Wednesday, February 19, 2014
Do such words imply an enforceable promise to give an employee additional compensation both for work already performed and for work to be performed in the future if the speaker actually obtains a sizeable chunk of money? (Does it matter to your answer if the words were uttered by Heather Mills, famous or infamous ex-wife of Sir Paul McCartney?..)
Your answer to the former question would probably be a resounding “of course not.” In a recent decision, the United States Court of Appeals for the Ninth Circuit agrees (Parapluie v. Heather Mills, No. 12-55895). The case resembles such Contracts casebook classics old and new as Kirksey v. Kirksey (1945), Ricketts v. Scothorn (1898) and Conrad v. Fields (2007). One might have thought that promissory estoppel and, in this case, promissory fraud and intentional misrepresentation claims had generated enough case law to prevent an appeal. Apparently not, much to the amusement of law students and law professors alike.
At bottom, the facts behind the case against Ms. Mills are as follows: In 2005, Ms. Mills hired Michele Blanchard to conduct PR work for her. Ms. Blanchard was paid nothing for her work from 2005 to 2007. In 2007, however, Ms. Mills and Ms. Blanchard agreed that Ms. Blanchard would be paid $3,000 per month because Mills couldn’t pay Blanchard’s usual fee of $5,000 per month. The payments were made. In 2008, the relationship between the two women soured. Ms. Blanchard quit and sent Ms. Mills an additional invoice for $2,000 per month in arrears. Ms. Blanchard claimed to be entitled to the greater amount because Ms. Mills allegedly misrepresented her financial situation when telling Ms. Blanchard that she could only pay $3,000 a month when she could, allegedly, afford to pay more. In making this assertion, Ms. Blanchard relied on Ms. Mills having expressed an interest in renting a house for $80,000 per month, having bid $30,000 on a cruise at a charity auction, and having once stated about the fee to Ms. Blanchard, “I don’t know if I can pay the entire amount, but I’ll do something” and, after Ms. Blanchard askeed Ms. Mills if she might pay Ms. Blanchard “a little something,” allegedly agreeing that “I’ll take care of you when I get the big money.” Ms. Blanchard claims that the latter statement was a promise to pay her regular fee of $5,000 both in the future and for the work already performed. The court pointed out that Ms. Mills interest in renting expensive housing was just that; an interest. She had in fact only rented “modest” properties via Ms. Blanchard for $2,000-3,000 per week for one week. Perhaps most tellingly of Ms. Mills’ financial state of affairs at the time is the fact that when she attempted to pay for the cruise bid with a credit card, the payment was denied.
Ms. Mills is reported to have obtained a nearly $50 million divorce settlement with a sizeable interim payment around the times listed above. But as the court pointed out, when Ms. Mills did receive this interim payment, she also started paying Ms. Blanchard $3,000 a month, suggesting that her earlier statements about her inability to pay Blanchard were true, not false, when made. Ms. Blanchard’s monthly invoices further stated “the total amount due” as $3,000, negating any inference that the contractual parties intended a retroactive or future payment for more than that amount.
Ms. Blanchard’s attorney may have wanted to read Baer v. Chase (392 F.3d 609, U.S. Ct. of App. for the Third Cir. (2004)). In that case, Robert Baer, a former state prosecutor wishing to pursue a career as a Hollywood writer, similarly claimed that David Chase had promised to “take care of” Baer and “remunerate him in a manner commensurate to the true value of [his services]” should the project on which Baer worked for Chase become a success. It did: the project was the creation and development of what turned out to be the hit TV series The Sopranos. Baer received nothing for his services. The court found that the alleged contract was unenforceable for vagueness because nothing in the record allowed the court to figure out the meaning of “success,” “true value,” and, in general, what it meant to be “taken care of” in this context.
Potentially starstruck employees be ware: if you think that your employer promises you a chunk of money, make sure you find out exactly what you have to do to earn that. Now as well as hundreds of years ago: alleged promisors are unlikely to simply “take care of you” out of the goodness of their hearts. And as always: get the promise in writing!
Tuesday, February 18, 2014
During a basketball game at West Chester University in Pennslyvania, freshman Jack Lavery was randomly picked for the $10,000 halftime challenge. Lavery had 25 seconds to make a lay-up, shot from the free throw line, shot behind the three-point line and a half-court shot. Lavery successfully made a lay-up, a shot from the behind the free throw line, and then a shot behind the three-point line. As the clock was winding down, Lavery attempted the half-court shot, but missed. With one hand, he made the half-court shot on his second attempt just as the buzzer went off. As Lavery explains it:
"I stopped and did that one handed shot and it happened to go in. I ran to the other side of the court just high fiving everyone and then I went and bear hugged my dad," said Lavery.
See for yourself:
As you see, the crowd cheered, but the University refused to award the prize money. Why? The contract.
Intrepid reporting by Action News obtained a copy of a contract signed by Lavery. The rules of the contest provide:
I shall have as many opportunities as necessary at each of the first three (3) locations to make a shot; however, no more than ONE (1) attempt may be made at the HALF COURT shot, provided that there is still time left on the shot clock.
Lavery took more than one attempt at the half court shot and, therefore, the University claims that he is inelgible for the prize. Nevertheless, apparently his father intends to "challenge the wording of the contract."
Additionally, the contract reportedly states that anyone who played basketball in high school would be ineligible to collect the prize money. Lavery played high school ball, another reason for his ineligibility.
Reminds me of this:
Tuesday, February 11, 2014
... at least, Florida's non-compete law is "truly obnoxious" to New York public policy. The intermediate appellate court in New York (Fourth Department) recently refused to enforce a Florida choice of law provision in a non-compete agreement. Here's the analysis:
We nevertheless conclude that the Florida choice-of-law provision in the Agreement is unenforceable because it is “ ‘truly obnoxious’" to New York public policy (Welsbach, 7 NY3d at 629). In New York, agreements that restrict an employee from competing with his or her employer upon termination of employment are judicially disfavored because “ ‘powerful considerations of public policy . . . militate against sanctioning the loss of a [person’s] livelihood’ ” (Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307, rearg denied 40 NY2d 918, quoting Purchasing Assoc. v Weitz, 13 NY2d 267, 272, rearg denied 14 NY2d 584; see Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499; D&W Diesel v McIntosh, 307 AD2d 750, 750). “So potent is this policy that covenants tending to restrain anyone from engaging in any lawful vocation are almost uniformly disfavored and are sustained only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained” (Post v Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84, 86-87, rearg denied 48 NY2d 975 [emphasis added]). The determination whether a restrictive covenant is reasonable involves the application of a three-pronged test: “[a] restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public” (BDO Seidman v Hirshberg, 93 NY2d 382, 388-389 [emphasis omitted]). “A violation of any prong renders the covenant invalid” (id. at 389). Thus, under New York law, a restrictive covenant that imposes an undue hardship on the restrained employee is invalid and unenforceable (see id.). Employee non-compete agreements “will be carefully scrutinized by the courts” to ensure that they comply with the “prevailing standard of reasonableness” (id. at 388-389).
By contrast, Florida law expressly forbids courts from considering the hardship imposed upon an employee in evaluating the reasonableness of a restrictive covenant. Florida Statutes § 542.335(1) (g) (1) provides that, “[i]n determining the enforceability of a restrictive covenant, a court . . . [s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought” (emphasis added). The statute, effective July 1, 1996, also provides that a court considering the enforceability of a restrictive covenant must construe the covenant “in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement” and “shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract” (§ 542.335  [h]; see Environmental Servs., Inc. v Carter, 9 So3d 1258, 1262 [Fla Dist Ct App]). Thus, although the statute requires courts to consider whether the restrictions are reasonably necessary to protect the legitimate business interests of the party seeking enforcement (see § 542.335  [c]; Environmental Servs., Inc., 9 So3d at 1262), the statute prohibits courts from considering the hardship on the employee against whom enforcement is sought when conducting its analysis (see Atomic Tattoos, LLC v Morgan, 45 So3d 63, 66 [Fla Dist Ct App]).
Based on the foregoing, we conclude that Florida law prohibiting courts from considering the hardship imposed on the person against whom enforcement is sought is “ ‘truly obnoxious’ ” to New York public policy (Welsbach, 7 NY3d at 629), inasmuch as under New York law, a restrictive covenant that imposes an undue hardship on the employee is invalid and unenforceable for that reason (see BDO Seidman, 93 NY2d at 388-389). Furthermore, while New York judicially disfavors such restrictive covenants, and New York courts will carefully scrutinize such agreements and enforce them “only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained” (Post, 48 NY2d at 87; see BDO Seidman, 93 NY2d at 388-389; Columbia Ribbon & Carbon Mfg. Co., 42 NY2d at 499; Reed, 40 NY2d at 307; Purchasing Assoc., 13 NY2d at 272), Florida law requires courts to construe such restrictive covenants in favor of the party seeking to protect its legitimate business interests (see Florida Statutes § 542.335  [h]).
According to the NYLJ, courts in Alabama, Georgia and Illinois have also rejected the Florida law.
You know what else is truly obnoxious? All of the Floridians who complain about how cold it is when it hits 55 degrees...
Brown & Brown v. Johnson (N.Y. App. Div. 4th Dep't Feb. 7, 2014)
Sunday, February 9, 2014
This article in the WSJ coincides perfectly with my syllabus as we are now finishing up our segment on offer and acceptance. Apparently, in the early to mid-nineties, the band Rocket from the Crypt agreed to let in free to their concerts anyone with a tattoo of the band’s logo.
As with many messy offer and acceptance scenarios, it started informally. The band members got tattoos of the logo – of a rocket blasting out of grave – and a few of their friends decided to do the same. Eventually, the band decided to let anyone with the tattoo get in free to see them play. They were a small band then and so whoever had the tattoo was probably a friend (or a friend of a friend) of a band member. But the band grew in popularity – and so did the number of tattooed fans. At their 2005 farewell concert, 500 rocket-tattooed fans got in free.
Now the band is preparing for their reunion tour. Tickets are selling out. There’s just one small problem. Many of the venues where they are scheduled to play don’t want to honor the free-admission-with-tattoo policy.
In my humble opinion, it doesn’t sound like the band actually made an offer to anyone, much less the public at large. The terms weren't definite - how big did the tattoo have to be? Could it be anywhere? For how long would fans get in free? Were there any limits?
But the band did honor the “tattoo-as-ticket” in the past. Does that then give rise to an implied contract? Or is there an equitable estoppel argument that could be raised given the fans’ reliance?
As interesting as this may be to ponder for contracts profs, in the end, I think there should be no enforceable contract and no estoppel claim for the simple reason that the band never intended to make an offer to the public at large. Furthermore, it doesn’t seem reasonable for someone to get a tattoo based upon what they understand to be the band’s informal policy of letting tattooed fans in free. The practice was a custom that grew organically, rather than a promise that must be kept as long as the band plays or the tattoo lasts. Not everything is a contract. If there was some sort of actual promise made, the band's promise was likely one to make a gift (free admission) to show their appreciation to anyone who had a tattoo. In other words, the band members weren't bargaining for fans to get a tattoo, and they weren't bargaining for them to show up to the venue with a tattoo - rather, motivated by affective reasons, they made a donative promise to let in their most loyal fans, the ones with tattoos, for free.
Wednesday, February 5, 2014
Tuesday, February 4, 2014
According to this article from The New York Times, Detroit filed suit on Friday, seeking to invalidate complex transactions that it used to finance its debts. Detroit claims that the contracts at issue were illegal and are thus unenforceable.
The transactions brought in $1.4 billion for the city, but it now claims that they were an unlawful scheme to get around a ceiling on the amount of debt the city could take on and that it thus has no obligation to make payments on the "certificates of participation" issued in connection with the transactions. Detroit is also seeking to cancel some related "interest-rate swaps" with two banks that obligate the city to pay tens of millions of dollars annually to the banks. Just a few weeks ago, Detroit had offered to pay $165 million to get out of the contracts, but the bankruptcy judge rejected that as "too much money." Paying nothing seems like a better deal for the city, if they can find a legal basis to get out of the obligation.
Saturday, February 1, 2014
Running out of examples of unilateral contracts? Well, here's one: Hong Kong tycoon Cecil Chao offered $65 million to any man that could get his lesbian daughter's hand in marriage. That is, if a person could reasonably believe that Chao intended to enter into this bargain (it seems that he was in fact serious, especially in light of his wealth and his rejection of his daughter's sexuality):
Chao's daughter Gigi handled the situation with incredbile grace, writing an open letter to her father:
In her letter, Gigi Chao tells her father that she "will always forgive you for thinking the way you do, because I know you think you are acting in my best interests."
And she says she takes responsibility for some of her father's misplaced expectations.
When he first announced the colossal dowry in 2012, she said at the time she found it "quite entertaining."
But this week she appeared to set the record straight.
"I'm sorry to mislead you to think I was only in a lesbian relationship because there was a shortage of good, suitable men in Hong Kong," she writes. "There are plenty of good men, they are just not for me."
Here's Gigi in her own words:
It sounds like quite a few men responded to the offer with attempts to win Gigi's heart. But it is now too late. Even though Chao will not recognize his daughter's relationship with her long-time partner (really, wife - given that they wed in France even though the marriage is not recognized in Hong Kong), Chao has now revoked the offer.
Friday, January 31, 2014
I like to remind my 1Ls Contracts students that a contract is private law between two parties, but it doesn't override public law. This story is last week's news, but I thought I'd blog about it anyway because it provides a pretty good example of this point. In 2009, William Marotta responded to a Craigslist ad posted by two women for a sperm donor. All three parties agreed - and signed an agreement to the effect - that Marotta waived his parental rights and responsibilities. The Kansas Department for Children and Families sought to have Marotta declared the father and responsible for payments of $6,000 that the state had already paid and for future child support.
Unfortunately for Marotta, a Kansas state statute requires a physician to perform the artificial insemination procedure. The Shawnee County District Court Judge Mary Mattivi ruled that because the parties "failed to conform to the statutory requirements of the Kansas Parentage Act in not enlisting a licensed physician...the parties' self-designation of (Marotta) as a sperm donor is insufficient to relieve (Marotta) of parental rights and responsibilities."
Note that the couple was not seeking to invalidate the contract - it was the Kansas state agency.
It's unclear whether the parties will appeal.
Wednesday, January 29, 2014
All four members of Motley Crue signed an agreement Tuesday that will permanently dissolve the legendary rock group after a final tour.
Vince Neil, Mick Mars, Nikki Sixx and Tommy Lee appeared in a Hollywood hotel Tuesday for a signing ceremony for a "cessation of touring agreement," which their lawyer said would bring a peaceful end to the group.
"Other bands have split up over rancor or the inability of people to get along, but this is mutual among all four original members and a peaceful decision to move on to other endeavors and to confirm it with a binding agreement," attorney Doug Mark said.
Motley Crue has sold more than 80 million albums since hitting the road in 1981, but drummer Tommy Lee said, "Everything must come to an end."
"We always had a vision of going out with a big f**king bang and not playing county fairs and clubs with one or two original band members," said Lee, who is the youngest member at 51. "Our job here is done."
Guitarist Mick Mars, the oldest band member at 62, said the group's 33 years have had "more drama than 'General Hospital.'"
Vocalist Vince Neil, 52, said he'll miss the group, but it's not an end to his rock career. "I feel there are a lot of great opportunities and exciting projects after Motley."
The first leg of "The Final Tour" starts in Grand Rapids, Michigan, on July 2.
The termination agreement becomes effective at the end of 2015, after a global tour that will include Alice Cooper.
"Motley Crue and Alice Cooper -- A match made in Armageddon?" said Cooper.
I'd love to see a copy of the contract (...wherefore Motley Crue hereby f***g agrees fortwith to cease any and all rock band activities of any kind...). In the main, it sounds like a hard one to breach: I promise not to show up for band stuff anymore!
Tuesday, January 28, 2014
Last week, Myanna Dellinger posted about tipping and Uber. One piece of information she provided in that post that was new to me was that servers were tipped only about 10% on the West Coast until about ten years ago. It seemed odd to me that there should be a more stingy tipping culture in the West. After all, one does not imagine Hollywood players threatening one another with "You'll never tip 10% in this town again."
Yesterday's New York Times provides a timely explanation of this anomaly. It turns out, tips may be lower on the West Coast because wages are higher. While the federal minimum wage for waiters who earn tips is only $2.13, states are free to mandate higher miniumum wages, and states in the West are most likely to do so. In Washington State, a waiter's base pay is $9.32/hour.
Myanna has lived in Europe so she knows that the real solution to the problem is to pay servers a living wage. If restaurant patrons want to reward them for especially fine service, they are welcome to do so, but with many servers living below the poverty line, they should be protected against economic surges and depressions that are beyond their control.
The restaurant industry protests against any rise in the minimum wage and is fighting legislation supported by the Obama administration that would incrementally increase the minimum wage for tip-earners to $7.25/hour. But restaurants can learn from cabbies. Pass increased costs onto customers by increasing menu prices, but then recommend that patrons tip only 10%. Across the nation, people with math phobia will delight in the ease of calculation.
Monday, January 27, 2014
Severe Economic Disruptions from Climate Change
For many, climate change remains a far off notion that will affect their grandchildren and other “future generations.” Think again. Expect your food prices to increase now, if they have not already. Amidst the worst drought in California history, the United Nations is releasing a report that, according to a copy obtained by the New York Times, finds that the risk of severe economic disruptions is increasing because nations have so dragged their feet in combating climate change that the problem may be virtually impossible to solve with current technologies.
The report also says that nations around the world are still spending far more money to subsidize fossil fuels than to accelerate the urgently needed shift to cleaner energy. The United States is one of these. Even if the internationally agreed-upon goal of limiting temperature increases to 2° C, vast ecological and economic damage will still occur. One of the sectors most at risk: the food industry. In California, a leading agricultural state, the prices of certain food items are already rising caused by the current drought. In times of shrinking relative incomes for middle- and lower class households, this means a higher percentage of incomes going to basic necessities such as food, water and possible medical expenses caused by volatile weather and extreme heat waves. In turn, this may mean less disposable income that could otherwise spur the economy.
Disregarding climate change is technologically risky too: to meet the target of keeping concentrations of CO2 below the most recently agreed-upon threshold of 500 ppm, future generations would have to literally pull CO2 out of the air with machinery that does not yet exist and may never become technically or economically feasible or with other yet unknown methods.
Of course, it doesn’t help that a secretive network of conservative billionaires is pouring billions of dollars into a vast political effort attempting to deny climate change and that – perhaps as a consequence – the coverage of climate change by American media is down significantly from 2009, when media was happy to report a climate change “scandal” that eventually proved to be unfounded.
The good news is that for the first time ever, the United States now has an official Climate Change Action Plan. This will force some industries to adopt modern technologies to help combat the problem nationally. Internationally, a new climate change treaty is slated for 2015 to take effect from 2020. Let us hope for broad participation and that 2020 is not too late to avoid the catastrophic and unforeseen economic and environmental effects that experts are predicting.
Assistant Professor of Law
Western State College of Law
Today's New York Times has a long story about college coaches in non-money sports, like soccer and lacrosse, recruiting middle schoolers. Like most intersections between amatuer athletics and money, this phenomenon is bad for everyone. According to the Times, the new trend is an unintended consequence of Title IX. There is lots of scholarship money chasing relatively few talented athletes, especially female athletes, in the non-money sports. As a result, players of promise get snatched up very early, so now schools offer scholarship money to eighth graders in the hope that they will commit to play for them when they go to college.
The result is bad for everyone for obvious reasons. Coaches cannot really predict which 13-14 year olds will be All-American athletes. Even if athletic potential is there, injuries, loss of interest or other factors (e.g., life outside of sports) can intervene. The dynamic hurts young athletes because it forces them to focus on one sport very early, playing that sport year round and increasing the likelihood of injury. Then, many athletes recruited in middle school are not top players in college, so they spend their college years as frustrated bench warmers, has-beens at the age of 18. The coaches hate it as well. They've got better things to do with their time than endless telephone converstions with middle schoolers, and they hate the dynamic of having to commit to student athletes before they are confident of the students' potential.
But it's actually hard to have that much sympathy for the coaches, since this is a world they have created by exploiting loopholes in NCAA rules. They could voluntarily self-regulate or simply work at getting a reputation for being a school that only accepts students who arrive at a particular sports program as a result of more mature deliberation. Perhaps it won't work and then a school might have to suffer the ignominy of not having, for example, a top ten women's soccer team. The horrors. University administrators should focus more an graduation rates, employment rates and student well-being and less on rankings.
But the reason I am posting about this is of course the relevant contacts issues. The Times is silent on how the minors bind themselves to particular universities. Since these middle schoolers cannot bind themselves contractually, there must be parents involved. Still, I wonder what the remedy is if a student athlete decides not to attend the university to which she has pre-committed. Of course, the student will sacrifice her scholarship, but if a recruited soccer player decides that she wants to play at a different school, will it really be impossible for her to find a school that will offer her a scholarship when she is a senior? Given that the coaches know that they will make mistakes in recruiting 14-year-olds, they ought to hold a few scholarships in reserve so that they can make offers to late bloomers.
But students may be unwilling to renege on their commitments. As the closing line of the Times article suggests, students may be happy to simply be done with the process, even though they know that they are pretty poor predictors of what they will want for themselves in four years' time. The disservice we do to student athletes is obvious. But the process also disserves colleges and universities. There are lots of reasons to go to college, but the chief reason for almost all students ought to be educational. By forcing to middle schoolers to pick a school based on a sport which will almost certainly never be anything more than a hobby for them, we present a distorted picture of the purposes of higher education -- or perhaps we simply contribute to a realistic picture of higher education which is in fact a disfigurement of education.
Wednesday, January 22, 2014
Warren Buffett and Quicken Loans have teamed up to help make teaching about unilateral contracts and interpretation so much more interesting. The offer? One billion dollars to anyone who fills out a perfect 2014 NCAA tournament bracket.
Say what? Is this serious? Or is it like that Pepsi commercial - you know the one.
Although at first, this might sound like a joke, once you learn the odds are, by one estimate, one in 9.2 quintillion, you --a reasonable person -- would realize this offer was serious.
All you have to do is fill out a perfect bracket. (Now might be the time for me to mention that I once won my law firm's pool one year. Strange but true).
But wait - there's more. The Business Insider reports that Quicken, which is actually running the contest, will award $100,000 to 20 of the most accurate but not perfect brackets "submitted by qualified entrants in the contest to use toward buying, refinancing or remodeling a home." The company will also donate $1million to Detroit and Cleveland non-profit organizations.
Get ready for March Madness....
Monday, January 20, 2014
In the mid-1990s, the Walt Disney Company hired Michael Ovitz to be its #2 executive. After slightly over a year in the position, Disney's Board of Directors fired Ovitz, having determined that he was an ineffective executive for the company. He received over $100 million in severance pay. After years of litigation, the Delaware courts found that Disney's Board of Directors did not breach its duty of care in approving an excecutive compensation scheme that made Ovitz better off for having been terminated than he would have been had he stayed on the job. The Delaware Supreme Court noted that Disney's corporate governanace was far from optimal and should not pass muster in a post-Enron/WorldCom etc., world. I have written about the case here.
According to this article in The New York Times, Yahoo! was not paying attention. In 2012, Yahoo! hired Henrique de Castro to be its #2 executive. He lasted a little over a year and is now walking away with at least $88 million. The Times quotes Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, who says that such hiring decisions are usually made by the corporation's CEO and that the Board can't tell the CEO whom to hire. However, Professor Elson also notes that Boards have an obligation to "ask hard questions," especially when executive compensation seems "out of whack." Mr. de Castro was the eighth highest paid executive in the region, earning more than Yahoo!'s CEO.
I suppose it is usually true that a Board cannot tell a CEO whom to hire, but the Board and its Compensation Committee do set executive pay. And nobody at that level can be hired without Board approval. In order to lure an executive of de Castro's experience, a corporation must offer "downside protection." That is, a business person of de Castro's experience is not going to leave a secure, well-compensated position without a guarantee that he will be well-compensated at the new position, even if the relationship sours. However, as the Times points out, de Castro's record at Google was mixed. He had been demoted and then promoted again, which suggests his position was not that secure. In any case, his compensation seems to have been well in excess of what was necessary to protect his potential downside.
Board capture apparently is still a major problem in U.S. public companies, and the Times suggests that the problem is especially bad in Silicon Valley. The real problem is that executive pay remains absurdly, stratospherically high in this country. No pay package should be structured to guarantee millions in dollars of severance even in cases of abject failure.
Wednesday, January 15, 2014
Bridge: It hasn't been a good week for New Jersey governor Chris Christie who is embroiled in a scandal ("bridgegate") after one of his aides arranged to close lanes to the George Washington bridge, causing traffic in Fort Lee, a town where a democratic mayor did not support Christie's re-election.
Tunnel: Over in Washington, Seattle may see traffic delays of its own. The State Department of Transportation has declared that the Highway 99 tunnel team in “material breach of contract” because of different barriers than lane closings -- barriers to participation by small, minority-owned contracting firms. The Seattle Times reports:
The DOT threatens sanctions unless Seattle Tunnel Partners (STP) makes rapid improvement and the team leaders participate in meetings with DOT. Disadvantaged Business Enterprises (DBEs) led by minorities and women are supposed to receive 8 percent of the work, but as of last fall, by some measurements the rate was less than 2 percent, according to a scathing federal civil-rights review. The tunnel contractors are led by the U.S. arm of Spanish-based Dragados, and by California-based Tutor-Perini.
Lynn Peterson, the DOT secretary, released a letter Monday that recognizes efforts by STP to improve, but demands more.
What sanctions will mean is not yet clear. The DOT could exert leverage by reducing or delaying progress payments that STP periodically receives for tunnel work. Peterson mentions that as one option in her letter, which follows a state review by attorney Richard Mitchell.
STP has the leverage of already having a tunnel machine in the ground, and already collecting more than $700 million to date. The most extreme outcome, to switch prime contractors, could easily run up tens or hundreds of millions of dollars, and cause delays. Peterson writes that she would prefer collaboration to litigation. An excerpt:
Among other ideas, the state now recommends breaking contracts into smaller pieces so minority and women-led firms have a better chance to compete.
The federal investigation was prompted by a complaint by Elton Mason, owner of Washington State Trucking in Kirkland, who tried unsuccessfully to bid on a contract to transport excavated dirt. STP awarded the prime trucking contract to a larger company, Grady Excavating of Mukilteo, which DOT later disqualified from its DBE status. The KING 5 Investigators have aired several stories aboutfailures in the minority contracting programs for Highway 99 and other projects. Although Initiative 200 forbids quotas in minority hiring, the tunnel job is one-third federally funded, and therefore subject to hiring goals under federal affirmative-action rules.
Mason vented his exasperation Monday at what looks to him like another round of process. Mason said he’s had two meetings recently with state DOT and STP, but not a job offer. All it should take is for Peterson to make a phone call and demand that Mason and other minority contractors be hired immediately, he said.
Christie could only hope for a Seattle tunnel scandal to eclipse his coverage in the news cycle. Not likely.
As The New York Times reports, the Minnesota orchestra has ended "one of the most contentious labor battles in the classical music world." The musicians agreed to a new contract, with smaller pay cuts than management had previously proposed, ending a fourteen-month lock-out. Concerts are due to resume in Minneapolis's newly-renovated Orchestra Hall (pictured) in February.
The musicians accepted a fifteen percent pay cut, having successfully fought off a proposed 30% pay cut, and management has promised pay increases in the coming years so that by year three musicians will only be about ten percent below were they were in 2012. Musicians also must share a larger burden of their health insurance costs.
Some of these musicians might consider a change of careers. Stagehands seem to do pretty well.
Tuesday, January 14, 2014
$350,000. That’s the value an anonymous American big game hunter is willing to pay to shoot one of the world’s last 5,000 black rhinoceroses. 1,700 of these live in Namibia, which recently auctioned off a permit to kill an old bull through the Dallas Safari Club.
Contracts are meant to assign market values to various items and services in order to facilitate commercial exchanges of these. But does this make sense with critically endangered species?
Namibia and the Safari Club tout the sustainability of the sale claiming that the bull is an “old, geriatric male that is no longer contributing to the herd.” All $350,000 will allegedly go to conservation measures. That is, of course, unless some of the funds disappear to corruptness, not unheard of in the USA and perhaps not in Namibia either. Although the male may no longer be contributing to his herd, he does contribute to the enjoyment of, just as one example, people potentially able to see him and his likes on safari trips as well as to a much greater number of people around the world who simply enjoy the rich diversity of nature as it still is even if unable to personally see the animals.
Conservationists thus decry the sale, claiming that it is “perverse” to kill even one of a species that is so rapidly becoming extinct. The argument has been made that critically endangered species should not be valued more dead than alive. If humans cull the aging, natural predators will have to go one step “down the ladder” for the next one; a healthier one. Who are we to continually mess with nature in these ways? Counterarguments are made that poachers are the real problem, not a “single sale.” And so it goes.
At bottom, the irony in killing such an animal to “increase” the population is, indeed, great. This particular contract was not.
Monday, January 13, 2014
The New York Times reported last week on what it called The Consumer Financial Protection Bureau's (CFPB) next "crusades." That would not be my preferred term, but yes, the regulatory agenda is ambitious.
As the story recounts, The CFPB has already fined major companies, including American Express, GE Captial Retail Bank and Ocwen Financial for misleading business practices. Last Friday, it issued new regulations for the mortgage industry.
The CFPB's agenda in the coming year includes the following areas:
- Arbitration (see our earlier blog post on the CFPB's preliminary report);
- Bank overdraft fees;
- Student loans;
- Debt collection;
- Credit report disputes; and
- Prepaid cards
It is an ambitious agenda. Let's see if it will have much of an impact on consumer financial protection.
Tuesday, January 7, 2014
We have perviously posted examples of government contracting difficulties relating to technology contracts and websites. Saturday's New York Times featured this op-ed by Georgetown Law Professor David A. Super (pictured), which chronicles technology contracting problems that have disproportionately affected the poor.
Some recent technology contracts gone wrong that did not make the headlines:
- 66,000 Georgia food stamp recipients and about half that many Medicaid recipients had their benefits terminated for failing to respond to renewal notices that, through a contractor's error, had never been sent;
- A Massachusetts contractor deactivated food stamp cards because new ones had been sent without seeking any confirmation that the new ones had been received; and
- A contractor's errors made food stamps unavailable to people in 17 states.
Properly supervised contractors can use technology to improve the delivery of government services. But attention, oversight and willingness to act decisively to remedy fiascoes seem to depend on the wealth and clout of those who are affected. As Obamacare regains its footing, that lesson shouldn’t be forgotten.
Monday, January 6, 2014
As reported here in The New York Times, Boeing's machinists union has agreed to a new eight-year labor contract in which the union sacrificed some benefits in order to guarantee that Boeings 777X aircraft will be built at is Washington State plant. The union local's leaders opposed the new contract, but the national union urged them to hold a vote, and 51% of those participating voted to accept the contract.
According to the Times, Washington state was the logical choice for the construction of Chicago-based Boeing's 777X. However, the company sought tax breaks and a new union contract before agreeing to use its existing infrastructure on the new project. The state legislature quickly approved tax breaks that will be good through 2040 and save the company an estimated $9 billion, but when the machinists originally rejected the new contract offer, Boeing began shopping around for a new location for its plant.