Friday, July 18, 2014
By Myanna Dellinger
A woman owes $20 to Kohl’s on a credit card. The debt collector allegedly started to “harass” the woman over the debt, calling her cell phone up to 22 times per week as early as 6 a.m. and occasionally after midnight. What would a reasonable customer do? Probably pay the debt, which the woman admits was only a “measly $20.” What did this woman do? Not to pay the small debt, telling the caller that they had “the wrong number,” and follow the great American tradition of filing suit, alleging violations of the 1991 Telephone Consumer Protection Act which, among other things, makes it illegal to call cell phones using auto dialers or prerecorded voices without the recipient’s consent.
Consumer protection rules also prohibit collection agencies from calling before 8 a.m. and after 9 p.m., calling multiple times during one day, leaving voicemail messages at a work number, or continuing to call a work phone number if told not to.
Last year, Bank of America agreed to pay $32 million to settle claims relating to allegations of illegally using robo-debt collectors. Discover also settled a claim alleging that they violated the rules by calling people’s cell phones without their consent. Just recently, a man’s recorded 20-minute call to Comcast pleading with their representative to cancel his cable and internet service went viral online.
The legal moral of these stories is that companies are not and should, of course, not be allowed to harass anyone to collect on debt owed to them or refuse to cancel services no longer wanted. However, what about companies such as Kohl’s who are presumably owed very large amounts of money although in the form of many small debts? Is it reasonable that customers such as the above can do what she admits doing, simply saying “screw it” to the company and in fact reverse the roles of debtor and creditor by hoping for a settlement via a lawsuit on a questionable background? Surely not.
I once owned a small company and can attest to the difficulty of collecting on debts even with extensive accurate documentation. The only way my debt collecting service or myself were able to collect many outstanding amounts was precisely to make repeat requests and reminders (although, of course, in a professional manner). As a matter of principle, customers should not be able to get away with simply choosing not to pay for services or products they have ordered, even if the outstanding amounts are small. If companies have followed the law, perhaps time has come for them to refuse settling to once again re-establish the roles of debtor and creditor. This, one could hope, would lead irresponsible consumers to live up to their financial obligations, as must the rest of society.
Tuesday, July 15, 2014
By Myanna Dellinger
The city of Berkeley, California, may become the first in the nation to require that gas stations affix warning stickers to gas pump handles warning consumers of the many recognized dangers of climate change. The stickers would read:
Global Warming Alert! Burning Gasoline Emits CO2
The City of Berkeley Cares About Global Warming
The state of California has determined that global warming caused by CO2 emissions poses a serious threat to the economic well-being, public health, natural resources, and the environment of California. To be part of the solution, go to www.sustainableberkeley.com
Consumers not only in California, but worldwide are familiar with similar warnings about the dangers of tobacco. The idea with the gas pump stickers is to “gently raise awareness” of the greenhouse gas impacts and the fact that consumers have alternatives. In their book “Nudge,” Richard Thaler and Cass Sunstein addressed the potential effectiveness of fairly subtly encouraging individual persons to act in societally or personally improved ways instead of using more negative enforcement methods such as telling people what not to do. Gas pump stickers would be an example of such a “nudge.”
But is that enough? World scientists have agreed that we must limit temperature increases to approximately 2° C to avoid dangerous climate change. The problem is that we are already headed towards a no less than 5° C increase. To stop this tend, we must reduce greenhouse gas emissions by 80% or more (targets vary somewhat) by 2050. Stickers with nudges are great, but in all likelihood, the world will need a whole lot more than that to reach the goal of curbing potentially catastrophic weather-related calamities.
Of course, the oil and gas industry opposes the Berkeley idea. The Western States Petroleum Association claimsthat the labels would “compel speech in violation of the 1st Amendment” and that “far less restrictive means exist to disseminate this information to the public without imposing onerous restrictions on businesses.” Why this type of sticker would, in contrast to, for example, labels on cigarette packaging, be so “onerous” and “restrictive” is not clear. Given the extent of available knowledge of climate change and its potential catastrophic effects on people and our natural environment, the industry is very much behind the curve in hoping for “less restrictive means.” More restrictive means than labels on dangerous products are arguably needed. Even more behind the curve is the Association’s claim that the information on the stickers is merely “opinion” that should not be “accorded the status of ‘fact’”. The Berkeley city attorney has vetted the potential ordinance and found the proposed language to be not only sufficiently narrow, but also to have been adopted by California citizens as the official policy of the state.
It seems that instead of facing reality, the oil and gas industry would rather keep consumers in the dark and force them to adopt or continue self-destructive habits. That didn’t work in the case of cigarettes and likely will not in this case either. We are a free country and can, within limits, buy and sell what we want to. But there are and should be restrictions. In this case, the “restriction” is actually not one at all; it is simply a matter of publishing facts. Surely, in America in 2014, no one can seriously dispute the desirability of doing that.
The Berkeley City Council is expected to address the issue in September.
Wednesday, July 9, 2014
By Myanna Dellinger
Recently, I blogged here on Aereo’s attempt to provide inexpensive TV programming to consumers by capturing and rebroadcasting cable TV operators’ products without paying the large fees charged by those operators. The technology is complex, but at bottom, Aereo argued that they were not breaking copyright laws because they merely enabled consumers to capture TV that was available over airwaves and via cloud technology anyway.
In the recent narrow 6-3 Supreme Court ruling, the Courts said that Aereo was “substantially similar” to a cable TV company since it sold a service that enabled subscribers to watch copyrighted TV programs shortly after they were broadcast by the cable companies. The Court found that “Aereo performs petitioners’ works publicly,” which violates the Copyright Act. The fact that Aereo uses slightly different technology than the cable companies does not make a “critical difference,” said the Court. Since the ruling, Aereo has suspended its operations and posted a message on its website that calls the Court’s outcome "a massive setback to consumers."
Whether or not the Supreme Court is legally right in this case is debatable, but it at least seems to be behind the technological curve. Of course the cable TV companies resisted Aereo’s services just as IBM did not predict the need for very many personal computers, Kodak failed to adjust quickly enough to the digital camera craze, music companies initially resisted digital files and online streaming of songs. But if companies want to survive in these technologically advanced times, it clearly does not make sense to resist technological changes. They should embrace not only technology, but also, in a free market, competition so long as, of course, no laws are violated. We also do not use typewriters anymore simply to protect the status quo of the companies that made them.
It is remarkable how much cable companies attempt to resist the fact that many, if not most, of us simply do not have time to watch hundreds of TV stations and thus should not have to buy huge, expensive package solutions. Not one of the traditional cable TV companies seem to consider the business advantage of offering more individualized solutions, which is technologically possible today. Instead, they are willing to waste money and time on resisting change all the way to the Supreme Court, not realizing that the change is coming whether or not they want it.
Surely an innovative company will soon be able to work its way around traditional cable companies’ strong position on this market while at the same time observing the Supreme Court’s markedly narrow holding. Some have already started doing so. Aereo itself promises that it is only “paus[ing] our operations temporarily as we consult with the court and map out our next steps.”
Friday, June 27, 2014
Several months back, I blogged about KlearGear's efforts to enforce a $3500 nondisparagement clause in their Terms of Sale against the Palmers, a Utah couple that had written a negative review about the company. It was a case so bizarre that I had a hard time believing that it was true and not some internet rumor. Even though the terms of sale most likely didn't apply to the Palmers --or to anyone given the improper presentation on the website-- KlearGear reported the couple's failure to pay the ridiculous $3500 fee to a collections agency which, in turn, hurt the couple's credit score. The couple, represented by Public Citizen, sued KlearGear and a court recently issued a default judgment against the company and awarded the couple $306,750 in compensatory and punitive damages. Consumerist has the full story here.
Congratulations to the Palmers and Scott Michelman from Public Citizen who has been representing the couple. And let this be a warning to other companies who might try to sneak a similar type of clause in their consumer contracts....
Thursday, June 26, 2014
Thanks to Miriam Cherry (left) for sharing this one:
I love this fact pattern: as reported in the National Law Journal, a student who received a D in contracts is suing the law school he attended, as well as his contracts professor, claiming that the professor deviated from the syllabus by counting quizzes towards the final grade. He claims $100,000 in harm because the D in contracts resulted in his suspension from the law school. He could not transfer to a different law school because he was ineligible for a certificate of good standing.
The case is a cautionary tale. It appears that the syllabus indicated that the quizzes would be optional. The professor then announced in class that the quizzes would actually count. The plaintiff claims to have been uanaware of the change or at least adversely affected by it. I say it is a cautionary tale because I sometimes make changes to my syllabus, usually in response to student feedback. I make sure to e-mail all students to make certain that everyone is aware of the changes and I obsessively remind students of the changes because I worry about precisely what happened here. It may well be that the defendant contracts prof did the same, although the National Law Journal article states that the change was evidenced by the handwritten notes of another student.
There is an interesting exchange on the merits of the case in the comments to the ABA Journal article on this subject. Apparently, there is some case law stating that a syllabus is a contract. For the most part, I think such a rule would benefit instructors. No student could complain about my attendance or no-technology policies because I could tell them (doing my best Comcast imitation) that by continuing to attend my course, they had agreed to my terms. But many of the commentators think that written contracts can never be orally modified. I don't think a syllabus is a contract because I don't think there are parties to a syllabus and I don't think there is intent to enter into legal relations. Things might be different if the syllabus identified itself as a contract and informed students of the manner of acceptance of its terms.
Friend of the blog, Peter Linzer (right), chimes in (comment #13) and succinctly dismisses this notion that a contract not within the Statute of Frauds cannot be orally modified. In any case, he thinks the claim is best understood as sounding in promissory estoppel, and plaintiff's claim fails because, in short, he cannot claim to have reasonably relied on a promise just because he missed class or did not pay attention when that promise was retracted.
Thursday, June 19, 2014
This week, I received notice that I am a member of the plaintiff class in Schlesinger, et. al. v. Ticketmaster. After ten years of litigation, the parties' proposed settlement is pending before the Superior Court in Los Angeles. If you purchased tickets through Ticketmaster between 1999 and 2013, you most likely are also a part of the class. The case alleges (in short) that Ticketmaster overcharged customers for fees. Ticketmaster claims that its processing fees were necessary for it to recover its costs, while plaintiffs allege that those fees were actually a means of generating profits for Ticketmaster. Shocking, no?
The terms of the settlement are actually pretty sweet. Class members will get a discount code that they can use on the Ticketmaster website entitling them to $2.25 off future Ticketmaster transactions. Class members get to use the code up to 17 times in the next four years. The value of the discount codes is about $386 million, and if the money is not used up, class members will be eligible for free ticket to Live Nation events. Ticketmaster's website will also now include disclosures about how it profits from its fees.
But then there's THIS:
Ticketmaster will pay $3 million to the University of California, Irvine School of Law to be used for the benefit of consumers like yourself. In addition to the benefits set forth above, Ticketmaster will also make a $3 million cy pres cash payment to the University of California, Irvine School of Law’s Consumer Law Clinic. The money will establish the Consumer Law Clinic as a permanent clinic, and it will be used to: (i) provide direct legal representations for clients with consumer law claims, (ii) advocate for consumers through policy work, and (iii) provide free educational tools (including online tutorials) to help consumers understand their rights, responsibilities, and remedies for online purchases.
The settlement strikes me as masterly. It gets a beneift to people who, if the allegations are true, were actually harmed by the alleged conduct, but it does so in a way that will generate more business for Ticketmaster going forward, and Ticketmaster may value that new business stream at around $386 million in any case. Ticketmaster has had to make changes to its website to eliminate the risk of deception going forward. And the world gets a consumer protection clinic funded the sort of business against whom consumers need to be protected.
Congratulations to the attorneys who came up with this settlement and to the UC Irvine Conumser Protection Clinic on its new endowment.
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.
Wednesday, June 11, 2014
- they limit workers' opportunities to seek better jobs within their profession;
- workers subject to non-competes change jobs less frequently and earn less money over time;
- states like California that refuse to enforce non-competes create a better environment for entrepreneurship; and
- low-level employees who are now being subjected to non-compete agreements have no bargaining power with which to challenge them and do not willingly consent to them.
There may be economic studies that dispute the first three bullet points. On the blog, we have tended to emphasize the fourth bullet point. The argument against that point is not empirical. Rather, those who support the enforcement of one-sided boilerplate terms contend that it is generally more efficient to enforce such terms than to expect that each agreement will be negotiated on an individual basis.
As Nancy Kim has argued, that might be okay, so long as the creators of boilerplate contracts are subject to a duty to draft those agreements reasonably. One interesting approach along similar lines is the solution proposed in Ian Ayres & Alan Schwartz, The No-Reading Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014).
Tuesday, June 10, 2014
In August of last year, the WSJ reported that companies were easing up on executive noncompetes. Two days later, the WSJ reported that litigation over noncompetes was on the rise. As Jeremey Telman wrote here on the blog yesterday, the NY Times reported that noncompetes are everywhere. So which is it?
My guess is that noncompetes are increasingly widespread in non-executive contracts - the examples in the NY Times piece involved a 19-year old summer camp counselor, a pesticide sprayer and a hair stylist. At the same time, the popularity of the non-compete may be waning in executive contracts where they are less likely to have an in terrorem effect.
Here's a taste of the NY Times article:
Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.
There are plenty of other examples of these restrictions popping up in new job categories: One Massachusetts man whose job largely involved spraying pesticides on lawns had to sign a two-year noncompete agreement. A textbook editor was required to sign a six-month pact.
A Boston University graduate was asked to sign a one-year noncompete pledge for an entry-level social media job at a marketing firm, while a college junior who took a summer internship at an electronics firm agreed to a yearlong ban.
“There has been a definite, significant rise in the use of noncompetes, and not only for high tech, not only for high-skilled knowledge positions,” said Orly Lobel, a professor at the University of San Diego School of Law, who wrote a recent book on noncompetes. “Talent Wants to be Free.” “They’ve become pervasive and standard in many service industries,” Ms. Lobel added.
Because of workers’ complaints and concerns that noncompete clauses may be holding back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that would ban noncompetes in all but a few circumstances, and a committee in the Massachusetts House has passed a bill incorporating the governor’s proposals. To help assure that workers don’t walk off with trade secrets, the proposed legislation would adopt tough new rules in that area.
Monday, June 9, 2014
Today's New York Times reports on the extension of non-compete agreements to categories of employment not previously subject to them. This isn't really news, but it is nice to see the Times giving serious space to the issue, which I view as just another one-sided boilerplate term that employers are imposing on their employees. The difference here is that courts don't enforce non-competes if they overreach. However, the reality is that courts rarely get the opportunity to review non-competes, either because employees don't have the resources to fight them or because, as illustrated in the Times article, competitors are sometimes reluctant to risk a suit and so they do not hire people subject to non-competes, even if those non-competes might be unreasonable.
The over-the-top example with which the Times starts its story is about a woman whose job offer as a summer camp counselor was withdrawn because of a non-compete. She had worked three previous summers at a Linx-operated summer camp, and her terms of employment there included a non-compete of which she was (of course) unaware. Here is what Linx's founder had to say in defense of the non-compete:
“Our intellectual property is the training and fostering of our counselors, which makes for our unique environment,” he said. “It’s much like a tech firm with designers who developed chips: You don’t want those people walking out the door. It’s the same for us.” He called the restriction — no competing camps within 10 miles — very reasonable.
A few points. First, if your training and fostering of counselors creates a unique environment, then that training and fostering will not transfer when counselors switch to other camps that will presumably train and foster their counselors in other ways. If that's not the case, then there is nothing special or unique about the way you train and foster your counselors and thus no reason (except throwing up barriers to competition) not to allow counselors to work elsewhere.
Second, I just put my daughter on a bus for summer camp. I was a counselor at a summer camp for two years. Most camps now belong to a trade organization that sets down strict rules about safety and counselor training. It is unlikely that what Linx does is unique, and again, to the extent that it is unique, it is not transferable.
Third, a ten mile non-compete would be reasonable except that it is ten miles from any Linx camp, and Linx operates 30 camps in the area. So seen, the rule means that counselors who work at Linx camps cannot then work at any other camp in the region. There is no justification for this. If Linx has intellectual property to protect, it can do so, but Linx's founder's comparison of his camps to a tech firm strikes me as farfetched. I doubt that Linx has any intellectual property relating to its training of counselors. It is not as if a 19-year-old camp counselor comes to her new camp and impresses the people there with her knowledge from her past counseling experience. Each camp has its own traditions. If she says it is better to discard the leeches one pulls off the campers after a lake swim, they are not going to listen to her if the camp tradition is to move the leeches to the infirmary so that they can be "repurposed." What Linx is trying to do with this non-compete likely has less to do with protecting intellectual property than it does to establishing a stranglehold on the market of qualified camp counselors.
The Times story contrasts the employment situation in California, which does not enforce non-competes with that of Massachusetts, which does. But freedom of contract nad free enterprise still seem to have the upper hand in Massachusetts, as the following quote form the Times illustrates:
Michael Rodrigues, a Democratic state senator from Fall River, Mass., said the government should not be interfering in contractual matters like noncompetes. “It should be up to the individual employer and the individual potential employee among themselves,” he said. “They’re both adults.”
This is the typical nonsense underlying the enforcement of boilerplate. The camp counselor in the story was 19 years old, which means she was actually an infant when she signed the non-compete. But even if she could match the sophistication of the business that hired her, how does Mr. Rodrigues expect the negotiation to take place? In his mind it would go something like this:
Business: Here's the contract.
Employee: Okay, let me read it over and strike out all the terms that I don't like.
Business: Sure, take as long as you like and then we can negotiate over each term to which you object.
And here's the reality:
Business: Here's the contract.
Employee: Okay, let me read it over and strike out all the terms that I don't like.
Business: Well, actually, this is a form contract, and it's take it or leave it. Even if you wanted to object, I don't have any authority to change any of the terms. Either you sign this or you don't work here.
But even that is an exaggeration of the amount of consideration that goes in to the signing of employment contracts. They are not read at all and they are not expected to be read at all. And not reading them is the rational thing to do as potential employees have no bargaining power that they could deploy to challenge objectionable terms.
Sunday, May 18, 2014
By Myanna Dellinger
Recently, Jeremy Telman blogged here about the insanity of having to pay for hundreds of TV stations when one really only wants to, or has time to, watch a few.
Luckily, change may finally be on its way. The company Aereo is offering about 30 channels of network programming on, so far, computers or mobile devices using cloud technology. The price? About $10 a month, surely a dream for “cable cutters” in the areas which Aereo currently serves.
How does this work? Each customer gets their own tiny Aereo antenna instead of having to either have a large, unsightly antenna on their roofs or buying expensive cable services just to get broadcast stations. In other words, Aereo enables its subscribers to watch broadcast TV on modern, mobile devices at low cost and with relative technological ease. In other words, Aereo records show for its subscribers so that they don’t have to.
That sounds great, right? Not if you are the big broadcast companies in fear of losing millions or billions of dollars (from the revenue they get via cable companies that carry their shows). They claim that this is a loophole in the law that allows private users to record shows for their own private use, but not for companies to do so for commercial gain and copyright infringement.
Of course, the great American tradition of filing suit was followed. Most judges have sided with Aero so far, the networks have filed petition for review with the United States Supreme Court, which granted the petition in January.
Stay tuned for the outcome in this case…
Thursday, May 15, 2014
Today's New York Times features an article reporting on a 2012 study that indicates that consumers are better off being forced to buy bundled packages than they would be if they could choose to purchase only the cable channels they actually view. The argument seems to boil down to the fact that it costs the cable companies about the same to bring you four channels as it does for them to bring you 179 channels, so they are going to find a way to charge you the same regardless, and now you will miss out on watching channels that you only watch occasionally. Moreoever, the channels that are most in demand on a per-channel basis will now demand higher fees to make up for lost revenues from their sister stations that fewer people watch and which consequently cannot generate as much advertising revenue as they could under the bundled system.
Given that this story is based on one two-year old study and comes from Times correspondent Josh Barro, who also gives the thumbs up to Frontier Airlines for charging people extra to use overhead storage bins, I'm going to file this story provisionally under, "Wait, that can't be right," and see if any counterarguments turn up. The comments on the story indicate that some of the assumptions underlying the study and Barro's column could be questioned.
Wednesday, May 14, 2014
Yesterday's New York Times features a story about the costs associated with hotel boycotts when an organization has booked a hotel to host a conference or meeting long in advance. This issue ought to be a familiar to anyone who attended the 2011 annual AALS meeting in San Francisco, for which the conference hotel was a Hilton whose workers were on strike.
The article details the costs involved in cancellations. Often the organization is contractually obligated to pay hundreds of thousands of dollars to the hotel even if the conference ulimately takes place at a different venue. According to the Times, if the cancellation is on short notice, the organization is typically obligated to pay 90% of expected room costs and 90% of expected banqueting services. And then there are, of course, the costs of finding an alternative venue in proxity to the original choice on relatively short notice. Major conferences can be booked years in advance.
Sometimes it is possible to mitigate the harm -- by booking at a related hotel or by promising to return to the original hotel if the policy that causes offenese is revoked. The former is unlikely in cases where the problem is with the entity that owns the hotel. But it is more likely in cases like those that arose in connection with anti-immigrant legislation passed in Arizona. Organizations could punish the state by moving to related hotels in states that did not have similar legislation.
Monday, May 12, 2014
By Myanna Dellinger
The United States Supreme Court recently held that airlines are allowed to revoke the membership of those of their frequent flyers who complain “too much” about the airline’s services (see Northwest v. Ginsberg). Contracts ProfBlog first wrote about the case on April 3.
In the case, Northwest Airlines claimed that it removed one of its Platinum Elite customers from the program because the customer had complained 24 times over a span of approximately half a year about such alleged problems as luggage arriving “late” at the carousel. The company also stated that the customer had asked for and received compensation “over and above” the company guidelines such as almost $2,000 in travel vouchers, $500 in cash reimbursements, and additional miles. According to the company, this was an “abuse” of the frequent flyer agreement, thus giving the company the sole discretion to exclude the customer. The customer said that the real reason for his removal from the program was that the airline wanted to cut costs ahead of the then-upcoming merger with Delta Airlines. He filed suit claiming breach of the implied covenant of good faith and fair dealing in his contract with Northwest Airlines.
The Court found that state law claims for breaches of the implied duty of good faith and fair dealing are pre-empted by the Airline Deregulation Act of 1978 if the claims seek to enlarge the contractual relations between airlines and their frequent flyers rather than simply seeking to hold parties to their actual agreement. The covenant is thus pre-empted whenever it seeks to implement “community standards of decency, fairness, or reasonableness” which, apparently, go above and beyond what airlines promise to their customers.
Really? Does this mean that airlines can repeatedly behave in indecent ways towards frequent flyer programs members (and others), but if the members repeatedly complain, they – the customers – “abuse” the contractual relationship?!.. The opinion may at first blush read as such and have that somewhat chilling effect. However, the Court also pointed out that passengers may still seek relief from the Department of Transportation, which has the authority to investigate contracts between airlines and passengers.
The unanimous opinion authored by J. Alito also stated that passengers can simply “avoid an airline with a poor reputation and possibly enroll in a more favorable rival program.” These days, that may be hard to do. First, most airlines appear to have more or less similar frequent flyer programs. Second, what airline these days has a truly “good” reputation? Granted, some are better than others, but when picking one’s air carrier, it sometimes seems like choosing between pest and cholera.
One example is the airlines’ highly restrictive change-of-ticket rules in relation to economy airfare, which seem almost unconscionable. I have flown Delta Airlines almost exclusively for almost two decades on numerous trips to Europe for family and business purposes. A few times, I have had the good fortune to fly first or business class, but most times, I fly economy. Until recently, it was possible to change one’s economy fare in return for a relatively hefty “change fee” of around $200 and “the increase, if any, in the fare.” - Guess what, the fares always had increased the times I asked for a change. Recently, I sought to change a ticket that I had bought for my elderly mother, also using KLM (which codeshares with Delta) as my mother is also frequent flyer with Delta. I was told that it was impossible to change the ticket as it was “deeply discounted.” I had shopped extensively online for the ticket, which was within very close range (actually slightly more expensive than that of Delta’s competitors. I asked the company what my mother could do in this situation, but was told that all she could do was to “throw out the ticket (worth around $900) and buy another one.” Remember that these days, airfare often has to be bought months ahead of time to get the best prices. In the meantime, life happens. Unexpected, yet important events come about. Changes to airline tickets should be realistically feasible, but are currently not on these conditions.
What airlines and regulators seem to forget in times of “freedom of contracting and market forces” is that some of us do not have large business budgets or fly only to go on a (rare, in this country) vacation. My mother is elderly and lives in Europe. I need to perform elder care on another continent and need flights for that purpose just as much as others need bus or train services. Such is life in a globalized world for many of us. In some nations, airlines feature at least quasi-governmental aspects and are much more heavily regulated than in the United States. Here, airfare seems to be increasing rapidly while the middle (and lower) incomes are more or less stagnant currently. I understand and appreciate the benefits of a free marketplace, but a few more regulations seem warranted in today’s economy. It should be possible to, for example, do something as simple as to change a date on a ticket (if, of course, seats are still available at the same price and by paying a realistic change fee) without having to buy extravagantly expensive first class or other types of “changeable” tickets.
Other “abuses” also seem to be conducted by airlines towards their passengers and not vice versa. For example, if one faces a death in the family, forget about the “grievance” airfares that you may think exist. Two years ago, my father was passing and I was called to his deathbed. Not having had the exact date at hand months earlier, I had to buy a ticket last minute (that’s usually how it goes in situations like that, I think…). The airline – a large American carrier - charged a very large amount for the ticket, but attempted to justify this with the fact that that ticket was “changeable” when, ironically, I did not need it to be as I needed to leave within a few hours.
In the United States, “market forces” are said to dictate the pricing of airfare. In Europe, some discount airlines fly for much lower prices than in the United States (think round-trip from northern to southern Europe for around $20 plus tax, albeit to smaller airports at off hours). Strange, since both markets are capitalist and offer freedom of contracting. Of course, these discount airlines also feature various fees driving up their prices somewhat, although not nearly as much as in the United States. A few years back, one discount European airline even announced that it planned to charge a few dollars for its passengers to use … the in-flight restrooms. Under heavy criticism, that plan was soon given up. In the United States, some airlines seem to be asking for legal trouble because of their lopsided business strategies. Sure, companies of course have to remain profitable, but when many of them claim in their marketing materials to be “family-oriented” and “focused on the needs of their passengers,” it would be nice if they would more thoroughly consider what that means.
Friday, May 9, 2014
Andrew Muennink, a senior at Round Rock High School in Texas, struck a deal with Cindy House, his art teacher: if he gets 15,000 retweets of a photo by noon on May 23, she will not require the students to take the art final exam. The photo depicts them shaking on the deal and the writing on the blackboard behind them sets out the key terms:
Apparently, Muennink's first offer to Ms. House was 5,000 retweets, but they ultimately struck the deal at 15,000. What if he reaches 15,000? Then, Muennink says, "I'd be the man!" As of this writing, he's reached 6,117 retweets.
Muennink's bargain has inspired high school students across the U.S. - with some negotiating a better deal (10,000 retweets for no final) and others negotiating a much more difficult goal (250,000 tweets - and this student really needs the retweets because she "barely went to . . . class").
These students were apparently concerned about the statute of frauds and included signatures on the blackboard:
If you are inclined to retweet and save a high school student from a final, the hashtag is #nofinal.
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.
Monday, May 5, 2014
Sunday's New York Times had a lengthy article on a custody battle that has raged for two years. Danielle Schreiber, who runs a massage practice in California, and Jason Patric, a known but not well-known actor, conceived a child through articifial insemination in 2009. The two had dated for a while, but they were not a couple at the time of the insemination, which resulted in a son named Gus.
Mr. Patric was a part of Gus's early life, as the baby rekindled the romance between the biological parents. The couple never co-habited, but Mr. Partric claims that he played a parentral role until 2012 when the pair split up. Mr. Patric filed a paternity suit and sought shared custody. For a while thereafter, Ms. Schreiber allowed Mr. Patric to visit Gus, but then she cut off such visits.
The Times story does not make especially clear what the case turns on. California law is clear, according to the Times, that sperm donors are not treated as "natural fathers" unless a written agreement so provides. The Times states that the parties had no such agreement, but did they have any agreement at all? Both parties seem to have considered their options carefully, and both clearly have the means to consult attorneys when they need to. Is it really possible that they did not imagine anything could possibly go wrong? Did they not discuss the possibility that Mr. Patric would want to be invovled in his son's life, even if not as a father? Not that a contract could eliminate all possible legal difficulties going forward, but they certainly could have used a writing to clarify their intentions at the time the child was conceived.
In any case, it does not seem from the Times' account that Mr. Patric's custody and paternity claims are based solely on the fact that he was the sperm donor. Rather, he seems to be claiming that he acted as a parent during the child's first years and that the child regarded him as his father. Ms. Schreiber won at the trial level, and Mr. Patric has appealed; not only in the courts, but also through the media.
I'm have trouble embedding the videos, so you can follow this link to watch Mr. Patric tell his side of the story to Katie Couric and this link to watch Ms. Schreiber tell her side of the story on the Today Show.
Wednesday, April 30, 2014
By Myanna Dellinger
A class-action lawsuit filed recently against Amazon asserts that the giant online retailer did not honor its promise to offer “free shipping” to its Prime members in spite of these members having paid an annual membership fee of $79 mainly in order to obtain free two-day shipping.
Instead, the lawsuit alleges, Amazon would covertly encourage third-party vendors to increase the item prices displayed and charged to Prime members by the same amount charged to non-Prime members for shipping in order to make it appear as if the Prime members would get the shipping for free. Amazon would allegedly also benefit from such higher prices as it deducts a referral fee as a percentage of the item price from third-party vendors.
The suit alleges breach of contract and seeks recovery of Prime membership costs for the relevant years as well as treble damages under Washington’s Consumer Protection Act. Most states have laws such as consumer fraud statutes, deceptive trade practices laws, and/or unfair competition laws that can punish sellers for charging more than the actual costs of “shipping and handling." In some cases that settled, companies agreed to use the term “shipping and processing” instead of “shipping and handling” to be more clear towards consumers.
On the flip side of the situation is how Amazon outright prevents at least some private third-party vendors from charging the actual shipping costs (not even including “handling” or “processing” charges). For example, if a private, unaffiliated vendor sells a used book via Amazon, the site will only allow that person to charge a certain amount for shipping. As post office and UPS/FedEx costs of mailing items seem to be increasing (understandably so in at least the case of the USPS), the charges allowed for by Amazon often do not cover the actual costs of sending items. And if the private party attempts to increase the price of the book even just slightly to not incur a “loss” on shipping, the book may not be listed as the cheapest one available and thus not be sold.
This last issue may be a detail as the site still is a way of getting one’s used books sold at all whereas that may not have been possible without Amazon. Nonetheless, the totality of the above allegations, if proven to be true, and the facts just described till demonstrate the contractual powers that modern online giants have over competitors and consumers.
A decade or so ago, I attended a business conference for other purposes. I remember how one presenter, when discussing “shipping and handling” charges, got a gleeful look in his eyes and mentioned that when it came to those charges, it was “Christmas time.” When comparing what shipping actually costs (not that much for large mail-order companies that probably enjoy discounted rates with the shipping companies) with the charges listed by many companies, it seems that not much has changed in that area. On the other hand, promises of “free” shipping have, of course, been internalized in the prices charged somehow. One can hope that companies are on the up-and-up about the charges. Again: buyer beware.
According to this article in today's New York Times, 6,200 Allstate employees, who joined its Neighborhood Agents Program in the 1980s and 1990s, were called into meetings in 1999 at which they were told that they would now proceed as independent contractors, forfeiting health insurance, their retirement accounts or profit-sharing, and terminating the accrual of their pension benefits. If they wanted to continue to sell Allstate insurance, they had to sign waivers in which they agreed not to sue the insurer. Thirty-one agents signed but have now sued nonetheless, alleging age discrimination and breach of contract.
They sued thirteen years ago, but the case is still far from over. They are still seeking class certification. The Times article indicates that cases such as this one are hard to win, but the judge in this case has already stated that those that signed the waivers were made substantially worse off, that Allstate's claimed corporate reorganization was actually a disguised staff reduction, and that Allstate's conduct was "self-serving and, from most perspectives, underhanded." In addition, Allstate seems to have misrepresented to the agents the consequences of not signing the waiver, having told the agents that they would be barred for life from soliciting business from their former customers. Allstate has already paid $4.5 million to settle an age-discrimination claim brought by the EEOC on behalf of 90 of the agents.
Wednesday, April 23, 2014
I just stumbled upon an interesting damages decision from the Australian High Court in December. In a thouroughly modern context (sale of frozen sperm), it raises the age-old question of how to measure expectation damages when the buyer is able to recoup the costs of replacement in a forward contract.
Plaintiff and Defendant are doctors specializing in “assisted reproductive technology services.” For just over $380,000 (AUD), Plaintiff agreed to buy the assets of a company operating a fertility clinic, a company controlled by Defendant. The asset sale included a stock of frozen sperm. The company warranted that the identification of the donors of that sperm complied with specified regulatory guidelines. (Defendant guaranteed the company’s obligations under the contract).
The stock of sperm delivered contained 1,996 straws that were in breach of warranty. Specifically, it did not comply with regulatory requirements concerning consents, screening tests and identification of donors. For this reason, the sperm was unusable by Plaintiff. Plaintiff was unable to find suitable replacement sperm in Australia and eventually found only one alternative source of sperm from a U.S. supplier for over $1.2million (AUD). Plaintiff “accepted that ethically she could not charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount [she] had outlaid to acquire it.”
The question before the High Court: how should Plaintiff’s damages for breach of warranty be calculated? The primary judge assessed the damages as the amount that the Plaintiff would have had to pay the U.S. company (at the time the contract was breached) to buy 1,996 straws of sperm. On appeal, the Court of Appeal held that the Plaintiff should have no damages because the Plaintiff was able to pass on the increased costs to her patients. The Court of Appeal held that the Plaintiff had thus avoided any loss she would otherwise have sustained.
The parties did not dispute damages should be "that sum of money which will put the party who has been injured ... in the same position as he [or she] would have been in if he [or she] had not sustained the wrong for which he [or she] is now getting his [or her] compensation or reparation.” Nor did they dispute that the Plaintiff was entitled to be put in the position she would have been in had the contract been performed. The parties disputed how these principles should be applied to this particular case.
First, there might be a loss constituted by the amount by which the promisee is worse off because the promisor did not perform the contract. That amount would include the value of whatever the promisee outlaid in reliance on the promise being fulfilled. Second, the loss might be assessed by looking not at the promisee's position but at what the defaulting promisor gained by making the promise but not performing it. Third, there is the loss of the value of what the promisee would have received if the promise had been performed. Subject to some limitations, none of which was said to be engaged in this case, damages for breach of contract must be measured by reference to the third kind of loss: the loss of the value of what the promisee would have received if the promise had been performed.
After a nod to Fuller and Purdue, Justice Hayne explained how to value what Plaintiff should have received:
Under the contract which the [Plaintiff] made, she should have received 1,996 more straws of sperm having the warranted qualities than she did receive. The relevant question in the litigation was: what was the value of what the [Plaintiff] did not receive? The answer she proffered in this Court was that it was the amount it would have cost (at the date of the breach of warranty) to acquire 1,996 straws of sperm from [the U.S. company]. That answer should be accepted.
The answer depends upon determining the content of the unperformed promise. The answer does not depend upon whether the contract can be described as one for the sale of goods or for the sale of a business. How much the [Plaintiff] paid for the benefit of the promise is not relevant. It does not matter whether the value of what she did not receive was more than the price she had agreed to pay under the contract or (if it could have been determined) the price she had agreed to pay for the stock of sperm. The extent to which the [Plaintiff] could have turned the performance of the promise to profit would be relevant only if the [Plaintiff] had claimed for loss of profit. She did not. She sought, and was rightly allowed by the primary judge, the value of what should have been, but was not, delivered under the contract.
As for mitigation, the Justice wrote:
As already noted, however, the Court of Appeal concluded that the [Plaintiff] had mitigated her loss by buying replacement sperm from [the US. Company]. In respect of "the loss of each straw of replacement sperm actually sourced from [the U.S. company]" before the date of assessment of damages, Tobias AJA concluded that the chief component of the [Plaintiff’s] "loss" would be "the sum (if any) representing that part of the overall cost of acquisition of that straw not recouped from a patient". And in respect of "the residue of the 'lost' 1996 straws over and above those in fact replaced by [U.S.] sperm up to the date of trial", Tobias AJA concluded that "the appropriate course would have been to assume that [the Plaintiff] would continue to source straws of donor sperm from [the U.S. company] at a cost consistent with that which had prevailed since August 2005, and that she would continue to recoup from patients the same proportion of that cost as she had done in the past". On this footing, Tobias AJA concluded that the [Plaintiff’s] damages in respect of straws not "replaced" would be "the aggregate of the discounted present value of the un recouped balances (if any) of that cost as at the date of their assessment" (emphasis added).
Two points must be made about this analysis. First, the calculations described would reveal whether, and to what extent, the [Plaintiff] was, or would be, worse off as a result of the breach of warranty. That is, the calculations of the net amount which the [Plaintiff] had outlaid, and would thereafter have to outlay, would reveal the amount needed to put the [Plaintiff] in the position she would have been in if the contract had not been made. The calculations would not, and did not, identify the value of what the [Plaintiff] would have received if the contract had been performed. Second, the reference to mitigation of damage was apt to mislead. In order to explain why, it is necessary to say something about what is meant by "mitigation" of damage.
For present purposes, "mitigation" can be seen as embracing two separate ideas. First, a plaintiff cannot recover damages for a loss which he or she ought to have avoided, and second, a plaintiff cannot recover damages for a loss which he or she did avoid. * * *
The [Plaintiff’s] subsequent purchases and use of replacement sperm left her neither better nor worse off than she was before she undertook those transactions. In particular, * * * the [Plaintiff] obtained no relevant benefit from her subsequent purchases of sperm. The purchases replaced what the vendor had agreed to supply.
The purchase price paid for the replacement sperm revealed the value of what was lost when the vendor did not perform the contract. But the commercial consequences flowing from the [Plaintiff’s] subsequent use of those replacements would have been relevant to assessing the value of what should have been supplied under the contract only if she had obtained some advantage from their use, or if she had alleged that the replacement transactions had left her even worse off than she already was as a result of the vendor's breach. If she had obtained some advantage, the value of the advantage would have mitigated the loss she otherwise suffered. If she had been left even worse off (for example by losing profit that otherwise would have been made), that additional loss may have aggravated her primary loss. But the [Plaintiff] was not shown to have obtained any advantage from the later transactions and she did not claim that they had left her any worse off. Those transactions neither mitigated nor aggravated the loss she suffered from the vendor not supplying what it had agreed to supply. The value of that loss was revealed by what the [Plaintiff] paid to buy replacement sperm from [the U.S. company].
Showing that the [Plaintiff] had charged, or could charge, third parties (her patients) the amount she had paid to acquire replacement sperm from [the U.S. company] was irrelevant to deciding what was the value of what the vendor should have, but had not, supplied. If the contract had been performed according to its terms, the [Plaintiff] would have had a stock of sperm having the warranted qualities which she could use as she chose. She could have stored it, given it away or used it in her practice. In particular, she could have used it in her practice and charged her patients nothing for its supply. But because the vendor breached the contract, the [Plaintiff] could put herself in the position she should have been in (if the contract had been performed) only by buying replacement sperm from [the U.S. company]. Whatever transactions she then chose to make with her patients are irrelevant to determining the value of what should have been, but was not, provided under the contract.
Thus, Justice Hayne, joined by Justices Crennan and Bell, allowed Plaintiff’s appeal and ordered the she receive damages on the terms she sought. Justice Keane agreed with the result. Justice Gageler did not.
The appropriate measure of [the Plaintiff’s] loss is so much of the cost to [the Plaintiff] of sourcing 1,996 straws of replacement sperm for the treatment of her patients as she had been, and would be, unable to recoup from those patients. That measure, adopted by the Court of Appeal, is appropriate because it yields an amount which places [the Plaintiff] in the same position as if the contract had been performed so as to provide her with the expected use in the normal course of her practice of 1,996 straws of the frozen sperm delivered to her by the company.
To [the Plaintiff’s] protest that adoption of that measure leaves her without an award of damages in circumstances where the company has been found to have breached its warranty, the answer lies in the way she has chosen to put her case. She has made a forensic choice to eschew the measure which, together with the Court of Appeal, I would hold to be the appropriate measure.
Clark v. Macourt,  HCA 56 (Dec. 18, 2013).