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.
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.