Monday, May 23, 2016
Is it unthinkable to you that George Zimmerman would seek to profit from killing Trayvon Martin? No? How about reneging on one contract if he were to get an even more lucrative one?
The latter has recently been shown to be the case. The former Florida neighborhood watchman who shot the unarmed teenager in 2012 has confirmed that he has accepted an auction bid for $250,000 for the gun with which he killed Mr. Martin. Before that, he had accepted a bid for $150,000 from a Florida bar owner for the same gun, but backed out of that deal when he got a better one. Says the bar owner, “I thought [Mr. Zimmerman] was a man of his word.”
The sale drew heavy criticism from people claiming that Mr. Zimmerman was seeking to profit from the sale. Gun rights advocates claim that Mr. Zimmerman is simply exercising his legal rights under the law.
Meanwhile, Mr. Zimmerman has displayed his apparent usual lack of social skills by accusing one gun auction website that refused to sell the gun of being “Nazi loving liberal liars ” (Huh? How would that work?). At least he promises to give some of the proceeds of the sale to “fight Black Lives Matter violence against law enforcement officers”…
No further comments are needed for this story.
From a Colonial Cemetery to a World War II Factory to Condos and a Spa: Environmental Concerns, Contract Releases, and Secret Underground Containers Are Just the Latest Chapter
(Photo from northjersey.com)
I use a lot of hypos in my class based on undiscovered buried containers of environmental hazards, and I feel like sometimes my students wonder if this is a thing that actually happens. Unfortunately, yes, as a recent case out of New Jersey, North River Mews Associates v. Alcoa Corp., Civil Action No. 14-8129, proves.
The case centers around a piece of land on which Alcoa had operated a manufacturing facility from 1917 to 1968, a facility once so central to East Coast industry that it had actually been placed on the National Register of Historic Places. The piece of land had been vacant since 1978 and became a popular site for people looking to photograph "modern ruins." It was eventually sold to North River Mews Associates and 38 COAH Associates (the Plaintiffs). Twenty years ago, the New York Times reported optimistically that the development deal would be a "win-win" the would help clean up the Hudson River shoreline. The site, however, has been plagued by a number of challenges and tragedies (several fires, workman injuries from freak accidents, etc.) that have led some people to talk about curses. (Well, it apparently had been built on an old graveyard dating back to colonial times.) The latest obstacle has now emerged in the form of, yes, previously undiscovered buried containers of environmental hazards.
The parties were well aware that the land would have environmental contamination, as the Times article makes clear. But the Plaintiffs had worked with the New Jersey Department of Environmental Protection and believed that the property had been remediated. In 2013, however, the Plaintiffs discovered two previously unknown underground storage tanks filled with hazardous materials. The property around the tanks seemed to indicate that at one point the tanks had attempted to be burned instead of properly disposed of. The presence of these tanks, needless to say, was never disclosed by Alcoa to the Plaintiffs.
Alcoa's stance, however, is that the purchase contracts for the land released them from liability for various claims brought against them. The court disagreed at this motion to dismiss stage, finding that the language was ambiguous. The release in the contract stated that the Plaintiffs waived the rights "to seek contribution from [Alcoa] for any response costs or claims." The court said that it was unclear whether the contribution language modified only response costs or whether it modified both response costs and claims. Was this a blanket release of all claims, or only a release of the right to seek contribution? This question, the court concluded, could not be determined on a motion to dismiss.
At any rate, the Plaintiffs also alleged that Alcoa concealed the presence of the underground tanks, fraudulently inducing them to enter into the contracts, and the court concluded that, if true, that would be grounds for the release to be vitiated.
This case is a great example of how long environmental issues, development deals, and contractual disputes can drag on. In 1997, the parties signed the purchase contract. Today, the parties are still trying to clean up the site and fighting over which of them ought to pay for it, with language drafted twenty years ago taking center stage. As the case continues, it will of course likely become relevant who knew about the storage tanks and when, and I am curious to see if the tanks can be dated. Since Alcoa apparently ceased using the site for manufacture in the 1960s, it will be interesting to see how much knowledge from that time period still exists. It's the latest chapter in the history of a plot of land that seems to have been a busy place for centuries.
Thursday, May 19, 2016
Another one bites the dust. GM is the most recent car company having to admit that it has reported overly optimistic figures about the gas mileage of, in this case, some of its 2016 SUVs sold in retail trade. Before GM, there was obviously VW, but also Mitsubishi, Hyundai, and Ford, all in the span of the past two years.
GM is temporarily halting sales of about 60,000 new 2016 SUVs because the vehicles' labels overstated their fuel efficiency. The 1-2 miles per gallon mileage overstatement was the result of improper calculations, according to GM. The company plans to compensate owners for the difference in miles per gallon and announce the program in the coming week.
Does this suffice as a remedy? Arguably, no one buys an SUV because of its low gas mileage, so in this case in contrast to the VW “dieselgate,” an argument that a customer bought a car because of its fuel efficiency is less plausible. But should that let GM off the hook in this case simply by saying that it will compensate for the fuel difference? How can an accurate prediction of what that will be over the time the SUV owners keep the car even be made? - For presumably, GM is not only planning to compensate the owners for the past difference, thinking that owners can now simply sell the cars if they are no longer satisfied with them? That seems unfair to the buyers as it is common knowledge that one cannot recover the value paid for a brand new case as with these 2016 models. Should criminal liability lie? OK, perhaps not for the 1-2 mile difference, but what about the systematic fraud committed by VW? Shouldn’t someone be held criminally liable for that?
Of course, a class-action lawsuit has been brought by some buyers. Has time come for everyone – the EPA, car makers, and car buyers – to realize that there is really only so much that can be done with the fuel efficiency of regular-engine cars? After all, hybrids and now electric cars are widely available and will probably cover the needs of the vast majority of car buyers, few of whom really need an SUV. They get much better “fuel” mileage than cars with traditional engines. Still, extreme consumer fraud is committed by at least some (or one…) of these car makers. Reckoning time seems to have come.
Thursday, May 12, 2016
If you and I worked in an industry with highly sensitive information (assuming that we do not), it might be one thing if we thought we could email confidential information to our private email accounts and copy such information to a memory stick without finding out. But if a C-level employee at a high-tech company does so, does such conduct not rise to an entirely different level of at least naivety, if not deliberate contractual and employment misconduct?
A court will soon have to answer that question. Louis Attanasio, former head of global sales for an IBM cloud computing unit has been sued by IBM for breach of a contractual confidentiality clause, misappropriation of trade secrets, and violation of a non-compete agreement when he left – information in hand – to work for direct competitor Informatica.
In 2016, Attanasio allegedly started sending confidential information to his private email account, including draft settlement agreements between other IBM employees who had left to work for competitors. Before leaving IBM, Attanasio was asked to return a laptop to the company, which claims that he cpied files to a USB storage device.
Once again, the extent of the traceability of our electronic actions at work has become apparent. I continually remind my students of this to help them avoid “traps” such as the above or, frankly, simply to remind them that they should not spend much, if any, time on their computers not working (most seem to use their own electronic devices anyway these days, but still… and doing so is also very visual in an office setting.). Employers frequently complain about the work ethics of new college graduates, so it might be worthwhile to remind our students of what seems obvious to us.
Wednesday, May 11, 2016
Contracts preventing consumers from filing class-action lawsuits against banks may soon be illegal if a proposed ruling by the Consumer Financial Protection Bureau takes effect. A hearing on the ruling will be held on Thursday, May 12, 2016.
For quite some time, clauses requiring consumers to arbitrate disputes with banks and banning class action lawsuits against banks in cases of disputes have been common. According to a prominent attorney to testify at Thursday’s hearing, one of the effects of required arbitration has been to make class action lawsuit highly unlikely. Of course, a contractual clause outright prohibiting class action suits means that if a consumer wants to litigate the dispute and arbitration, he or she would have to do so in an individualized suit. Because of the low amounts typical at issue in bank-v-consumer disputes, such clauses have had the effect of preventing litigation. Even if it comes to litigation between banks and consumers, “consumers can easily be outgunned” by savvy banks who additionally are said to “like to drag things out,” a problem when consumers at the same time have to take time off from work to litigate.
The proposed rule would not ban arbitration clauses. Rather, it would prevent contract clauses from including language that bans consumers from joining class-action cases. Such bans are common, and they have become more widely enforced since the United States Supreme Court in 2011 held that the FAA requires state courts to honor bans even if state law prohibits them.
According to Consumer Bureau Director Richard Cordray, "signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong." Cordray also calls the current practice a "contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing." The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness calls the proposed rules a “backdoor ban” on arbitration clauses, said to provide individual consumers the chance for “more financial relief than a class-action suit.” The Pew Charitable Trusts’ Consumer Banking Project states that it is probably true that banks will ditch arbitration clauses if the CFPB’s rules take effect, but “consumers will probably be just fine.”
Friday, May 6, 2016
Nevertheless, the court refused to enforce the provision. The court noted that part of the test in evaluating whether to enforce a choice-of-law provision is to consider whether California's law would be contrary to the "fundamental policy" of Illinois's law and, if so, whether Illinois would therefore have a "materially greater interest" than California in the case at issue. Here, Illinois is one of only a few states with a statute concerning biometrics; California has no such statute. The court found that Illinois's BIPA represented a fundamental policy of Illinois to protect its residents from unauthorized use of their biometrics, and that applying California law here instead of Illinois law would interfere with Illinois's policy. In fact, the court noted, enforcing the choice-of-law provision would effectively eliminate any effectiveness of BIPA whatsoever, because there would be no ability for Illinois residents to protect themselves against national corporations like Facebook. Therefore, the court found, Facebook has to deal with Illinois's BIPA, regardless of Facebook's attempts to limit the relevant laws of its service to only California's laws.
This all leaves for another day whether the Tag Suggestions program actually does violate BIPA.
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, April 25, 2016
My love for HGTV is real and enduring. It started as a House Hunters addiction when I was a practicing lawyer looking for something mindless to watch when I got home at night and it has seriously spiraled out of control. I find something soothing about the formulaic nature of the shows; their familiarity is like a security blanket to me. And I've also realized that I've actually learned a lot about my taste. For what it's worth, I do feel like HGTV has made me think more about how I decorate my house, even if I can't afford a professional decorator.
So I gobbled up with interest every single article I could find on the recent "Love It or List It" lawsuit. If you don't know the show, it's one of my favorites for the snark between the competing real estate agent and designer. One half of a home-owning couple wants to renovate their existing home; the other half wants to give up and move away. Enter the "Love It or List It" team, showing the couple houses they could buy while simultaneously renovating their home. The theory is that the couple can then decide to love it, or list it.
I entertain no illusions about the "realness" of reality television (really, mostly I've learned from reality television that apparently an enormous number of people are tremendously good actors - while others are decidedly not), but this recent lawsuit attacks not just the "realness" of reality television but practically the *definition* of it: "Love It or List It," the homeowners accuse, were much more interested in making a television show than they were in renovating this couple's home. On at least some level, this lawsuit seems to be a challenge to what "Love It or List It" is: a television show or a general contractor.
As a general contractor, the homeowners weren't too happy with the show's performance. They allege shoddy work on their house, including low-quality product, windows that were painted shut, and holes big enough for vermin to fit through. (They also allege their floor was "irreparably damaged," although I think they can't possibly mean that in the true legal sense of "irreparably," because surely the floor can be repaired?)
It seems to me this is going to come down to the contract between the parties. What did "Love It or List It"'s production company promise? I would love to see what the contract said about the work that was to be performed, how that work was to be performed, and what the financial arrangements were (since part of the couples' allegations is that a large portion of their money was diverted away from the renovations). However, for some reason, I have had an incredibly difficult time locating a copy of the complaint (never mind the contract). None of the stories I've found linked to it, and I have had zero luck finding it through Bloomberg Law's docket search.
Monday, April 18, 2016
I’ve recently finished writing a textbook on contract clauses which takes a different approach to teaching contracts. The book, to be published in September, uses contract clauses and case excerpts to introduce doctrinal concepts and to teach students how to problem solve. (I always thought it unfortunate that a typical 1L learns contract law without knowing what common contract clauses mean or how they relate to what they’ve been learning). One of the cases mentioned in my book is SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A. 3d 330 (Del. 2013). I’ve been meaning to blog about this case for some time now because it’s an important one for readers of this blog and corporate lawyers everywhere and illustrates the importance of using the right words in a contract.
SIGA and PharmAthene signed a term sheet for an eventual license agreement and partnership to further develop and commercialize an anti-viral drug for the treatment of small pox. The term sheet was not signed and contained a footer on each page that stated “Non Binding Terms.” Subsequently, the parties drafted a merger term sheet that contained the following provision:
“SIGA and PharmAthene will negotiate the terms of a definitive License Agreement in accordance with the terms set forth in the Term Sheet…attached on Schedule 1 hereto. The License Agreement will be executed simultaneously with the Definitive [Merger] Agreement and will become effective only upon the termination of the Definitive Merger Agreement.”
The license agreement term sheet was attached as an exhibit to the merger term sheet. On March 10, 2006, the parties signed a merger letter of intent and attached the merger term sheet and the license agreement term sheet.
On March 20, 2006, the parties entered into a Bridge Loan Agreement where PharmAthene loaned SIGA $3million for expenses relating to the merger and for costs related to developing ST-246. It stated the following in Section 2.3:
“Upon any termination of the Merger Term Sheet….termination of the Definitive Agreement relating to the Merger, or if a Definitive Agreement is not executed…., SIGA and PharmAthene will negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the License Agreement Term Sheet …and [SIGA] agrees for a period of 90 days during which the definitive license agreement is under negotiation, it shall not, directly or indirectly, initiate discussions or engage in negotiations with any corporations, partnership, person or other entity or group concerning any Competing Transaction without the prior written consent of the other party or notice from the other party that it desires to terminate discussions hereunder.”
On June 8, 2006, the parties signed the Merger Agreement which contained a provision nearly identical to section 2.3 of the Bridge Loan Agreement and provided that if the merger was terminated, the parties agreed to negotiate in good faith to enter into a license agreement with the terms of the License Agreement term sheet. The Merger Agreement also stated that the parties must use their “best efforts to take such actions as may be necessary or reasonably requested by the other parties hereto to carry out and consummate the transactions contemplated by this Agreement.”
Shortly thereafter, SIGA terminated the Merger Agreement and announced that it had received a $16.5million NIH grant. SIGA also proposed different licensing terms from those contained in the term sheet and argued that the license agreement term sheet was not binding because of the “Non-Binding” footer. PharmAthene sued -- and won. SIGA appealed and the Supreme Court of Delaware found that the “express contractual language” obligated the parties to “negotiate in good faith with the intention of executing a definitive License Agreement” with terms “substantially similar” to the terms in the license agreement term sheet.
The damages to PharmAthene ended up being around $200million– in other words, expectation damages. In order to stop PharmAthene from enforcing the judgment while undergoing the appeals process, Siga filed for Chapter 11 bankruptcy. Siga subsequently lost its second appeal to the Delaware Supreme Court, which upheld the award of expectation damages.
Last week, the U.S. Bankruptcy Court for the Southern District of New York approved a reorganization plan that sets the stage for SIGA to exit from bankruptcy. The judgment is expected to be satisfied by October 20, 2016.
A long and expensive road for SIGA which could have been avoided by paying more attention to the language used in the contract.
Friday, April 15, 2016
(image from IMDB)
Gilmore Girls fandom rejoiced when it was announced that the show would receive a revival on Netflix (and, even better, that it will include Sookie!). But, as often seems to be the case, developments that bring a fandom joy can come with legal entanglements. In this case, producer Gavin Polone's production company Hofflund/Polone has filed a lawsuit against Warner Bros., alleging breach of contract. The lawsuit, Hofflund/Polone v. Warner Bros. Television, Case No. BC616555 (behind paywall), was filed in the Los Angeles County, Central District, Superior Court of California.
The case revolves around the agreement between the parties concerning the original production of Gilmore Girls. The parties agreed, according to Hofflund/Polone, to provide Hofflund/Polone with "$32,500 for each original episode of Gilmore Girls produced in any year subsequent to 2003," along with some percentage of the gross and with "executive producer" credit. With the news of the recent Netflix revival, Hofflund/Polone allegedly reached out to Warner Bros. seeking compensation under the agreement. According to the complaint, Warner Bros. took the position that the Netflix version of Gilmore Girls is a derivative work based on the original series, and so therefore does not trigger compensation to Hofflund/Polone.
It's an interesting question that highlights one of the debates copyright scholars have: What, exactly, is a "derivative" work? Copyright owners have the exclusive right to reproduce their own works or works substantially similar to those works. They also have the right to produce derivative works based on those works, which, in the jurisprudence, has ended up using the same substantially similar standard to elucidate the "based on" language. Which means: what is the point of the derivative work right, if its standard seems the same as the reproduction right? This case has the potential to force confrontation with that problem: Where do we draw the line between infringement of the reproduction right and infringement of the derivative work right? When does a substantially similar work cross the line between reproduction and derivative work?
One thing that's been noted about the derivative work right is it tends to be talked about when there's some kind of change in medium or other kind of adaptation different from the original form (book to film, or translation from one language to another). The definition in the statute points us to that focus. Which raises the question: Is a Netflix revival more like a translation or adaptation of Gilmore Girls than it is like an exact copy of Gilmore Girls? Does this depend on how true it is to the original show?
The "television" landscape has shifted dramatically since Gilmore Girls premiered. It'll be interesting to see how contracts formed pre-Netflix-and-Amazon-production-era function going forward.
Tuesday, April 12, 2016
That's not usually a tagline you associate with insurance policies, but it nevertheless appears to be true.
I feel like I've been doing a lot of blogging about insurance policies lately. So it almost seemed inevitable to me when I received my latest Rec Center e-mail (if you're not signed up, you totally should be!) that there would be a link to an article about insurance policies. However, this article is about how the growing willingness of insurance companies to insure fantasy live action role playing (LARP) events may be helping those events to become more common. As it becomes easier for the average person to get insurance for a LARP event, those events become simpler and less risky to host. So, if you've been wanting to set up your own quest and re-enact some fantasy combat, you can now make sure that people are covered by insurance if they fall during the battle and break an arm. The article notes, by the way, that injuries at LARP events are rare. One of the insurance companies hasn't received a single claim in five years. So this seems like a win-win for everyone.
You should go read the article, it's really interesting, and a reminder that marijuana facilities aren't the only industry new-ish to the insurance area where policies need to be interpreted. Anything humans can dream up for fun can carry insurance policies with it. I guess they're kinda-sorta the equivalent of a healing spell or potion? (With a lot less magic.)
Tuesday, April 5, 2016
I recently blogged here about the healthcare insurance problem of patients not knowing ahead of time for what they will ultimately be charged and by whom. California is now introducing a bill (“AB 533”) seeking to prevent the problem of patients being unexpectedly charged out-of-network charges at in-network facilities when the facility subcontracts with doctors that are (allegedly) out-of-network.
The practice is widespread, at least in California. Nearly 25% of Californians who had hospital visits since 2013 have been very unpleasantly surprised with unexpectedly high bills after the fact for “out of network” services. This even after inquiring about the contractual coverage ahead of time and ensuring – or attempting to – that their providers were in network.
I personally had the same experience once as described in my recent blog. I also recently encountered a similar problem in South Dakota when, after asking about billing prices from an emergency room, was assured of one relatively modest price, only to be billed roughly ten times that amount a couple of months later for various unrecognizable items on the bill that the service provider, to add insult to injury, subsequently did not want to even discuss with me. (Yes, that is right: sick and in the emergency room, I was leery of hospital pricing and asked, only to still not get correct information.)
The onus of information-sharing should be on doctors and other medical provider. They should tell their patients if they are not in network, patients shouldn’t have to jump through an almost endless row of hoops just to find out their ultimate contractual obligations. Doctors will know immediately once you swipe your health insurance card, whereas patients have no way of knowing, as these stories show. Making matters even worse: what are patients supposed to do when they often don’t even see all the involved doctors ahead of time? Wake up during anesthesia and ask, “Oh, by the way, are you in network”? This practice is unconscionable and must stop. It is arguably an ethical obligation as well.
Because some hospitals, for instance, only accept employer-provided plans and not individual ones, some patients will always be out of network, thus allowing doctors to bill full charge. “This is a market failure. It allows doctors to exploit the monopoly that they have.”
Although it seems ridiculous, patients may, for now, have to turn the tables on the providers and scrutinize as many providers and facilities as they get in touch with 1) what the prices charged to the patients will be, and 2) if the providers are truly, actually, really in network (!).
Contractually, would patients win if they informed providers that they will only pay for in-network providers and only up to a certain amount? What else can a reasonable patient do in situations of such blatant greed and ignorance as these stories depict? Comment below!
Friday, March 11, 2016
I bet we'd have a lot fewer people fighting arbitration clauses if arbitration = tweeting J.K. Rowling.
As reported around the Internet, a student and her high school science teacher entered into a contract concerning whether Rowling would write another Harry Potter book. The contract called for the loser to declare the victor "Mighty" (a much more charming form of consideration than payment of a sum of money).
The article (from last month) reports that there were two possible Harry Potter pieces of creativity to be contended with. One is the prequel movie Fantastic Beasts and Where to Find Them. Rowling wrote the original textbook (which already existed at the time the contract was entered into and so isn't part of the dispute) and also wrote the screenplay for the movie, which could have been in dispute. However, the article points out that Rowling wrote the screenplay to the movie, and the contract concerns a Harry Potter "novel." Even if you wish to make an argument that screenplays should have been included in the definition of the contractual term "novel," it seems like Fantastic Beasts would fail because it does not "feature the character Harry Potter as part of the main plotline," as required by the contract. (At least, so I assume from what I know about the movie so far.)
The other piece of Harry Potter creativity being debated under the contract, and the one for which Rowling was called in to arbitrate, concerned Harry Potter and the Cursed Child, a play focusing on Harry as an adult and his relationship with his children, especially his son Albus. Cursed Child raised issues: It was a play but it is being billed as "the eighth story," the script will be published in text form, and the website claims it's "based on an original story by J.K. Rowling, Jack Thorne and John Tiffany." It does seem as if, considering this is a "play," even its published script would not be considered a "novel" under the contact. However, the student who was a party to the contract sought further clarification from Rowling.
Using the convenient method of Twitter, the student explained her contract to Rowling and asked for a decision on whether Cursed Child would fulfill the terms of the contract. Rowling responded, confirming that Cursed Child is a play and also noting that, while she had contributed to the story, Jack Thorne was the "writer" of the play.
The student was pleased that her clear contractual terms meant that she was still the victor, but also noted that the term of the contract had not yet run. Since the publication of the article and the arbitration of the Cursed Child dispute, J.K. Rowling has announced a new set of stories to be collected under the title History of Magic in North America. So far, these stories also seem not to fulfill the terms of the contract, as they seem more like "extra books" rather than "an entirely new book," and they do not seem to feature Harry Potter at all. However, Rowling seems to be dancing right around the edges of this contract's terms.
Friday, March 4, 2016
I am pleased to be able to post the following from guest blogger Creola Johnson of the Ohio State University Moritz College of Law:
“His promises are as worthless as a degree from Trump University,” said Mitt Romney during a speech denouncing Donald Trump’s candidacy for the presidency. This statement has prompted additional inquiries into lawsuits filed against Trump University by New York Attorney General Eric Schneiderman and others. (See Petition from New York v. The Trump Entrepreneur Initiative LLC.)
In a class-action lawsuit, many attendees of Trump University alleged that they paid as much as $35,000 to be personally mentored in learning how to earn millions investing in real estate. Despite numerous attempts by lawyers for the Trump defendants to get these lawsuits to dismiss, courts have given the green light for the lawsuits to continue against the Trump defendants. See, e.g., Makaeff v. Trump Univ., LLC, No. 10-CV-940-IEG (WVG), 2010 WL 3988684 (S.D. Cal. Oct. 12, 2010) (refusing to dismiss claims against the for-profit Trump program on educational malpractice grounds because the court was not convinced “Trump University” was “an educational institution to which this doctrine applies.”). For the most recent decision permitting Mr. Schneiderman’s case to proceed, go to: http://www.courts.state.ny.us/courts/AD1/calendar/appsmots/2016/March/2016_03_01_dec.pdf.
What can we say for sure at this juncture about the lawsuits? First, “Trump University” was not a university. There are numerous educational standards and laws that must be complied with for an institution to legitimately claim to be a university. The question then becomes: did the people running Trump’s real estate program (the Trump Program) make promises that arose to level of being a contract. For example, the consumer-plaintiffs alleged that the Trump Program promised that the instructors and mentors running the program would be “hand-picked by Donald Trump.” However, this promise was allegedly breached because most of the instructors and mentors were unknown to Mr. Trump and that they didn’t actually teach any real estate techniques.
We’ll have to wait for a court or jury’s finding regarding what promises were actually made by Donald Trump and the people running the Trump Program. The good news for the plaintiffs and Mr. Schneidermann is that they do not have to prove the existence of a contract. New York, along with every state, has laws that prohibit businesses from engaging in deceptive and unfair business practices.
Consumers should be leery of any language that appears to promise an educational outcome—e.g., “you will earn a six-figure salary after graduation.” While a state’s attorney general, such as Mr. Schneiderman, has the authority to make businesses stop deceptive practices, the attorney general may not be able to get back the money consumers have lost. If it sounds too good to be true, it probably is! For an in-depth discussion of deceptive degrees, see my article, Degrees of Deception: Are Consumers and Employers Being Duped by Online Universities and Diploma Mills?
President’s Club Professor of Law,
The Ohio State University Moritz College of Law
Tuesday, February 23, 2016
American Airlines has nonsuited (i.e., dismissed without prejudice to refilling the lawsuit) its declaratory judgment claim against Gogo. American had recently asked a Texas state court to determine whether the provision of the availability of "better service" (or some similar term) in its 2012 contract had been triggered such that American could force Gogo to submit a competitive bid to retain its service.
As discussed in a previous post, American's negotiating leverage arose as much from the publicity surrounding it filing of a lawsuit as it did from the actual contract term. The term was apparently vague enough that Gogo could (and did) take the position that its rights as American's exclusive in-flight service provider had not been called into question by American's request for a new proposal. Upon American's filing of a declaratory judgment lawsuit in Texas state court, however, Gogo's stock price dropped 27 percent.
Today, the word is out that Gogo has changed its position and accepted American's interpretation of the contract. The Fort Worth Star-Telegram reports:
[American Airlines had said] that its contract with Gogo allowed it to renegotiate or terminate its agreement if another company offered a better service. Gogo had disputed that clause in the contract, but Friday agreed to the contract provision and said it would provide a competitive bid within 45 days.
“American is a valued customer of Gogo, and Gogo looks forward to presenting a proposal to install 2Ku, our latest satellite technology, on the aircraft that are the subject of the AA Letter,” Gogo said in a government filing Friday. “We acknowledge the adequacy of the AA Letter and that our receipt of the AA Letter triggered the 45 day deadline under the agreement for submission of our competitive proposal.”
* * *
Once American reviews Gogo’s proposal, if it does not beat out a competitor’s proposal, American can terminate Gogo’s contract with 60 days’ notice.
Shares of Gogo [ticker: GOGO] jumped on the news of the dropped lawsuit, up almost 10 percent....
The swift manner in which this episode had played out emphasizes the extent to which contract doctrine and interpretation it frequently not the principal driver of business relationships. Gogo could have marshalled a team of lawyers and stood on its interpretation of the contract up to final judgment--likely a summary judgment based on a question of law. But what would be the reputational and business cost? Eventually, the marketplace won't allow contract rights to serve as a substitute for proof of the quality of a product.
A challenge I find in teaching future transactional lawyers is to ensure that they do not become enamored with legal rights as being the be-all and end-all of deal making. Law is important, but a business lawyer must employ practical wisdom, as well. That wisdom includes the fact that law itself is only one part of practicing law... and it sometimes isn't even the most important part.
Saturday, February 20, 2016
Speaking of contract law and Bitcoin, my colleague William Byrnes over at our sister blog, International Financial Law Prof Blog, reports on recent activity by the Federal Trade Commission in this area:
Butterfly Labs and two of its operators have agreed to settle Federal Trade Commission charges that they deceived thousands of consumers about the availability, profitability, and newness of machines designed to mine the virtual currency known as Bitcoin, and that they unfairly kept consumers’ up-front payments despite failing to deliver the machines as promised.
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“Even in the fast-moving world of virtual currencies like Bitcoin, companies can’t deceive people about their products,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “These settlements will prevent the defendants from misleading consumers.”
Read the entire post here. While the federal interest in regulating in the virtual currency space has most prominently been in the area of financial crimes, consumer protection is certainly not off the table as agencies like the FTC and (potentially more prominently) the Consumer Financial Protection Bureau explore their reach.
Wednesday, February 17, 2016
It's not a secret that some colleges and universities out there are really struggling. At Lake Superior State University in Michigan, where enrollment has been declining, two professors were recently denied tenure, as Josh Logue reported for InsideHigherEd. As required by the faculty association's agreement with the university, the denials set forth the reason tenure had been denied, and the reason given was the need for the university to reduce staffing in the face of the declining enrollment. The professors took issue with this reason for denial, however, because the agreement contained the following clause:
Recommendations for tenure shall be based on:
a) Careful review of the Tenure Application File [letters of support, CV, and evaluations].
b) Consideration of the faculty member’s collegiality in their relation to faculty, students, staff, and administration.
The professors are saying that that doesn't allow for denial of tenure based on another consideration, such as financial.
It's unclear whether there was a communication with the candidates beforehand that institutional need might impact the tenure decision. The contract doesn't seem to ever mention financial considerations impacting the faculty, or institutional need, or indeed any kind of catch-all, at first glance. It does, however, provide for an appeal of a tenure decision, so I'm curious if the denied candidates will take advantage of this, and what the eventual outcome will be.
Thursday, February 4, 2016
Although some things bear little direct relation to Contracts Law, they are still worth mentioning here for their inherent news value and for potential classroom use by creative law professors. Here’s one such story:
Both British and American studies show that women pay an average of… 48% more for items targeted for women compared to those for men. This “sexist pricing” pattern is reflected in, for example, razors costing 11% more for women than those for men, jeans allegedly 10% more (I would personally have thought more than that, but that’s another story), skin lotion around $15 for women, but similar lotion $10 for men.
A report by the New York City Department of Consumer Affairs, released in December, found similar patterns. It compared nearly 800 products with clear male and female versions from more than 90 brands sold in New York, both online and in stores. It found that women pay more in 42% of cases.
Similarly, a bill in California calling for lawmakers to exempt tampons and sanitary pads from the state sales tax got a big endorsement in January from the board that administers the state's sales taxes. A few other states such as Utah, Virginia and New York have introduced similar bills. Even President Obama seems to subscribe to the notion that women should not have to pay tax on products they simply have to have because of Mother Nature’s demands. When asked in a recent interview if he felt it was right that tampons are taxed, he said, “I have no idea why states would tax these as luxury items. I suspect it's because men were making the laws when these were passed.” Well, not quite: states typically just tax all goods and exempt some. But states such as California don’t tax foods, for example. Time truly seems to have come to exempt some other goods.
British Labor Party MP Paula Sheriff sums up the issue well “[w]omen are paid less and are expected to spend more on products and services ... they are charged more simply for being women.” The only thing that should also be mentioned, in all fairness, is the price of clothing and shoes. I personally find those items much cheaper than men’s clothes, but I’m also not a brand-conscious person. As long as it fits and looks good, I don’t care whether it’s called one thing or another, so my anecdote may not fit into the “pink tax” story and protests which are gaining momentum in several nations.
Sunday, January 31, 2016
Mobile carriers seem to have grown tired of, effectively, being in the loan business funding people’s new phones. American consumers were used to this model, which was a way for phone companies to hide the large price of a new phone into a monthly bill.
More recently, consumers want to change their phones more often than every two plus years, so many prefer paying up front for their phones to be able to change plans whenever they want to instead of having to wait out a long-term contract (or risk sanctions if breaching it).
All the major carriers – T-Mobile, Verizon, Spring and now AT&T – have now shifted away from two-year contracts. The question now is whether consumers will truly choose to pay for their phones in full at the point of purchase or, as has been mentioned, opt for installment plans that lets them upgrade more often than before remains to be seen. Given the price of phones, but also the seemingly insatiable need by many for new technology, installment contracts may be the likely end result. If so, it will be interesting to see how carriers will avoid tying people into long-term contracts, which has proved to be undesirable, but at the same time trying to do, at bottom, some of that via “installment contracts.”
Friday, January 29, 2016
The class action lawsuit against Uber for allegedly misclassifying its drivers as “independent contractors” instead of regular “employees” is growing in scope and importance. (O’Connor v. Uber Technologies Inc., 13-cv-03826, Northern District of California). It now covers more than 100,000 drivers. If Uber loses, the case could mean the end of the so far highly lucrative business ride share model that is currently valued at a whopping $60 b worldwide. http://www.bloomberg.com/news/articles/2015-12-18/uber-faulted-by-judge-for-confusing-drivers-with-new-contract
A recent contractual twist developed as follows: Judge Chen had previously found certain contractual language between Uber and its drivers to be unconscionable and unenforceable. Uber claims it tried to fix those issues in a new set of contracts prohibiting its drivers from “participating in or recovering relief under any current or future class action lawsuits against the company.” (Link behind a sign-in request). The drivers were, instead, required to resolve potential conflicts via arbitration. The new contract did, however, purport to give drivers 30 days to opt out of the arbitration provision.
Judge Edward Chen stated about this contractual language that “it is likely, frankly, to engender confusion.” The potential for confusion stems from the fact that numerous drivers have, obviously, already joined the class action lawsuit just as many still may want to do so. Hundreds of drivers are said to have called the plaintiffs’ lawyer, Shannon Liss-Riordan, to find out whether they have to opt out of the new contract to join the lawsuit. Ms. Liss-Riordan called the updated contract an attempt to “trick her clients into relinquishing their rights to participate in the class action.”
Uber, however, claimed that it was just trying to fix previous problematic contractual language and that it would “not apply the new arbitration provisions to any drivers covered by the class action.” The contractual language, though, does not say so.
Whether this is an example of deliberate strong-arming or intimidating the drivers into not joining the lawsuit or simply unusually poor contract drafting may never be known. Judge Chen did, however, order Uber to stop communicating with drivers covered by the class action suit and barred the company from imposing the new contract on those drivers.
The saga continues with trial set for June 30.
Meanwhile, Lyft settled a very similar lawsuit by its drivers in the amount of $12 million. Under that settlement, Lyft will still be able to classify its drivers “independent contractors.”