ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, June 22, 2016

The Contractual Side of Going for the Gold

The Olympics are almost here, and as we all know, they're big business: lots of television ratings, lots of advertising, lots of endorsements.

Today the District of Oregon is hearing an argument on a preliminary injunction in a contract case with Olympic implications (or an Olympic case with contract implications), Nike USA, Inc. v. Berian, Docket No. 3:16-cv-00743 (behind paywall).

The dispute, which has been widely reported online, is based on Nike's endorsement contract with Boris Berian, a track and field competitor with Olympic hopes. The contract, according to the complaint, gave Nike the right to match any offers made to Berian during a particular period of time. During that time, Berian received an endorsement offer from New Balance. Nike claims in its complaint to have matched the offer, and that Berian breached his contract with Nike when he refused to continue his relationship with Nike.

Berian kept racing. And kept winning. While wearing New Balance gear. So Nike, to keep Berian from furthering his relationship with Nike's competitor New Balance, sued him, serving him with the lawsuit during a big track meet.

Nike's allegations have been countered by Berian, who claims that New Balance's offer to him did not contain a number of restrictions that Nike's offer did contain. However, Nike has countered that by arguing that Berian did not make that clear to Nike and that Nike would have dropped its restrictions if necessary. (Nike seems to have just assumed there had to be restrictions and that any statement otherwise couldn't possibly be true.)

Endorsements are big money, of course. The Nike and New Balance offers are $125,000 for the year. While he's embroiled in the legal dispute, Berian's agent asked for donations to Berian's legal fund.

The judge has already approved a TRO in the case, prohibiting Berian from racing with any equipment other than Nike's. The hearing for the preliminary injunction is today.

June 22, 2016 in Games, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Is that Starbucks Grande Really Grande?..

Here’s a case that shows you that size really does matter… in contract law at least. Of-course-size-matters-just-ask-that-poor-ex-planet-pluto-e3505

In Strumlauf et al. v. Starbucks Corp., No. 16-01306, a federal district court judge based in San Francisco just ruled that a class action lawsuit against Starbucks.The complaint alleges breach of express and implied warranties, unjust enrichment, negligent misrepresentation, fraud and violations of California's Consumer Legal Remedies Act, the California Unfair Competition Law, and the California False Advertising Law.

The company allegedly overcharged its customers by “systematically serving lattes that are 25% too small” in order to save milk. Baristas were allegedly required to use pitchers for heating milk with etched “fill to” lines that are too low. Further, they were told to leave ¼ inch of free space in drink cups. Said U.S. District Judge Thelton Henderson: "This is not a case where the alleged deception is simply implausible as a matter of law. The court finds it probable that a significant portion of the latte-consuming public could believe that a 'Grande' contains 16 ounces of fluid." Starbucks’ cups for “tall,” “grande,” and “venti” lattes are designed to hold exactly 12, 16 and 20 ounces.

Starbucks so far counters that “if a customer is not satisfied with how a beverage is prepared, we will gladly remake it.”  Right, but how many customers would really complain that their drink is .25 inch (6 mm) too small?... And does it really matter? Much of what one pays for with a Starbucks drinks is, arguably, the knowledge of what the retail outlets offer, the ambience, convenience, “free” wifi, etc. Having said that, I am certainly not one to promote consumer fraud and recognize that little by little, the alleged milk-saving scheme could, of course, bring even more money into the coffers of already highly profitable Starbucks.


June 22, 2016 in Current Affairs, Famous Cases, Food and Drink, In the News, Recent Cases, True Contracts | Permalink | Comments (2)

Monday, June 20, 2016

Have You Designated a Legacy Contact on Facebook?



It isn't something we typically think about but as our world shifts to digital and as more and more of us leave behind large social media footprints, what happens to those accounts when we die? I have thought about it briefly, mostly in thinking that I should give my passwords to someone, so that, if something happens to me unexpectedly, someone will be able to get onto my social media to let my followers know. I have had social media friends vanish with no explanation, and it's always haunted me that maybe something happened to them and I had no way of knowing. 

Despite the fact that I'm a lawyer, it honestly never occurred to me that what happens to my social media accounts after my death might be governed by their terms of use...until I saw this story reported widely on the local news. There was a recent tragedy in a nearby town that resulted in the unexpected, untimely death of George Heath. George's widow, Rosemary, was accessing his Facebook account to send photos and videos to family and friends and share older memories. Given how long Facebook has been around now, there are potentially years' worth of memories built up on Facebook pages, and one could see how they would be of some comfort in a time of grief. 

However, Facebook's terms of use prohibited what Rosemary was doing. Someone notified Facebook that George had died and Facebook basically locked the account down. They call it "memorializing the page," but the effect of it is that it's locked and no one can access it, not even someone who has the password. Now, this makes sense in a way: People could do malicious and terrible things to a deceased person's Facebook page, theoretically, if Facebook didn't lock it down. But it's a harsh outcome when applied to people in Rosemary's situation. 

Facebook's terms of use inform you that you should designate a legacy contact. This was actually difficult for me to find in Facebook's policies and I eventually only found it by Googling "Facebook memorialized page," so it's not like this is very obvious on the website itself. And, anyway, not many of us think a whole lot about our unexpected deaths. And, if we do, not many of us think that we should read our social media terms of use about it. I looked it up, and Twitter also has a policy where you can lock down a Twitter account if the user dies, but Twitter seems to require a lot more proof than Facebook does

Also of concern to me is that, even if someone is designated as a legacy contact, it still might not allow the kind of access that Rosemary was looking for, or that you might want to grant to someone. Facebook limits what a legacy contact can do, meaning that your power over what happens to your Facebook account really ultimately lies with Facebook, not you or your wishes. Which is a reminder, of course, that our control over our Facebook accounts is limited to begin with and pretty much at the whim of Facebook

We tend not to read the terms of use of sites, as we all know. And we talk about that a lot in the context of agreeing to arbitration clauses and stuff like that. We don't often think about how that can have consequences for our loved ones after our deaths. I understand, of course, that Facebook and Twitter don't want to hand out log-in information, but if the user has given the log-in information to someone else--and, as I could foresee, if the user has given the log-in information to someone specifically for the purpose of managing the social media account if/when they die--it seems odd for Facebook to then react as if that person's actions are prohibited. On the other hand, I suppose, how would Facebook know otherwise? A conundrum.


June 20, 2016 in Commentary, Current Affairs, In the News, True Contracts, Web/Tech | Permalink | Comments (4)

Monday, June 6, 2016

"Facebook Addendums": Does Your Landlord Want to Be Your Friend?

I'm one of those apparently rare people who doesn't really use Facebook. But Facebook was evidently very important to City Park Apartments in Salt Lake City, whose management company presented all of the tenants with a "Facebook addendum" to their lease. The addendum allegedly stated that all residents had to befriend the complex on Facebook or be found in breach of their lease agreement. 

This seems like an alarming development that I hope is going to be very limited. Is a Facebook account going to start being like a telephone number or an e-mail address, something it's assumed by everyone that you have and should hand over access to in exchange for goods or services? The reason I stopped using Facebook was because of privacy concerns. I wouldn't be thrilled about being told that I'm required by my lease to make sure my landlord can watch my Facebook activities (which often correspond, as we all know, to our real-life activities; if your landlord asked to follow you around through your daily life, or to get e-mailed your vacation photos, I would think many people would consider that a weird request).

And, since I don't do anything on Facebook, does that mean that I wouldn't be allowed to rent an apartment there unless I opened an account? Many people have legitimate, important, in some cases necessary reasons to limit their online presence. Let's hope "Facebook addendums" don't start sweeping the nation. 

June 6, 2016 in Current Affairs, In the News, True Contracts, Web/Tech | Permalink | Comments (1)

Thursday, June 2, 2016

Trump “University” - Fraud in the Inducement?

Donald Trump is currently attacked on many fronts, one of which for the potential re-launch as President of his now-defunct for-profit real estate training classes. The “playbook” used by the corporate recruiters for the business unit required them, among other things, to use such arguably despicable and potentially fraudulent recruiting language as the following:

“As one of your mentors for the last three days, it’s time for me to push you out of your comfort zone. It’s time for you to be 100% honest with yourself. You’ve had your entire adult life to accomplish your financial goals. I’m looking at your profile and you’re not even close to where you need to be, much less where you want to be. It’s time you fix your broken plan, bring in Mr. Trump’s top instructors and certified millionaire mentors and allow us to put you and keep you on the right track. Your plan is BROKEN and WE WILL help you fix it. Remember you have to be 100% honest with yourself!”


“Do you like living paycheck to paycheck? ... Do you enjoy seeing everyone else but yourself in their dream houses and driving their dreams cars with huge checking accounts? Those people saw an opportunity, and didn’t make excuses, like what you’re doing now.”

(Can you imagine reading those statements allowed for a living?)

Does promising potential students too much constitute fraud in the inducement? In a not entirely dissimilar case in our own field, law student Anna Alaburda recently lost her lawsuit against Thomas Jefferson School of Law.  Ms. Alaburda had argued that the law school had committed fraud by publishing deceptive post-graduation employment statistics and salary data in order to bait new students into enrolling. Alaburda claimed that despite graduating at the top of her class and passing the California bar exam, she was unable to find suitable legal employment, and had racked up more than $150,000 in student loan debt. An attorney for the school rejected the claims and said Alaburda never proved them. The attorney also reminded jurors that she had turned down a job offer, and that many Thomas Jefferson alumni have had successful careers. The verdict in that case was 9-3 in favor of Thomas Jefferson.

The cases are of course not similar, yet similar enough to remind us of the importance of not promising too much in the for-profit educational field (in Thomas Jefferson’s case, the school won, but a dozen other lawsuits have allegedly been filed against other schools). This makes sense from both an ethical and business risk-avoidance angle.

What about the use of the very word “University”? The media seems to stubbornly – probably for “sound bite” reasons – continue using the phrase even though the business was, in effect, forced to change its name to “The Trump Entrepreneur Initiative” after government pressure around 2010.   The business was just that, and not a certified university.

If Trump decides to start up the business again, does the media not help him do so again by using a much too favorable term? It seems like it. Linguistics matter in the law and beyond. May media PR inadvertently (or not) contribute to a potential fraud? Comment below!

June 2, 2016 in Commentary, Current Affairs, Famous Cases, In the News, Law Schools, Recent Cases, Teaching | Permalink | Comments (0)

Monday, May 23, 2016

Wait a Minute, George Zimmerman is Not a Man of His Words?

Is it unthinkable to you that George Zimmerman would seek to profit from killing Trayvon Martin? No? How about reneging on one contract if he were to get an even more lucrative one?

The latter has recently been shown to be the case. The former Florida neighborhood watchman who shot the unarmed teenager in 2012 has confirmed that he has accepted an auction bid for $250,000 for the gun with which he killed Mr. Martin. Before that, he had accepted a bid for $150,000 from a Florida bar owner for the same gun, but backed out of that deal when he got a better one. Says the bar owner, “I thought [Mr. Zimmerman] was a man of his word.”

The sale drew heavy criticism from people claiming that Mr. Zimmerman was seeking to profit from the sale. Gun rights advocates claim that Mr. Zimmerman is simply exercising his legal rights under the law.

Meanwhile, Mr. Zimmerman has displayed his apparent usual lack of social skills by accusing one gun auction website that refused to sell the gun of being “Nazi loving liberal liars Unknown” (Huh? How would that work?). At least he promises to give some of the proceeds of the sale to “fight Black Lives Matter violence against law enforcement officers”…

No further comments are needed for this story.


May 23, 2016 in Commentary, In the News, True Contracts | Permalink

From a Colonial Cemetery to a World War II Factory to Condos and a Spa: Environmental Concerns, Contract Releases, and Secret Underground Containers Are Just the Latest Chapter

North Jersey

(Photo from

I use a lot of hypos in my class based on undiscovered buried containers of environmental hazards, and I feel like sometimes my students wonder if this is a thing that actually happens. Unfortunately, yes, as a recent case out of New Jersey, North River Mews Associates v. Alcoa Corp., Civil Action No. 14-8129, proves. 

The case centers around a piece of land on which Alcoa had operated a manufacturing facility from 1917 to 1968, a facility once so central to East Coast industry that it had actually been placed on the National Register of Historic Places. The piece of land had been vacant since 1978 and became a popular site for people looking to photograph "modern ruins." It was eventually sold to North River Mews Associates and 38 COAH Associates (the Plaintiffs). Twenty years ago, the New York Times reported optimistically that the development deal would be a "win-win" the would help clean up the Hudson River shoreline. The site, however, has been plagued by a number of challenges and tragedies (several fires, workman injuries from freak accidents, etc.) that have led some people to talk about curses. (Well, it apparently had been built on an old graveyard dating back to colonial times.) The latest obstacle has now emerged in the form of, yes, previously undiscovered buried containers of environmental hazards.  

The parties were well aware that the land would have environmental contamination, as the Times article makes clear. But the Plaintiffs had worked with the New Jersey Department of Environmental Protection and believed that the property had been remediated. In 2013, however, the Plaintiffs discovered two previously unknown underground storage tanks filled with hazardous materials. The property around the tanks seemed to indicate that at one point the tanks had attempted to be burned instead of properly disposed of. The presence of these tanks, needless to say, was never disclosed by Alcoa to the Plaintiffs. 

Alcoa's stance, however, is that the purchase contracts for the land released them from liability for various claims brought against them. The court disagreed at this motion to dismiss stage, finding that the language was ambiguous. The release in the contract stated that the Plaintiffs waived the rights "to seek contribution from [Alcoa] for any response costs or claims." The court said that it was unclear whether the contribution language modified only response costs or whether it modified both response costs and claims. Was this a blanket release of all claims, or only a release of the right to seek contribution? This question, the court concluded, could not be determined on a motion to dismiss. 

At any rate, the Plaintiffs also alleged that Alcoa concealed the presence of the underground tanks, fraudulently inducing them to enter into the contracts, and the court concluded that, if true, that would be grounds for the release to be vitiated. 

This case is a great example of how long environmental issues, development deals, and contractual disputes can drag on. In 1997, the parties signed the purchase contract. Today, the parties are still trying to clean up the site and fighting over which of them ought to pay for it, with language drafted twenty years ago taking center stage. As the case continues, it will of course likely become relevant who knew about the storage tanks and when, and I am curious to see if the tanks can be dated. Since Alcoa apparently ceased using the site for manufacture in the 1960s, it will be interesting to see how much knowledge from that time period still exists. It's the latest chapter in the history of a plot of land that seems to have been a busy place for centuries. 

May 23, 2016 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (1)

Thursday, May 19, 2016


Another one bites the dust. GM is the most recent car company having to admit Unknown that it has reported overly optimistic figures about the gas mileage of, in this case, some of its 2016 SUVs sold in retail trade. Before GM, there was obviously VW, but also Mitsubishi, Hyundai, and Ford, all in the span of the past two years.

GM is temporarily halting sales of about 60,000 new 2016 SUVs because the vehicles' labels overstated their fuel efficiency. The 1-2 miles per gallon mileage overstatement was the result of improper calculations, according to GM. The company plans to compensate owners for the difference in miles per gallon and announce the program in the coming week.

Does this suffice as a remedy? Arguably, no one buys an SUV because of its low gas mileage, so in this case in contrast to the VW “dieselgate,” an argument that a customer bought a car because of its fuel efficiency is less plausible. But should that let GM off the hook in this case simply by saying that it will compensate for the fuel difference? How can an accurate prediction of what that will be over the time the SUV owners keep the car even be made? - For presumably, GM is not only planning to compensate the owners for the past difference, thinking that owners can now simply sell the cars if they are no longer satisfied with them? That seems unfair to the buyers as it is common knowledge that one cannot recover the value paid for a brand new case as with these 2016 models. Should criminal liability lie? OK, perhaps not for the 1-2 mile difference, but what about the systematic fraud committed by VW? Shouldn’t someone be held criminally liable for that?

Of course, a class-action lawsuit has been brought by some buyers. Has time come for everyone – the EPA, car makers, and car buyers – to realize that there is really only so much that can be done with the fuel efficiency of regular-engine cars? After all, hybrids and now electric cars are widely available and will probably cover the needs of the vast majority of car buyers, few of whom really need an SUV. They get much better “fuel” mileage than cars with traditional engines. Still, extreme consumer fraud is committed by at least some (or one…) of these car makers. Reckoning time seems to have come.

May 19, 2016 in Current Affairs, Famous Cases, In the News, Legislation, Science | Permalink | Comments (0)

Thursday, May 12, 2016

Removing Confidential E-Files When Quitting: Not a Good Idea

If you and I worked in an industry with highly sensitive information (assuming that we do not), it might be one thing if we thought we could email confidential information to our private email accounts and copy such information to a memory stick without finding out. But if a C-level employee at a high-tech company does so, does such conduct not rise to an entirely different level of at least naivety, if not deliberate contractual and employment misconduct?

A court will soon have to answer that question. Louis Attanasio, former head of global sales for an IBM cloud computing unit has been sued Seasonal-celebrations-lose-lost_property-name-identity-father_christmas-jdon16_low by IBM for breach of a contractual confidentiality clause, misappropriation of trade secrets, and violation of a non-compete agreement when he left – information in hand – to work for direct competitor Informatica.

In 2016, Attanasio allegedly started sending confidential information to his private email account, including draft settlement agreements between other IBM employees who had left to work for competitors. Before leaving IBM, Attanasio was asked to return a laptop to the company, which claims that he cpied files to a USB storage device.

Once again, the extent of the traceability of our electronic actions at work has become apparent. I continually remind my students of this to help them avoid “traps” such as the above or, frankly, simply to remind them that they should not spend much, if any, time on their computers not working (most seem to use their own electronic devices anyway these days, but still… and doing so is also very visual in an office setting.). Employers frequently complain about the work ethics of new college graduates, so it might be worthwhile to remind our students of what seems obvious to us.

May 12, 2016 in E-commerce, Famous Cases, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, May 11, 2016

Banks and Class Action Prohibitions as “Contract Gotchas”

Contracts preventing consumers from filing class-action lawsuits against banks may soon be illegal if a proposed ruling by the Consumer Financial Protection Bureau takes effect. A hearing on the ruling will be held on Thursday, May 12, 2016.

For quite some time, clauses requiring consumers to arbitrate disputes with banks and banning class action lawsuits against banks in cases of disputes have been common. According to a prominent attorney to testify at Thursday’s hearing, one of the effects of required arbitration has been to make class action lawsuit highly unlikely.  Of course, a contractual clause outright prohibiting class action suits means that if a consumer wants to litigate the dispute and arbitration, he or she would have to do so in an individualized suit. Because of the low amounts typical at issue in bank-v-consumer disputes, such clauses have had the effect of preventing litigation. Even if it comes to litigation between banks and consumers, “consumers can easily be outgunned” by savvy banks who additionally are said to “like to drag things out,” a problem when consumers at the same time have to take time off from work to litigate.

The proposed rule would not ban arbitration clauses. Rather, it would prevent contract clauses from including language that bans consumers from joining class-action cases. Such bans are common, and they have become more widely enforced since the United States Supreme Court in 2011 held that the FAA requires state courts to honor bans even if state law prohibits them.

According to Consumer Bureau Director Richard Cordray, "signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong." Cordray also calls the current practice a "contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing."  The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness calls the proposed rules a “backdoor ban” on arbitration clauses, said to provide individual consumers the chance for “more financial relief than a class-action suit.” The Pew Charitable Trusts’ Consumer Banking Project states that it is probably true that banks will ditch arbitration clauses if the CFPB’s rules take effect, but “consumers will probably be just fine.”

May 11, 2016 in Current Affairs, In the News, Legislation, True Contracts | Permalink | Comments (0)

Friday, May 6, 2016

Facebook Has to Face Illinois's Biometric Information Privacy Act

 Facebook in Laptop

Facebook was sued recently by a number of Illinois residents for its "Tag Suggestions" program. The complaint alleges that Facebook's facial recognition technology, employed to suggest to its users who they should be tagging in their uploaded photos, collected users' biometric data derived from their faces, secretly and without procuring informed consent, in violation of Illinois's Biometric Information Privacy Act ("BIPA"). Facebook moved to dismiss the complaint, in part on the fact that its Terms of Use require disputes with users to be governed by California law and therefore Illinois' BIPA was not applicable. But the recent decision by the Northern District of California in In re Facebook Biometric Information Privacy Litigation, Case No. 15-cv-03747-JD (behind paywall), found that Facebook has to contend with Illinois's BIPA. 

The court performed an analysis of whether or not Facebook's Terms of Use was a binding contract on the user plaintiffs. Before registration, each of the users was required to click a box or a button that clearly indicated that by doing so, they were stating that they had read and agreed to the Terms of Use. Therefore, the court found that the Terms of Use were binding on the users. In addition, every time Facebook updated its Terms of Use, it sent each user an e-mail informing them of modifications, as well as placed a "jewel notification" on their Facebook feeds. Therefore, there was no real dispute that each user had agreed to the current Terms of Use. There was also no dispute that the Terms of Use contained a California choice-of-law provision. 

Nevertheless, the court refused to enforce the provision. The court noted that part of the test in evaluating whether to enforce a choice-of-law provision is to consider whether California's law would be contrary to the "fundamental policy" of Illinois's law and, if so, whether Illinois would therefore have a "materially greater interest" than California in the case at issue. Here, Illinois is one of only a few states with a statute concerning biometrics; California has no such statute. The court found that Illinois's BIPA represented a fundamental policy of Illinois to protect its residents from unauthorized use of their biometrics, and that applying California law here instead of Illinois law would interfere with Illinois's policy. In fact, the court noted, enforcing the choice-of-law provision would effectively eliminate any effectiveness of BIPA whatsoever, because there would be no ability for Illinois residents to protect themselves against national corporations like Facebook. Therefore, the court found, Facebook has to deal with Illinois's BIPA, regardless of Facebook's attempts to limit the relevant laws of its service to only California's laws. 

This all leaves for another day whether the Tag Suggestions program actually does violate BIPA. 

May 6, 2016 in Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (1)

Monday, May 2, 2016

Watering Down Your Iced Coffee Drinks

A class action lawsuit has been filed against Starbucks for negligent misrepresentation, fraud and unjust enrichment in the company’s sale of cold drinks.

The company makes a good deal of its money on cold coffee and tea drinks prepared in-store. In 2014, shaken iced tea drinks were the most profitable menu addition of the year, according the lawsuit. Unknown

The company offers three sizes of drinks — Tall, Grande, Venti and Trenta — which correspond to 12, 16, 24 and 30 fluid ounces, respectively. These fluid ounce measurements are advertised in the store. However, because of the large amounts of ice added to the drinks, customers actually receive much less (at a high price, as is well known).

The complaint claims that "[a] Starbucks customer who orders a Venti cold drink receives only 14 fluid ounces of that drink — just over half the advertised amount, and just over half the amount for which they are paying … In the iced coffee example, a Starbucks customer who orders and pays for a Venti iced coffee, expecting to receive 24 fluid ounces of iced coffee based on Starbucks' advertisement and marketing, will instead receive only about 14 fluid ounces of iced coffee."

A Starbucks spokesperson states that “[o]ur customers understand and expect that ice is an essential component of any ‘iced’ beverage,” adding that the company would remake any beverage if a customer is unsatisfied.

Maybe it would be a better idea to get a beer or a wine. They can’t water those down (I think...). Five Starbucks locations in the D.C. area have started serving booze and tapas as part of a nationwide effort to keep some of its stores open after typical coffee shop hours.

Going to a coffee shop for… tapas and alcohol in order to … what, stay loyal to an already huge brand? Avoid trying a local bar? If you think “only in America,” think again: Starbucks is also enjoying huge success in Europe, home of exquisite coffee shops with excellent pastries and snack. Talk about selling sand to Sahara…

May 2, 2016 in Current Affairs, Food and Drink, In the News, True Contracts | Permalink | Comments (1)

Monday, April 25, 2016

Love It, List It, or Sue Over It

Love It or List It


My love for HGTV is real and enduring. It started as a House Hunters addiction when I was a practicing lawyer looking for something mindless to watch when I got home at night and it has seriously spiraled out of control. I find something soothing about the formulaic nature of the shows; their familiarity is like a security blanket to me. And I've also realized that I've actually learned a lot about my taste. For what it's worth, I do feel like HGTV has made me think more about how I decorate my house, even if I can't afford a professional decorator. 

So I gobbled up with interest every single article I could find on the recent "Love It or List It" lawsuit. If you don't know the show, it's one of my favorites for the snark between the competing real estate agent and designer. One half of a home-owning couple wants to renovate their existing home; the other half wants to give up and move away. Enter the "Love It or List It" team, showing the couple houses they could buy while simultaneously renovating their home. The theory is that the couple can then decide to love it, or list it. 

I entertain no illusions about the "realness" of reality television (really, mostly I've learned from reality television that apparently an enormous number of people are tremendously good actors - while others are decidedly not), but this recent lawsuit attacks not just the "realness" of reality television but practically the *definition* of it: "Love It or List It," the homeowners accuse, were much more interested in making a television show than they were in renovating this couple's home. On at least some level, this lawsuit seems to be a challenge to what "Love It or List It" is: a television show or a general contractor. 

As a general contractor, the homeowners weren't too happy with the show's performance. They allege shoddy work on their house, including low-quality product, windows that were painted shut, and holes big enough for vermin to fit through. (They also allege their floor was "irreparably damaged," although I think they can't possibly mean that in the true legal sense of "irreparably," because surely the floor can be repaired?)

It seems to me this is going to come down to the contract between the parties. What did "Love It or List It"'s production company promise? I would love to see what the contract said about the work that was to be performed, how that work was to be performed, and what the financial arrangements were (since part of the couples' allegations is that a large portion of their money was diverted away from the renovations). However, for some reason, I have had an incredibly difficult time locating a copy of the complaint (never mind the contract). None of the stories I've found linked to it, and I have had zero luck finding it through Bloomberg Law's docket search. 

April 25, 2016 in Commentary, Current Affairs, In the News, Recent Cases, Television, True Contracts | Permalink

Monday, April 18, 2016

The Perils of A Duty to Negotiate in Good Faith

I’ve recently finished writing a textbook on contract clauses which takes a different approach to teaching contracts.  The book, to be published in September, uses contract clauses and case excerpts to introduce doctrinal concepts and to teach students how to problem solve.  (I always thought it unfortunate that a typical 1L learns contract law without knowing what common contract clauses mean or how they relate to what they’ve been learning). One of the cases mentioned in my book is SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A. 3d 330 (Del. 2013).  I’ve been meaning to blog about this case for some time now because it’s an important one for readers of this blog and corporate lawyers everywhere and illustrates the importance of using the right words in a contract. 

SIGA and PharmAthene signed a term sheet for an eventual license agreement and partnership to further develop and commercialize an anti-viral drug for the treatment of small pox.  The term sheet was not signed and contained a footer on each page that stated “Non Binding Terms.”  Subsequently, the parties drafted a merger term sheet that contained the following provision:

“SIGA and PharmAthene will negotiate the terms of a definitive License Agreement in accordance with the terms set forth in the Term Sheet…attached on Schedule 1 hereto.  The License Agreement will be executed simultaneously with the Definitive [Merger] Agreement and will become effective only upon the termination of the Definitive Merger Agreement.”

 The license agreement term sheet was attached as an exhibit to the merger term sheet.  On March 10, 2006, the parties signed a merger letter of intent and attached the merger term sheet and the license agreement term sheet. 

On March 20, 2006, the parties entered into a Bridge Loan Agreement where PharmAthene loaned SIGA $3million for expenses relating to the merger and for costs related to developing ST-246.  It stated the following in Section 2.3:

“Upon any termination of the Merger Term Sheet….termination of the Definitive Agreement relating to the Merger, or if a Definitive Agreement is not executed…., SIGA and PharmAthene will negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the License Agreement Term Sheet …and [SIGA] agrees for a period of 90 days during which the definitive license agreement is under negotiation, it shall not, directly or indirectly, initiate discussions or engage in negotiations with any corporations, partnership, person or other entity or group concerning any Competing Transaction without the prior written consent of the other party or notice from the other party that it desires to terminate discussions hereunder.”

On June 8, 2006, the parties signed the Merger Agreement which contained a provision nearly identical to section 2.3 of the Bridge Loan Agreement and provided that if the merger was terminated, the parties agreed to negotiate in good faith to enter into a license agreement with the terms of the License Agreement term sheet.  The Merger Agreement also stated that the parties must use their “best efforts to take such actions as may be necessary or reasonably requested by the other parties hereto to carry out and consummate the transactions contemplated by this Agreement.”

Shortly thereafter, SIGA terminated the Merger Agreement and announced that it had received a $16.5million NIH grant.  SIGA also proposed different licensing terms from those contained in the term sheet and argued that the license agreement term sheet was not binding because of the “Non-Binding” footer.  PharmAthene sued -- and won.  SIGA appealed and the Supreme Court of Delaware found that the “express contractual language” obligated the parties to “negotiate in good faith with the intention of executing a definitive License Agreement” with terms “substantially similar” to the terms in the license agreement term sheet. 

The damages to PharmAthene ended up being around $200million– in other words, expectation damages.   In order to stop PharmAthene from enforcing the judgment while undergoing the appeals process, Siga filed for Chapter 11 bankruptcy.   Siga subsequently lost its second appeal to the Delaware Supreme Court, which upheld the award of expectation damages.

Last week, the U.S. Bankruptcy Court for the Southern District of New York approved a reorganization plan that sets the stage for SIGA to exit from bankruptcy.  The judgment is expected to be satisfied by October 20, 2016.

A long and expensive road for SIGA which could have been avoided by paying more attention to the language used in the contract.

April 18, 2016 in In the News, Miscellaneous, Recent Cases | Permalink | Comments (0)

Friday, April 15, 2016

Gilmore Girls, Netflix, Derivative Works, and Contracts in a Changing Television Landscape

Gilmore Girls

(image from IMDB)

Gilmore Girls fandom rejoiced when it was announced that the show would receive a revival on Netflix (and, even better, that it will include Sookie!). But, as often seems to be the case, developments that bring a fandom joy can come with legal entanglements. In this case, producer Gavin Polone's production company Hofflund/Polone has filed a lawsuit against Warner Bros., alleging breach of contract. The lawsuit, Hofflund/Polone v. Warner Bros. Television, Case No. BC616555 (behind paywall), was filed in the Los Angeles County, Central District, Superior Court of California. 

The case revolves around the agreement between the parties concerning the original production of Gilmore Girls. The parties agreed, according to Hofflund/Polone, to provide Hofflund/Polone with "$32,500 for each original episode of Gilmore Girls produced in any year subsequent to 2003," along with some percentage of the gross and with "executive producer" credit. With the news of the recent Netflix revival, Hofflund/Polone allegedly reached out to Warner Bros. seeking compensation under the agreement. According to the complaint, Warner Bros. took the position that the Netflix version of Gilmore Girls is a derivative work based on the original series, and so therefore does not trigger compensation to Hofflund/Polone. 

It's an interesting question that highlights one of the debates copyright scholars have: What, exactly, is a "derivative" work? Copyright owners have the exclusive right to reproduce their own works or works substantially similar to those works. They also have the right to produce derivative works based on those works, which, in the jurisprudence, has ended up using the same substantially similar standard to elucidate the "based on" language. Which means: what is the point of the derivative work right, if its standard seems the same as the reproduction right? This case has the potential to force confrontation with that problem: Where do we draw the line between infringement of the reproduction right and infringement of the derivative work right? When does a substantially similar work cross the line between reproduction and derivative work? 

One thing that's been noted about the derivative work right is it tends to be talked about when there's some kind of change in medium or other kind of adaptation different from the original form (book to film, or translation from one language to another). The definition in the statute points us to that focus.  Which raises the question: Is a Netflix revival more like a translation or adaptation of Gilmore Girls than it is like an exact copy of Gilmore Girls? Does this depend on how true it is to the original show? 

The "television" landscape has shifted dramatically since Gilmore Girls premiered. It'll be interesting to see how contracts formed pre-Netflix-and-Amazon-production-era function going forward. 

April 15, 2016 in Celebrity Contracts, Commentary, Current Affairs, In the News, Recent Cases, Television, True Contracts | Permalink | Comments (1)

Tuesday, April 12, 2016

Insurance Policies: Making Fantasy Viable in the Real World

That's not usually a tagline you associate with insurance policies, but it nevertheless appears to be true. 

  Larp Drachenfest 2012 (stseen lõpulahingust)

I feel like I've been doing a lot of blogging about insurance policies lately. So it almost seemed inevitable to me when I received my latest Rec Center e-mail (if you're not signed up, you totally should be!) that there would be a link to an article about insurance policies. However, this article is about how the growing willingness of insurance companies to insure fantasy live action role playing (LARP) events may be helping those events to become more common. As it becomes easier for the average person to get insurance for a LARP event, those events become simpler and less risky to host. So, if you've been wanting to set up your own quest and re-enact some fantasy combat, you can now make sure that people are covered by insurance if they fall during the battle and break an arm. The article notes, by the way, that injuries at LARP events are rare. One of the insurance companies hasn't received a single claim in five years. So this seems like a win-win for everyone. 

You should go read the article, it's really interesting, and a reminder that marijuana facilities aren't the only industry new-ish to the insurance area where policies need to be interpreted. Anything humans can dream up for fun can carry insurance policies with it. I guess they're kinda-sorta the equivalent of a healing spell or potion? (With a lot less magic.)

April 12, 2016 in Games, In the News, True Contracts | Permalink | Comments (0)

Tuesday, April 5, 2016

Unconscionable “Out-of-Network” Medical Service Charges

I recently blogged here about the healthcare insurance problem of patients not knowing ahead of time for what they will ultimately be charged and by whom. California is now introducing a bill (“AB 533”) seeking to prevent the problem of patients being unexpectedly charged out-of-network charges at in-network facilities when the facility subcontracts with doctors that are (allegedly) out-of-network.

The practice is widespread, at least in California. Nearly 25% of Californians who had hospital visits since 2013 have been very unpleasantly surprised with unexpectedly high bills after the fact for “out of network” services. This even after inquiring about the contractual coverage ahead of time and ensuring – or attempting to – that their providers were in network. Th

I personally had the same experience once as described in my recent blog. I also recently encountered a similar problem in South Dakota when, after asking about billing prices from an emergency room, was assured of one relatively modest price, only to be billed roughly ten times that amount a couple of months later for various unrecognizable items on the bill that the service provider, to add insult to injury, subsequently did not want to even discuss with me. (Yes, that is right: sick and in the emergency room, I was leery of hospital pricing and asked, only to still not get correct information.)

The onus of information-sharing should be on doctors and other medical provider. They should tell their patients if they are not in network, patients shouldn’t have to jump through an almost endless row of hoops just to find out their ultimate contractual obligations. Doctors will know immediately once you swipe your health insurance card, whereas patients have no way of knowing, as these stories show. Making matters even worse: what are patients supposed to do when they often don’t even see all the involved doctors ahead of time? Wake up during anesthesia and ask, “Oh, by the way, are you in network”? This practice is unconscionable and must stop. It is arguably an ethical obligation as well.

Because some hospitals, for instance, only accept employer-provided plans and not individual ones, some patients will always be out of network, thus allowing doctors to bill full charge. “This is a market failure. It allows doctors to exploit the monopoly that they have.”

Although it seems ridiculous, patients may, for now, have to turn the tables on the providers and scrutinize as many providers and facilities as they get in touch with 1) what the prices charged to the patients will be, and 2) if the providers are truly, actually, really in network (!).

Contractually, would patients win if they informed providers that they will only pay for in-network providers and only up to a certain amount? What else can a reasonable patient do in situations of such blatant greed and ignorance as these stories depict? Comment below!

April 5, 2016 in Commentary, Current Affairs, In the News, Legislation | Permalink | Comments (2)

Friday, March 11, 2016

Can We Just Get J.K. Rowling to Arbitrate Everything?


I bet we'd have a lot fewer people fighting arbitration clauses if arbitration = tweeting J.K. Rowling. 

As reported around the Internet, a student and her high school science teacher entered into a contract concerning whether Rowling would write another Harry Potter book. The contract called for the loser to declare the victor "Mighty" (a much more charming form of consideration than payment of a sum of money). 

The article (from last month) reports that there were two possible Harry Potter pieces of creativity to be contended with. One is the prequel movie Fantastic Beasts and Where to Find Them. Rowling wrote the original textbook (which already existed at the time the contract was entered into and so isn't part of the dispute) and also wrote the screenplay for the movie, which could have been in dispute. However, the article points out that Rowling wrote the screenplay to the movie, and the contract concerns a Harry Potter "novel." Even if you wish to make an argument that screenplays should have been included in the definition of the contractual term "novel," it seems like Fantastic Beasts would fail because it does not "feature the character Harry Potter as part of the main plotline," as required by the contract. (At least, so I assume from what I know about the movie so far.)

The other piece of Harry Potter creativity being debated under the contract, and the one for which Rowling was called in to arbitrate, concerned Harry Potter and the Cursed Child, a play focusing on Harry as an adult and his relationship with his children, especially his son Albus. Cursed Child raised issues: It was a play but it is being billed as "the eighth story," the script will be published in text form, and the website claims it's "based on an original story by J.K. Rowling, Jack Thorne and John Tiffany." It does seem as if, considering this is a "play," even its published script would not be considered a "novel" under the contact. However, the student who was a party to the contract sought further clarification from Rowling. 

Using the convenient method of Twitter, the student explained her contract to Rowling and asked for a decision on whether Cursed Child would fulfill the terms of the contract. Rowling responded, confirming that Cursed Child is a play and also noting that, while she had contributed to the story, Jack Thorne was the "writer" of the play. 

The student was pleased that her clear contractual terms meant that she was still the victor, but also noted that the term of the contract had not yet run. Since the publication of the article and the arbitration of the Cursed Child dispute, J.K. Rowling has announced a new set of stories to be collected under the title History of Magic in North America. So far, these stories also seem not to fulfill the terms of the contract, as they seem more like "extra books" rather than "an entirely new book," and they do not seem to feature Harry Potter at all. However, Rowling seems to be dancing right around the edges of this contract's terms. 

March 11, 2016 in Commentary, Current Affairs, Film, In the News, True Contracts | Permalink | Comments (0)

Friday, March 4, 2016

Did Trump University Peddle Degrees of Deception?

I am pleased to be able to post the following from guest blogger Creola Johnson of the Ohio State University Moritz College of Law:

“His promises are as worthless as a degree from Trump University,” said Mitt Romney during a speech denouncing Donald Trump’s candidacy for the presidency. This statement has prompted additional inquiries into lawsuits filed against Trump University by New York Attorney General Eric Schneiderman and others. (See Petition from New York v. The Trump Entrepreneur Initiative LLC.)

In a class-action lawsuit, many attendees of Trump University alleged that they paid as much as $35,000 to be personally mentored in learning how to earn millions investing in real estate. Despite numerous attempts by lawyers for the Trump defendants to get these lawsuits to dismiss, courts have given the green light for the lawsuits to continue against the Trump defendants. See, e.g., Makaeff v. Trump Univ., LLC, No. 10-CV-940-IEG (WVG), 2010 WL 3988684 (S.D. Cal. Oct. 12, 2010) (refusing to dismiss claims against the for-profit Trump program on educational malpractice grounds because the court was not convinced “Trump University” was “an educational institution to which this doctrine applies.”). For the most recent decision permitting Mr. Schneiderman’s case to proceed, go to:

What can we say for sure at this juncture about the lawsuits? First, “Trump University” was not a university. There are numerous educational standards and laws that must be complied with for an institution to legitimately claim to be a university. The question then becomes: did the people running Trump’s real estate program (the Trump Program) make promises that arose to level of being a contract. For example, the consumer-plaintiffs alleged that the Trump Program promised that the instructors and mentors running the program would be “hand-picked by Donald Trump.” However, this promise was allegedly breached because most of the instructors and mentors were unknown to Mr. Trump and that they didn’t actually teach any real estate techniques.

We’ll have to wait for a court or jury’s finding regarding what promises were actually made by Donald Trump and the people running the Trump Program. The good news for the plaintiffs and Mr. Schneidermann is that they do not have to prove the existence of a contract. New York, along with every state, has laws that prohibit businesses from engaging in deceptive and unfair business practices.

Consumers should be leery of any language that appears to promise an educational outcome—e.g., “you will earn a six-figure salary after graduation.” While a state’s attorney general, such as Mr. Schneiderman, has the authority to make businesses stop deceptive practices, the attorney general may not be able to get back the money consumers have lost. If it sounds too good to be true, it probably is! For an in-depth discussion of deceptive degrees, see my article, Degrees of Deception: Are Consumers and Employers Being Duped by Online Universities and Diploma Mills?

Creola Johnson,

President’s Club Professor of Law,

The Ohio State University Moritz College of Law

Profile at


March 4, 2016 in Commentary, Current Affairs, Famous Cases, In the News, Teaching | Permalink | Comments (0)

Tuesday, February 23, 2016

Contract Interpretation by Market Muscle: Gogo Caves and American Airlines Nonsuits

Well THAT was fast--apparently faster than Gogo's in-flight internet service. American_Airlines_Jets_630x420

American Airlines has nonsuited (i.e., dismissed without prejudice to refilling the lawsuit) its declaratory judgment claim against Gogo. American had recently asked a Texas state court to determine whether the provision of the availability of "better service" (or some similar term) in its 2012 contract had been triggered such that American could force Gogo to submit a competitive bid to retain its service.

As discussed in a previous post, American's negotiating leverage arose as much from the publicity surrounding it filing of a lawsuit as it did from the actual contract term.  The term was apparently vague enough that Gogo could (and did) take the position that its rights as American's exclusive in-flight service provider had not been called into question by American's request for a new proposal. Upon American's filing of a declaratory judgment lawsuit in Texas state court, however, Gogo's stock price dropped 27 percent.

Today, the word is out that Gogo has changed its position and accepted American's interpretation of the contract. The Fort Worth Star-Telegram reports:

[American Airlines had said] that its contract with Gogo allowed it to renegotiate or terminate its agreement if another company offered a better service. Gogo had disputed that clause in the contract, but Friday agreed to the contract provision and said it would provide a competitive bid within 45 days.

Gogo_logo“American is a valued customer of Gogo, and Gogo looks forward to presenting a proposal to install 2Ku, our latest satellite technology, on the aircraft that are the subject of the AA Letter,” Gogo said in a government filing Friday. “We acknowledge the adequacy of the AA Letter and that our receipt of the AA Letter triggered the 45 day deadline under the agreement for submission of our competitive proposal.”

*   *   *

Once American reviews Gogo’s proposal, if it does not beat out a competitor’s proposal, American can terminate Gogo’s contract with 60 days’ notice.

Shares of Gogo [ticker: GOGO] jumped on the news of the dropped lawsuit, up almost 10 percent....

The swift manner in which this episode had played out emphasizes the extent to which contract doctrine and interpretation it frequently not the principal driver of business relationships. Gogo could have marshalled a team of lawyers and stood on its interpretation of the contract up to final judgment--likely a summary judgment based on a question of law.  But what would be the reputational and business cost? Eventually, the marketplace won't allow contract rights to serve as a substitute for proof of the quality of a product.

A challenge I find in teaching future transactional lawyers is to ensure that they do not become enamored with legal rights as being the be-all and end-all of deal making. Law is important, but a business lawyer must employ practical wisdom, as well. That wisdom includes the fact that law itself is only one part of practicing law... and it sometimes isn't even the most important part.

Read more here:


February 23, 2016 in Commentary, Current Affairs, E-commerce, In the News, True Contracts, Web/Tech | Permalink | Comments (0)