Tuesday, June 12, 2018
Here’s a nice little case that lends itself well to classroom use.
The Robertson family owned Duck Commander, Inc. (“DC”), a hunting supplies company that eventually morphed into an iced tea maker after Si Robertson ("Uncle Si") became known for the its members’ affinity for ice tea on a reality TV show about duck hunting. This was broadcast on the A&E network.
In late 2013, DC contracted with Chinook USA, LLC (“Chinook”), a ready-to-drink beverage company, to produce and market the Robertson family’s ice teas in cooperation with the Robertsons. A fairly elaborate contract is drawn up. This spells out the corporations’ mutual obligations in relation to “iced tea,” “ready-to-drink [RTD] teas,” and “RTD beverages.” This includes an integration clause purporting to make the agreement the “entire understanding between the parties.”
A few months later, in the summer of 2014, sales of iced tea apparently did not go as well as the parties had hoped and planned for. The Robertson family thus branched out into energy drinks and vitamin water. DC contracted with another marketer of those products. Chinooks sued DC for breach of contract, among other things claiming that the contractual terms “iced tea,” “ready-to-drink teas,” and “RTD beverages” also encompassed vitamin water and energy drinks and that DC should thus also have dealt with Chinook in relation to those products.
The contract was held to be ambiguous. Parol evidence was brought in showing that during the contract negotiations, iced tea accounted for about 95% of the focus of the negotiations with coffee products for the other 5%. No mention had been made of energy drinks or similar products. After contract execution, a Chinook negotiator sent Chinook an email stating “[T]hank you for taking the time to ask for a confirmation of Chinook USA’s rights as our exclusive licensee of tea …. This email confirms the same.”
Oops, it’s difficult to claim afterthe fact that when you yourself – a seasoned company with professional negotiators – get a deal for “tea,” you really intended something more than that. The appellate court thus also affirmed the district court’s judgment against Chinook on its breach of contract claims (see Chinook USA, L.L.C. v. Duck Commander, Incorporated, 2018 WL 1357986). https://law.justia.com/cases/federal/appellate-courts/ca5/17-30596/17-30596-2018-03-15.html
This case lends itself well to students issue-spotting issues such as contract interpretation, ambiguity, the PER, etc., but could also be used to discuss bargaining powers, party sophistication, and the smartness of, if nothing else, sending confirmatory memos… only they should, of course, be drafted such that they truly represent the parties’ intent. If that was the case in this matter, was Chinook simply regretting not getting a broader agreement at a point when sales of the originally intended product was already known to falter? This appears to be the case here.
Wednesday, June 6, 2018
A good cause termination clause operates to save oral agreement from statute of frauds writing requirement
Here's another helpful teaching case, this time for the statute of frauds section. Out of Delaware, World Class Wholesale, LLC v. Star Industries, Inc., C.A. No. N17C-05-093 MMJ, discusses the "one year" statute of frauds category. The parties entered into an oral agreement "in which WCW agreed to be the exclusive distributor of Star's products in Delaware for an indefinite period of time." Star contended that the oral agreement violated the statute of frauds and should have been in writing.
The court disagreed. WCW had alleged that the oral agreement contained a "'good cause' termination clause." This meant that either party could have terminated the agreement with good cause at any time, including within a year. Therefore, under Delaware law, there was a possibility this oral agreement could have been permissibly terminated and therefore performed within one year, and therefore the statute of frauds did not block enforcement of it.
Tuesday, April 17, 2018
Thanks to Andy Feldstein of Huntington Technology Finance, who sent me an email after reading yesterday's IHOP post. Reading the opinion left me confused, but Andy points out that a visit to the Gunther Toody's website sheds a lot of light on the matter. Andy wrote that to the extent "similar in concept" has meaning, it's pretty clear IHOP and Gunther Toody's are two diners with extremely dissimilar concepts. Agreed. This was very helpful in clearing things up!
Monday, April 16, 2018
I could not resist blogging this case out of the District of Colorado, Northglenn Gunther Toody's v. HQ8-10410-1045 Melody Lane, Civil Action No. 16-cv-2427-WJM-KLM (behind paywall), because it tackles these questions: "First, what is a diner? Second, is the IHOP restaurant a diner?"
I greatly enjoyed reading the court's definition of "diner," which, after evaluating expert testimony, settled on "a table service restaurant with a broad array of breakfast, lunch, and dinner offerings, most of which are perceived as American cuisine." The court then decided that IHOP qualifies as a diner.
After that, though, things get a bit of a mess. The lease at issue prohibited the opening of "a diner similar in concept" to the one operated by the plaintiff. The court found that the parties provided it with no answer as to what that phrase meant. The court concluded it must be something more than just being "a diner," because otherwise there was no reason to include the "similar in concept" language. But plaintiff kept insisting that IHOP being a diner was enough to violate the clause. The court did not hold with that interpretation, since it left "similar in concept" with no work to do. The "concept," the court thought, had to refer to something more than just diners generally. The clause required the court to ask if IHOP was similar in concept to the plaintiff's restaurant, whereas plaintiff just kept arguing that the answer was yes, because they were both diners, without tackling the concept language (although I think the plaintiff was trying to argue that the concept was being a diner). Therefore, the court found that plaintiff offered no reasonable interpretation of the covenant and therefore there was no ambiguity.
This ruling is confusing, because the "similar in concept" language was so slippery that no one seemed able to advance any meaningful definition of it at all...and that resulted in a finding that it was unambiguous. I would avoid this language in contracts, as I think this case proves it's actually pretty ambiguous.
At any rate, the court went on to conclude that IHOP was not similar in concept to the plaintiff's restaurant, because the plaintiff failed to rebut the defendant's argument that they were different in concept. Which means that it sounds like there is some understanding of what "concept" means, after all...? I am confused by this case and have decided to mull it over at my local IHOP.
Thursday, January 11, 2018
As we all know, there is a lawsuit for everything, including whether Starbucks deliberately underfills its lattes to save on the cost of milk. This could constitute a breach of express warranty. So argued a group of plaintiffs in the United States District Court for the Northern District of California recently. The court dismissed the argument on a motion for summary judgment.
Plaintiffs’ arguments were threefold: First, that “when filled to the brink,” Starbucks’ cups hold only exactly the beverage volumes listed on the menus. The court dismissed that argument because Starbucks requires its cup manufacturers to make the cups 8-12% larger than the promised beverage volume. Second, that the milk foam added to lattes should not count towards the beverage volume. However, as plaintiffs themselves had argued that milk foam is a component of a latte, the court quickly dismissed that argument as well. Third, plaintiffs argued that the “fill-to” lines in steaming pitchers used by baristas to make the lattes are too low for the finished product to contain the expressly promised volume. The court also dismissed that as the steam is an essential part of a latte.
In short, the court agreed with Starbucks that plaintiffs could not prove that any false statements had been made at all. What was warranted was also what was sold.
Incidentally, Starbucks is – as many other previously very popular brands – increasingly suffering from an image problem: they have apparently become too boring and basic. Once seen as cool and edgy, they are now seen as too ubiquitous, in large part because they simply have too many stores. Their solution is to open upscale Roasteries and Reserve stores.
Meanwhile, the competition – Dunkin’ Donuts and McDonald’s for example – charge $3 less for coffee than Starbucks. The same fate might be countered by Subway Sandwiches, previously the nation’s second-largest fast-food chain. They too might have grown too much and too fast. Additionally, Subway’s menus are seen as too boring, especially by younger millennials who prefer a more diverse range of options, including salads and healthier choices."
The Starbucks case is Strumlauf et. al. v. Starbucks Corporation, Case No. 16-cv-01306-YGR.
Monday, November 13, 2017
A recent case out of the District of New Mexico, Laurich v. Red Lobster Restaurants, LLC, No. CIV 17-0150 JB/KRS (behind paywall but you can read an article written about the complaint here), enforced an arbitration agreement between Red Lobster and a former employee, Laurich. Laurich was working at a Red Lobster when the restaurant chain was sold to the current corporate entity, the defendant in this case. When the defendant bought the restaurant chain, Laurich was informed during a shift that she had to look over an employment agreement. She asked for a paper copy but was told there were none and it was only available on the computer. She was also told that she had to sign the electronic document or she would be taken off the work schedule. So Laurich signed the document and went back to work. Unsurprisingly, the document contained an arbitration provision.
Laurich alleged that a fellow employee at Red Lobster eventually began harassing her on the basis of her race and sex, escalating to physical assault. She complained to her supervisors and eventually requested that the other employee not be there while she was there. She then learned that Red Lobster had terminated her employment. Laurich then filed this complaint and Red Lobster moved to compel arbitration under the agreement.
Laurich argued that the arbitration agreement was both illusory and unconscionable. The court found that it was not illusory: Laurich agreed to arbitrate and Red Lobster agreed to continue employing Laurich. That was sufficient consideration on both sides. It wasn't as if Laurich was already working for this corporate entity when she was asked to sign the agreement "out of the blue." Rather, she was presented the agreement as soon as Red Lobster became her employee.
Nor was the agreement unconscionable. The agreement was only half-a-page long and it was similar to one Laurich had been working under before. And the threat to be taken off the work schedule was only a temporary threat, not a threat of termination. So there was no procedural unconscionability, nor was the arbitration agreement substantively unconscionable. Both sides were bound by the clause, and Laurich was excused from paying arbitration fees.
Therefore, the court enforced the arbitration agreement.
Tuesday, June 13, 2017
5-hour ENERGY is one of those products that I feel like an entire class could be built around. I already teach a couple of 5-hour ENERGY cases in trademark, and here's a contracts case (that seems to also have patent and trade secret implications). The case is Innovation Ventures, LLC v. Custom Nutrition Laboratories, LLC, Case No. 12-13850 (behind paywall), out of the Eastern District of Michigan.
The heart of the allegations currently at issue in this most recent litigation revolve around a previous settlement agreement between the parties, under which the defendant agreed not to use certain 5-hour ENERGY ingredients in any formulas for other energy shots. The defendant didn't deny that it did in fact use those prohibited ingredients. However, it raised a laches defense to try to shield it from liability, alleging that the plaintiff delayed filing the lawsuit for three years, during which the defendant was openly using the ingredients at issue, with the plaintiff's knowledge. During the time period that the plaintiff delayed suit, the defendant alleged that it developed and sold other products that it would have developed differently had the plaintiff indicated that it had an issue with the defendant's activities. The plaintiff's response, however, was that, because it brought suit within the applicable statute of limitations, laches can't apply.
The plaintiff's argument was unavailing. The court noted that Michigan had again and again reiterated that statute of limitations not having run alone cannot be enough to defeat a valid laches defense. The defendant alleged that the plaintiff knew that the defendant was selling products with the prohibited ingredients and sat back and waited for more products to be developed and further damages to accrue before bringing suit. This behavior, if true, could support a finding of laches.
(There were lots of other issues, allegations, and defenses in this litigation. I've focused on this one small piece.)
Tuesday, March 14, 2017
I just listened to a podcast about the fledgling pineapple industry in Hawaii in the 19th century, and then a case about pineapple crossed my inbox. (It's a snowy day on the East Coast, so thinking about pineapples is welcome.) It's a case out of the Southern District of Florida, Del Monte International v. Ticofrut, Case No. 16-23894-CIV-MARTINEZ/GOODMAN (behind paywall), and it involves Costa Rican pineapples. It's an interesting case revolving around Del Monte's quest for a preliminary injunction to stop Ticofrut from selling pineapples to third parties. Del Monte had consented to these third party sales when Del Monte and Ticofrut were in a contract together. However, once the contract ended and the negotiations between the parties didn't lead to a new contract, Del Monte objected to the third party sales as violating restrictive covenants in the old contract that survived its termination.
The court doesn't really doubt that Ticofrut's sales are in violation of the restrictive covenants, but the court doesn't think that these violations are resulting in irreparable harm to Del Monte, and largely that's because Del Monte had previously allowed the third party sales. The court thinks it's absurd for Del Monte to argue it's being irreparably harmed by conduct that it previously had no problem with. The court sums up Del Monte's position as "it cannot be harmed by conduct it agreed to but can be harmed by that same conduct if it did not agree to it," which it finds "fundamentally faulty." The court basically says that either Del Monte permitted itself to be irreparably harmed before or the conduct doesn't irreparably harm Del Monte at all; it thinks the latter is more likely.
The court also concludes that Del Monte's injuries here aren't unique or difficult to quantify. Pineapples can be valued pretty easily, so the court says that, unlike in other cases involving non-competes, it's not difficult to compensate Del Monte with monetary damages instead of injunctive relief.
Wednesday, September 28, 2016
A recent case out of the District of Utah, HealthBanc International v. Synergy Worldwide, Case No. 2:16-cv-00135-JNP-PMW, reminds us all of this rule. Well, it definitely reminded the parties and now I'm blogging about it and reminding all of you!
This case revolves around "a recipe for a powder comprised of various grasses and other components." Apparently you can combine this powder with water to make a nutritional supplement. HealthBanc entered into a contract with Synergy whereby Synergy would distribute the powder and pay HealthBanc royalties for every bottle of powder it sold. After almost a decade of doing business together, the relationship between the two parties soured. HealthBanc sued first, and then Synergy counterclaimed, alleging that HealthBanc had led Synergy to believe that it owned intellectual property rights in the recipe for the power, which apparently turned out to be untrue. HealthBanc then moved to dismiss this fraudulent inducement claim based on lack of particularity in Synergy's pleadings. The court here grants the motion.
Synergy's complaint just generally alleged that HealthBanc had made misrepresentations. Those general allegations are not enough for a fraudulent inducement claim. Synergy identified nothing about the misrepresentations: When did they happen? Where did they happen? Were they written? Oral? Who made them? Without any of this information, the court finds this cause of action can't survive.
The contract between the parties did contain a clause where HealthBanc
represents and warrants that it is the sole and exclusive owner of the entire rights, title and interest, including without limitation all patent, trademark, copyright and other intellectual property rights,
and another clause where HealthBanc "represents and warrants" that it has exclusive rights to the recipe that it can provide to Synergy. But those clauses don't raise a valid fraudulent inducement claim. Synergy made no allegations about the drafting of those clauses, nor did it allege that those clauses caused it to falsely believe that HealthBanc owned IP rights in the recipe and that that false belief prompted Synergy to sign the contract.
Likewise, Synergy failed to allege any particular way that it was harmed by the alleged misrepresentations.
Therefore, on basically every single element Synergy made very general claims that failed to meet the particularity standards. The court does dismiss without prejudice, though, giving Synergy the opportunity to try to fix the deficiencies. Stay tuned!
*Note the first: Synergy Worldwide sounds vaguely like what a company would be called in a Marvel movie so I actually looked the company up to see what it does. It seems to be a company specializing in nutritional supplements: "Your source for ProArgi-9 Plus, the highest quality l-arginine supplement on the market, as well as Mistica acai supplement, Core Greens, and more."
*Note the second: I also looked up "greens formula," which is what the court here refers to the recipe as. Wikipedia just wants to tell me about mathematical theorems, which then sent me down the Wikipedia rabbit hole to learn about George Green, a self-taught mathematical genius who received only one year of formal schooling as a child and to this day no one really knows where or how he learned the form of calculus that his theorems advanced.
Wednesday, September 14, 2016
I'm cheating a little because, while this case has a breach of contract claim in it, it doesn't really have anything interesting to say about contract law, mostly because the claim fails because the complaint didn't identify any contract, any terms to the contract, or any facts about the formation of the contract.
But this case out of the Northern District of New York, Golub Corp. v. Sandell Transp., Inc., 1:15-CV-0848 (LEK/CFH) (behind paywall), has an amazing set of facts relayed by the judge in a playful way, and sometimes you just want to read about a good pistachio heist, you know?
Because yes, that's what happened in this case. Golub in New York ordered some pistachios from Wonderful in California. Sandell was arranged to ship the pistachios. Sandell sought to subcontract out the job by posting on an industry job board and hiring a company called GM EXPRESS. In the court's words:
But appearances can be deceiving, and it turns out that "GM EXPRESS" was not actually GM EXPRESS. Unknown to Sandell, the identity of GM EXPRESS had been stolen by criminals who were set on pilfering Golub's pistachio shipment. . . . In this shell game of trucking companies, the pistachio thieves provided Sandell with stolen yet still valid bona fides, including insurance information, tractor and trailer license plate numbers, and a driver's license number (which Sandell claims was valid despite its conspicuously sequential numbering of B7890123). . . . Through this scheme, Sandell and Wonderful would become the thieves' unwitting insiders, happily loading the nuts directly onto the getaway vehicle.
As I said, the breach of contract claim doesn't amount to much in this case, but I enjoyed reading this opinion nonetheless and felt I had to pass it on, so you too can now ponder the disappearing truck of pistachios whose fate remains unknown.
Monday, September 12, 2016
Ordering Subject to Seller's Terms and Conditions Makes You Subject to Seller's Terms and Conditions (Even If You Claim You Never Saw Them)
By atul666 from Portland, USA - blueberries, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=4112199
A recent case out of Michigan, Naturipe Foods, LLC v. Siegel Egg. Co., No. 327172, affirmed a high six-figure jury verdict against Siegel Egg Co. in the case of an alleged breach of contract over blueberries. Naturipe sent Siegel an offer to sell Siegel blueberries. Siegel specified in writing on the received offer that the blueberries in question were to be Grade A. Siegel than signed the offer. Underneath the line provide for Siegel's signature (where Siegel in fact signed) was the pre-printed phrase, "Subject to Seller's Terms and Conditions." Naturipe sent Siegel two shipments of the blueberries ordered. The blueberries, according to Siegel, were not Grade A. Siegel therefore never paid for the blueberries it received nor did it ever order the rest of the blueberries that were supposed to be shipped under the contract. So Naturipe sued and won over $700,000 in damages, costs, and fees after a jury trial.
On appeal here, Siegel's main argument centered around the trial court's decision that Naturipe's terms and conditions did indeed apply to the contract. The terms and conditions at issue specified that Siegel's only remedies for breach of the contract were replacement of the blueberries in question or a credit of the price paid for those blueberries. Furthermore, Siegel was required under the terms and conditions to provide Naturipe with thirty days' notice of any breach of contract. Siegel failed to provide notice and sought cancellation of the entire contract as its remedy, in violation of these terms and conditions.
However, Siegel argued, Naturipe's terms and conditions should not have been considered part of the contract between the parties binding on Siegel because, according to Seigel, it was never given a copy of the terms and conditions, nor were they ever explained to Siegel. But, the court said, it was Siegel's duty to ask for an explanation and obtain a copy of the terms and conditions, because they were referenced in the offer Siegel signed. Therefore, Siegel was on notice that there were other contractual obligations in play and Siegel should have asked what those were. The court noted that Siegel had annotated the offer to require Grade A blueberries, and so was plainly capable of crossing out the "Subject to Seller's Terms and Conditions" phrase if it had so desired. Because it failed to, the court found that it was clear and unambiguous that the parties intended their contract to be subject to those terms and conditions.
I'm sure Siegel probably never gave a second thought, either at the time it was ordering or the time it received the shipments, to Naturipe's terms and conditions. That said, this case stands as a lesson that it's probably always a good policy to call someone up when you're dissatisfied with the product they have provided you. You don't necessarily have to know the law to give people an opportunity to cure; sometimes it seems like it could, in most circumstances, be the most efficient first option.
Monday, August 22, 2016
In a move that demonstrates how contracts for various aspects of marijuana products and services are going mainstream, Microsoft Corp. has accepted a contract to make marijuana-tracking software available for sale on its cloud computing platform. The software is developed by “cannabis compliance technology” Kind Financial and allows regulators to track where and how much marijuana is being grown, sold or produced in real time. In turn, this lets the regulators know how much sales and other tax they should be collecting and from whom (maybe this is the beginning of the end of some growing marijuana plants in state and national parks to hide their activities from the government).
This contract – called a “breakthrough deal” because it is the first time that Microsoft ventures into the marijuana business - may end up enabling the software developer to capture as much as 60% of this very lucrative market. (Other companies with government contracts often end up with such a large market share.)
How did the company strike such a lucrative deal? You guessed it: by networking. Kind’s CEO was introduced by a board member to an inside contact in Microsoft.
Tuesday, July 5, 2016
Everyone else is talking about Donald Trump, so I guess why shouldn't we hop in, right?
This recent New Yorker Talk of the Town piece introduced me to an ongoing contract dispute involving Trump that I hadn't been paying attention to, even though now I see it's been widely reported by various news outlets, including food blogs, because it involves restaurants. So if you don't normally like to read political stuff but you consider yourself a foodie, this blog entry is also for you!
It turns out that Trump is embroiled in breach of contract lawsuits with a couple of famous chefs who pulled out of commitments to put restaurants into one of Trump's new developments. According to the reports, the impetus for pulling out of the business deal was Trump's anti-immigrant rhetoric during his presidential campaign. Jose Andres, himself an immigrant, was not too happy about Trump's statements. As seems to be the case with Trump, his business concerns don't necessarily track his political rhetoric when the bottom line is at issue. Faced with an immigrant refusing him rather than the other way around, Trump sued Andres for breach of contract. Andres counter-sued, alleging that Trump's many derogatory remarks about Hispanics rendered Andres's proposed Spanish restaurant "extraordinarily risky."
The chefs sought partial summary judgment, which a court recently denied, finding that material facts were still in dispute.
The crux of this lawsuit revolves around the covenant of good faith and fair dealing: Did Trump breach that covenant when he made his remarks, which would make him the one in breach of contract? Or were Trump's remarks not a breach of the covenant, either because they're not relevant to the contract or because they did not harm the prospects for success of Andres's restaurant? I don't know if the parties will continue to litigate this question but I'm curious what the result would be. In the current climate where rhetoric is frequently extremely inflammatory, could there be contract implications to such statements? How far, policy-wise, do we want the covenant of good faith and fair dealing to extend?
The case is Trump Old Post Office LLC v. Topo Atrio LLC, 2015 CA 006624 B (behind paywall), in District of Columbia Superior Court.
Wednesday, June 22, 2016
In Strumlauf et al. v. Starbucks Corp., No. 16-01306, a federal district court judge based in San Francisco just ruled that a class action lawsuit against Starbucks.The complaint alleges breach of express and implied warranties, unjust enrichment, negligent misrepresentation, fraud and violations of California's Consumer Legal Remedies Act, the California Unfair Competition Law, and the California False Advertising Law.
The company allegedly overcharged its customers by “systematically serving lattes that are 25% too small” in order to save milk. Baristas were allegedly required to use pitchers for heating milk with etched “fill to” lines that are too low. Further, they were told to leave ¼ inch of free space in drink cups. Said U.S. District Judge Thelton Henderson: "This is not a case where the alleged deception is simply implausible as a matter of law. The court finds it probable that a significant portion of the latte-consuming public could believe that a 'Grande' contains 16 ounces of fluid." Starbucks’ cups for “tall,” “grande,” and “venti” lattes are designed to hold exactly 12, 16 and 20 ounces.
Starbucks so far counters that “if a customer is not satisfied with how a beverage is prepared, we will gladly remake it.” Right, but how many customers would really complain that their drink is .25 inch (6 mm) too small?... And does it really matter? Much of what one pays for with a Starbucks drinks is, arguably, the knowledge of what the retail outlets offer, the ambience, convenience, “free” wifi, etc. Having said that, I am certainly not one to promote consumer fraud and recognize that little by little, the alleged milk-saving scheme could, of course, bring even more money into the coffers of already highly profitable Starbucks.
Monday, May 2, 2016
A class action lawsuit has been filed against Starbucks for negligent misrepresentation, fraud and unjust enrichment in the company’s sale of cold drinks.
The company offers three sizes of drinks — Tall, Grande, Venti and Trenta — which correspond to 12, 16, 24 and 30 fluid ounces, respectively. These fluid ounce measurements are advertised in the store. However, because of the large amounts of ice added to the drinks, customers actually receive much less (at a high price, as is well known).
The complaint claims that "[a] Starbucks customer who orders a Venti cold drink receives only 14 fluid ounces of that drink — just over half the advertised amount, and just over half the amount for which they are paying … In the iced coffee example, a Starbucks customer who orders and pays for a Venti iced coffee, expecting to receive 24 fluid ounces of iced coffee based on Starbucks' advertisement and marketing, will instead receive only about 14 fluid ounces of iced coffee."
A Starbucks spokesperson states that “[o]ur customers understand and expect that ice is an essential component of any ‘iced’ beverage,” adding that the company would remake any beverage if a customer is unsatisfied.
Maybe it would be a better idea to get a beer or a wine. They can’t water those down (I think...). Five Starbucks locations in the D.C. area have started serving booze and tapas as part of a nationwide effort to keep some of its stores open after typical coffee shop hours.
Going to a coffee shop for… tapas and alcohol in order to … what, stay loyal to an already huge brand? Avoid trying a local bar? If you think “only in America,” think again: Starbucks is also enjoying huge success in Europe, home of exquisite coffee shops with excellent pastries and snack. Talk about selling sand to Sahara…
Monday, January 11, 2016
Beware Insurance Policy Exclusions: Liquid Nitrogen Cocktails and Precious Metal Air Conditioning Units Edition
A pair of cases, Evanston Ins. Co. v. Haven South Beach, out of the Southern District of Florida, and Celebration Church v. United National Insurance Co., out of the Eastern District of Louisiana, reminds us that insurance policies can be tricky things.
In Evanston, Barbara Kaufman went to the Ninth Annual Taste of the Garden at the Miami Beach Botanical Garden. Haven South Beach, one of the vendors there, sold her a drink containing liquid nitrogen. Mrs. Kaufman became ill after consuming the drink and sued Haven. Haven, in turn, tried to involve Evanston under its insurance policy. However, the insurance policy contained a clause stating that it didn't apply to situations involving the "dispersal" of "pollutants." So the debate, of course, was over whether the presence of the liquid nitrogen in the drink, added to give the drink a "smoking" appearance, was the introduction of a pollutant that disqualified the insurance policy from applying. The policy described a "pollutant" as, among other things, an "irritant," and the court concluded that the liquid nitrogen was an irritant, as a dangerous and hazardous chemical likely to cause at least some irritation. Therefore, its dispersal into the drink was a circumstance that excluded Mrs. Kaufman's injury from insurance coverage under the policy.
In Celebration Church, the insurance policy in question excluded coverage for theft of precious metals. Celebration Church had a number of rooftop air conditioning units whose condensers were stolen. The condensers each contained coils made of one of the precious metals excluded from the insurance policy. Therefore, the insurance company refused to pay out under the policy. The court found the insurance company was justified in its reading of the contract. Although the theft of the air conditioning units extended to thievery beyond just a "precious metal," the court concluded that the only common sense reading of the clause was that the insurance policy did not apply to any damage caused by a theft of precious metals, and the court further concluded that the theft of the air conditioning condensers was to obtain the precious metal inside, so their entire theft was excluded.
The lesson is clear: Those insurance policy exclusions can really come back to haunt you.
(Also, avoid liquid nitrogen in your cocktails, I think.)
Wednesday, October 21, 2015
Amazon is suing approximately 1,000 individuals who are allegedly in breach of contract with the Seattle online retailer for violating its terms of service. Amazon is also alleging breach of Washington consumer protection laws.
In April, Amazon sued middlemen websites offering to produce positive reviews, but this time, Amazon is targeting the actual freelance writers of the reviews, who often merely offer to post various product sellers’ own “reviews” for as little as $5. (You now ask yourself “$5? Really? That’s nothing!” That’s right… to most people, but remember that some people don’t make that much money, so every little bit helps, and numerous of the freelancers are thought to be located outside the United States.) The product sellers and freelancers are alleged to have found each other on www.fiverr.com, a marketplace for odd jobs and “gigs” of various types.
There are powerful incentives to plant fraudulent reviews online. About 45 percent of consumers consider product reviews when weighing an online purchase. Two-thirds of shoppers trust consumer opinions online. For small businesses, it can be more economical to pay for positive reviews than to buy advertising. For example, a half-star increase in a restaurant's online rating can increase the likelihood of securing, say, a 7 p.m. booking by 15 to 20 percent. “A restaurateur might be tempted to pay $250 for 50 positive reviews online in the hopes of raising that rating.”
As law professors, we are not beyond online reviews and thus potential abuses ourselves. See, for example, www.ratemyprofessor.com. There, anyone can claim that they have taken your course and rank you on your “Helpfulness,” “Clarity,” and “Easiness,” give you an overall grade as well as an indication of whether you are hot or not (clearly a crucial aspect of being a law professor…) To stay anonymous, people simply have to create a random anonymous sounding email address. Not even a user screen name appears to be required. Hopefully, that website does not have nearly as much credibility as, for example, Yelp or TripAdvisor, but the potential for abuse of online reviews is clear both within as well as beyond our own circles.
As shown, though, some companies are taking action. TripAdvisor claims that it has a team of 300 people using fraud detection techniques to weed out fake reviews. But fraudulent reviews aren't thought to be going away anytime soon. One source estimates that as many as 10-15% of online reviews are fake (to me, that seems a low estimate, but I may just be a bit too cynical when it comes to online reviews).
So, next time you are reading reviews of a restaurant online, I suppose the learning is that you should take the reviews with a grain of salt.
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.