in place boilerplate franchising agreements that don't include pricing requirements, says Ms. Lafontaine.

Burger King's franchisees say they usually get the chance to sign off on price changes, and that they've twice rejected a $1 double cheeseburger. Burger King confirms that it previously didn't dictate prices on individual items, though it did require a $1 maximum price on Value Menu items.

The company won a separate case in 2008 requiring franchisees to offer the Value Menu, which is core to its efforts to attract price-conscious consumers.

A company might choose to set prices if it thinks the stores are charging so much that its royalties—and its reputation—are being diminished. But most companies don't like to rile their franchisees, experts say.

Get more of a taste here.

Disclaimer coming soon to a Burger King coupon near you: “valid only at participating restaurants”?

[Meredith R. Miller]

Can Mad Men Bring Sexy Back to Contracts?

I am late to the hit AMC series Mad Men; just last week, I started watching the first season on DVD.  I am enjoying the show, and tolerating the unrelenting misogyny as a representation of the period.  That aside, the show definitely has an alluring and sexy aesthetic – partly attributable to the constant smoking and cocktail drinking in well-tailored suits.

I’d love to bring some of this allure into the contracts classroom – without the sex, sexism, smoking and drinking.  And, I just might be able to.  I have it on reliable information that there is an employment contract issue that arises as a sub-plot late in Season 2 and has carried over to Season 3 of the show.  Apparently the story line involves Don Draper refusing to sign an employment contract because it contains a non-compete clause.  When I heard this, I went from liking the show to loving it.

But, this is as informative as my post can be – because I have not yet reached these episodes of the show.  That is why I am asking those of you who read this blog and watch Mad Men to explain in the comments the non-compete sub-plot and name the episodes in which it receives treatment.  We will address non-competes in my class in a few weeks, and I am thinking I just might be able to bring sexy back to Contracts.

[Meredith R. Miller]

Another Take on the Van Halen "No Brown M&M's Rider"

Perhaps the most famous contract in rock history is Van Halen’s 1982 World Tour rider.  It contains the legendary requirement that the band be provided with a bowl of M&M’s in the dressing room, with all brown M&M’s removed from the bowl.  Actually, the rider states, on the topic of Munchies: 

M&M’s (WARNING: ABSOLUTELY NO BROWN ONES)

You can check out the rider here if you’d like.

Until recently, the famous Brown M&M’s rider seemed nothing more than an example of the frivolity of the rock star ego.  Then I listened to an alternative explanation, courtesy of NPR’s fabulous radio show This American Life.

In an episode titled “The Fine Print,” with the help of John Flansburgh of They Might Be Giants, we are offered a business reason for the M&M's clause of the rider.  

Apparently, beyond the backstage food and drink requirements, tour riders contain very important instructions that affect how smoothly the show will run -- for example, electricity or weight requirements for the band’s gear.  Well, if the promoter at the local venue does not read the rider, it is likely that something will go very wrong at the show.  So, Van Halen used the M&M’s for signaling purposes: if there were no brown M&M’s in the bowl, the band knew that the local promoter read the rider.  If the brown M&M’s were there, the band knew that the local promoter had not read the rider carefully, and technical and safety requirements might not have been met.

You can give the show a listen here.  The Van Halen part is in the very beginning of the show, but it is well worth listening to the entire show.

[Meredith R. Miller]