Tuesday, December 2, 2014
Ilya Shapiro at the Cato Institute posted last week about Century Exploration v. United States, decided by the Federal Circuit on March 14, 2014. Century Exploration (Century) acquired a lease for an oil field in the Gulf of Mexico. It paid $23 million up front, plus $50,000 per year of the lease. Century sought to protect itself against possible changes in applicable laws governing such leases through a contractual provision that no changes in law, other than reulgations created pursuant to the Outer Continental Shelf Lands Act (OCSLA), would affect Century's rights under the lease.
In the wake of the Deepwater Horizon fire, Congress passed the Oil Pollution Act (OPA), which required oil exploration companies to develop worst case scenarios and certify that they have reserves adequate to address such worst cases. Using a methodology required by the Interior Department, Century would have to have $1.8 billion on hand to deal with such a worst case. When Century could not prove that it had such funds, the government sought to cancel the lease. Century brought suit, relying on the contractual provision that protected it against regulatory changes, such as those promulgated pursuant to the OPA. Ilya Shapiro questions whether the directives from the Interior Department even qualify as government regulations, as they were sent via e-mail by "a civil servant in the Interior Department." The government filed for summary judgment, and both the Court of Federal Claims and the Federal Circuit sided with the government.
The Federal Circuit acknowledged that this case involves a lease provision nearly identical to that at issue in Mobil Oil Exploration & Producing Southeast, Inc. v. United States, 530 U.S. 604 (2000). However, in this case, the Federal Circuit found that the new regulations were actually promulgated pursuant to the OCSLA rather than the OPA. As such, they were within the carve-out to the contractual provision protecting Century against regulatory changes. In short, the Federal Circuit found this case distinguishable from Mobil Oil because of the nature of the regulations at issue.
To see in detail why the Cato Institute disgrees with that holding, you can have a look at its amicus brief. Ilya Shapiro provides the following summary:
First, it is vital to the smooth operation of the government and the health of the economy that private entities are confident that the government will honor its contractual promises. Federal spending on contracts has totaled roughly $500 billion annually since 2008—or 15% of the federal budget. If businesses and individuals have no reason to believe that the government will live up to its business obligations, they’ll have no reason to work with it. The Federal Circuit’s decision, which condoned the government’s flagrant breach of its contract with Century, sets a bad example and must be reversed.
Second, and quite simply, words have meaning—in the Constitution, in statutes, and yes, in contracts. A “regulation” is a formal rule adopted and issued by an authorized agency, in accordance with strict procedural protocols. It’s not a casual email. Giving informal government policy documents created by civil servants the full weight of the law is unconstitutional, undemocratic, and unsustainable.
Monday, November 24, 2014
File this under "Nice!" According to this report in the Durham Herald Sun, the parents of a child who has been prohibited from attending his private school, the Mount Zion Christian Academy, are suing the school for breach of contract. The allegations of breach are based on the fact that the child's parents are paying tuition, but their son is forbidden to attend his school.
And what has the child done to earn this suspension? Nothing! His parents were informed that the child would not be permitted to attend school becasue his father had traveled to Nigeria, and the school did not want to risk the spread of ebola. The school took these precautions despite the fact that:
- there is no ebola in Nigeria;
- the father had no contact with anyone with ebola;
- the father was screened at the airport and cleared.
The superintendent of schools failed to appear at a hearing and a judge ordered the school to allow the child to return
According to this story from the Spokane Spokesman Review, an Idaho judge has thrown out as invalid a $60 million contract that the state entered into with Education Networks of America (ENA) and Qwest to provide a broadband network that would link every Idaho high school. The plaintiff in the case, Syringa, had partnered with ENA on one of the two bids on the contract, but when the state awarded the contract to ENA, it cut Syringa out of the allocation of work in the contract. The court found this a violation of state procurement law.
Sandra Troian a physicist at CalTech, has filed a complaint against the school, alleging violations of the California whistleblower protection statute and breach of contract, among other things. Troian alleges that she had reported that the school had been infiltrated by a spy who was sending classified information to the Israeli government. Troian alleges that the school ignored her because it did not want to endanger a large contract with Jet Propulsion Laboratories. She further alleges that the school has retaliated against her for blowing the whistle.
Wednesday, November 19, 2014
Megan Bittakis, Duty under Negligent Breach of Contract Claims, 62 Drake L. Rev. 619 (2014).
Hong-Sik (Justin) Chung, Government Procurement in the United States--Korea Free Trade Agreement: Great Opportunities for Both Sides? 34 Nw. J. Int'l L. & Bus. 299 (2014).
James E. DeFranco, The Penalty for Failing to Submit to an Examination under Oath, 38 S. Ill. U. L.J. 261 (2014).
David K. DeWolf, The Development of Insurance Bad Faith in Washington, 49 Gonz. L. Rev. 479 (2013/2014).
William E. Foster & Emily Grant, Memorializing the Meal: An Analogical Exercise for Transactional Drafting, 36 U. Haw. L. Rev. 403 (2014).
Adam J. Hirsch, Formalizing Gratuitous and Contractual Transfers: A Situational Theory, 91 Wash. U. L. Rev. 797 (2014).
David A. Hoffman, Whither Bespoke Procedure? 2014 U. Ill. L. Rev. 389.
Cliff Holmes, The Unconstitutionality of the Close the Contractor Fraud Loophole Act of 2008, 66 Baylor L. Rev. 362 (2014).
Paul F. Kirgis, Bargaining with Consequences: Leverage and Coercion in Negotiation, 19 Harv. Negotiation L. Rev. 69 (2014).
Anjanette H. Raymond, Yeah, But Did You See the Gorilla? Creating and Protecting an Informed Consumer in Cross-Border Online Dispute Resolution, 19 Harv. Negotiation L. Rev. 129 (2014).
Monday, November 10, 2014
According to this report on the International Business Times website, two children, through their mother, are suing Malaysia Airlines for breach of contract and negligence in connection with their father's death on Flight MH370. Plaintiffs allege that the airline breached a safety agreement that it entered into with their father and the other passengers on the flight.
As reported here in the Bellingham Herald, the Indiana Supreme Court heard arguments on October 30th about the state's contract with IBM to privatize its welfare services. The state was so disappointed with IBM's performance that it cancelled the contract three years into a $1.3 billion, ten-year deal. Friend of the blog, Wendy Netter Epstein (pictured), has written about this case in the Cardozo Law Review.
Sunday's New York Times Magazine has a cover story pondering whether lawyers are going to do to football what they did to tobacco. As an example of what this might look like we have this case filed on October 27, 2014 on behalf of Julius Whittier and a class of plaintiffs who played NCAA football from 1960-2014, never played in the NFL, and have been diagnosed with latent brain injury or disease. Mr. Whittier suffers from early-onset Alzheimer's. The complaint alleges, among other things, breach of contract, based on NCAA documents requiring each member instittuion to look after the physical well-being of student athletes.
Wednesday, October 8, 2014
Wednesday, October 1, 2014
In a recently unsealed ruling, the U.S. Court of Claims has awarded $1.1 million in damages for breach of contract to a former undercover Drug Enforcement Administration ("DEA") informant who was kidnapped in Colombia and held captive for more than three months.
Here's a flavor from the opening paragraphs of the 52-page decision:
This breach-of-contract action comes before the Court after a trial on damages. In its decision addressing liability, the Court determined that the Drug Enforcement Administration (“DEA”) breached an implied-in-fact contract and its duty of good faith and fair dealing by failing to protect Plaintiff, an undercover informant. During an undercover operation in Colombia, Plaintiff, known as “the Princess,” was kidnapped and held captive for more than three months. Plaintiff claims that her kidnapping and prolonged captivity caused the onset of her multiple sclerosis and seeks compensatory damages in the amount of $10,000,000 for financial losses, inconvenience, future medical expenses, physical pain and suffering, and mental anguish arising from Defendant’s breach.
Because Plaintiff demonstrated that Defendant’s breach of contract was a substantial factor in causing the Princess’ kidnapping and captivity, and triggering her multiple sclerosis, the Court awards the Princess the value of her life care plan, $1,145,161.47. Plaintiff failed to prove any other damages.
The decision covers a number of issues related to damages. For example, the court holds that it was reasonably foreseeable at the time of contracing that a DEA informant would be kidnapped in Colombia and suffer resulting health issues:
The inquiry under foreseeability in this case is whether Plaintiff's damages, namely her multiple sclerosis and the ensuing costs of her medical care, were reasonably foreseeable at the time of contract formation. Anchor Sav. Bank, FSB, 597 F.3d at 1361; Pratt v. United States, 50 Fed. Cl. 469, 482 (2001) (“Whether damages are foreseeable is a factual determination made at the time of contract formation.”) (citing Bohac v. Dep't of Agriculture, 239 F.3d 1334, 1340 (Fed.Cir.2001)). Hence, Plaintiff must show that both the kidnapping, her ensuing health problems, and consequential financial costs of medical care constituted the type of loss that was reasonably foreseeable when the parties formed their implied-in-fact contract.
Plaintiff has established that her kidnapping was reasonably foreseeable at the time the contract was entered into. From the outset ASAC Salvemini voiced concerns for the Princess' safety, and DEA moved her family because of the dangers of her operation as part of her agreement to work with DEA. Evidence revealed that kidnappings were not uncommon in Colombia at the time. 2007 Tr. 270 (Princess); 2007 Tr. 1523 (Warren) (“[W]e got the report [the Princess] had been abducted. That was not an unusual report in Colombia then or now unfortunately.”). Plaintiff established that harm to undercover informants, including injury and death, were reasonably foreseeable consequences of a breach at the time of contract formation.
Knowing, as DEA did, of the dangers inherent in undercover operations aimed at highechelon Colombian traffickers, especially kidnapping in Col ombi a–a “hot spot”–the Princess' kidnapping and resultant harm to her health was a reasonably foreseeable type of injury at contract formation. The Court recognizes that DEA likely did not specifically foresee that the injury would be multiple sclerosis, but this is not a requirement for a showing of foreseeability. Anchor Savings Bank, FSB, 597 F.3d at 1362–63 (noting that “the particular details of a loss need not be foreseeable,” as long as the mechanism of loss was foreseeable) (quoting Fifth Third Bank v. United States, 518 F.3d 1368, 1376 (Fed.Cir.2008)).
Not the ordinary intrigue of the average contracts case.
SGS-92-X003 v. U.S., No. 97-579C (Ct. of Fed. Claims, filed Aug. 30, 2014)(republished Sept. 26, 2014).
Wednesday, September 17, 2014
Thursday, August 7, 2014
It is not often that the Supreme Court of the United States entertains a contract issue (which is, coincidentally, one of the main reasons it is such a delight to teach contract law). The Supreme Court did, however, recently settle a contract dispute of its own.
The curious case of the trapezoidal windows at the U.S. Supreme Court is closed.
Documents filed recently in lower courts indicate that a contentious seven-year dispute over mistakes and delays in the renovation project at the high court has been settled.
“Everybody was worn out by the litigation,” Herman Braude of the Braude Law Group said this week. Braude represented Grunley Construction Company, the main contractor for the modernization project on the nearly 80-year-old building. “All good things have to come to an end,” he said.
The most contested feature of the litigation was the belated discovery by contractors that more than 150 large windows, many of which look out from justices’ chambers, were trapezoidal—not strictly rectangular. The building's persnickety architect, Cass Gilbert, designed them that way so they would appear rectangular from below, both inside and outside the building.
But Grunley and its window subcontractor failed to measure all four sides of the windows before starting to manufacture blast-proof replacements, so some of them had to be scrapped.
Grunley claimed it was not obliged to make the measurements, asserting that the government had “superior knowledge” of the odd shape of the windows that it should have shared with contractors. The company asked for an extra $757,657 to compensate for the extra costs of fabricating the unconventional windows.
But the federal Contract Appeals Board in 2012 rejected Grunley’s claim, stating: “We find inexcusable the firms’ failure to measure a necessary component of the windows prior to installation.”
Grunley appealed to the U.S. Court of Appeals for the Federal Circuit and placed other contract disputes before that court and the U.S. Court of Federal Claims. Both sides eventually agreed to settlement negotiations.
In February, both parties reported to the federal circuit that “the parties are now in the final process of closing out the underlying construction contract and settling various requests for equitable adjustment.” They also told the federal circuit that “the settlement discussion are at a very high level between the parties … and are being primarily led by the principals of each party, not the litigation counsel.”
Subsequent orders by both courts have dismissed the litigation, but no details of the settlement are available on the docket of either court.
Attempts to obtain details of the settlement have been unsuccessful so far. The Architect of the Capitol—the congressional agency that has jurisdiction over the Supreme Court building and was the defendant in the litigation—did not respond to a request for comment. The U.S. Department of Justice’s civil division, which handled the litigation for the architect's office, did not respond as of press time, and neither did anyone from the Supreme Court.
Braude, Grunley's attorney, was reluctant to give details. “The dollar figure doesn’t matter,” he said. But when pressed, Braude said his client “got some” of the $15 million in extra compensation it was seeking from the government, beyond its original $75 million contract for the work.
“Everybody agreed to an adjusted contract price that recognizes the budget limitations of the government,” Braude said, adding that the settlement was “satisfactory to all parties. Nobody was jumping for joy, but everybody was a little happy.” Braude also said the Supreme Court signed off on the settlement.
John Horan of McKenna Long & Aldridge, an expert on government contract disputes, said there is no general rule about the confidentiality of settlements, and sometimes “the government doesn’t go out of its way to make settlements public.” But a document spelling out terms of the agreement is sometimes made part of the public record or can be obtained through the Freedom of Information Act, he said. The Supreme Court and the Architect of the Capitol, an arm of Congress, are exempt from the FOIA.
The modernization project at the Supreme Court broke ground in 2003 and the target completion date was 2008, though some follow-up work is still underway. The court's aging infrastructure—including one of the oldest Carrier air-conditioners in existence—was the trigger for the project, which has cost an estimated $122 million overall.
More here. Great basis for an exam hypo. And, wow! -- to be the attorney that sues the Supreme Court!
Tuesday, July 8, 2014
SSRN Top Downloads For LSN: Contracts (Topic)
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Thursday, June 26, 2014
1:00 PM - 2:30 PM ET
1.5 CLE credits requested
Section of Public Contract Law
This program will provide an introductory review on the federal procurement bid protest process, with a focus both on the procedural complexities of bid protest litigation, as well as a high-level review of the types of substantive legal issues that frequently arise in bid protests.
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Wednesday, June 11, 2014
Ian Ayres & Alan Schwartz, The No-Reading Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014)
Steven J. Brams & Joshua R. Mitts, Law and Mechanism Design: Procedures to Induce Honest Bargaining, 68 N.Y.U. Ann. Surv. Am. L. 729 (2013)
Andrea M. Matwyshyn, Privacy, the Hacker Way, 87 S. Cal. L. Rev. 1 (2013)
Julianna Thomas McCabe, et al., Recent Developments in Appellate Advocacy. 49 Tort Trial & Ins. Prac. L.J. 53 (2013)
Wednesday, June 4, 2014
Mary Simmons Mendoza, Managing Environmental Risks in Transactions. 43 Tex. Envtl. L.J. 305 (2013)
Meredith M. Render, Complexity in Property, 81 Tenn. L. Rev. 79 (2013)
Adam G. Yoffie, There's a New Sheriff in Town: Commissioner-Elect Adam Silver & the Pressing Legal Challenges Facing the NBA through the Prism of Contraction, 21 Jeffrey S. Moorad Sports L.J. 59 (2014)
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.
Friday, May 16, 2014
Kevin E. Davis, moderator; Nicholas Bliss, Chantal Kordula, Kent Rowey, Ana Karina Esteves de Souza, & Carlos Umana, panelists, Public Private Partnerships in International Energy & Infrastructure Project Finance, 9 N.Y.U. J.L. & Bus. 729 (2013)
David G. Epstein, Timothy Archer & Shalayne Davis, Extrinsic Evidence, Parol Evidence, and the Parole Evidence Rule: A Call for Courts to Use the Reasoning of the Restatements Rather than the Rhetoric of Common Law, 44 N.M. L. Rev. 49 (2014)
Franco Ferrari, moderator; Matthieu de Boisseson, Inka Hanefeld, Mark Kantor, Ryan Reetz & Laurence Shore, panelists, Multi-Party Arbitration Issues in International Project Finance Arbitration, 9 N.Y.U. J.L. & Bus. 759 (2013)
Inka Hanefeld, Arbitration in Banking and Finance, 9 N.Y.U. J.L. & Bus. 917 (2013)
Stephen A. Plass, Using Pyett to Counter the Fall of Contract-Based Unionism in a Global Economy, 34 Berkeley J. Emp. & Lab. L. 219 (2013)
Val Ricks, Consideration and the Formation Defenses, 62 U. Kan. L. Rev. 315 (2013)
Arpan A. Sura & Robert A. DeRise, Conceptualizing Concepcion:The Continuing Viability of Arbitration Regulations, 62 U. Kan. L. Rev. 403 (2013)
Wednesday, May 7, 2014
Kathryn Albergotti and Sascha Yim, He Said She Said: Parol Evidence of Fraud Is Admissible to Prove the Invalidity of a Contract--Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass'n, 40 Wm. Mitchell L. Rev. 135 (2013)
Enrico Baffi, Efficient Penalty Clauses with Debiasing: Lessons from Cognitive Psychology, 47 Val. U. L. Rev. 993 (2013)
Deborah Burand, Globalizing Social Finance: How Social Impact Bonds and Social Impact Performance Guarantees Can Scale Development, 9 N.Y.U. J.L. & Bus. 447 (2013)
John C. Murray, and Randall L. Scott, Enforceability of Carveouts to Nonrecourse Loans: An Evolution, 48 Real Prop. Tr. & Est. L.J. 217 (2013)
Wednesday, April 16, 2014
Kenneth A. Adams, Dysfunction in Contract Drafting: The Causes and the Cure (Reviewing Mitu Gulati & Robert E. Scott, The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design (2013)), 15 Transactions: The Tenn. J. of Bus.L. 317 (2014)
Andrea J. Boyack, Sovereign Debt and The Three and A Half Minute Transaction: What Sticky Boilerplate Reveals about Contract Law and Practice (Reviewing Mitu Gulati and Robert E. Scott, The Three and A Half Minute Transaction: Boilerplate and the Limits of Contract Design), 35 Whittier L. Rev. 1 (2013)
Richard R.W. Brooks, On the Empirical and the Lyrical: Review of Revisiting the Contracts Scholarship of Stewart Macaulay (Edited by Jean Braucher, John Kidwell & William C. Whitford) 2013 Wis. L. Rev. 1295-1354.
THE 2013 RANDOLPH W. THROWER SYMPOSIUM
Privatization: Managing Liability and Reassessing Practices in Local and International Contexts
Alex Kozinski & Andrew Bentz, Privatization and Its Discontents
Preston C. Green III, Bruce D. Baker, Joseph O. Oluwole, Having It Both Ways: How Charter Schools Try to Obtain Funding of Public Schools and the Autonomy of Private Schools
Alexander Volokh, Prison Accountability and Performance Measures
Wednesday, April 2, 2014
James D. Rendleman, Brave New World of Hosted Payloads, 39 J. Space L. 129 (2013)
Maj. Travis P. Sommer, Getting the Job Done: Meaningfully Investigating Organizational Conflicts of Interest, Army Law. 16 (2013)
The Perspective of Law on Contract
88 Wash. L. Rev. 1227
Contract Texts, Contract Teaching, Contract Law: Comment on Lawrence Cunningham, Contracts in the Real World
Brian H. Bix
88 Wash. L. Rev. 1251
Lawrence A. Cunningham
88 Wash. L. Rev. 1265
Contract Stories: Importance of the Contextual Approach to Law
Larry A. DiMatteo
88 Wash. L. Rev. 1287
Contract as Pattern Language
Erik F. Gerding
88 Wash. L. Rev. 1323
Cases and Controversies: Some Things to Do With Contracts Cases
Charles L. Knapp
88 Wash. L. Rev. 1357
Unilateral Reordering in the Reel World
88 Wash. L. Rev. 1395
Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students
Jennifer S. Taub
88 Wash. L. Rev. 1427
Saturday, February 22, 2014
I had the pleasure of chairing a panel populated by four young scholars all writing on Behavior, Bargaining, Incentives and Contract.
Kenneth Ching went first with his paper on Justice and Harsh Results: Beyond Individualism and Collectivism in Contracts. His paper focused on Cardozo's celebrated opinion in Jacob & Youngs v. Kent in which Cardozo held that, although Jacob & Youngs had not installed Reading pipes as called for in the contract, it had nonetheless substantially performed the contract by installing pipes of similar quality. Professor Ching maintains that Cardozo was wrong on both the facts and the law in the case. The contract in the case made clear that complete performance was a condition of payment, and the law was clear (then and now) that there can be no substantial performance of a condition. Moreover, even if it were possible to substantially perform conditions, Jacob & Youngs did not do so, as Cardozo would have noted had he actually applied the test to the facts of the case.
The case is but a gateway to Professor Ching's larger point about collectivist and individualist approaches to contracts law. Judge Cardozo's opinion seems to take a collectivist (or parternalist) approach to the doctrinal problems that the case raises. That is, Cardozo thinks we are all better off if people aren't held to unreasonable terms that would require the destruction of a home to replace pipes with virtually identical pipes. Judge McLaughlin's dissent seems to be more individualist, focusing on Kent's perspective and his right to insist on the contracts rights for which he had bargained. Professor Ching's approach rejects both collectivist and individualist approaches. He favors a Thomist approach that tries to resolve conflict in line with reason and with the goal of promoting human flourishing. Cardozo's opinion might be attractive from a Thomist perspective. Responding to a question, Professor Ching acknowledged that James Gordely, whose approach informs Professor Ching's, would find for Jacob & Youngs based on unconscionability. Still, Professor Ching maintains, Judge Cardozo reached the wrong result because of his mischaracterization of the facts and the law.
Next up was Andrew Verstein who gave a (his first ever) Prezi presentation (which was super cool) on Ex Tempore Contracting. His paper takes on a tradition that distinguishes between ex ante and ex post approaches to contracts interpretation. In the former, the parties specify how the contract is to be interpreted ("use Reading pipes"), and in the latter, the parties delegate interpretation to an adjudicator ("use merchantable pipes"). In the ex ante approach, the parties determine the meaning of the terms; in the ex post approach, some neutral third party (court or arbitrator) determines the meaning. Ideally, parties decide between precise (ex ante) terms and vague (ex post) terms based on the costs and benefits of choosing specific terms in particular contexts. Parties should draft to minimize the sum of ex ante and ex post costs.
But Professor Verstein contends that there is middle ground between before performance and after (alleged) breach. Some contracts disputes can be resolved during performance. The parties can specify that a particular third party will resolve disputes that arise during performance (ex tempore), and they can be resolved whether the terms are superficially vague or superficially precise. The aim remains to reduce the costs of dispute resolution, and there are many situations in which it is most efficient for the parties to agree to ex tempore dispute resolution, especially in construction agreements. Professor Verstein illustrates this point with the case of the Chinese Ertan Dam, a huge construction project. All disputes relating to that dam were resolved within six months of the dam's completion. This fact is attributable to the existence of netural expert panels (dipute boards) that addressed disputes as they arose and were able to sort out most disputes before the parties became too aggrieved. Reviewing Florida dispute boards, Professor Verstein finds that 98% of disputes are resolved without further conflict and the cost is 10-50% of arbitration. This is not really dispute resolution, Professor Verstein contends; it is ex tempore contracting. And, it turns out, this happens a lot more often than we realize.
Professor Verstein's paper is forthcoming in the William & Mary Law Review and can be downloaded here.
Wendy Netter Epstein next presented her paper on Public Private Contracting and the Reciprocity Norm. Professor Epstein's thesis is that in some public private contracts it is very difficult for the government to reduce agency costs by writing more detailed contracts. Picking up on Professor Verstein's theme, Professor Epstein contends that in certain circumstances it is better to have less detailed contracts with mechanisms for ongoing dispute resolution during contract performance. This approach is most appropriate where there is a shallow market (i.e., very few private contractors bid), a narrow application (e.g., private prisons) or a disempowered group of third-party beneficiaries (e.g., welfare recipients).
While a lot of scholarship has focused on the need for more detailed contracts in this context so as to provide for strong oversight of private actors working in the public interest. Professor Epstein suggests that the result has been to increase the size and complexity of government contracts. However, this solution does not work well because, where there is no well-functioning market, the government cannot effectively moitor and discipline private contractors. Moreover, one point of outsourcing is to promote innovation and creativity, and excessive government monitoring of private contractors undermines that aim. Professor Epstein drawns on research in the behavioral sciences and contends that reciprocity norm, which rewards people for kind actions, constrains actors more powerfully than models based on rational actors would predict. She thus thinks that strict enforcement mechanisms and sanctions regimes often undermine cooperation in the public private contracting context. Governments might be better served by communicating their positive intentions towards private contractors by entering into looser contracts that would permit the parties to chart the course of the collaboration on an on-going basis as the project proceeds.
Finally, Eric Zacks presented a paper on The Moral Hazard of Contract Drafting. One party to a contract can act opportunistically as an economic agent of the other party. The agency relationship arises when one party asks the other party to draft the agreement. That is a delegation of authority that would then be ratified upon acceptance. The danger of agency costs arises in that there may be a disparity between the contract as conceived and the contact as written.
There may be economic value in having one party be the contract preparer. For example, that party might have greater experience and expertise in contract preparation. But the drafter may write the contract is such a way as to enable it to take advantage of the other party after performance has begun. Then the question arises whether the principal (the non-drafting party) is able to monitor the agent (the drafting party). For example, in consumer contracts, it seems unlikely that non-drafting consumers would be capable of both foreseeing and monitoring the agency costs involved in allowing sellers to draft consumer contracts. One solution is for the principal to hire an agent (e.g., a lawyer) to monitor the contract. Or there might be outside monitoring services to prevent opportunistic behavior, such as regulatory agencies or courts, or statutory requirements that certain transactions be written in plain language.
Courts are less likely to intervene when they think the principal (non-drafting party) is sophisticated and has the means to protect itself against opportunistic behavior by the agent (drafting party). In the contractual context, we have more limited ways to discourage opportunistic behavior through incentives for good behavior.
Those not satisfied with this summary of Professor Zacks' argument can download the entire thing here.
Wednesday, February 12, 2014
Fabrizio Cafaggi, The Regulatory Functions of Transnational Commercial Contracts: New Architectures, 36 Fordham Int'l L.J. 1557 (2013)
Jianlin Chen, Challenges in Designing Public Procurement Linkages: A Case Study of SMEs Preference in China's Government Procurement, 30 UCLA Pac. Basin L.J. 149 (2013)
Maksymilian Del Mar, Exemplarity and Narrativity in the Common Law Tradition, 25 Law & Lit. 390 (2013)
Steven L. Schooner, Reflections on Comparative Public Procurement Law, 43 Pub. Cont. L.J. 1 (2013)
Pedro Telles, The Good, the Bad, and the Ugly: The EU's Internal Market, Public Procurement Thresholds, and Cross-Border Interests, 43 Pub. Cont. L.J. 3 (2013)
Tuesday, February 4, 2014
According to this article from The New York Times, Detroit filed suit on Friday, seeking to invalidate complex transactions that it used to finance its debts. Detroit claims that the contracts at issue were illegal and are thus unenforceable.
The transactions brought in $1.4 billion for the city, but it now claims that they were an unlawful scheme to get around a ceiling on the amount of debt the city could take on and that it thus has no obligation to make payments on the "certificates of participation" issued in connection with the transactions. Detroit is also seeking to cancel some related "interest-rate swaps" with two banks that obligate the city to pay tens of millions of dollars annually to the banks. Just a few weeks ago, Detroit had offered to pay $165 million to get out of the contracts, but the bankruptcy judge rejected that as "too much money." Paying nothing seems like a better deal for the city, if they can find a legal basis to get out of the obligation.