Sunday, January 3, 2016
Exactly one year ago, I blogged here about United Airlines and Orbitz suing a 22-year old creator of a website that lets travelers find the cheapest airfare possible between two desired cities. Travelers would buy tickets to a cheaper end destination, but get off at stopover point to which a ticket would have been more expensive. For example, if you want to travel from New York to Chicago, it may be cheaper to buy one-way airfare all the way to San Francisco, not check any luggage, and simply get off in Chicago.
The problem with that, according to the airline industry: that is “unfair competition” and “deceptive behavior.” (Yes, the _airline industry_ truly alleged that.) Additionally, the plaintiffs claimed that the website promoted “strictly prohibited” travel; a breach of contracts cause of action under the airlines’ contract of carriage.
It seems that the United Airlines attorneys may not have remembered their 1L Contracts course well enough, for a contracts cause of action must, of course, be between the parties themselves or intended third party beneficiaries. The website in question was simply a third party with only incidental effects and benefits under the circumstances. Without more, such a party cannot be sued under contract law. (This may also be a free speech issue.)
Orbitz has since settled the suit. Recently, a federal lawsuit was dismissed for lack of personal jurisdiction over the now 23-year old website inventor. United Airlines has not indicated whether it plans further legal action.
Along these lines, cruise ship passengers are similarly not allowed to get off a cruise ship in a domestic port if embarking in another domestic port unless the cruise ship is built in the United States and owned by U.S. citizens. This is because the Passenger Vessel Services Act of 1866 – enacted to support American shipping – requires passengers sailing exclusively between U.S. ports to travel in ships built in this country and owned by American owners. Thus, cruise ships traveling from, for example, San Diego to Alaska and back will often stop in Canada in order not to break the law. But if the vessel also stops in, for example, San Francisco and you want to get off, you will be subject to a $300 fine which, under cruise ship contracts of carriages, will be passed on to the passenger. See 19 CFR 4.80A and a government handbook here.
Convoluted, right? Indeed. Necessary? In this day and age: not in my opinion. As I wrote in my initial blogs on the issue, if one has a contract for a given product or service, pays it in full, and does not do anything that will harm the seller’s business situation, there should be no contractual or regulatory prohibitions against simply deciding not to actually consume the product or use the service one has bought. Again: if you buy a loaf of bread, there is also nothing that says that you actually have to eat it. You don’t have to sit and watch all sorts of TV channels simply because you bought the channel line-up. In my opinion, United Airlines and Orbitz were trying to hinder healthy competition and understandable consumer conduct. What is still rather incomprehensible to me in this context is why in the world airlines would have anything against passengers getting off at a midway point. It’s less work for them to perform and it gives them a chance to, if they allowed the conduct openly, resell the same seat twice. A win-win-win situation, it seems, for the original passenger, the airline, and the passenger that might want to buy the second leg at a potentially later point in time at whatever price then would be applicable. The same goes for the typically unaffordable “change fees” applied by most airlines: if they charged less (a change can very easily be done by travelers on a website with no airline interaction) and the consumer was willing to pay the then-applicable rate for the new date (prices typically go up, not down, as the departure dates approach), the airlines might actually benefit from being able to sell the given-up seat. Of course, they don’t see it that way… yet.
In many ways, traveling in this country seems to be going full circle in that it is becoming an expensive luxury. Thankfully, new low-cost airlines also appear on the market to provide much needed competition in this close-knit industry that, in the United States, seems to be able to carefully skirt around anti-trust rules without too many legal allegations of wrongdoing. (See here for allegations against United, American, Delta and Southwest Airlines for controlling capacity in order to keep airline prices up).
Happy New Year and safe travels!
Monday, December 21, 2015
Shoplifting is a major problem to retailers. In 2014, for example, retailers lost $44 billion nationwide to theft by shoplifters, employees and vendors. But how about this for an apparently very popular “solution”: Retailers such as Bloomingdale’s, Wal-Mart, Burlington Coat Factory, DSW Inc. and even Goodwill Industries have signed up with CEC, a company that provides “restorative justice” for profit.
Here’s how it works: Retailers sign a contract with CEC under which CEC will provide “life skills” courses to shoplifters caught by the retailers. The retailers pay nothing for this “service.” Rather, shoplifters must pay the company $500 for a six-hour course and sign a confession. If they refuse to do so, they are threatened with criminal prosecution and allegedly intimidated in several other ways. According to CEC, “over 1 million individuals have gone through the core program.” Do the math (if you trust the company’s statement) and you’ll see that contracting to sell justice and self-help is apparently quite lucrative.
According to CEC, this is all a good thing. In a statement apparently now removed from the company’s website, but reported here, the company purports to give “low-level, first-time shoplifters a valuable opportunity to learn how to make better choices, while saving them a criminal record and sparing law enforcement resources.” According to CEC now [http://www.correctiveeducation.com/home/cec-restore]: “CEC’s Adult Educational Program focuses on developing practical skills that will help achieve social goals. The dual approach of addressing behavior while promoting provident living helps reinforce change.”
What’s the problem with this alleged win-win situation? According to at least the San Francisco city attorney, the conduct is a violation of the California Business and Professions Code. It also alleged to amount to extortion, false imprisonment, coercion and deception. The city attorney has filed suit. CEC defends, claiming that its “vision is to reinvent the way crimes are handled, starting with retail theft.” Indeed. Do we, however, trust companies to sell justice for us via private contracts? Comment below!
Monday, December 14, 2015
On Saturday, a new international treaty surplanting the expired Kyoto Protocol was finally reached by 195 nations. For business contracting and numerous, if not all, aspects of life now and in the future, the global climate will be key.
The main aim of the agreement is to keep temperature rise “well below” 2° C. The nations will additionally “pursue efforts” to limit the temperature increase to 1.5° C. Thousands of scientists have for a long time reiterated the belief that temperatures rising above 2° Celsius could be devastating, so the aspirational goal of 1.5° C is, of course, a positive sign that national leaders may finally be realizing the dire straits of the planet’s climate situation.
So, this is good news, right? To some extent, yes. “The Paris Agreement for the first time brings all nations into a common cause based on their historic, current and future responsibilities.” However, current national commitments still do not go far enough. As they currently stand, we are headed towards a warming of more than 3° C; much higher than the scientifically advisable goal. The national pledges must be increased over time. Starting in 2018, each country will have to submit new plans every five years to reach the 1.5/2° goal by 2100. The thought is that even though current coals do not suffice to keep climate warming to the agreed-upon limits, they will over time, starting soon.
History shows, though, that many nations have so far neither been ready nor politically able to make effective greenhouse gas reduction commitments. Previous aspirational goals have not been realized by the great majority of nations, although some not only met, but exceeded their commitments. It’s tempting to note that “time will tell if the situation changes this time,” but we simply don’t have much time to turn around the problem before it is too late for many regions, species and peoples around the world. For example, a temperature increase of 2° C will still be very problematic for low-lying nations such as many small island states, who seem to have been almost entirely forgotten about by many in this context. That, however, was considered one of the “prices” to be paid for reaching the deal. (A true contractual-like bargaining strategy.) Human rights are only mentioned in the preamble to the Agreement and not in the Agreement itself.
Nation themselves will determine their “intended nationally determined contributions,” which are not directly legally binding under notions of hard law as they are not mandatory with top-down enforcement if the nations fail to do so. Among other factors, the word "contribution" and not, for example, "commitments" demonstrate the legal cautiousness of the agreement. Nations must, of course, still strive to reach their goals under the UNFCCC and the notion of pacta sunt servanda, but these are not worded in a manner that gives them a firm, legally binding effect. The only directly legally binding parts of the Agreement are some procedural aspects such as the review procedures.
Of course, the reason why the Agreement was adopted by so many parties was precisely that no legal requirements were imposed on nations. Some, such as the United States, would not have accepted this. A senior Obama administration official notes that the Agreement "does not require submission to the Senate because of the way it is structured and because the pieces that are binding are already part of existing agreements.” A legally smart and pragmatic maneuver. But it still remains to be seen whether the United States and other nations act – and act quickly enough - to prevent the problem escalating in spite of good intentions. I may be one of the few in this context, but I’m still skeptical. The intended time frames still seem too long to me and the actual promised action too meager. I fear that these are simply the “Emperor’s New Clothes,” celebrated so much, perhaps, because of so many years of no action.
Nonetheless, it is certainly remarkable and a very good sign that the world community finally agreed on the dangers posed by climate change and thus a 2° C limit. That's a good start. In the words of Miguel Arias Cañete, the European Union’s commissioner for energy and climate action, “[t]oday, we celebrate, [t]omorrow, we have to act. This is what the world expects of us.” But if we have simply turned a corner back to where we came from, namely hoping that sufficient action will be taken soon and pointing out that the world expects that, we might have celebrated a bit too early. I hope I am wrong. Climate change is like a cancer: horrible, always inconvenient, and tough to deal with at many levels. But the longer one waits in tackling it, the worse it will get.
Monday, December 7, 2015
Commercial class-action practitioner Kevin M. McGinty here describes the final settlement of the infamous 2013 theft of credit and debit card data from retail giant Target's point-of sale terminals:
On Tuesday, December 1, Target entered into a settlement agreement with a class of banks and financial institutions that issued the credit and debit cards that were compromised in the 2013 event. The settlement was the result of negotiations following closely on the heels of an order by the court certifying a card issuer class. This last settlement resolves card issuers’ claims that were not previously resolved in Target's August 2015 settlement with Visa, which provided $67 million to resolve claims made by Visa card issuing banks under Visa’s fraud resolution process. Also separate from this settlement is the $10 million settlement of the claims of consumers whose cards were compromised by the data theft, which Target concluded with the consumer class in March 2015.
The current settlement provides for payment of an additional $39,357,939.38 for the benefit of class member banks. Of that amount, $19,107,939.38 will be used to fund settlements under MasterCard’s fraud resolution process....
The $10 million paid in the consumer settlement may seem at first blush to be grossly disproportionate to the roughly $107 million allocated to the card networks and their issuing banks. It actually isn't. The card payment system is built on private contracts that are themselves heavily impacted by federal consumer protection laws like the Truth-in-Lending Act and the Electronic-Funds-Transfer Act. Together, the contracts and federal law place liability for unauthorized purchases squarely on the issuer banks acting through the card networks. Thus, we should expect the consumer losses from Target's data breach to be minimal compared to those borne by the banks, who were obligated to fund the consumer losses pending recovery from Target as the ultimately responsible party for this particular data breach.
Sometimes the legal system works more-or-less how it is intended. The consumers actually were protected in this instance.
Friday, November 20, 2015
The law firm of Andrews Kurth was recently hit with a nearly $200million dollar judgment for malpractice. Yes, that's right - nearly 200 MILLION dollars. At the bottom of this - an agreement which was deemed unenforceable as an "agreement to agree." As reported by Law 360 (which requires registration - apologies), the malpractice suit stemmed from representation in a dispute involving a family business, Martin Resource Management. Two brothers, Scott and Ruben Martin, were fighting over management issues until their mother stepped in to broker a deal. Andrews Kurth represented Scott Martin and sought changes to the deal to ensure its enforceability. Scott ended up suing Ruben to force him to comply with the terms of the settlement; however, the appeals court ruled that the settlement agreement revised by Andrews Kurth was unenforceable as an "agreement to agree." Many lawsuits ensued resulting in this incredibly large jury award.
Unfortunately, I couldn't get a copy of the actual agreement that was at issue - I would really like to see what the language looked like...
Friday, November 13, 2015
We have reported on this case numerous times, and the ordeal is finally over. Here is our overview of the dispute from last year:
The very short version of the story, as best I can cobble it together from blog posts, is that the University of Illinois offered a position in its American Indian Studies program to Steven Salaita, who had previously been teaching at Virginia Tech. According to this article in the Chicago Tribune, the U of I sent Professor Salaita an offer letter, which he signed and returned in October 2013. Professor Salaita was informed that his appointment was subject to approval by the U of I's Board of Trustees, but everyone understood that to be pro forma. In August 2014, Salaita the U of I Chancellor notified Professor Salaita that his appointment would not be presented to the Board and that he was no longer a candidate for a position. According to the Tribune, the Board next meets in September, after Professor Salaita's employment would have begun. The Chancellor apparently decided not to present Professor Salaita's contract for approval because of his extensive tweets on the Isreali-Palestinian conflict, which may or may not be anti-Semitic, depending on how one reads them.
As reported here in Inside Higher Ed, the University of Illinois has agreed to pay Steven Salaita $875,000. The University has now severed all ties with Professor Salaita who will not teach there.
Last week, we noted a series of articles in The New York Times about mandatory arbitration and class action waivers in consumer and employment contracts. The reporter behind those stories did an interview on NPR's Fresh Air. You can listen and read it here.
Hat tip to my student Marla Gee.
Monday, November 9, 2015
California takes its laws against minors contracting seriously. Very seriously. Dancing with the Stars favorite Bindi Irwin, daughter of “Crocodile Hunter” Steve Irwin, must prove that her father was really killed in 2006 in order for her to get the earnings from the popular dancing show. So far, Bindi Irwin has allegedly presented “insufficient proof” that her father has waived those earnings. This despite worldwide shock that the beloved wildlife TV show stars was killed in a freak accident by a stingray in 2006.
California law requires underage entertainers to get court approval of their contracts to avoid the rampant abuses of minors in the industry of yesteryear. Parents of minors must now sign a quitclaim waiving any rights to the child's earnings. Bindi's mother, Teri, has already signed, but Steve has not, for obvious reasons.
The show’s owners, BBC Worldwide, is working with the court to work out the situation.
Under her contract with BBC, Bindi earns a guaranteed salary of $125,000 as well as weekly sweeteners for each week she stays on the show. So far, Bindi has done very well, even earning top scores one week. The shows airs on Monday nights on ABC.
Wednesday, November 4, 2015
Once something turns up on the mainstream media, it often goes viral. Let's hope that's the case with The New York Times series on the dangers of the Supreme Court's recent jurisprudence on arbitration and class action waivers. Part III, which focuses on religious arbitration, is here.
My student, Collin Johnson, called to my attention some reports on National Public Radio on the same subject. You can read or listen here and here. The second reports on efforts by the Federal Consumer Financial Protection Bureau to ban financial institutions from imposing mandatory arbitration and class action waivers.
Monday, November 2, 2015
Danish toy building brick maker Lego recently turned down an order for several million lego bricks that were to have been used in an art exhibit by Chinese artist and human rights activist Ai Weiwei in Melbourne. Why? Because Lego refrains from “actively engaging in or endorsing the use of Lego bricks in projects or contexts of a political agenda.”
The bricks would have been used for two projects, one of which would have consisted of mosaic portraits of twenty Australian advocates for human rights and for information and Internet freedom. Prominent lawyers such as Michael Kirby and Geoffrey Robertson would have been depicted as would have WikiLeaks founder Julian Assange.
Last year, Mr. Ai used Legos to create mosaic portraits of 176 political exiles and prisoners of conscience in an exhibit on Alcatraz Island in San Francisco. At that time, Mr. Weiwei bought the toys via a nonprofit helping him develop the Alcatraz exhibition.
This is apparently not the first time that the Lego Group is turning down otherwise valuable contracts for its popular bricks. Just this year, Lego rejected a proposal to make Lego figures of the female United States Supreme Court justices, also because such use was considered “political.” (Huh?!) Previously, Lego has tried to persuade a Polish artist to withdraw an installation that used Lego bricks to depict a Nazi concentration camp (Lego, in turn, withdrew that request after lawyers got involved.).
China’s reaction to the Ai Weiwei story? The state-run Chinese Global Times reported that “as China becomes more powerful, commercial organizations and national governments will become more well behaved and more scared to apply a double standard to China.” (Link to Global Times not available, but see here for coverage from NPR and the NY Times) Surely, at least part of that statement must be a mistranslation. If not, then let’s indeed hope that governments and corporations alike become better behaved (if not, could we give them time out?).
Does this case make sense from a business point of view? Perhaps, if the company wants to err on the extremely cautious side of avoiding negative PR in general. Or is this perhaps rather an issue of not risking to upset a very valuable and increasingly affluent country such as China? Should it matter to a manufacturer what its products are sold for? Said Weiwei: “A company that sells pens [also] cannot tell a writer that he or she can’t do political or romantic writing. It’s really none of their business.”
Having been born and raised in Denmark, Lego’s attitude surprises me somewhat. Danes – whether organizations or individuals – often weigh in on important social issues. Danes are often not afraid to speak their minds on important social issues. That is simply how “small talk” and opinion-making is formed in the nation. As a nation, Denmark often touts itself as a world leader when it comes to other complex issues such as comprising the environment, energy and health care even though those could also be seen as “political” in nature. On that backdrop, Lego’s attitude seems even more conservative from a PR point of view, but of course, it is a multi-million dollar company worried about the bottom line. Fair enough, but in a way, it would be refreshing if companies would take more responsibility for the ultimate effects of their products. Some are. For example, some companies are voluntarily reducing the sugar content in their products or at least providing less sugary alternatives to traditional products. Others are not (the gun industry, to mention one). But where, such as in the Lego case, companies decide to be overly cautious in relation to issues that do not seem all that controversial and that are not even funded or otherwise supported by the vendor itself, it seems that we are risking censorship via corporatism.
The future of Weiwei’s exhibits is unknown, but he is reported to be making use of Lego collection points after having received numerous offers of Lego donations on social media.
A lot of folks in legal education were pissed off at The New York Times last week. Some fine responses include Michael Simkovic's and Frank Pasquale's. I would just like to draw attention to the last two paragraphs of the Times editorial, which strain to draw some connection between loans that go to law students and the decrease of funds available to pay for legal representation for the poor. Rising student debt and decreased funding for legal services are two sides of the same coin, and it is really peculiar to blame law schools for politicians' failures to adequately fund education or legal services . . . but today we are here to praise The New York Times.
I'm not sure why this is news but yesterday's Sunday Times prominently featured an article that tells it like it is about arbitration clauses and class action waivers. The title and sub-title tell it all: Arbitration Everywhere, Stacking Deck of Justice: Vast Trend Locks Americans Out of Court -- Rulings Greatly Favor Business. This is the first in a series of stories called Beware the Fine Print. Part II is called In Arbitration, "A Privatization of the Justice System.
Ah, the Old Grey Lady returns to form.
Wednesday, October 21, 2015
Amazon is suing approximately 1,000 individuals who are allegedly in breach of contract with the Seattle online retailer for violating its terms of service. Amazon is also alleging breach of Washington consumer protection laws.
In April, Amazon sued middlemen websites offering to produce positive reviews, but this time, Amazon is targeting the actual freelance writers of the reviews, who often merely offer to post various product sellers’ own “reviews” for as little as $5. (You now ask yourself “$5? Really? That’s nothing!” That’s right… to most people, but remember that some people don’t make that much money, so every little bit helps, and numerous of the freelancers are thought to be located outside the United States.) The product sellers and freelancers are alleged to have found each other on www.fiverr.com, a marketplace for odd jobs and “gigs” of various types.
There are powerful incentives to plant fraudulent reviews online. About 45 percent of consumers consider product reviews when weighing an online purchase. Two-thirds of shoppers trust consumer opinions online. For small businesses, it can be more economical to pay for positive reviews than to buy advertising. For example, a half-star increase in a restaurant's online rating can increase the likelihood of securing, say, a 7 p.m. booking by 15 to 20 percent. “A restaurateur might be tempted to pay $250 for 50 positive reviews online in the hopes of raising that rating.”
As law professors, we are not beyond online reviews and thus potential abuses ourselves. See, for example, www.ratemyprofessor.com. There, anyone can claim that they have taken your course and rank you on your “Helpfulness,” “Clarity,” and “Easiness,” give you an overall grade as well as an indication of whether you are hot or not (clearly a crucial aspect of being a law professor…) To stay anonymous, people simply have to create a random anonymous sounding email address. Not even a user screen name appears to be required. Hopefully, that website does not have nearly as much credibility as, for example, Yelp or TripAdvisor, but the potential for abuse of online reviews is clear both within as well as beyond our own circles.
As shown, though, some companies are taking action. TripAdvisor claims that it has a team of 300 people using fraud detection techniques to weed out fake reviews. But fraudulent reviews aren't thought to be going away anytime soon. One source estimates that as many as 10-15% of online reviews are fake (to me, that seems a low estimate, but I may just be a bit too cynical when it comes to online reviews).
So, next time you are reading reviews of a restaurant online, I suppose the learning is that you should take the reviews with a grain of salt.
Tuesday, October 20, 2015
As reported in The New York Times here, Irwin Schiff, a famous opponent of federal taxation, passed away in prison at the age of 87. He had been sentenced in 2005 for tax evasion. He claimed that he was being truthful when he reported that he had "no income in the constitutional sense."
His life is of interest to contracts profs because of Newman v. Schiff. In 1983, Schiff offered $100,000 to anyone who could cite a section from the Internal Revenue Code (Code) that required an individual to file a federal tax return. Schiff issued this challenge on a CBS new show called "Nightwatch." Mr. Newman heard the challenge on a rebroadcast of the show and responded the next day when he had a chance to look through the Code and identify the relevant sections. Schiff refused to pay, informing Newman that his response was both procedurally and substantively flaws. Newman sued.
The District Court agreed with Schiff that Newman response was procedurally flawed. It construed the offer to be open only until the end of the Nightwatch broadcast. Mr. Newman was late. But he was not wrong. The District Court characterized Schiff's position on taxes as "blatant nonsense." As the Times obituary notes, his son writes on economic topics. The son found his father's positions compelling but impractical. Schiff remained committed to his beliefs right up to the end.
Hat tip to Gonzaga Law's Scott Burnham.
Monday, October 12, 2015
Some shoppers on Sears.com thought it was their lucky day when they saw expensive play sets and fancy toys available for the low price of $11.95. Consumerist has the story here. If you saw a storybook cottage that typically costs hundreds of dollars listed for sale at the low, low price of $11.95, what would you think? That's right. Unless it was advertised as a huge blowout sale, you would probably guess it was a mistake. Apparently, Sears lists items sold by third parties and gets a cut - and this time, a third party had made a pricing error on its items. Of course, some Sears sellers were upset - even though Sears refunded their money and gave them a $5 gift card. So, for all those upset sellers, let's run through the mistake scenario to see whether the law would be on your side:
Was this a mistake of a basic assumption? - Yes, it was a pricing error and pricing errors are generally considered basic assumption mistakes.
Was the mistake made by one or both parties (was it a mutual or unilateral mistake?) - Here, Sears mistakenly believed that the prices listed on its website were accurate (not all $11.95) while the customers saw what the prices were - $11.95 - so it was a unilateral mistake made by Sears.
Did it have a material effect? Yes, there's a big difference between $11.95 and hundreds of dollars so Sears would make less money on the transaction.
Did the non-mistaken party (the Sears customers) know or should they have known of the mistake? - Yes, because they should know that expensive playsets are typically not sold for such a low price unless it is part of a promotion or clearance sale.
Did the mistaken party bear the risk of the mistake? You might think Sears would, since it is their website. But based upon existing case law (i.e. Donovan v. RRL Corp), since there's no lack of good faith here and Sears presumably acted reasonably in managing its website - it does not constitute "neglect of a legal duty" and Sears likely doesn't bear the risk of the mistake.
So - there you have it. Sorry kids - guess you'll just have to go outside and build your own play castles with branches and old bed sheets...
Tuesday, October 6, 2015
In California (where else?), a state court judge has, for now, refused to dismiss a fraud claim against Mark Zuckerberg of Facebook fame. A breach of contract claim is also still under consideration.
What is the latter all about? As we wrote here earlier, one of Zuckerberg's former neighbors alleges that he promised to sell property adjoining Zuckerberg's at a discount in return for Zuckerberg's promise to provide the neighbor with "personal referrals and business promotion activities." The property changed hands, but Zuckerberg allegedly failed to make good on his promises.
Is he contractually bound to do so? I don't see why not. The promise is not illusory, and although it is not directly monetary in nature, it does seem to constitute true consideration (Zuckerberg would give up time and effort to get the discount and run the risk of inconveniencing his connections).
Of course, promises such as these are probably very hard to enforce via court action. What would a court realistically do? Force Zuckerberg to help the former neighbor hobnob now that the parties undoubtedly dislike each other intensely? Require him to host a certain number of cocktail parties and invite the ex-neigbor? Such relief is unrealistic, just as it would likely be next to impossible to monetize the alleged loss here.
The temptation to contract in part in return for return benefits from the rich and famous is continually present now as it has been for decades, if not centuries. But numerous cases show how such deals are next to impossible to enforce, contracts law principles or not. A higher sales price would undoubtedly have been smarter here.
Making the case even weirder, the neighbor's attorney has petitioned the court to withdraw from the case for ethical reasons.
Saturday, October 3, 2015
They’re still doing it: companies not wanting negative online reviews of their products or services attempt to contractually prohibit unsatisfied customers from posting such feedback. Not only that, but some companies also seek to take legal and other retaliatory action against their customers if they defy such attempted clauses.
For example, the FTC recently instigated suit against weight-loss company Roca Labs for threatening legal action against customers writing negative comments about the company’s allegedly ineffective weight loss powder. (H/t to my colleagues on the AALS Contracts listserv for mentioning this story). When one of Roca Lab’s customers posted a comment on the Better Business Bureau website, the company cited to their contract with the client that stated, “You will not disparage RL and/or any of its employees, products or services... If you breach this agreement... we retain all legal rights and remedies against the breaching customer..." The company also asked the customer for information about her contacts on Twitter and Facebook (she luckily declined…).
There is no federal law prohibiting companies from trying to suppress negative reviews, but the FTC alleged unfair practices, among other things because the clause in question was buried in fine print. The issue may also be a First Amendment problem, according to an attorney for www.pissedconsumer.com, a third-party website that, as the name indicates, allows negative reviews of companies. http://www.cbsnews.com/news/ftc-lawsuit-roca-labs-weight-loss-powder-gag-clause-customers-sued/
I could not agree more that the voice of customers who have been disappointed for good reason should be heard. It is, frankly, ridiculous what some companies can get away with in this country in this day and age, in my opinion. (In the EU, for example, much more consumer-friendly regulations exist. In the USA, the legislative balancing of consumers v. companies often, in my opinion, is more of a slant favoring businesses, but that’s a thought for another day). But here’s the thing: what about the true risk of disgruntled customers posting reviews that don’t quite reflect what really happened, that exaggerate the situation, or that simply make things seem worse than what they really were? Even with emoticons, things can seem very harsh once written down even if they were not necessarily meant to be.
Take, for example, popular hosting website Airbnb. My husband and I own a historically registered house that requires a lot of upkeep and fixing after 90 years of neglect, so we signed up as hosts to try it out and, of course, to make a little extra money. We love it! We meet the most interesting people that truly enjoy our house. But as one’s success on that and other websites is, in reality, often tied closely to having a large amount of very good reviews, we also live with the constant worry that one day, somebody could post a negative review about something that most people would probably consider seemingly minor (our house is almost 100 years old, and there are necessarily small kinks with a house like that). See also Nancy Kim’s recent blog on our apparently increasing need to judge each other negatively. At least Airbnb allows its users to post comments to reviews, but not all websites follow such practice.
My point is simply this: it is, of course, to go overboard to require one’s paying customers to not post negative reviews via contractual clauses or other methods. But how do we balance the need for true and honest, productive reviews with the risk of disgruntled and perhaps even dishonest customers? Comment below!
Monday, September 21, 2015
The Chicago Tribune reports here on a contracts mess at the College of DuPage. The College's board voted 4-3 to void the contract of its president, Dr. Robert Breuder and to declare him an at-will employee. The board claimed that the avoidance of the contract was appropriate, given that the prior board had inappropriately locked the College in to a long-term contract. The current board also alleges that the prior board violated Illinois law in various ways relating to the hiring of Dr. Breuder The move enables the board to cancel the $763,000 severance payment that Dr. Breuder had agreed to accept as a condition of his early retirement in 2016. One dissenting board member characterized the decision as a breach of contract, and the County State's Attorney already had opined that the contract could not be nullified. Meanwhile, Dr. Breuder continues to draw his $495,000 salary on paid leave from his position while the College searches for a new president.
In continuing FIFA news, Reuters reports that FIFA entered into a profit-sharing agreement with the Caribbean Football Union (CFU) in 2005. FIFA was to receive 50 percent of all revenue generated from the sale of broadcast sponsorship and TV commercials in part of the Caribbean for the 2010 and 2014 World Cup competitions. To date, FIFA claims it has received no payments. FIFA seems to be mad now and has sent a letter to the CFU terminating the contract. One wonders what because of all those advertising revenues . . . .
Finally, in Trump news, all's well that ends well. As you may recall, and as Variety reports here, things got a bit divisive in the partnership that owns the Miss Universe, Miss USA, and Miss Teen USA pageants when co-owner Donald Trump (pictured) made nasty comments about immigrants. When Univision and NBC refused to carry broadcasts of one of the pageants, Trump sued for breach of contract. That suit has now been settled. Trump bought out his partners and then sold the pageant to WME/IMG, whatever that is. It's a shame. Beauty pageants are so tawdry and demeaning to women, Mr. Trump was the ideal person to perpetuate them. WME/IMG, you've got big shoes to fill.
Friday, September 11, 2015
Very excited to be able to report on a UCC case from Indiana, JMB Manufacturing, Inc. v. Child Craft, LLC decided by the 7th Circuit. The opinion is long, but Judge Hamilton's introduction captures its spirit.
This case presents a merchant’s creative effort to avoid the limited remedies that contract law provides for a seller’s delivery of non-conforming goods. After the seller delivered about $90,000 worth of nonconforming wood products, the buyer sought recovery from both the seller and its president personally for tort damages on a tort theory, that they negligently misrepresented the quality of the delivered goods.
The district court ruled in favor of the buyer and awarded damages of more than $2.7 million on the theory that the non-conforming goods caused the complete destruction of the buyer’s business. This damages theory echoed the proverb of Poor Richard’s Almanack (“A little neglect may breed mischief; for want of a nail, the shoe was lost; for want of a shoe the horse was lost; for want of a horse the rider was lost; for want a rider the battle was lost.”), and Shakespeare’s story of Richard III [pictured], where the loss of a horse led in turn to the loss of a battle, the death of a king, and the loss of a kingdom. Cf. Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854) (damages for breach of contract limited to consequences reasonably contemplated by both parties when they made contract).
We reverse the award of damages against the seller and the seller’s president, but for reasons that do not depend on the flawed “want of a nail” theory. Under Indiana law, a buyer who has received non-conforming goods cannot sue a seller for negligent misrepresentation to avoid the economic loss doctrine, which limits the buyer to contract remedies for purely economic losses. See Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722 (Ind. 2010). Second, there is no basis for transforming the buyer’s breach of contract claim into a tort claim for negligent misrepresentation to hold the seller’s president personally liable. See Greg Allen Construction Co., Inc. v. Estelle, 798 N.E.2d 171 (Ind. 2003). In all other respects, we affirm the judgment of the district court.
The opinion includes a lengthy discussion of Indiana's economic loss doctrine.
The Complete Colorado provides this report about a court's grant of a preliminary injunction empowering a teachers' union to continue in its role as sole entity empowered to negotiate a new contract with the local school board. The ruling keeps the union's existing contract in force until its breach of contract claim can be heard, but the grant of the P.I. suggests the likelihood that the union will succeed on the merits of its claim. But the ultimate remedy remains unclear.
And in news that will make you say, "What the . . .???" we learn from this article from the Washington Times that Ashley Madison claims that its new users are flocking to its website after news of its massive security breach, about which Myanna Dellinger has written here, here and here. Other than quoting a spokesperson for the company who blathered about happy return customers, he Times does not speculate on the relationship between the scandal and the increase in users. Knock yourself out.
Sunday, September 6, 2015
The recent massive hack into married-but-dating website Ashley Madison’s files may not only have breached the customer’s reasonable contractual expectations, but is now also said to lead to serious counter-intelligence concerns.
Both China and Russia are collecting personal and sensitive information about people who may be involved in American national security operations. What better leverage to have against operatives than information about their most secret, erotic desires. The temptation to resist such information being shared with even more people may persuade some operatives to render otherwise secret information about United States national security issues. Recall that quite a few affair seekers used their official government addresses to arrange their attempted or successful trysts. In combination with another recent OPM hack, countries that are seen as adversaries have apparently also been able to obtain information about who has sought security clearances and can use this information for counter-intelligence purposes.
That seems to provide a good public policy argument for why courts should find against Ashley Madison if it came to a contractual lawsuit regarding the breach of “100% secrecy” and “full deletes” promised, but not delivered, by Ashley Madison.
Friday, September 4, 2015
Yesterday, we blogged here about important considerations regarding whether an employee will be seen as an employee or a contractor.
In O'Connor v. Uber Technologies, U.S. District Judge Edward Chen just ruled that Uber's drivers may pursue their arguments that they were employees in the form of a class-action suit. One of the reasons was that Uber admitted that they treated a large amount of its drivers "the same."
Of course, millions of dollars may be at stake in this context. Profit margins are much higher for companies such as Uber, Lyft, Airbnb and other so-called "on demand" or "sharing economy" companies. That is because the companies do not have to pay contractors for health insurance benefits, work-related expenses, certain taxes, and the like. But seen from the driver/employee's point of view, getting such benefits if they are truly employees is equally important in a country such as the United States where great disparities exist between the wealthy (such as the owners of these start-up companies) and the not-so-wealthy, everyday workers.
Plaintiffs are represented by renowned employee-side attorney Shannon "Sledgehammer" Liss-Riordan who represented and won a major suit by skycaps against American Airlines some years ago, so sparks undoubtedly will fly in the substantive hearings on this issue.