Wednesday, December 20, 2017
I may have just used the recent royal engagement news as the basis of my Contracts final hypo, so I read with interest this complaint out of the Eastern District of New York, Purcell v. Pressman, 17-cv-6879 (behind paywall), that got sent to me under an alert. (I have the alert set up for "fanfiction," because of my scholarly interest in fan activities, and sometimes I get the most random hits on it, like this one.) The complaint is behind a paywall, but the New York Post has an article up that summarizes both this complaint and the previous fraud complaint filed in Connecticut District Court by Pressman against Purcell a few days before Purcell filed her lawsuit.
Basically, Purcell's complaint alleges a passionate and intense relationship begun in a hotel in Puerto Rico and continued over lavish vacations in Antigua and New York City. At one point, Pressman allegedly drew up a contract between his alleged business Triton and Purcell, containing certain provisions under which the company agreed to pay some of Purcell's expenses, although neither party ever signed the contract. The contract, according to the allegations of the complaint, was meant to be a gesture of commitment on the part of Pressman to his romantic relationship with Purcell. Pressman's complaint denies ever drafting the contract.
The allegations continue: Purcell and Pressman moved in together. A few days later, Pressman suffered a medical emergency and was rushed to the hospital after Purcell called 911. Pressman also disputes this version of the tale in his complaint, claiming he called 911 himself after Purcell failed to assist him; as you can tell, Pressman's complaint tells a different story about the relationship with Purcell, accusing her of defrauding him, instead of Purcell's opposite allegations.
While in the hospital, Purcell claims to have answered Pressman's ringing cell phone and to have realized only then that Pressman was married. The complaint then continues to allege further events in the relationship and then asserts a number of causes of action, including breach of contract based on the contract Pressman had allegedly drawn up.
The complaint concedes that neither party ever signed the contract, but Purcell alleges that she acted in reliance on the enforceability of the contract and so, therefore, the contract should be treated as valid, with the execution of it merely a formality. As I've stated, Pressman has denied ever drafting the contract.
There are no other pleadings in this case yet.
Tuesday, November 28, 2017
I spent my Thanksgiving fretting about net neutrality, so I thought for my first blog entry back from the holiday I'd let us indulge in a bit of speculation about Chip and Joanna Gaines and their future plans. My love for HGTV is well-known to my Contracts students, as I am constantly mining it for hypos, so I read with interest this Vanity Fair piece stating that Chip and Joanna from "Fixer Upper" have pitched another show to other networks. The article notes that Chip and Joanna's contract with HGTV's parent company probably prohibits them from doing another home-improvement show for another network, so it speculates that they're pitching some other type of show, possibly a talk show.
Would you watch Chip and Joanna do a non-home-improvement show? What kind of show? And do you think networks will successfully negotiate for broader non-competes to keep their stars off competing networks altogether in the future?
Tuesday, November 21, 2017
As widely reported elsewhere such as by David Frakt in The Faculty Lounge, law schools seem to be turning desperate to hide their student recruiting practices and ABA communications (see, e.g., Desperation Times at Thomas Cooley). That blog post was cited to by the ABA in its brief in opposition to a motion filed by the Cooley law school for a temporary restraining order and preliminary injunction in an attempt to prevent the ABA from publishing a letter online stating Cooley's noncompliance with at least one accreditation standard.
Of course, law students choosing to attend law school execute legally binding contracts with their schools. So do employees choosing to work for these schools, many of which seem to be on the brink of discontinuation of operations. For how much longer can we as law schools continue defending _not_ telling applicants the real truth about their prospects for passing the bar given our applicants' LSAT scores which are, we have to admit, highly determinative in predicting ultimate bar passage rates? Is what we do ethical and professional? Do we even follow contract laws against fraud in the inducement, or torts fraud laws, when we as schools have information that could and likely is crucial to applicants' decision-making?
David Frakt developed what he calls a "risk band" that correlates LSAT scores and students' risk of failing the bar. Taking that even further, shouldn't applicants be told their _individual_, percent-wise chance of passing the bar? If, for example, students know that with an LSAT score of 143 (this is just a random example), they have virtually zero chance of passing the bar, would they still execute a three-year contract with a law school that may cost them upward of $100,000? I doubt it. More honesty and transparency is clearly required in both the law school hiring and admissions world.
Thursday, November 9, 2017
I mean, our entire society is filled with contracts, so it's no surprise that Harvey Weinstein was surrounded by a web of contracts designed to protect himself from accusations. Not just the NDAs I've previously discussed, but also contracts with his lawyer and with the investigators they hired. Not to the mention the interaction between his contracts with the National Enquirer's publisher and the National Enquirer's information. Because Dylan Howard at the National Enquierer's publisher considered himself to have to act in Weinstein's best interests because of other business deals, it affected the way National Enquirer used the information gained by its reporters.
You can read the whole story here. It's extremely lengthy and I have not done it justice at all in this tiny blog entry, but it's got a lot about contracts there: what they said, why they existed, what was being done under them, etc. Just...a lot of contracts. All of them to keep people silent.
Saturday, November 4, 2017
A recent case out of the Southern District of New York, Al Hirschfeld Foundation v. The Margo Feiden Galleries Ltd., 16 Civ. 4135 (PAE) (the decision is behind a paywall, but you can read a news account of it here), is another contract interpretation case, this one involving a contract between the late cartoonist Al Hirschfeld and the art galleries that represented him. There are many things at issue in the case, among them the galleries' sale of giclees, "high-quality photostatic reproductions of existing works." The Foundation argued that the Galleries did not have the right under the contract to sell these giclees. The Galleries of course argued that they did.
The contract language at issue was a clause giving the Galleries the ability to reproduce works "in connection with [the Galleries'] promotion, advertising and marketing in furtherance of [the Galleries'] rights under this . . . Agreement." But the court found that this was a limited carve-out that did not extend to giclees. The reproductions done under this clause were meant to further the rights of the Galleries, not to be freestanding rights, which the giclees were. There was no indication that the parties intended the Galleries' ability to reproduce works to be extended to include the giclees.
There were lots of other issues in this case. I've just confined myself to this one in the interest of space.
Wednesday, November 1, 2017
Court finds terms are not ambiguous when their dictionary definitions are consistent with the contract
We just finished talking about contractual ambiguity in my contracts class, so I was happy to see this recent case out of the Fourth Circuit, SAS Institute, Inc. v. World Programming Ltd. ("WPL"), No. 16-1808 No: 16-1857 (behind paywall), discussing that very issue in the context of a software license agreement. This is actually part of a much larger case with important copyright implications for computer software code, but, given the subject matter of this blog, I'm focusing on the contract claims. You can read the opinion of the Court of Justice of the European Union on the copyright questions here.
Among other things, the parties were fighting over the interpretation of a few of the contractual terms between them. However, the court reminded us that mere disputes over the meaning of a contract does not automatically mean that language is ambiguous. In fact, the court found here based on ordinary dictionary definitions that none of the terms were ambiguous.
First, the parties were fighting over a prohibition on reverse engineering. The court looked to dictionary definitions of "reverse engineering" to arrive at a definition that also made sense in the context of the contract. WPL tried to introduce extrinsic evidence on the meaning of the term but the court found there was no reason to turn to extrinsic evidence since the term was not ambiguous.
The parties were next fighting over the meaning of the license being for "non-production purposes only." The court construed this to have its "ordinary meaning" as forbidding "the creation or manufacture of commercial goods." WPL argued that the phrase had a technical meaning in the software industry, but the court did not find that the parties had intended to use this technical meaning. The dictionary definitions supported the court's construction of the phrase as unambiguous.
Monday, October 30, 2017
In the wake of the Weinstein revelations, everyone is talking about it: NDAs seem to be part of the problem. They were used consistently to silence people from speaking out. The NDA seemed to be how you could get away with it, as Weinstein's last-ditch offer to Rose McGowan to keep the lid on the story seems to illustrate. You can read criticisms of NDAs at Vox, Variety (and again), CNN (and again), the New York Daily News, Above the Law, and Forbes. And that was just my first page of Google results. I've been blogging about the danger of them for a while. It's not just the rich and powerful using them; college campuses are also using them in the sexual assault context. And they're not just being used to cover up sexual abuse; Amber Heard's NDA restricted her from apparently ever even mentioning domestic abuse at all. It's easy to see why NDAs are popular among the powerful (the President also loves them). They allow complete and total control of the narrative. An NDA can make it a legal breach for you to tell the truth; an NDA can indeed make it legally enforceable for you to lie, basically. And, in this way, the fuzzy line between truth and fiction becomes fuzzier and fuzzier. And people get victimized and feel alone and the culture of contractual silence makes them lonelier, depriving them of support systems.
NDAs also exist for lots of valid and important reasons. But they are also being widely and abusively used and we as a society need to confront that. The question isn't why less powerful people sign these NDAs. Until we can fix power imbalances (and we're a long way from that), it's always going to happen. But we should really question the public policy justifications for NDAs in certain circumstances. These past couple of weeks have spotlighted lots of troubling systemic issues in our society. This is one of them.
Sunday, October 29, 2017
As reported on The Hill and in several other national and international news outlets, tiny Montana energy company Whitefish Energy – located in Interior Secretary Ryan Zinke’s very small hometown – stands to profit greatly from its contract with the Puerto Rico Electric Power Authority. That’s fine, of course. However, highly questionable issues about the contract have surfaced recently. For example, Whitefish very famously prohibited various government bodies from “audit[ing] or review[ing] the cost and profit elements of the labor rates specified herein.”
What were those? The Washington Post reports that under the contract, “the hourly rate was set at $330 for a site supervisor, and at $227.88 for a ‘journeyman lineman.’ The cost for subcontractors, which make up the bulk of Whitefish’s workforce, is $462 per hour for a supervisor and $319.04 for a lineman. Whitefish also charges nightly accommodation fees of $332 per worker and almost $80 per day for food.” Another news source notes that “[t]he lowest-paid workers, according to the contract, are making $140.26 an hour. By comparison, the minimum wage in Puerto Rico is $7.25 an hour … [T]he average salary for a journeyman electrical lineman is $39.03 per hour in the continental U.S. However, a journeyman lineman on Whitefish Energy's Puerto Rico project will earn $277.88 per hour.”
Little wonder why the company did not want anyone to “audit or review” its labor rates. If it wasn’t for the apparent “old boy”/geographical connections that seemed to have led to this contract to have been executed in the first place, hopefully no Puerto Rican official would have accepted this contract in the form in which it was drafted.
But it doesn’t end there. When the San Juan mayor called for the deal to be “voided” and investigated, Whitefish representatives tweeted to her, “We’ve got 44 linemen rebuilding power lines in your city & 40 more men just arrived. Do you want us to send them back or keep working?”
To me, this entire contract to violate several established notions of contract law such as, perhaps, undue influence or duress (in relation to contract formation but perhaps also, if possible, to continued contractual performance), bad faith, perhaps even unconscionability, which is a alive and well in many American jurisdictions.
This could work as an interesting and certainly relevant issue-spotter for our contracts students. It also gives one a bad taste in the mouth for very obvious reasons. It will be interesting to see how this new instance of potentially favoring contractual parties for personal reasons will pan out.
Friday, October 13, 2017
If you're a person who spends time on Twitter, you might be aware that it's been a manic week on the platform (although every week is a manic week on Twitter; it's 2017). As the news broke about Harvey Weinstein's pattern of multiple sexual assaults, Rose McGowan added to the many allegations and tweeted an accusation of rape against him. Later, McGowan's Twitter account was suspended. The reaction to this suspension was swift and furious by many of the platform's users. Twitter later clarified that it suspended her account because she had posted a personal phone number (in violation of Twitter's policies) but for a while the exact reason was unclear, and many users complained that it was more of Twitter's selective enforcement of its policies.
Social media's increasing reliance on algorithms to handle the speech going on on the sites has lots of problems, and as more and more public discourse collides up against more and more opaque policies, it seems like a problem that's only going to get worse. We should think about these issues, and we should especially think about them as we teach our students how to interpret the contracts that govern our lives: we all have an entrenched viewpoint that should be critically examined rather than blithely assume our own neutrality.
In the meantime, I'm going to post this blog and then tweet to tell you all about it, because that's the way we communicate in today's society, and I'm going to have to agree to Twitter's policies to do it, and I'm going to hope these policies let me make the tweet, something that many of us take for granted but that is definitely not guaranteed. Our contracts are never as clear as we hope.
Monday, October 2, 2017
The allegations of this recent case out of the Northern District of California, Consumer Opinion LLC v. Frankfort News Corp., Case No. 16-cv-05100-BLF (behind paywall), are fascinating. Basically, Consumer Opinion owned a consumer review website and alleged that Defendants provided "reputation management" services by which Defendants copied the contents of Consumer Opinion's website, back-dated these contents so that it would look like Defendants' site pre-dated the Consumer Opinion website posting, and then asserted that the Consumer Opinion website was infringing their copyright. Such, at least, were the allegations in the complaint. (You can read the complaint here. You can also read the order on Consumer Opinion's TRO motion here and the order on Consumer Opinion's motion for early discovery here.)
The parties had discussed settlement, and in the current motion Consumer Opinion moved to enforce a settlement agreement between it and Defendant Profit Marketing, Inc. The problem? They never reached any such agreement. First Consumer Opinion tried to argue that Profit Marketing agreed to settle for $50,000 but Profit Marketing's lawyer's last communication on the matter read, "Well I can't agree without my clients consent but that sounds fine to me. I'll get their approval when I talk to them today." As I've been teaching my students as we walk through offer and acceptance, this statement betrayed a lack of authority to enter into a present commitment ("I can't agree without my client's consent.").
Consumer Opinion then tried to argue that Profit Marketing agreed to settle for $35,000. However, its proof of this was a general e-mail whereby one of Profit Marketing's other attorneys expressed openness to pursuing settlement, followed by several replies by Consumer Opinion that were never responded to. Eventually, in the face of the continuing silence from Profit Marketing's attorney, Consumer Opinion asserted that if it got no response by 5 pm, it would move to enforce the settlement agreement. It got no response, and this motion followed.
The court refused to read Profit Marketing's attorney's silence as acceptance of Consumer Opinion's settlement offer. Rather, Profit Marketing's lack of response indicated that it never accepted the offer, and so there was no binding settlement agreement between the parties.
Wednesday, September 27, 2017
A recent case out of the Southern District of New York, Betty, Inc. v. Pepsico, Inc., No. 16-CV-4215 (KMK) (behind paywall), tackles a fairly common issue: Often people make pitches based on ideas they have. Ideas aren't copyrightable, so often the only protection people have is contract-based. But, also often, they don't actually have a written contract, so they have to rely on an implied-in-fact contract theory. However, as this case reiterates, an implied-in-fact contract is more than just a conclusory allegation that "oh, we had an agreement that they'd pay me something for my pitch."
The case in question involves an advertising agency, Betty, who pitched a commercial to Pepsi for use in the Super Bowl. Pepsi invited Betty to participate in a telephone pitch meeting, during which Pepsi provided the "general outline of what it envisioned for the Super Bowl commercial," followed by a more formal face-to-face presentation. At the presentation, Betty presented eight different ideas and provided Pepsi with a USB drive with some concepts contained on it. Pepsi allegedly reacted favorably and asked for more details about some of the concepts.
About a month later, Pepsi informed Betty that it had decided to go in another direction with the commercial. However, when Betty saw the commercial during the Super Bowl, it thought it was substantially similar to one of the concepts it had pitched to Pepsi. The decision itself is behind a paywall but the lawsuit's filing was reported in some outlets.
This lawsuit followed, alleging copyright claims as well as a variety of contract-based claims. The breach of contract claim faltered, though. In the complaint, it consisted of just three paragraphs of conclusory allegations that didn't appear to rise to the level of an agreement. In the most generous reading, it sounded like an "agreement to agree" that can't be enforced. The complaint contained absolutely no terms of the contract. The fact that the contract was an implied-in-fact contract didn't excuse the plaintiff from having to allege facts sufficient to allow the court to draw an inference that the parties had entered into a contract based on their conduct and the surrounding facts and circumstances. That didn't happen here. Therefore, the court dismissed the breach of contract claims.
The copyright infringement claim, though, survived, and the court granted leave to amend on the breach of contract claim, so the plaintiff does live to fight another day.
(This post has been edited to correct a typo in the previous version. Pepsi provided the "general outline" over the phone, not Betty.)
Monday, September 18, 2017
If you, like me, just taught about letters of intent and also promissory estoppel, then here's a case with both for you, out of the District of Minnesota, City Center Realty Partners v. Macy's Retail Holdings, Civil No. 17-CV-528 (SRN/TNL). (The decision is behind a paywall, but you can read about the background of the lawsuit here.)
The parties were negotiating a sale of Macy's property in Minneapolis and had executed a Letter of Intent before (predictably, since we're in court) the deal fell apart. City Center brought claims against Macy's, including breach of contract based on the letter of intent. However, Macy's argued that the letter of intent was not binding, and the court agreed. The clauses in the letter of intent referred to a future purchase agreement that was never executed, and so, absent this purchase agreement, the letter of intent only bound the parties in very limited ways.
City Center also brought a claim that Macy's breached the covenant of good faith and fair dealing in delaying the finalizing of the transaction. However, the actions that City Center complained about were not things that Macy's was obligated to do. Macy's fulfilled its obligations under the letter of intent and City Center's other allegations of delay and obstruction on Macy's part were not actionable.
Finally, City Center brought promissory estoppel allegations based on oral statements Macy's made in the context of the parties' negotiations. But the court pointed out that the letter of intent represented the parties' agreements about their negotiations. City Center could not use promissory estoppel to alter the terms of the written contract. And, to the extent that City Center alleged other terms had been agreed upon not written in the letter of intent, the court refused to use promissory estoppel to save the statute of frauds problem (since this was a contract for the sale of land). Under the circumstances here, City Center knew that it and Macy's were engaged in ongoing negotiations that might not pan out. If City Center wanted assurance that Macy's would keep certain promises, it should have had those put in the letter of intent in a binding way. This was not a situation where Macy's had committed some kind of fraud where justice would require the enforcement of Macy's oral statements; it was just a situation where negotiations fell apart in a way that City Center didn't like. That didn't justify the application of promissory estoppel.
Friday, September 15, 2017
On Sept. 12, 2017, Senate Bill 33 was approved by the California Senate and now awaits Governor Brown’s approval before becoming law.
The legislation was designed after the Wells Fargo scandal to block legal the legal tactic of keeping disputes over unauthorized bank accounts out of public court proceedings an favor of private arbitration.
Said the law’s author, Sen. Dodd (D-Napa): “The idea that consumers can be blocked from our public courts when their bank commits fraud and identity theft against them is simply un-American.” It is also clearly unethical and, once again, emphasized how difficult it can be in modern times to strike a fair contractual bargain with a party that has much greater bargaining power than individuals and that uses lengthy and often complex boilerplate contracts with terms few read and understand.
Monday, August 21, 2017
This case, out of the Northern District of California, Chaquico v. Freiberg, Case No. 17-cv-02423-MEJ, concerns a fairly common entertainment law issue that results when bands lose and gain members: who gets to still use the band name? Jefferson Starship has a fairly rocky naming history, having originally been called Jefferson Airplane and later morphing into Starship after a prior fight over the name. Because band name ownership can be a tricky thing to decide under intellectual property law, and because it might result in rulings that the band members (current and former) might not like, bands frequently try to handle these disputes by contract. Like with any contract, the efficacy of this approach differs based on the wording of the particular contract, which is what happens with the contract claims in this case: based on wording and timing and the interplay of other contracts, the court dismisses all of them but those that happened after January 2016.
(If you're interested in this sort of thing, Rebecca Tushnet writes up another of these cases, this one involving the band Boston.)
Sunday, August 20, 2017
Pershing Square in downtown Los Angeles is an outdoor area that is regularly the home of free summer concerts and demonstrations of various kinds throughout the year. You would think you could snap as many photos as you wanted of events there since it is an outdoor, public area, right?
This past summer, the answer was no. A photojournalist wanted to take pictures of, among others, the B-52s. However, he was informed of a policy that had been set up with the performers per contractual agreement. The policy barred professional photography equipment, albeit not cell phone usage, from the square during concerts.
ACLU has complained to the Los Angeles City Attorney and the General Manager of the Department of Recreation and Parks, claiming that the city does not have a right to contract away the general public’s First Amendment rights because some performers want it that way.
How do you see contractual rights intersecting with the First Amendment in the government contracting context? Comment below!
Friday, August 18, 2017
Having disappeared for a couple of weeks into frantic preparation for the new semester, I thought I would re-emerge by sharing a hypo that I do with my students on the first day of class, based on Conan O'Brien's contract dispute with NBC from a few years ago. The hypo goes something like this:
Brian O’Conan is a comedic host who has helmed a show on CBN, Later at Night, for sixteen years. Later at Night airs at 12:30, and Brian has always wanted to “move up” in the world of late night hosts to host a show at the earlier time of 11:30. Five years ago, in order to keep Brian at the network, CBN promised to give Brian hosting duties for its legendary 11:30 show, Somewhat Late at Night, as soon as Len Jayo’s current contract was up. Somewhat Late at Night is a flagship show that has aired in its time slot on CBN for 43 years; prior to that, it started at 11:15 for 14 years. For its entire 57-year existence, Somewhat Late at Night has begun directly after the late local news.
Brian and CBN enter into a contract with the following terms:
- Brian is guaranteed that he will be the host of Somewhat Late at Night.
- Both Brian and CBN promise to act in good faith in executing the contract.
- Both parties will mitigate any damages caused by a breach of contract, but CBN agrees that it will pay Brian $40 million if it breaches the contract.
- Brian is prohibited from being a late-night host on any other network in the event of a breach of the contract.
As promised by the contract, Brian becomes host of Somewhat Late at Night. After a strong start, Brian’s ratings trail off. Six months into Brian’s stint as host, CBN makes a public announcement that Somewhat Late at Night will be moved to start at midnight. It will use the 11:30 time slot for a new late-night show with old Somewhat Late at Night host Len Jayo.
Brian, learning all of this for the first time from the public announcement, tells CBN it has breached the contract, demands payment of $40 million, and also opens discussions with a competing network, Wolf, to host a new late night show at 11:30.
I like this hypo because, even though it was several years ago now, most students recognize the real-life situation this problem was based on and so feel somewhat engaged with it. In addition, even though I have taught them literally nothing about contract law at this point, I think they gain a lot of confidence from being able to examine the problem and come up with ideas for how the analysis should begin. I usually split them up and assign them a side to represent and have them make arguments on their client's behalf, and then allow them time for rebuttal. Along with discussing the contract's terms around the show itself, the students get into discussions about good faith, mitigation of damages, and just basic fairness. When we're done with the discussion, I then ask them how they felt about the side they had been assigned to, and if any of them had wished they'd had the other side. I think it is a good basic introduction to the task of being lawyers that I find relaxes them a little on the first day: If they can already talk about this problem on the first day, imagine how much better they'll be once they know some law!
If you're starting school years like I am, good luck!
Tuesday, August 1, 2017
You, like me, might often resort to Snopes to weed through what's true and what's not in the avalanche of information we're exposed to every day. (My most recent Snopes search: can a gift shop upcharge federal postage stamps? The answer is yes!) Recently Snopes turned to its constituents on the Internet to help provide funding to keep the website alive, precipitated by a lawsuit stemming from several contracts between the parties at issue. The whole thing is a matter of messy corporate structure that really seems like it's going to depend on the court's reading of the stock purchase agreement between the parties. Vox has a rundown of the whole situation here (that I'm quoted in).
Thursday, July 27, 2017
Recently, Procter & Gamble has been sued for copyright infringement based on its use of photographs on packaging. It's not that P&G didn't have a license; it's that P&G allegedly violated the scope of the license. The allegations claim that P&G, trying to keep costs down, negotiated for fairly narrow rights. It makes a ton of sense to do that if that's all you want the photos for. After all, why pay for rights that you're probably not going to utilize? However, the caveat with that is to be sure that you won't want to use the photos beyond what you're negotiating. That's allegedly what P&G did, and why it finds itself the subject of a lawsuit.
Tuesday, July 11, 2017
Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:
General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.
What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.
How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:
“The plaintiffs' complaint offers the following autopsy of the error: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”
The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.
A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”
The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742
Monday, July 3, 2017
What happens when contract and document legal analytic software goes open source? Is RoboLawyer on the horizon? Are unmet needs to legal transactional services about to be fulfilled? Maybe some of both. LexPredict, a legal software company associated with Chicago-Kent law prof Daniel Katz, announced today that we are about to find out. The results should be of great interest to those of us who follow trends in legal tech. Below are some key paragraphs from the press release on the open-sourcing of ContraxSuite:
Over the last decade, we’ve spent many thousands of effort-hours and hundreds of thousands of dollars developing the contract and document analytics tools that we use with clients. These tools, based on enterprise-quality open source frameworks for natural language processing, machine learning, and optical character recognition, have allowed us to quickly and easily attack many problems, from securities filings and court opinions to articles of incorporation and lease agreements.
Today, we are proud to announce that we plan to open source our core platform for document analytics as ContraxSuite. This code base will be hosted on Github under a permissive open-source licensing model that will allow most organizations to quickly and freely implement and customize their own contract and document analytics. Like Redhat does for Linux, we will provide support, customization, and data services to "cover the last mile" for those organizations who need support or assistance.
We believe that the future of law lies in its central role in facilitating and regulating the modern information economy. But unless we start treating law itself like the production of information, we’ll never get there. We hope our actions today will help lawyers and other LegalTech companies accelerate the pace of improvement through more open collaboration.
* * *
The real challenge in contract analytics is to develop the so-called "training data" - the set of documents and labels used to "teach" the machine what separates a lease agreement from a purchase/sale agreement from a retirement benefits plan. Herein lies the true value of the current software and service providers. But, paradoxically, almost all providers get their information from one of two sources - either public sources of agreements, like the SEC’s EDGAR database or evidence from public courts, or private sources of agreements - their clients. Many organizations have therefore paid for the privilege to give away their own information so that someone else can profit.
By open-sourcing ContraxSuite, we hope to change this dynamic. The analysis and standardization of contracts and corporate governance material is key to the transformation of our economy. But blockchain and Smart Contracts aside, there are significant improvements in risk management, compliance, and profitability that can be gained by treating contracts as valuable data. Until legal departments and law firms can be "sequentially motivated," to borrow Professor Agarwal’s language, we will not see this maturation of the industry.
In the near future, we’ll be revealing more details about this open source strategy - including partnerships, support and customization services, and open-source license model. In the meantime, we hope to get everyone thinking fundamentally about how we do business in legal tech. What does the client really want - software licenses, or a real solution?
The full text of the press release is available here.