Wednesday, April 22, 2015
On Monday, a California Appellate Court declared the tiered water payment system used by the city of San Juan Capistrano unconstitutional under Proposition 218 to the California Constitution. The California Supreme Court had previously interpreted Prop. 218’s requirement that “no fees may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question” to mean that water rates must reflect the “cost of service attributable” to a particular parcel.
At least two-thirds of California water suppliers use some type of tiered structure depending on water usage. For example, San Juan Capistrano had charged $2.47 per “unit” of water (748 gallons) for users in the first tier, but as much as $9.05 per unit in the fourth. The Court did not declare tiered systems unconstitutional per se, but any tiering must be tied to the costs of providing the water. Thus, water utilities do not have to discontinue all use of tiered systems, but they must at least do a better job of explaining just how such tiers correspond to the cost of providing the actual service at issue. This could, for example, be done if heavy water users cause a water provider to incur additional costs, wrote the justices.
The problem here is that at the same time, California Governor Jerry Brown has issued an executive order requiring urban communities to cut water use by 25% over the next year… that’s a lot, and soon! Tiered systems are used as an incentive to save water much needed by, for example, farmers. The California drought is getting increasingly severe, and with the above conflict between constitutional/contracting law and executive orders, it remains to be seen which other sticks and carrots such as education and tax benefits for lawn removals California cities can think of to meet the Governor’s order. Happy Earth Day!
Thursday, March 26, 2015
Some weeks ago, I blogged here about water rights and shortages in drought-ridden California. Of course, California is not the only state where contractual water rights interface with development and public health concerns.
In Ohio, shale driller Gulfport Energy recently filed suit against the town of Barnesville for rights to extract water for Gulfport’s fracking operations. Gulfport had a contract with Barnesville entitling it to draw water from a local reservoir at one cent per gallon. Under the contract, Gulfport would be able to draw the water unless the village determined that such action would endanger public health. Water rights were subsequently also issued to another driller. In the fall of 2014, the village told Gulfport to stop drawing water from the reservoir because of too low water levels. Gulfport’s suit now asks for adequate assurances of performance of the water contract to ensure that it can continue its fracking operations.
Whether that is a good idea is another story. From a short-term perspective: yes, we need energy preferably domestically sourced to avoid international supply interruptions and the geopolitical problems that are associated with importing energy raw materials. But fracking and fossil fuel production in general are associated with other severe problems including heavy water usage in the case of fracking. Such water, the argument goes, is better used for other things such as farming and household consumption.
Business as usual for fracking companies may not be the best idea seen from a societal point of view. Contracts rights are only a small part of this much bigger problem. However, time seems to have come for governments to incorporate escape clauses not only for “public health concerns” into water contracts, but also for drought concerns. This is not always done, as the above case shows, but such a relatively easy step could help solve at least some contractual disputes. In times of increasing temperatures and decreasing rainfall in some areas, such contract drafting may well make sense.
Saturday, March 14, 2015
Secret backroom deals conducted in hotels and private apartments. Dedicated phone lines. Market-sharing agreements and price fixing activities. Million-dollar deals. Thinking oil, diamonds, shares or foreign exchange? Think again! Eleven of the top … yoghurt makers in France, including American-owned Yoplait, were recently fined approx. $200 million for the above activities, which affected about 90% of the French yoghurt market and thus “seriously disturbed” it.
Yoplait, the majority of which is owned by U.S.-based General Mills, Inc., actually revealed the cartel under a French law that allows companies to self-report their price fixing activities in exchanged for reduced punishment. So far, the company has received no fines.
Apparently, the French competition authorities are cracking down on deals such as the above. The French government has also recently started cleaning out, so to speak, the ranks among shampoo, toothpaste and various cleaning product manufacturers.
Price fixing does, of course, disturb the free market forces. When shopping in this country, it is remarkable how close prices for various everyday items are. However, that does not mean that prices have been set in any illegal way. Retailers such as gas stations, which are well-known at least in the Los Angeles area to have almost the same prices all the time, could just stick the head out the window to see how the competitors price their products. But if mere yoghurt is worth the above risk, one wonders what else may be going on behind the scenes in the global corporate world. Perhaps it’s better not to know.
Wednesday, March 11, 2015
We all know the feeling of having to pay twice as much - or more - for food and drink in airports compared to most other places. Two vendors at the Los Angeles International Airport (“LAX”) are now taking this practice to the next level: they are suing each other for alleged contracts violations and price gouging.
Boutique retailer Kitson Stores runs two stores at LAX. It apparently charges around $2.55 for a liter of water (roughly a quart) at those stores. Competitor Hudson Group charges $5 a bottle (size unknown, but presumably roughly the same and expensive at any rate). Kitson is alleging that Hudson is gouging passengers with its “hugely inflated” water prices and is trying to force Kitson out of business at the airport. Hudson is countering that Kitson is hardly concerned about consumer price protections, but that this lawsuit is really a diversion from Kitson’s alleged contractual violations.
Whichever turns out to be the case, airport prices are well known to be very high for everything from chewing gum to dinner. Perhaps higher-than-usual rent prices are to blame, at least in part. Of course, airport retailers also enjoy a captive market (almost literally). Consumers are, however, still allowed to bring an empty bottle to the airport and fill it with free water from, for example, the increasing number of “bottle filling stations” that are thankfully also appearing in more and more airports. This does seem to be a case of fake altruism, but is nonetheless a lawsuit that may resolve an important issue.
Tuesday, March 3, 2015
Last year, Starbucks announced a new corporate-supported educational program that one year later is still viable: Starbucks will reimburse its full-time workers for taking online classes with Arizona State University. Partial tuition (58%) will be offered to freshmen and sophomores and full tuition for juniors and seniors as long as credits are earned within the past 18 months so as to keep students on track.
As you may have noticed if you are a Starbucks customer, very many of its employees appear to be college-aged. In fact, 70% of Starbucks’ workforce are either in school already or have had to drop out because of various personal difficulties.
This program seems to be a benefit to employees who cannot afford to go to school full time (or even part time), but who desire and education. What is remarkable is also how few “strings” are attached to the program. For example, the employees do not even have to stay with Starbucks after the completion of their degree. Said CEO Howard Schultz (still the CEO): "We want to attract and retain great people. We want to provide [our employees] with new tools and new resources to have advancements in the company.”
What is in it for ASU? This has been said to be a coup for the university, which already has one of the nation’s largest and most highly regarded online programs. Of course, Starbucks has a large amount of employees with, presumably, many coming and going, so ASU now has access to a large database of potential students, something many universities – private and public - are craving in these competitive times.
For the students and the university, rates may be discounted. This is normal in this type of situation. What would truly make a difference would be if the rates could become so reduced for students that they would, in effect, have no out-of-pocket costs altogether.
What, to me, is interesting about this situation is that a public university has found out workable model for online classes and cooperation with a private business venture when many private universities have not.
The somewhat strange catch here is that ASU cannot enter into any other arrangement with a for-profit business for four years, but that Starbucks is free to advertise its partnerships with a few other schools.
See the contract at issue here.
See Starbucks’ description of the program here.
Thursday, February 26, 2015
Two contracts issues have reappeared recently and both greatly affect the earning abilities of California citrus farmers, among others: the ability to ship products and the ability to grow them in the first place.
The shipping situation was - and still is - affected greatly by the recent employment contract dispute between shipping companies and dockworkers. Recently, the parties reached a tentative deal on a new five-year contract after months of discussions that ended with a roughly 3% wage increase each year, a hike in pensions and continued union jurisdiction over the maintenance of truck trailers. While the dispute was going on, many oranges destined for Chinese New Year celebrations overseas rotted away as activities in and around the ports of Los Angeles and Long Beach were impacted. The docks still aren’t expected to return to normal until well into the season for Valencia oranges and past the season for navel oranges. Importers of cars, among other things, have also recently expressed their problems keeping up with the demand for imported cars (which is huge in California).
For citrus and other farmers, the shipping problem is exacerbated by the ongoing very severe drought that California is experiencing for the fourth year in a row and that so far has resulted in 41% of the state finding itself in the most severe category of water shortages.
While farmers up and down California’s agricultural San Joaquin Valley vehemently protest
regulations limiting their access to freshwater, others are taking matters into their own hands: they simply steal water. From the apparently more and more typical situation of subcontractors using fire hydrants without permits to people driving away with water from fire hydrants in trucks, siphoning it off canals, or tinkering with the pipes of their neighbors or local water providers, farmers are not the only ones getting desperate for water.
Since we are talking California, there has to be a “weird” twist to the story: in the Silicon Valley, a water district has removed irrigation pipes that rangers say allowed … a nudist colony to make unauthorized water diversions from a waterfall.
There is even a phrase for thieves of this nature: “water bandits.” This situation is only about to get worse as the drought is predicted at above 80% certainty to become the worst in 1,000 years. Some cities such as Los Angeles are offering tax initiatives for removing residential lawns. Nonetheless, Californians will still have to grapple with the contractual and other rights to access to water – saline or otherwise - for some time to come.
Monday, January 12, 2015
A misplaced comma (or something) cost an Oregon Ducks fan his premium seats to the college football championship game. According to this report from The Oregonian, a University of Oregon alumnus found premium tickets to the game (which he knew were selling for $4000) for $400 on StubHub. When, he placed his order, StubHub indicated that he would be charged $16,59.36, but his credit card was charged $16,059.36. He protested, and StubHub refused to honor the purchase, removing the charge and offering $1600 in StubHub vouchers, which the angry Duck says he will not use. He blows off some steam in a blog post, with observations about obnoxious terms and conditions.
In a sign of the times, MasterCard has filed suit in the Southern Distroct of New York against Nike, according to this report from Bloomberg.and Oregon Live (you have to go through a short survey to read it), for having poached a few of its cyber-security experts. MasterCard is suing the employees for breach of contract and Nike for tortious interference. Nike denies all wrongdoing.
We could not have made this up: The St. Louis Post-Dispatch reports that the Devin James Group (DLG), a public relations firm, is suing another public relations firm, Elasticity. Apparently, Elasticity hired DLG to help represent the City of Ferguson in the aftermath of the shooting of Michael Brown. Elasticity fired DLG when it discovered that DLG's owner had a criminal record. Mr. James was convicted in 2006 for having shot an unarmed man. He claims he did $50,000 of work for which he has not been paid.
In another chapter in the dangers of state governments hiring private companies to handle public services, NJ.com reports that Hewlett Packard will refund New Jersey $7.5 million to get out of its contract to deliver a unifed system to administers the state's public assistance program. The Christie administration and HP agreed last year to suspend work on the project and they entered into a separation agreement in which each side agreed not to sue the other for breach of contract. The state is now looking for a new partner. In the meantime, it "continues to hobble along on its 1980s-era mainframe system," according to NJ.com.
Finally, an interesting conflict between a franchise and a large franchisee. Wendy's is requiring its franchisees to make technology upgrades and renovate stotes. DavCo, which operates 152 Wendy's restaurants is refusing to do so, claiming that Wendy's lacks the authority to require the changes. According to the Baltimore Sun, Wendy's has filed suit to terminate DavCo's franchises.
Thursday, January 8, 2015
On January 7th, a federal judge struck down a ban on foie gras that had been in effect since 2012. The judge was of the opinion that the federal Poultry Products Inspection Act preempts the California ban. This Act gives the U.S. Department of Agriculture the sole jurisdiction over the “ingredients requirements” of poultry products.
The judge seems to have forgotten about the federal Animal Welfare Act’s requirements for the humane treatment of farm animals as well as states’ ability to ban the sale of the products of animal cruelty. The California Attorney General’s office is reviewing the decision for a possible appeal of the law, which was upheld in previous litigation.
Foie gras is, without a doubt, cruel to animals. To produce the alleged delicacy, geese and ducks are “force-fed a corn mash through a metal tube several times a day so that they gain weight and their livers become 10 times their natural size. Force-feeding sometime injures the esophagus of the bird, which may lead to death. Additionally, the fattened ducks and geese may have difficulty walking, vomit undigested food, and/or suffer in extreme confinement." Do we as consumers still have a right to buy such a product even if it tastes very good? No, according to at least California state law.
How anyone could make themselves eat this product is beyond my comprehension. I confess that I am an animal lover and environmentalist. I do personally believe in those core values. However, I am quite far from an extremist and respect, to a very, very far extent, the opinions of the vast majority of other people. Heck, I am not even a vegetarian (I try to at least buy free-range products). But under notions of both positive law – state and/or federal – and natural law, this is where the buck must stop. There must be limits to what we can do in the name of obtaining a gourmet experience, especially when it comes at such a high price of extreme suffering by our living, sentient creatures. And if consumers cannot draw such lines themselves, courts and legislatures must. In the words of Mahatma Gandhi, “the greatness of a nation and its moral progress can be judged by the way its animals are treated.” More than a dozen countries around the world have outlawed the production of foie gras. In this respect, the United States is not great. This case leaves a bad taste in my mouth and, I hope, in yours as well.
Wednesday, November 5, 2014
According to this story from NJ.com, a customer in an Atlantic City restaurant bought a bottle of wine with dinner. The server showed him a wine list and suggested a wine. When he asked how much the wine cost, she said, "Thirty-Seven Fifty," which he understood to mean $37.50. She meant $3,750, and the wine list so indicated, but the customer did not have his reading glasses with him. It's an interesting fact pattern.
Fortunately, an episode of The Simpsons provides best practices in this area, as animated television sit-coms do in most areas. In episode 8F09, Burns Verkaufen der Kraftwerk, Homer's stock in the Springfield nuclear plant went up for the first time in ten years. He sells and makes a cool $25. Soon thereafter, the value of Homer's stock rises to $5200, but that's another matter.
Homer conte1mplates his options and decides to buy beer. The following conversation with Moe (of Moe's Tavern) ensues:
Moe: Want a Duff?
Homer (haughtily): No, I'd like a bottle of Henry K. Duff's Private Reserve.
Moe (Gasping): Are you sure? 'Cause once I open the bottle, there's no refund.
See? That's how it's done!
Monday, October 20, 2014
Class action lawsuits can be a great way for consumers to obtain much necessary leverage against potentially overreaching corporations in ways that would have been impossible without this legal vehicle. But they can also resemble mere litigiousness based on claims that, to laypeople at least, might simply seem silly. Decide for yourself where on this spectrum the recent settlement between Red Bull and a class of consumers falls. The background is as follows:
The energy drink Red Bull contains so much sugar and caffeine that it can probably help keep many a sleepy law professor and law student alert enough to get an immediate and urgent job done. I admit that I have personally enjoyed the drink a few times in the past, but cannot even drink an entire can without my heart simply beating too fast (so I don’t).
Red Bull’s marketing efforts promised consumers a “boost, “wings,” and “improved concentration and reaction speeds.” One consumer alleges in the class action suit that he “had been drinking the product since 2002, but had seen no improvement in his athletic performance.”
It strikes me as being a bad idea to pin one’s hopes on a mere energy drink to improve one’s athletic performance. These types of energy drinks seem to be geared much more towards a temporary sugar high than anything else. At any rate, if the drink doesn’t help, why continue drinking it for another 12 years?
Nonetheless, a group of plaintiffs filed claim asserting breach of express warranty, unjust enrichment, and violations of various states’ consumer protection statutes. The consumers claim that Red Bull’s deceptive conduct and practices mean makes the company’s advertising and marketing more than just “puffery,” but instead deceptive and fraudulent and thus actionable. The company of course denies this, but has chosen to settle the lawsuit “to avoid the cost and distraction of litigation.”
To me, this case seems to be more along the lines of Leonard v. Pepsico than a more viable claim. Having said that, I am of course not in favor of any type of false and misleading corporate claims for mere profit reasons, but a healthy dose of skepticism by consumers is also warranted.
Tuesday, October 14, 2014
Jimmy John's, a sandwich chain that frankly I had never heard of but which has over 2,000 franchise locations, apparently makes its employees sign pretty extensive confidentiality and non-compete agreements , as reported by Bob Sullivan and this Huffington Post article. It's not clear to me what trade secrets are involved in making sandwiches, although I am a big fan of more transparency when it comes to what goes in my food and how it's made. As Bob Sullivan points out, in this economy, employment-related agreements for most employees are typically adhesion contracts. Making workers sign non-competes to get a job makes it much harder for them to get their next job. In this case, the employee is prohibited from working for two years at any place that makes 10% of its revenue from any sandwich-type product (broadly defined to include wraps and pitas) that is within 3 miles of any Jimmy Johns location. Given that there are 2,000 such locations, it could make it difficult for some food industry workers to find other jobs.
Monday, October 6, 2014
While we were busy with the virtual symposium, we got a bit behind on reporting on cases. This one is from late August.
Three Steak n Shake (SNS) franchisees brought suit against SNS seeking a declaratory judgment that, under the terms of their franchise agreements, they may set their own prices and are not required to participate in corporate promotions. The case resulted from a corporate takeover in 2010, after which SnS initiated new pricing policies that plaintiff franchisees claim adversely affected their businesses.
The franchisees' agreements with SNS provided that the latter “reserve[d] the right to institute at any time a system of nonbinding arbitration or mediation.” One month after plaintiffs filed suit, SNS introduced an arbitration policy requiring franchisees to engage in nonbinding arbitration at SNS's request. Pursuant to that policy, SNS filed a motion in the District Court to stay proceedings and compel arbitration. The District Court denied the motion, finding the arbitration agreement "illusory" because one-sided and unenforceable. In addition, the District Court found that the new arbitration policy could not apply retroactively to claims that had already been filed and that the Federal Arbitration Act (FAA) did not apply to non-binding arbitration.
In Druco Restaurants, Inc. v. Steak N Shake Enterprises, Inc., the Seventh Circuit agreed with the District Court's first ground for decision and did not reach its alternative grounds. Applying Indiana law, the Seventh Circuit found the arbitration agreement illusory. The Court noted that SNS was free to exercise or not exercise its right to arbitration at whim. The company also retained complete discretion to determine venues where and procedures under which arbitration would take place. Where so much is uncertain, the Seventh Circuit noted, the agreement is vague, indefinite and unenforceable.
Tuesday, June 17, 2014
Over the past few years, more than a dozen 7-Eleven franchisees have sued the company claiming that it operated in bad faith by untruthfully accusing the franchisees of fraud and by strong-arming them to “voluntarily” surrender their franchise contracts based on such false accusations. The franchisees claim that the tactic, which is known in the franchise community as “churning,” is aimed at retaking stores in up-and-coming areas where the franchise can now be sold at a higher contractual value or from franchisees who are too outspoken against the company.
Franchisees split their gross profits evenly with 7-Eleven. The chain claims that it has hours of in-store covert footage showing franchisees voiding legitimate sales and not registering others to keep gross sales lower than the true numbers in order to pay smaller profits to 7-Eleven. Similarly, the chain uses undercover shoppers to spot-check the recording of transactions. This level of surveillance is uncommon among similar companies, says franchise attorney Barry Kurtz. A former corporate investigations supervisor for 7-Eleven calls the practice “predatory.”
Japanese-owned 7-Eleven asserts that a few of their franchisees are stealing and falsifying the sales records, thus depriving the company of its full share of the store profits. It maintains in court records that its investigations are thorough and lawful. It also complains that groups of franchisees often group together to create a “domino of lawsuits, pressuring the company to settle.”
It seems that a company installing hidden cameras to monitor not customers for safety reasons, but one’s own franchisees raises questions of whether or not these people had a reasonable expectation of privacy in their work-related efforts under these circumstances. If not, the issue certainly raises an ethical issue: once one has paid not insignificant franchise fees and continue to share profits with the franchisor at no less than 50-50%, should one really also expect to be monitored in hidden ways by one’s business partner, as the case is here? That has an inappropriate Big-Brother-is-Watching-You feel to it.
In the 1982 hit Dire Straits song Industrial Disease, Mark Knopfler sings that “Two men say they're, Jesus one of them must be wrong.” When it comes to this case, the accusations of “bogus” reasons asserted by the franchisees and returned fire in the form of theft accusations by 7-Eleven, somebody must not follow the contractual duty of good faith and fair dealings.
This case seems thus to be one that could appropriately be settled… oh, wait, the company apparently perceives that to be inappropriate pressure. Perhaps a fact finder will, then, have to resolve this case of mutual mud-slinging. In the meantime, 7-Eleven prides its “good, hardworking, independent franchisees” of being the “backbone of the 7-Eleven brand.” That is, until the company itself deems that not to be the case anymore, at which point in time it imposes a $100,000 “penalty” on those of its franchisees who do not volunteer to sign away their stores. The company does not reveal how it imagines that its hardworking, but probably not highly profitable, franchisees will be able to hand over $100,000 to a company to avoid further trouble.
Friday, May 23, 2014
By Myanna Dellinger
In California, the Bureau of Reclamation is in charge of divvying up water contracts in the California River Delta between the general public and senior local water rights owners. Years ago, it signed off on long-term contracts that determined “the quantities of water and the allocation thereof” between the parties. About a decade ago, it renewed these contracts without undertaking a consultation with the Fish and Wildlife Service (“FWS”) to find out whether the contract renewals negatively affected the delta smelt, a small, but threatened, fish species. The thinking behind not doing so was that since the water contracts “substantially constrained” the Bureau’s discretion to negotiate new terms, no consultation was required.
Not correct, concluded an en banc Ninth Circuit Court of Appeals panel Ninth Circuit Court of Appeals panel recently. By way of brief background, Section 7 of the Endangered Species Act (“ESA”) requires federal agencies to ensure that none of their actions jeopardizes threatened or endangered species or their habitat. 16 U.S.C. § 1536(a). Among other things, federal agencies must consult with the FWS if they have “some discretion”"some discretion" to take action on behalf of a protected species. In this case, since the contractual provision did not strip the Bureau of all discretion to benefit the species, consultation should have taken place. For example, the Bureau could have renegotiated the pricing or timing terms and thus benefitted the species, said the court.
In 1993, the delta smelt had declined by 90% over the previous 20 years and was thus listed as a threatened species under the ESA. Of course, fish is not the only species vying for increasingly scarce California water. Man is another. The current and ongoing drought in California – one of the worst in history – raises questions about future allocations of water. Who should be prioritized? Private water right holders? People in Southern California continually thirsty and eager to water their often overly water-demanding garden plants? Industry? Farmers? Not to mention the wild animals and plants depending on sufficient levels of water? There are no easy answers here.
The California drought is estimated to cost Central Valley farmers $1.7 billion and 14,500 jobs. While that seems drastic, the drought is still not expected to have any significant effect on the state economy as California is no longer an agricultural state. In fact, agriculture only accounts for 5% of jobs in California. Still, that is no consolation to people losing their jobs in California agriculture or consumers having to pay higher prices for produce in an increasingly warming and drying California climate.
The 1974 movie Chinatown focused on the Los Angeles water supply system. 40 years later, the problem is just as bad, if not worse. The game as to who gets water contracts and for how much water is still on.
Thursday, May 8, 2014
By Myanna Dellinger
On May 8, 2014, Vermont became the first state in the nation to require foods containing GMOs (genetically modified organisms) to be labeled accordingly. The law will undoubtedly face several legal challenges on both First Amendment and federal pre-emption grounds, especially since giant corporate interests are at stake.
Scientists and companies backing the use of GMOs claim that GMOs are safe for both humans and the environment. Skeptics assert that while that may be true in the short term, not enough data yet supports a finding that GMOs are also safe in the long term.
In the EU, all food products that make direct use of GMOs at any point in their production are subjected to labeling requirements, regardless of whether or not GM content is detectable in the end product. This has been the law for ten years.
GMO stakeholders in the United States apparently do not think that we as consumers have at least a right to know whether or not our foods contain GMOs. Why not, if the GMOs are as safe as is said? A host of other food ingredients have been listed on labels here over the years, although mainly on a voluntary basis. Think MSGs, sodium, wheat, peanuts, halal meat, and now gluten. This, of course, makes perfect sense. But why should GMOs be any different? If, for whatever reason, consumers prefer not to eat GMOs, shouldn’t we as paying, adult customers have as much a say as consumers preferring certain other products?
Of course, the difference here is (surprise!) one of profit-making: by labeling products “gluten free,” for example, manufacturers hope to make more money. If they had to announce that their products contain GMOs, companies fear losing money. So why don’t companies whose products don’t contain GMOs just volunteer to offer that information on the packaging? The explanation may lie in the pervasiveness of GMOs in the USA: the vast majority (60-80%, depending on the many sources trying to establish certainty in this area) of prepared foods contain GMOs just as more than 80% of major crops are grown from genetically modified seeds. Maybe GMOs are entirely safe in the long run as well, maybe not, but we should at least have a right to know what we eat, it seems.
Tuesday, May 6, 2014
This just in from University of Minnesota Contracts Prof. Carol Chomsky:
The Antique Wine Company (AWC), a London-based wine dealer, is being sued for $25 million by Julian LeCraw Jr., an Atlanta real estate investor and wine collector, for allegedly selling 15 bottles of counterfeit rare old Bordeaux wine. The suit claims fraud and breach of contract based on sales of a bottle of Château d’Yquem 1787, a Yquem 1847, a 6-liter bottle of Château Margaux 1908, and 12 bottles of Château Lafite Rothschild ranging in vintage from 1784 to 1906.
Stephen Williams, founder and managing director of AWC, says “it duly researched the provenance of the wines it supplied and fully disclosed that information” to the buyer at the time of the purchases, but some of those claims are contested by statements made the château merchants themselves.
An “authenticity ticket” relied upon by AWC for the 1787 Yquem (purchased for $91,400, including insurance) was not an endorsement of the wine’s authenticity, according to those statements. “I signed it the way people sometimes sign a menu or a post card,” said Count Alexandre de Lur Salces; “I simply put a signature on it. It is out of the question that I could identify it as authentic.” There is also dispute over whether the logo on some of the buyer’s bottles was registered after the date on which the wine was allegedly rebottled and whether two bottles of Yquem 1847 allegedly identical to those sold to LeCraw still exist in the cellars of the Cruse family in Bordaux.
AWC’s lawyer suggests the issue is not whether the bottles are counterfeit, but whether the seller used a standard of care in keeping with the then-current industry practices in researching the provenance of the bottles. For more information, see the article in The Wine Spectator here. Makes me wonder if proving authenticity will include drinking one bottle of each!
Thursday, April 17, 2014
According to this article in today's New York Times, General Mills has added language to its website designed to force anyone who interacts with the company to disclaim any right to bring a legal action against it in a court of law. If a consumer derives any benefit from General Mills' products, including using a coupon provided by the company, "liking" it on social media or buying any General Mills' product, the consumer must agree to resolve all disputes through e-mail or through arbitration.
The website now features a bar at the top which reads:
The Legal Terms include the following provisions:
- The Agreement applies to all General Mills products, including Yoplait, Green Giant, Pillsbury, various cereals and even Box Tops for Education;
- The Agreement automatically comes into effect "in exchange for benefits, discounts," etc., and benefits are broadly defined to include using a coupon, subscribing to an e-mail newsletter, or becoming a member of any General Mills website;
- The only way to terminate the agreement is by sending written notice and discontinuing all use of General Mills products;
- All disputes or claims brought by the consumer are subject to e-mail negotiation or arbitration and may not be brought in court; and
- A class action waiver.
The Times notes that General Mills' action comes after a judge in California refused to dismiss a claim against General Mills for false advertising. Its packaging suggests that its "Nature Valley" products are 100% natural, when in fact they contain ingredients like high-fructose corn syrup and maltodextrin. The Times also points out that courts may be reluctant to enforce the terms of the online Agreement. General Mills will have to demonstrate that consumers were aware of the terms when they used General Mills products. And what if, when they did so, they were wearing an Ian Ayres designed Liabili-T?
Friday, April 11, 2014
I opened the box of wine for this case out of N.Y. Civil Court (where else?!):
In January 2013, defendants sent plaintiff, via email, an advertisement advising plaintiff of the availability for purchase of up to 240 bottles of 2009 Cune Vina Rioja Crianza wines. The advertisement stated:
Yesterday, we sampled the 2009 Cune Vina Real Crianza and we were very impressed. The old world style of Rioja is on a roll. Much to the chagrin of Jorge Ordonez and Eric Solomon. Even Robert Parker [ed note: wikipedia bio] could not hide his approval of this wine, blasting out a 91 point score on this one. I am not sure what 91 points means these days, but you probably do…
The rest of the advertisement contained a WA score of 91 and a quotation from Robert Parker describing the wine and the $12.99 per bottle price of the wine. Based upon this advertisement and believing that the 2009 Cune Vina Rioja Crianza was the equivalent of a Marquis Riscal, plaintiff purchased six bottles of the offered wine. After receiving the wine, plaintiff did not like the wine, found it mediocre and to be of poor quality and determined based upon his own opinions that the wine was worth no more than seven dollars per bottle. Plaintiff then demanded a refund for the six bottles he purchased. Citing store policy, defendants refused to refund plaintiff but offered to allow plaintiff to return the five unopened bottles for store credit.
After an email exchange of name calling, plaintiff then commenced a lawsuit alleging, among other things, that defendants fraudulently induced plaintiff into purchasing the wine. The court dismissed plaintiff's claim as flabby and austere, with hints of barnyard:
In order to plead a prima facie case of fraud, a plaintiff must allege each of the elements of fraud with particularity and must support each element with an allegation of fact (Fink v. Citizens Mortg. Banking Ltd., 148 AD2d 578 [2nd Dept 1989]). To plead a prima facie case of fraud the plaintiff must allege representation of a material existing fact, falsity, scienter, deception and injury (Lanzi v. Brooks, 54 AD2d 1057 [3rd Dept 1976]). Plaintiff has not made out a prima facie case on several of the elements. Plaintiff has focused his fraud claim on the fact that defendant represented the wine as a 91 point wine. The advertisement states that even Robert Parker rated this as a 91 point wine and continued that defendants were not sure what a 91 point wine wasanymore. Plaintiff alleges that this advertisement fraudulently induced him into buying the wine. However, plaintiff does not provide even a scintilla of evidence that the advertisement contained any fraud at all. Plaintiff does not allege that Robert Parker did not rate this wine 91 points and plaintiff has acknowledged that defendants did not themselves give the wine a rating. Rather, plaintiff assumed on his own that the wine was "even better than a Marquis de Riscal" and decided to purchase the wine based upon this. When the wine did not measure up to his subjective tastes, he decided that the wine was not as advertised. However, plaintiff has not demonstrated at even the minimum prima facie level that any deception took place, that there was any falsity or anything other than plaintiff's assumptions were incorrect. Thus, the second cause of action is dismissed.
This makes a fun fact pattern if you change the claims to breach of express or implied warranties. In particular, is a 91 wine score (whatever that means) a statement of opinion or fact?
Seldon v. Grapes, CV-20953/13-NY, NYLJ 1202650165299, at *1 (Civ., NY, Decided March 20, 2014).
Thursday, April 3, 2014
Running out of examples of offers to enter into a unilateral contract? This story from California comes just in time and, like all good ideas, it was inspired by television:
A pizza parlor specializing in take-out business is offering a special challenge to any two people who choose to eat in the dining room: A check for $2,500 if they can finish a giant pizza in less than an hour.
"I call it Da Big Kahuna," said Glenn Takeda, owner of 8 Buck Pizza, whose $60 extra, extra, extra large pizza is 30 inches in diameter and weighs 15 pounds.
The 8.5 lbs of dough is covered with 3.5 lbs of cheese and a choice of any three toppings, one of which must be meat.
Takeda got the idea for Da Big Kahuna challenge in January from watching other food-eating contests on TV.
He initially offered $100 cash per person plus a year's worth of free pizza, but got no takers.
Contestants started lining up when Takeda boosted the prize to $2,500. So far, 15 teams have taken -- and failed -- the challenge.
Among those who have left the table without finishing Da Big Kahuna is well-known competitive eater Naader Reda, who drove more than 400 miles from his home in Joshua Tree Wednesday to tackle the monster pizza with eating partner John Rivera.
"John and I make a great team, but that day, the 15-pound Big Kahuna was too much," Reda tweeted to News10. "It is a very tough opponent."
Reda was equally gracious in his review of the pizza's quality.
"It was the thickest, doughiest pizza I've ever encountered. It was also one of the two or three most delicious pies I've sampled," he wrote.
Takeda said Reda and Rivera came as close as anyone to finishing Da Big Kahuna, and admits he was preparing to part with $2,500.
"I swear I thought they were going to do it," he said.
At the end of the hour, the pair left with enough pizza to fill a 14-inch takeout box.
Based on Wednesday's close call, Takeda knows it's only a matter of time before he's forced to write the check.
"I'm sure somebody will surface," he said.
Not a bad marketing strategy. So long as Takeda sells about 42 of these $60 pizzas, he's got the $2500 prize covered.... and he's already half way there. Though, that assumes a 100% profit margin. We can call his cost per pizza "advertising" - and at a really good price given that his business is already all over the Internets.
[Update: I thought more about this and perhaps it isn't a unilateral contract but, rather, a bilateral contract with a condition. Customer pays $60 in exchange for a large pizza and the opportunity to win the $2500. The condition precedent to winning the $2500 is eating the whole pizza in an hour. If the customer did not have to pay for the pizza, then it looks more like a unilateral contract.]
Wednesday, March 5, 2014
As a follow-up on Nancy's post from last week on Nutrition Labels and Wrap Contracts, I would like to call attention to a new paper posted on SSRN by my colleague Nicole Negowetti (pictured). The paper is called Defining "Natural" Foods: The Search for a "Natural" Law, and here is the abstract:
Because the FDA has refused to codify a uniform or enforceable definition of “natural” food, each food manufacturer determines its own standard for the term. Unlike the certified organic label, no government agency, certification group, or other independent entity ensures that “natural” claims have merit. Generally, the term “natural” means that a food has been minimally processed, contains no artificial ingredients or preservatives, is healthy and wholesome. However, food producers are not prohibited by law from using pesticides, genetically modified crops, fumigants, solvents, and toxic processing aids. Consumers and food producers are both disadvantaged by the inconsistent meanings and uses of the term. Recent surveys demonstrate that while consumers demand “natural” products, they are confused regarding the term’s meaning. A proliferation of consumer protection lawsuits against food producers has flooded the courts over the past two years. Food producers truly committed to producing “natural” products are competing with manufacturers who loosely interpret the term, produce and sell cheaper, inferior, and not-so-“natural” products. In light of the FDA’s reluctance to codify a “natural” definition, this Article will evaluate the recent decisions in the “natural” lawsuits and the attempts by courts, legislatures, the food industry, and retailers to establish a “natural” standard. The Article concludes that the search for an enforceable and comprehensive “natural” standard is futile. It predicts that the term “natural” has proven to be so confusing to consumers that the significance of the term has likely been diluted. Furthermore, because the claim has been so legally troublesome for food manufacturers, use of “natural” on food labels will surely be on the decline.