ContractsProf Blog

Not Enough (Courtney) Love to Go 'Round?

Courney Love is no stranger to ContractsProf Blog.  I am beginning to think I could teach the whole course through her legal escapades.  Here's a new contracts story from Celebuzz (venerable site of celebrity exclusives):

Courtney Love has found herself wrapped up in legal woes after her former assistant filed a wrongful termination, nonpayment of wages and breach of contract lawsuit last week. But the tables may soon be turned.

Not only has Love’s camp disputed Jessica Labrie‘s claims as “completely unfounded,” but it now asserts that the former employee could find herself in hot water for the suit.

What did Labrie do wrong?

“Miss Labrie signed a very solid confidentiality agreement,” the former Hole frontwoman’s rep, Steve Honig, exclusively tells Celebuzz. “If she has decided to breach that agreement by releasing privileged information covered within that agreement, she could find herself in serious legal jeopardy.”

The statement comes after Celebuzz exclusively uncovered recordings of Love admitting that she owed more than $100,00 to debtors, including a lawyer and a landlord.

In a series of voice messages left for Labrie, the “Pretty on the Inside” artist — the widow of iconic Nirvana frontman Kurt Cobain — said she was in deep debt and could not shell out the woman’s wages.

“What am I supposed to do? Not eat? Live on the streets?” Love bemoaned.

Between the leaked Love tapes and Labrie’s confidentiality contract, the conflict seems to be heating up to a contentious court battle.

Believe it or not, this is relevant to something I am currently researching.  I'm in the early stages of a paper on confidentiality agreements and what exactly they are good for beyond an in terrorem effect (I mean, once the secret is out, it is no longer a secret and how do you prove damages?).  One of the things they are good for is exemplified here: to use defensively.  Assistant sues Courtney Love for breach of contract and Love defends (or countersues) by alleging breach of a confidentiality agreement.

If you are interested, Celebuzz has actually posted the complaint.  If I represented Love, in her papers somewhere, I would write: "Go on, take everything, take everything, I want you to...": 

[Meredith R. Miller]

 

Life Guard Fired for Tending to Drowning Swimmer

Lifeguard (from Wikimedia Commons)

As the New York Times reported on Friday, Hallandale Beach made the unusual decision in 2003 to hire a private company to run its lifeguard operation.  That company assigns four lifegaurds to patrol an length the size of two football fields.  A company rule provides that if any of the lifeguards leaves his assigned area, he must first notify a supervisor so that his area is covered.  This protects the company from liability.

But Tomas Lopez noticed a struggling swimmer, he raced to help him, leaving his area without notifying his supervisor.  Two other swimmers had brought the drowning man back to shore, but Mr. Lopez helped carry him to the beach and tended to him until the paramedics arrived.  He filled out his report and was fired, but Mr. Lopez had no regrets.  He had not forgotten the rule; he had chosen to disregard it.  Three of his colleagues quit in solidarity; two more were fired for saying they would have done what Mr. Lopez did.  Mr. Lopez's employer then offered him his job back, but Mr. Lopez declined.

This leads us to wonder (as we have wondered before) how outsourcing saves governments money.  Why is it cheaper to hire a company, that one presumes is trying to make a profit, to operate your lifeguard operation than it is to run that operation yourself?  Private companies can be a lot more efficient than government entities in certain ways, but as the focus on liability here suggests, they also have exposures that governments don't and, as this case illustrates, there could be instances in which a private company might do the public safety/economic efficiency analysis differently from how a government, which would likely be insulated from suit by various immunity doctrines, would do it.  

[JT]

Moshe Gelbard: An Illustration of Price Reduction in a Service Contract

The remedy of price reduction derives from the action quanti minoris of Roman law. It allows the purchaser to reduce the contract price to what the parties supposedly would have agreed upon had the contract originally been for the purchase of the nonconforming goods.  The remedy can be found in most European legal systems today; e.g., Section 1664 of the French Code Civil or Section 441 of the German B.G.B. The remedy is also mentioned in Section 50 of the Convention on the International Sale of Goods.  Originally, price reduction was limited to sales contracts, but Section 9.401 of the Principles of European Contract Law proposed extending the remedy to any “tender of performance not conforming to the contract.”

Professor Moshe Gelbard

A footnote in my forthcoming article, co-authored with David Elkins, (The Remedy of Price Reduction in Mixed Legal Systems, Stetson L. Rev., forthcoming 2012) recounts the following hypothetical case (derived from Common Frame of Reference and Existing EC Contract Law (Reiner Schulze ed., 2008) 322-323) to illustrate how price reduction might be used in a service contract:

 

A flies with a ticket for business class. Unfortunately, an economy class passenger dies during the flight. As the economy class is fully booked, the crew decide to transfer the corpse to business class and to tie it to the seat next to the one occupied by A. A may ask for a reduction of price which he or she paid for the flight, because having to sit next to a corpse in business does not conform with the passenger’s legitimate expectations, even if the air operator had no alternative option to solve the problem. In such a case it is difficult to determine a value of the reduction, since there is no market for flights with a corpse placed next to your seat. Possibly the price should at least be reduced to the level of the price for economy class…

Although the case appears to be one of those detached-from-reality hypotheticals that only a law professor could come up with, here’s an excerpt from a recent news story:

Lena Pettersson had just boarded her Tanzania-bound flight at Amsterdam Airport Schiphol when she noticed a man in his 30s looking unwell, the Expressen daily reported. Ms Pettersson, a journalist with Sveriges Radio, told the broadcaster that the man "was sweating and had cramps [seizures]." After the Kenya Airways plane took off, the man died, the Expressen reported. Cabin crew laid out the dead man across three seats and covered him with a blanket - but left his legs and feet sticking out, Ms Pettersson said. For the remainder of the overnight flight, Ms Pettersson was forced to sit near the dead man, with just an aisle separating her and the corpse. "Of course it was unpleasant, but I am not a person who makes a fuss," Ms Pettersson said. After her holiday in Tanzania, Ms Pettersson lodged a complaint with Kenya Airways, eventually receiving a 5000-kronor ($700) refund, half the price of her plane ticket.

Indeed, truth is stranger than (or at least as strange as) fiction.

[Posted on behalf of Moshe Gelbard by JT]

Heidi Anderson, Neal Katyal and the Contracts Angle in the Obamacare Decision

Yesterday, our co-blogger, Heidi Anderson (pictured left), was ahead of the curve, writing about the Court's decision on the Medicaid provision of the Affordable Care Act (Obamacare) when everyone else was writing about the individual mandante.  Heidi noted that Chief Justice Roberts, joined by Justices Breyer and Kagan, voted to strike the provision of Obamacare that would deprive states of all Medicaid funding if they rejected Obamacare's Medicaid expansion.  The four dissenters rejected Medicaid expansion in its entirety.  In so doing, both sides relied on contracts law concepts, which they understood in terms of undue influence but which Heidi described as more akin to an argument based in economic duress.  Given Chief Justice Roberts' characterization of the financial inducement in the Medicaid Provision as "a gun to the head" (Slip Op. at 51), we do seem to be in the realm of duress.

Today's New York Times contains an op-ed by Neal Katyal (pictured right), that continues Heidi's line of reasoning and illustrates the uncomfortable fit of contracts concepts in the constitutional context. As Katyal puts it:

The health care decision also contains the seeds for a potential restructuring of federal-state relations. For example, until now, it had been understood that when the federal government gave money to a state in exchange for the state’s doing something, the federal government was free to do so as long as a reasonable relationship existed between the federal funds and the act the federal government wanted the state to perform.

In potentially ominous language, the decision says, for the first time, that such a threat is coercive and that the states cannot be penalized for not expanding their Medicaid coverage after receiving funds. And it does so in the context of Medicaid, which Congress created and can alter, amend or abolish at any time. The states knew the terms of the deal when they joined — and those terms continue to be enshrined in the federal code.

Katyal proceeds to identify other landmark federal legislation that could also be found unconstitutional based on the reasoning applied to the Medicaid expansion.  

In any case, Katyal makes clear that traditional contracts law concepts do not apply here. If they did, it would constitute duress or undue influence every time Google or other such internet service providers included provisions in their Terms of Service that permit them to "add or remove functionalities or features," "suspend or stop a Service altogether" or "stop providing Services to you, or add or create new limits to our Services at any time."  

Chief Justice Roberts' opinion is premised on the notion that the Federal Government knows that the states have grown dependent on Medicaid funding and that the threat to eliminate all such funding if the states do not accept Medicaid expansion is thus coercive.  As a matter of constitutional law, that may be right, but since one could not positively enjoin Google from changing its services based on the (highly plausible) argument that one had come to depend on those services, contracts law is not particularly helpful here.  

[JT]

How the Supreme Court's Decision on the Affordable Care Act Was All About Contracts After All

Other blogs will tell you that the Supreme Court's healthcare decision was all about the commerce clause, Congress's taxing authority, and John Roberts's identity.  But we here at ContractsProf Blog look past all of that and dig deeper.  We dig all the way to page 46.  Yes, I'm talking about the Medicaid expansion, the part of the Affordable Care Act ("ACA") that says, "it's my turn now, people!" when everyone already has walked away.  Buried there is a discussion of an oft-covered Contract law defense to formation known as undue influence.  

In case you never heard of are not as familiar with the Medicaid expansion as you are with the individual mandate (or, as I like to call it, the "anti-freeloader provision"), allow me to refresh your memory. (Or, allow me to point you to a great podcast.) Before the ACA, one qualified for Medicaid in most states only if she was a "needy individual" (Roberts's words, not mine), such as a pregnant woman, a child, a member of a needy family, or a blind, elderly, or disabled person.  In the ACA, Congress required states to expand Medicaid to cover many allegedly "less needy" people, i.e., childless, non-disabled adults with incomes below a certain level.  Actually, Congress didn't require such an expansion.  It just said (and I'm paraphrasing), "You, state, can choose not to expand coverage to these other people.  But, if you don't cover them, we're taking away ALL of your Medicaid funding, even if that federal money is ten percent of your state's entire revenue stream."  In his opinion (which may or may not be the "majority" on this issue, depending on whom you ask), Chief Justice Roberts analyzed whether this directive from the federal government was a proper exercise of its Spending Clause powers. And that's where Contract law takes center stage (or, at least center-left).  

The excerpt begins as follows (citations omitted):

"At the same time, our cases have recognized limits on Congress's power under the Spending Clause to secure state compliance with federal objectives. 'We have repeatedly characterized...Spending Clause legislation as "much in the nature of a contract."'  The legitimacy of Congress's exercise of the spending power 'thus rests on whether the State voluntarily and knowingly accepts the terms of the "contract."'

And how would one allege that the State did not voluntarily accept the terms of the contract?  Undue influence, that's how!  The next portion of the opinion continues:

"[This insight regarding contracts] has led us to scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a 'power akin to undue influence.'  Congress may use its spending power to create incentives for States to act in accordance with federal policies.  But when 'pressure turns into compulsion,' the legislation runs contrary to our system of federalism.'"

Roberts ultimately agrees with the states that the federal government's "take it or leave it" offer rose to the level of coercion.  I have not read the rest of the opinion or the other opinions to determine how many votes there were for this holding.  It looks like only Breyer and Kagan agreed with Roberts on this point.*  However, even if I can't give you certainty, I hope I've at least given you enough ammunition to use in your debates with Con Law professors who think today's decision is all about them.

[Heidi R. Anderson]

* Update: There were 7 votes to toss the Medicaid expansion--Roberts, Breyer and Kagan via the Roberts opinion and Scalia, Thomas, Kennedy and Alito via Scalia's dissent.  Scalia's dissent discusses the Spending Clause issue using the same coercion-based Contracts rationale that Roberts used.  The dissent's Contract-based discussion begins in earnest on page 33.  The most direct excerpt states:

"When federal legislation gives the States a real choice whether to accept or decline a federal aid package, the federal-state relationship is in the nature of a contractual relationship.  And just as a contract is voidable if coerced, 'the legitimacy of Congress' power to legislate under the spending power...rests on whether the state voluntarily and knowingly accepts the terms of the "contract."' If a federal spending program coerces participation the States have not 'exercised their choice'--let alone made an 'informed choice.'" 

Based on this excerpt and the points that follow, it appears that the anti-expansion argument is better characterized as economic duress than as undue influence. 

Terrell Owens' Threatens to Sue His Former Indoor Football League Team

According to this article on tmz.com, Terrell Owens (pictured) has given the Indoor Football League Allen Wranglers an ultimatum—issue a public apology and pay him the $160,000 that he claims they owe him (for four games) plus his 50% share of merchandise, tickest and concessions from his time with the team.  

The team claimed that Owens was cut on May 29, 2012 for not intending to play in two upcoming road games with playoff implications and for missing a team event at a local children’s hospital.  He is asking the Allen Wranglers for a public retraction of the statement that he intentionally missed the visit. As reported by Yahoo!sports, Owens claims his contract stated he did not have to play in away games and that the team privately acknowledged that an Allen Wranglers publicist gave him the wrong date concerning the hospital visit.  

TMZ.com had earlier reported that Owens was not only cut, he was evicted from the house provided for him by the team, was ordered to turn over the keys to the 2012 Jeep Chrokee that the team had loaned him, and he was given $50 in payment for his stake in the team.  According to TMZ.com's latest report on the subject, the Allen Wranglers are standing firm, reportedly telling Owens, "You ain't getting a penny."

[JT and Christina Phillips]

Update on Golden Globes Contract Dispute

I previously blogged about the parol evidence rule and interpretation issues at the heart of a dispute between Dick Clark Productions ("DCP") and the Hollywood Foreign Press Association ("HFPA") over broadcast rights for the Golden Globes.  I now have two updates.  

First, the District Court has ruled in favor of DCP in a 89-page opinion posted here by the Hollywood Reporter. Pages 65-78 contain the arguments and holdings regarding the "plain meaning" of the modified contract and the use of extrinsic evidence (citing the commonly-used PG&E case).  Pages 79-81 review HFPA's argument that there was no consideration for the modified contract.  The opinion even contains a helpful discussion of mistake at pages 81-83.   

The second update is that Dick Clark Productions reportedly is up for sale (less than two months after Dick Clark's passing).  It would be interesting to see the DCP-HFPA contract provisions regarding assignment and change of control.  Perhaps there will be a post-sale lawsuit as well.  

Ultimately, I predict that this case appears in Contracts casebooks very soon.  The combination of issues, the high profile nature of the dispute, and the short contractual provision itself, all make it a great candidate. As one lawyer said to the LA Times,"So much litigation over 12 words...."  

Stay tuned (pun intended).

[Heidi R. Anderson]

Does Your New College ID Harbor Hidden Banking Fees?

In the desparation brought on by the summer doldrums, we are relegated to the scare techniques favored by local news channels:

Are bedbugs sucking your blood and selling them to black market blood banks while you sleep?!?

Is an alien convict about to escape from his prison on the moon and travel back in time to pave the way for his species to invade the earth?

TUNE IN AT 10 PM TO FIND OUT

But the answer to the local news questions is invariably a disappointed, "probably not, but still . . . think about it."  And the answer to our question is: likely yes!

According to this report in the New York Times, and this report from the United States Public Interest Research Group Education Fund (US PIRG), about 900 colleges and universities have formed partnerships with financial institutions.  The colleges and universities issue student IDs which also function as debit cards that bear the logos of the partner institutions.  The banks thus effectively control the disbursement of student aid.

The partnerships vary in their terms.  Some provide large payments to the universities in return for giving the banks exclusive access to students.  So, for example, The Ohio State University has apparently brought in $25 million through its contract with Huntington Bank.  The money helps, since state legislatures are cutting funding for higher education.  In return, Huntington gets to open branches and A.T.M.’s on campus and gains exclusive access to more than 600,000 students, faculty, staff and alumni.

Others permit colleges to save money by hiring banks or other vendors to provide financial services to students.  It's not entirely clear from the Times article, but this seems to mean that the universities save themselves administrative costs by having government loan money sent to financial instittuions rather than to the universities.  The financial institutions then disburse the money, but until they do, it would seem, they have the benefit of having the money.  In addition, according to the US PIRG report, banks and financial firms have “an unprecedented opportunity to market add-on products — bank accounts, A.T.M./debit cards and even loans and credit cards — to students with virtually no competition,”  Students may also have to pay ATM fees when they withdraw their loan money.  US PIRG characterizes the debits cards as wolves in sheep's clothing because the student do not realize that they are paying fees to a bank when they access their loan money.

The report highlights one financial institution, Higher One, which provides services on over 500 campuses.  But the Times quotes one of Higher One's co-founders, who points out that the alternative to Higher One's services is not some magical free world in which there would somehow be no expenses involved in the disbursement of student loan funds.  

Still, all of this seems to be a clever work-around to evade provisions of the CARD Act that were supposed to crack down on predatory lending practices that targeted students.  None of this is illegal, but it replicates the tactics that the banks used to entice students to sign up for credit cards and which the CARD Act was supposed to prevent.

[JT]

Breaking SoL News from Ohio

Watchdog.org reports a recent change made by the Ohio House concerning the statute of limitations (SoL) for lawsuits alleging causes of action for breach of contract.  Until recently, a party in Ohio had up to 15 years after a cause of action accrued to file a lawsuit for breach of written contract.  However, S.B. 224, which was unanimously passed on Thursday, May 24, 2012, reduces the time period to eight years.  In most states, the SoL for braech of contract is six years or less.

Speaker William Batchelder, R-District 69 said “this law has dated back to the days of early statehood, when businesses and consumers moved at a much slower pace.  Obviously the speed at which industry moves has increased rapidly since then and S.B. 224 brings Ohio more in line with today’s fast-paced world.”

We'll see if the governor signs the law and brings Ohio's SoL into line with that of other states.

[Christina Phillips & JT]

 

Breach of Contract Suit Filed Against Wayne Newton

According to USAToday.com, Wayne Newton, aka Mr. Las Vegas, is being sued for breach of contract by  the company that teamed with Newton to turn his 40-acre estate, called Casa de Shanandoah, into a museum. The company, CSD, LLC (CSD), purchased the rights to convert Newton’s 40-acre estate, which features South African penguins, Arabian horses, paintings by Renoir and 17th century antiques collected from European castles, into “Graceland West."  CSD  now alleges that Newton, along with his wife and her mother have unreasonably delayed the project. 

The complaint states that under the terms of the museum deal, the Newtons agreed to move to a $2 million home on the estate constructed by CSD, so that the mansion, which serves as the Newtons current residence, could be converted into a museum.  However, CSD alleges that the Newton family refused to relocate or turn over personal memorabilia.  Graceland West is supposed to feature certain animal attractions as well, but right now there are an extra 35 horses on the property along with large vicious dogs that Mr. New ton allows to roam freely, in spite of the fact that the dogs have attacked and bitten people on more than a dozen occasions. The dogs are also credited with killing 75 birds in the estate's aviary, as well as the occasional peacock.

The complaint details the delapidated condition of Casa de Shanadoah before its infusion of $30 million and its efforts to improve the conditions on the estate.  If you have a interest in descriptions of horses wallowing in their own feces, this is the complaint for you. 

Adding additional spice to the story, the complaint also claims that Newton sexually harassed a female equine management speicalist who was hired to train the horses for hte exhibit.  She is allegedly threatening suit against the parties to the lawsuit.  As reported by USAtoday.com, Newton’s lawyer, J. Stephen Peek, responded to the sexual harassment claims saying the accusations are merely an attempt to “obtain financial gain,” and the woman has been fired.  

Foxnews.com reports that the lawsuit seeks to have the Newton family immediately vacate their estate, Casa de Shenandoah, and allow the $50 million project to move forward.  However, the Newton family claims the lawsuit is a preemptive strike based on their plans to sue the company for breach of contract after multiple construction delays.  The family plans to file a countersuit challenging CSD’s allegations.  

For some reason, Wayne Newton has not played in Valparaiso recently, so we had to go to YouTube to get a sense of what this incomparable performer is like.  Here's a taste:

 

[JT & Christina Phillips]

Woman Breached Adoption Contract When She Sent Child Back to Russia

Remember the woman who adopted a Russian boy and then decided he had psychological problems and didn't want him anymore?  A Tennessee judge has apparently ordered the woman to pay $150,000 for breach of the adoption contract.  The Washington Post reports:

An American woman who adopted a Russian boy and later sent him back to Moscow on a one-way flight has been ordered to pay a sum of $150,000 and an additional $1,000 per month in child support until he’s an adult.

On Thursday a Bedford County, Tenn., judge said Torry Hansen must begin making the child support payments in June and continue to pay until the boy, who is now 10 years old, turns 18. Circuit Court Judge Lee Russell said the $150,000 Hansen must pay includes damages for breach of contract, legal fees and support for the boy.

Here's more:

Adoption advocates hailed the Tennessee court order as a measure of justice for the boy, and said the judge’s decision would show there are consequences to abandoning adopted children. They have said Hansen never told social workers that she was having problems with the boy.

The agency sued Hansen to deter others from doing anything similar and to show the Russians that “you cannot do this in America and get away with it,” Crain said.

“It has certainly caused concern on the part of Russian officials that unless there are consequences when a parent abandons a child placed in their home, there’s a need for safeguards to make sure this never occurs,” Crain said.

The judge said in his order that when Hanson adopted the boy she signed a contract acknowledging that it was possible the child could have physical, emotional or behavior problems that were unreported and even unknown to the adoption agency.

Lee said $58,000 of the $150,000 will pay for the past two years’ worth of support and medical fees for the boy in Russia.

Here's the entire article.

[Meredith R. Miller]

Cosmo Duff-Gordon in the News

Sir Cosmo Duff-Gordon (pictured), Titanic survivor and husband to Lucy, Lady Duff-Gordon of Wood v. Lady Duff-Gordon fame, was pictured in today's New York Times here.  The picture shows Sir Cosmo, along with two British fencing teammates, holding pistols at the 1908 Olympic Games.  Inattentive readers might conclude that Sir Cosmo competed in the dueling competition, but as his Wikipedia entry notes, his specialty (Silver Medal, 1906 Olympics) was the épée.

The individual dueling competition was featured only at the 1906 games and as the Times waggishly notes, "none of the duelists was actually shot," which must have been terribly disappointing for the audience.  No wonder you couldn't even find the games on cable in 1906. The Times explains that the competitors "shot at a dummy dressed in a frock coat."

[JT]

Update: South Dakota Supreme Court sides with Costner in Breach of Contract Suit

We've mentioned (here and here) the South Dakota case by a sculpture artist against Kevin Costner -- she alleged that Costner's placement of the sculptures (many large, bronze bison) was a breach of their contract.  The Washington Post provides this update:

PIERRE, S.D. — The South Dakota Supreme Court ruled Thursday that actor Kevin Costner did not breach a contract with an artist when he placed commissioned sculptures of bison and American Indians at a different site than was originally planned.

The Hollywood superstar, who filmed much of his Academy Award-winning movie “Dances with Wolves” in South Dakota, paid Peggy Detmers $300,000 to make 17 bronze sculptures for a resort called The Dunbar he planned to build on the edge of the Black Hills gambling town of Deadwood. The resort never was built and the sculptures instead are at his Tatanka attraction near the proposed resort site.

A later contract said if the resort was not built within 10 years or the sculptures were not “agreeably displayed elsewhere,” the sculptures would be sold with Costner and Detmers sharing the proceeds.

Detmers said she spent more than six years creating the sculptures and gave Costner a price break because she anticipated selling smaller reproductions of the sculptures at the resort.

The artist contended in a lawsuit filed in 2008 that because The Dunbar was not built and the sculptures were not “agreeably displayed elsewhere,” the artwork should be sold and she should get 50 percent of the sale proceeds.

But a circuit judge ruled in July that Detmers indicated her approval of the Tatanka location by participating in the site’s development and several events related to its opening in 2003. The Tatanka site, located next to the land where Costner had planned to build The Dunbar, houses the sculptures, a museum and a visitor center.

Detmers argued that she agreed to the placement of the sculptures at the Tantanka site because she was under the impression The Dunbar would still be built.

The Supreme Court unanimously agreed with Circuit Judge Randall L. Macy’s finding that Detmers never received any promise or guarantee that the resort would be built. Detmers knew the resort’s future was questionable, the high court said.

The justices also upheld the trial judge’s ruling that the sculptures have been “agreeably displayed elsewhere,” and that the Tatanka site was separate from the Dunbar site.

On the issue of whether the sculptures had been "agreeably displayed elsewhere," The Court reasoned:

The circuit court concluded as a matter of law that the regular meaning of the term “elsewhere” applied. The court noted that Black’s Law Dictionary defines elsewhere as “in another place, in any other place,” and Webster’s Dictionary defined it as “in or to another place.” See Black’s Law Dictionary 560 (8th ed. 2004). Accordingly, there must first be a designated place to determine if somewhere is “another place.” Paragraph three provides: “if The Dunbar is not built within ten (10) years or the sculptures are not agreeably displayed elsewhere.” (Emphasis added.) The designated place is The Dunbar. The circuit court concluded that “elsewhere” meant at a place other than The Dunbar. And because The Dunbar had not been built, Tatanka was elsewhere.

Costner points out that the circuit court and Detmers both assign “elsewhere” its ordinary meaning, i.e., “in another place.” The analysis diverges on whether “in another place” means another place from The Dunbar itself or from The Dunbar’s intended site. Costner asserts that the circuit court was correct in concluding that “elsewhere” is in a place other than The Dunbar resort itself, which, according to the language, must be built. The land could not be built, but the resort could. Furthermore, the terms of the contract plainly do not say The Dunbar site.

* * *

The plain words of the contract unequivocally provide that if The Dunbar was not built or the sculptures were not agreeably displayed elsewhere, then Detmers would be entitled to the relief described in paragraph three. “Elsewhere” must be understood in relation to the named place in the contract – The Dunbar. Costner is correct that to accept Detmers argument would rewrite the contract to include The Dunbar’s intended location as well as the resort itself. This we will not do. See Culhane v. W. Nat’l Mut. Ins. Co., 2005 S.D. 97, ¶ 27, 704 N.W.2d 287, 297 (“[W]e may neither rewrite the parties’ contract nor add to its language . . . .”). As a matter of law, the court did not err in its conclusion that Tatanka was elsewhere from The Dunbar. This conclusion is supported by giving the terms in the parties’ contract their plain and ordinary meaning.

Detmers v. Costner (S.D. S. Ct. May 9, 2012).

[Meredith R. Miller]

UC Davis Sues US Bank (As a Negotiating Tactic)

Law suits can often be sources of information for parts of the economy that are usually hidden.  The suit that the University of California at Davis (UC Davis) just filed against U.S. Bank is an eye-opening example.  According to this report in The Chicago Tribune, U.S. Bank and UC Davis entered into a ten-yeat contract in 2009 that permitted the Bank to open the first-ever on-campus bank branch in return for annual payments ranging from $130,000 to $780,000, depending on how many new accounts the branch activtated. 

But on-campus protests disrupted the branch's operations in January and February and so now it wants out of the agreement.  We're not sure what the disturbances in January and February were about, since the infamous pepper spray incident (below) occurred in November.

 

In any case, US Bank is claiming that the occupy movement's conduct qualifies as a "constructive eviction" from its campus branch, because employees were held prisoner inside the branch and customers could not get in.   The bank closed its branch in March saying it refused to put its customers and employeees at risk."  Apparently, twelve people (eleven students and a professor) blocked the entrance to the bank and are now facing charges for that act.  It is not clear what risk they posed to the bank's employees or customers.

US Bank and the university were in discusisons that were designed to wind down the branch's operations in a manner that was as smooth as possible.  According to the university, the purpose of the lawsuit it to "simply nudge the bank to return to the table and continue talking. If it's going to be a wind-down, we'd like to wind it down cordially, amiably and with the least amount of friction."  The Bank claims to be surprised by the lawsuit and will fight it.  The university, for its part, claims that the suit is part of its effort to look out for the interests of UC Davis and the taxpayers who fund it.  The university claims that it stands to lose up to $3 million in expected revenues over the course of the ten-year agreemetn with US Bank.

[JT]

Uninsured Sue Major Indiana Hopsital System for Overcharging

As reported in the Indianapolis Star here, the Indiana Supreme Court is set to hear arguments on May 10th in a case invovling two uninsured patients who have sued Indiana's largest hospital group, IU Health, for overbilling.  This is a tip-of-the-iceberg case, since the amount in controversy is small on these particular claims but could become massive if plaintiffs succeed and other plaintiffs bring similar claims (which they undoubtedly would).

The basis for the suit is that uninsured patients pay far higher prices for the same treatment, tests and services that insured patients get.  The case also provides a peek into the mindset of class action plaintiffs' attorneys, a subject related to a recent post.  Plaintiffs' attorney Scott Weathers is quoted in the Indianapolis Star as saying that he hopes to target other Indiana hospitals with similar lawsuits: "If we win, I'm afraid the other hospitals are going to hear from us. We have clients in the wings . . . ." and he expects the damages claims to get into the millions. 

The core of the case is the common law doctrine that when a contract does not specify a price, the price must be reasonable.  A good test of reasonableness is what other patients get charged for similar services.  Relying on that doctrine, Indiana's Court of Appeals reversed the trial court's dismissal of the case.  Twenty states introduced legislation requiring that uninsured be charged at the same rates as the insured, and now federal law requires that as well.  So the issue has been resolved legislatively, but that does not deprive plaintiffs of their right to sue over past overcharges. 

Given that this seems like low-hanging fruit, one might wonder why class-action plaintiffs' attorneys have not already filed class actions across the country.  As is clear from the Corut of Appeals opinion cited above, some states have sustained dismissals of similar suits based on (slightly) more specific contractual language related to the prices the hospitals would charge.  An additional sticking point seems to be the need to show commonality among the members of the purported plaintiff class.  Medical bills are individuated and hospitals claim that class litigation is impracticable.  That may be persuasive, but we understand that medical bills are now created by "coding experts," with each examination, test, procedure, etc. assigned a specific code and attendant pricing.  It seems likely that a court, provided with the coding system, could easily come up with a reasonable approximation of the extent to which the uninsured have been overcharged.  Since IU Health spokesperson affirms that the hospital system discounted charges to uninsured patients  by 40% in January 2011 in order to comply with federal law, 40% seems like a reasonable approximation of the extent of the overcharges. 

[JT]

iTunes in-app purchases: Parents' Relational Contract or Kids' Separate, Voidable Contracts?

Back in March (I am behind in my blogging), the U.S. District Court for the Northern District of California denied Apple’s motion to dismiss a class action brought by parents and guardians “who (a) downloaded or permitted their minor children to download a supposedly free app from Apple and (b) then incurred charges for game-related purchases made by their minor children, without the parents' and guardians' knowledge or permission.”  The court held that children who used their parents' iTunes accounts to rack up unauthorized charges for supplies for “free” games during a 15-minute window that the account automatically remained open after password authentication may have entered into separate contracts with Apple that are voidable by their parents.

There are games in Apple's iTunes store that are free to download but let companies charge users for products and services when the application is launched, so-called "in-app purchases."  The parents allege that each in-app purchase constitutes a separate and voidable contract between Apple and their minor children, which may be disaffirmed by a parent or guardian on behalf of the minors.  Apple argued for dismissal on the pleadings because the relevant contractual relationship governing the in-app purchases is between Apple and the parents and is based on the original Terms & Conditions signed by parents, making the purchases non-refundable.  Apple contends that the Terms & Conditions governs all subsequent purchases made using the iTunes account.

The court noted that, on a motion to dismiss, it is required to construe the complaint in the light most favorable to the plaintiffs/parents.  In light of that standard, the court held:

Apple argues that Plaintiffs' First Cause of Action should be dismissed as a matter of law, and yet offers no case law to support its contention that the Terms & Conditions constitute a relational contract and that each subsequent transaction between a minor child and Defendant is governed by the terms of the relational contract.

The parents seek reimbursement for the charges (which can run into the hundreds, even thousands).  If the parents are reimbursed, do the kids have to return the $25 buckets of smurfberries they purchased in Smurf Village?  What if the berries are already eaten?

Here's an idea for the parents: disable in-app purchases on the device:

In re Apple In-App Purchase Litigation, No. 5-11-cv-1758 (N.D. Cal. Mar. 31, 2012).

[Meredith R. Miller]

 

Boots on the Ground (or Perhaps on a Shelf in Uganda)

According to this report from the local pages of the Washington Post, a non-profit organization, Bancroft Global Development (BGD), ordered 18,000 pairs of combat boots (actual model not pictured) from Atlantic Diving Supply (ADS) as part of a $1.4 milion contract that included other items.  ADS claims that BGD paid for only half the order and has sued BGD seeking over $1 million,

BGD has counter-sued, seekign $1.1 million and claiming that the boots provided were not really combat boots but costume boots that did not satisfy military requirements.  Two years after delivery, the boots are said to be sitting in storage in Uganda.  BGD was working with a Ugandan partner organization, which had won a State Department contract to provide military supplies for the Somali Transitional Federal Government.

The case potentially raises interesting UCC questions, since the goods were allegedly "rejected" but not returned.  The case also raises potential issues of misunderstanding reminiscent of Frigaliment.  BGD apparently wanted the cheapest boots it could buy, but the boots that it got, although called "combat boots" are, according to one industry expert quoted in the Washington Post, suitable only for youth groups and marching bands.  One wonders what sort of youth groups require combat boots . . . .

[JT]

New York Times "The Haggler" Column Muses on Class Actions

David Segal has provided blog fodder for us before, both in his role as the bête noire of the legal profession, and in his more mild-mannered guise as author of the New York Times' column "The Haggler" (lacking a public domain image depicing haggling, we have settled from an image from an open-air market, a prime locus for haggling).  Nancy Kim posted most recently on the "The Haggler" column.  We have posted on Mr. Segal's smack-downs on law schools here and here.  Sunday's column is, once again, right up our alley.

Its topic is the fall-out from the Supreme Court's recent trilogy of arbitration decisions about which we have blogged incessantly.  Mr. Segal's column will add little to our readers' knowledge base on the subject, but it's nice to have a popular column that provides a useful recap of the state of play.  The main ground covered in Sunday's "The Haggler" can be summarized as follows:

• Post Concepcion, most consumer class actions are being dismissed in favor of arbitration at which class action resolution is not available;
• Businesses oppose class actions on the ground that they result in "settlements in which lawyers take home millions in fees and consumers wind up with piddling sums, often in the form of coupons";
• According to the Camber of Commerce, "the class-action system is flawed because it is designed by and for lawyers," but arbitration "can work";
• However, as Judge Posner pointed out, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

At this point, "The Haggler," having satisfied journalistic conventions by citing arguments from both sides, throws up his hands and suggests that there must be some better option. A fair arbitration system might work, but many people do not even know that they are entitled to make a claim, and the class action option enlightens them.

"The Haggler" misses the point.  The problem with $30 claims is not that people do not know that they have them but that they have no incentive to bring them even if they know.  Even if the arbitrataion is paid for by the defendant, it's just not worth the time.  Moreover, class actions are a public good in that they hold corporate defendants accountable in ways that matter and can have prospective effects that help plaintiffs and others similarly situated even if the plaintiffs in the class actions end up only with coupons.  Plaintiffs are not the ones complaining, litigating and lobbying to get rid of class actions.  

The argument that the class action system is flawed because it is designed by and for lawyers is specious.  Arbitration clauses are also designed by lawyers, and where exactly is the evidence that the class action system was desigend for lawyers?  Was the criminal justice system designed for lawyers because they get paid to litigate criminal proceedings, while neither crime victims nor criminal defendants stand to gain?

[JT]

Breaking News on the Miramax and David Bergstein

Earlier this week, we posted about David Bergstein's lawsuit against Miramax's principals.  Apparently, by the time we reported on it, the case had already settled.  Today, we received this update in the form of the following press release:

FOR IMMEDIATE RELEASE

MIRAMAX AND DAVID BERGSTEIN REACH AGREEMENT 

Bergstein Dismisses Lawsuit, Retracts All Claims and Accusations

SANTA MONICA, CA – April 24, 2012 – Filmyard Holdings LLC and David Bergstein today announced they have reached an agreement under which Mr. Bergstein will dismiss the lawsuit filed on April 9, 2012 in the Superior Court of California for the County of Los Angeles, Central District.  Terms of the agreement are not being made public.

Mr. Bergstein stated, “I am pleased that I was able to sit down with my counterparties in this suit, discuss our differences and resolve them.  I fully retract the claims made in the lawsuit against Filmyard, Miramax, Colony Capital, Richard Nanula and Josh Grode.  I’d like to thank everyone involved for their understanding and cooperation.”

Richard Nanula, a principal at Colony Capital, one of the owners of Filmyard, stated, “We want to recognize the contributions David made that ultimately led to Filmyard’s ownership of Miramax.  Without his efforts this very successful transaction wouldn’t have happened.”

 [JT]

Trend Spotting: Suits Over Liquidated Damages in Private School Contracts

If you teach O'Brian v. Langley School, you will want to read a NY Times article from earlier this week, For Some Parents, Leaving a Private School is Harder Than Getting In.  Here's a taste:

In February 2011, Nicole Smolowitz’s son was admitted to the Mandell School on the Upper West Side. She signed a contract and paid the $7,500 deposit.

By late April, the family’s financial situation had changed, and private school was no longer an option. Ms. Smolowitz called the school to say her son would not be able to attend. She did not expect to get her deposit back — but she was told she had to pay the remaining $26,250, as well.

“It’s April,” she said she told them. “I will find someone for you to take my child’s spot.” The school told her that was not how things were done. Then, in September, Mandell sued.

For most parents, getting their child into a private school is a moment of joy, or at least relief. But uncomfortable conversations take place at this time of year, as some parents reconsider.

Sometimes these conversations lead to an amicable parting. Other times, they lead to a bare-knuckled fight in court.

Since 2009, at least five private schools in New York City — Mandell, York Preparatory School, Friends Seminary, Léman Manhattan Preparatory School and the Little Red School House and Elisabeth Irwin High School — have sued parents for tuition.

The schools’ argument is simple: Parents sign a contract when they accept placement, saying they will send their child to the school the next year and pay the agreed-upon price.

The article includes discussion of a few specific cases, including the Gunderson case:

In 2007, Erik Gunderson and Sarah Brooks enrolled their son for another year at Park West Montessori School, a preschool on the Upper West Side of Manhattan. They put down a deposit of $4,700 of the $19,300 tuition.

Soon afterward, Ms. Brooks was offered a tenure-track position at a university in Virginia. When she told the school that her family was moving, the school said she had to pay the remaining tuition, according to the lawsuit. Her father, Russell Brooks, a lawyer at Milbank, Tweed, Hadley & McCloy, represented her in court, and won a ruling forcing Park West to turn over records showing that it would be financially harmed by his daughter’s decision to withdraw her son.

“They had no damages,” Mr. Brooks said. “The entire contract amount — the deposit amount plus what they were seeking — would be a windfall to them, because they could fill up the spot in the class from the waiting list.”

Mr. Brooks said the school dropped its demand for payment.

Kathy Roemer, executive director of Twin Parks Montessori Schools, which includes Park West, said the Gundersons’ deposit had not been refunded. The court denied the school’s counterclaim for the remaining tuition, and while Dr. Roemer called that ruling “contrary to basic contract law,” the school did not pursue the case because “the amount was too small.”

Since the Gunderson case, other parents, including Ms. Langbecker, have used the same defense, arguing that schools must prove they have been hurt financially. It is unclear how successful this argument is, as many cases are settled out of court.

Read the article.  Given that tuition at some private schools in Manhattan has surpassed the $40,000 mark, file it under "rich people problems."

[Meredith R. Miller h/t Robert Merrihew]