ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, August 22, 2016

Microsoft Does Marijuana

In a move that demonstrates how contracts for various aspects of marijuana products and services are going mainstream, Microsoft Corp. has accepted a contract to make marijuana-tracking software available for sale on its cloud computing platform. The software is developed by “cannabis compliance technology” Kind Financial and allows regulators to track where and how much marijuana is being grown, sold or produced in real time. In turn, this lets the regulators know how much sales and other tax they should be collecting and from whom (maybe this is the beginning of the end of some growing marijuana plants in state and national parks to hide their activities from the government). Medical-marijuana-colorado

This contract – called a “breakthrough deal” because it is the first time that Microsoft ventures into the marijuana business - may end up enabling the software developer to capture as much as 60% of this very lucrative market. (Other companies with government contracts often end up with such a large market share.)

How did the company strike such a lucrative deal? You guessed it: by networking. Kind’s CEO was introduced by a board member to an inside contact in Microsoft.

Happy semester!

August 22, 2016 in Commentary, Current Affairs, Food and Drink, Government Contracting, In the News, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, August 11, 2016

Contracting Against Your Dad Embarrassing You

Which is exactly what Australia's swimming sisters Bronte and Cate Campbell have tried to do. Apparently after their father gave a number of effusive interviews to the press, the sisters turned to contract law in an attempt to protect them from further such events. As this article reports, the sisters entered into a contract with their father in which he promised, "to the best of [his] ability," "not to embarrass [his] daughters on national television."

No word on what their father received in exchange for this promise.

 

August 11, 2016 in Current Affairs, Games, In the News, Sports, Television, True Contracts | Permalink | Comments (0)

Monday, July 11, 2016

Do Law Profs Breach a Commercial Educational Agreement by Wearing T-Shirts with a Social Message?

A group of 1L students recently caused a stir-up at an anonymous law school by posting an anonymous complaint after their criminal law professor wore a "Black Lives Matter" t-shirt "on campus" (not "to class," apparently).   See the letter and the professor's great response here.  (For full disclosure, our colleagues on the TaxProf Blog also wrote about the story here Images).

Do students, because they enter into a contract with a private law school (or even a public one), have a legitimate reason to complain that their professors wear t-shirts with a socially and legally provocative or at least thought-provoking message?  The students wrote, "We do not spend three years of our lives and tens of thousands of dollars to be subjected to indoctrination or personal opinions of our professors."

Is this reasonable, in your opinion?  First, this comparison is not apt.  In fact, it is an extreme over-exaggeration that barely needs commenting on.  The students also comment that the "BLM" movement does not have anything to do with the law, which demonstrates the sad state of ignorance about the law and society in which many of our students - and perhaps especially those in conservative areas such as Orange County, California - find themselves (that's where the anonymous law school is thought to be located).  The movement is clearly about very little but the law and policy.  Second, students can and should expect to get a quality legal education when attending an ABA-accredited law school, but simply because they pay money for it does not entitle them to only hear about the version of the law that _they_ prefer.  In fact, as the professor so correctly notes in his response, the consumer theory should not apply to the content of one's legal education. In other words, students don't pay to only hear part of the message.  And as the professor said: students certainly don't pay us _not_ to have an opinion about the classes we teach (note that the Tshirt was worn in connection with a criminal procedure class).

What are your thoughts on this?  And why does the law school not publish its name?

July 11, 2016 in Commentary, Contract Profs, Current Affairs, In the News, Law Schools, True Contracts | Permalink | Comments (0)

Wednesday, July 6, 2016

Cheating the Cheaters

Yesterday, I blogged here about ticketscalping “ticketbots” outperforming people trying to buy tickets with the result of vastly increased ticket prices.

Now Ashley Madison – dating website for married people – has announced that some of the “women” featured on its website were actually “fembots;” virtual computer programs. In other words, men who paid to use the website in the hope of talking to real women were actually spending cash to communicate with computers (men have to pay to use the website, women don’t). Images-1

Why the announcement? The new leadership apparently wanted to air the company’s dirty laundry, so to speak.

Ashley Madison was hacked last year, revealing who was using the website to cheat on their husband, wife or partner. It was a devastating hack, ruining lives and even leading a pastor to commit suicide.

This seems to be a clear breach of contract: if you pay to communicate with real women, the contract must be considered breached if all or most of the contact attempts went to and/or from computers only. Perhaps even worse for Ashley Madison is the fact that the company is under investigation by the U.S. Federal Trade Commission. The FTC does not comment on ongoing cases, but “it could be investigating whether Ashley Madison properly attempted to protect the identity of its discreet customers -- which it promised to keep secret. Or it could be investigating Ashley Madison for duping customers into paying to talk to fake women. On Monday, the company also acknowledged that it hired a team of independent forensic accounting investigators to review past business practices around bots and the ratio of male and female U.S. members who were active on the site." Images

July 6, 2016 in Commentary, Current Affairs, E-commerce, Famous Cases, In the News, Miscellaneous, Web/Tech | Permalink | Comments (0)

Tuesday, July 5, 2016

Ticket Scalping Machines – An Intersection between Contracts and Criminal Law

Have you ever tried buying concert tickets right when they were made available for sale on the Internet, only to find out mere minutes later that they were all sold out? Or, for that matter, highly coveted camping reservations in national or some state parks?

Where once, we all competed against the speed of each other’s fingertips and internet connections, nowadays, “ticket bots” quickly snatch up tickets and reservations making it virtually impossible for human beings to compete online. Ticket bots are, you guessed it, automatic computer programs that buy tickets at lighting speed. They can even read “Captcha boxes;” those little squiggly letters that you have to retype to prove that you are not a computer. Yah, that didn’t work too well for very long.

“A single ticket bot scooped up 520 seats to a Beyonce concert in Brooklyn in three minutes. Another snagged up to more than 1,000 U2 tickets to one show in a single minute, soon after the Irish band announced its 2015 world tour.”

Ticket bots scoop up tickets for scalpers who then resell them on other websites, marking the tickets up many times the original price. (I’m actually not saying that state and national parks are cheated that way, maybe camping reservations in those locations are just incredibly popular as hotel prices have increased and incomes are staggering. I personally used to be able to, with t Imageshe help of a husband and several computers, make campground reservations for national holidays, but those days are long gone…”we are now full.”).

Ticket bots are already illegal in more than a dozen states. New York is considering cracking down on this system as well. However, the most severe penalty under New York law is currently fines in the order of a few thousand dollars where ticket scalpers make millions of dollars. A new law proposes jail time for offenders. This is thought to better deter this type of white-collar crime in the ticket contract market.

July 5, 2016 in Commentary, Current Affairs, E-commerce, In the News, Legislation, Web/Tech | Permalink | Comments (0)

Donald Trump and the Covenant of Good Faith and Fair Dealing

Everyone else is talking about Donald Trump, so I guess why shouldn't we hop in, right?

This recent New Yorker Talk of the Town piece introduced me to an ongoing contract dispute involving Trump that I hadn't been paying attention to, even though now I see it's been widely reported by various news outlets, including food blogs, because it involves restaurants. So if you don't normally like to read political stuff but you consider yourself a foodie, this blog entry is also for you!

It turns out that Trump is embroiled in breach of contract lawsuits with a couple of famous chefs who pulled out of commitments to put restaurants into one of Trump's new developments. According to the reports, the impetus for pulling out of the business deal was Trump's anti-immigrant rhetoric during his presidential campaign. Jose Andres, himself an immigrant, was not too happy about Trump's statements. As seems to be the case with Trump, his business concerns don't necessarily track his political rhetoric when the bottom line is at issue. Faced with an immigrant refusing him rather than the other way around, Trump sued Andres for breach of contract. Andres counter-sued, alleging that Trump's many derogatory remarks about Hispanics rendered Andres's proposed Spanish restaurant "extraordinarily risky."

The chefs sought partial summary judgment, which a court recently denied, finding that material facts were still in dispute.

The crux of this lawsuit revolves around the covenant of good faith and fair dealing: Did Trump breach that covenant when he made his remarks, which would make him the one in breach of contract? Or were Trump's remarks not a breach of the covenant, either because they're not relevant to the contract or because they did not harm the prospects for success of Andres's restaurant? I don't know if the parties will continue to litigate this question but I'm curious what the result would be. In the current climate where rhetoric is frequently extremely inflammatory, could there be contract implications to such statements? How far, policy-wise, do we want the covenant of good faith and fair dealing to extend?

The case is Trump Old Post Office LLC v. Topo Atrio LLC, 2015 CA 006624 B (behind paywall), in District of Columbia Superior Court. 

July 5, 2016 in Celebrity Contracts, Commentary, Current Affairs, Food and Drink, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

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.

Images

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?

Facebook

Source: facebook.com

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!”

and

“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 northjersey.com)

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

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

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

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

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

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

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

Thursday, May 19, 2016

Gasgate

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

(Source: hgtv.com)

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)