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Valparaiso Univ. Law School

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Wednesday, January 15, 2014

Bridge & Tunnel

Bridge: It hasn't been a good week for New Jersey governor Chris Christie who is embroiled in a scandal ("bridgegate") after one of his aides arranged to close lanes to the George Washington bridge, causing traffic in Fort Lee, a town where a democratic mayor did not support Christie's re-election.  

Tunnel: Over in Washington, Seattle may see traffic delays of its own.  The State Department of Transportation has declared that the Highway 99 tunnel team in “material breach of contract” because of different barriers than lane closings -- barriers to participation by small, minority-owned contracting firms.  The Seattle Times reports:

The DOT threatens sanctions unless Seattle Tunnel Partners (STP) makes rapid improvement and the team leaders participate in meetings with DOT. Disadvantaged Business Enterprises (DBEs) led by minorities and women are supposed to receive 8 percent of the work, but as of last fall, by some measurements the rate was less than 2 percent, according to a scathing federal civil-rights review.  The tunnel contractors are led by the U.S. arm of Spanish-based Dragados, and by California-based Tutor-Perini.

Lynn Peterson, the DOT secretary, released a letter Monday that recognizes efforts by STP to improve, but demands more.

What sanctions will mean is not yet clear.  The DOT could exert leverage by reducing or delaying progress payments that STP periodically receives for tunnel work. Peterson mentions that as one option in her letter, which follows a state review by attorney Richard Mitchell.

STP has the leverage of already having a tunnel machine in the ground, and already collecting more than $700 million to date. The most extreme outcome, to switch prime contractors, could easily run up tens or hundreds of millions of dollars, and cause delays. Peterson writes that she would prefer collaboration to litigation. An excerpt:

DBE_snip

Among other ideas, the state now recommends breaking contracts into smaller pieces so minority and women-led firms have a better chance to compete.

The federal investigation was prompted by a complaint by Elton Mason, owner of Washington State Trucking in Kirkland, who tried unsuccessfully to bid on a contract to transport excavated dirt.  STP awarded the prime trucking contract to a larger company, Grady Excavating of Mukilteo, which DOT later disqualified from its DBE status. The KING 5 Investigators have aired several stories aboutfailures in the minority contracting programs for Highway 99 and other projects.   Although Initiative 200 forbids quotas in minority hiring, the tunnel job is one-third federally funded, and therefore subject to hiring goals under federal affirmative-action rules.

Mason vented his exasperation Monday at what looks to him like another round of process. Mason said he’s had two meetings recently with state DOT and STP, but not a job offer.  All it should take is for Peterson to make a phone call and demand that Mason and other minority contractors be hired immediately, he said.

 Christie could only hope for a Seattle tunnel scandal to eclipse his coverage in the news cycle.  Not likely.

January 15, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Minnesota Orchestra Agrees to New Contract, Ends Lock-out

As The New York Times reports, the Minnesota orchestra has ended "one of the most contentious labor battles in the classical music world."  The musicians agreed to a new contract, with smaller pay cuts than management had previously proposed, ending a fourteen-month lock-out.  Concerts are due to resume in Minneapolis's newly-renovated Orchestra Hall (pictured) in February. 

Orch_hall

The musicians accepted a fifteen percent pay cut, having successfully fought off a proposed 30% pay cut, and management has promised pay increases in the coming years so that by year three musicians will only be about ten percent below were they were in 2012.  Musicians also must share a larger burden of their health insurance costs.  

Some of these musicians might consider a change of careers.  Stagehands seem to do pretty well.

January 15, 2014 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 14, 2014

A License to Kill

$350,000.  That’s the value an anonymous American big game hunter is willing to pay to shoot one of the world’s last 5,000 black rhinoceroses.  1,700 of these live in Namibia, which recently auctioned off a permit to kill an old bull through the Dallas Safari Club.

Contracts are meant to assign market values to various items and services in order to facilitate commercial exchanges of these.  But does this make sense with critically endangered species?

Namibia and the Safari Club tout the sustainability of the sale claiming that the bull is an “old, geriatric male that is no longer contributing to the herd.”  All $350,000 will allegedly go to conservation measures.  That is, of course, unless some of the funds disappear to corruptness, not unheard of in the USA and perhaps not in Namibia either.  Although the male may no longer be contributing to his herd, he does contribute to the enjoyment of, just as one example, people potentially able to see him and his likes on safari trips as well as to a much greater number of people around the world who simply enjoy the rich diversity of nature as it still is even if unable to personally see the animals.

Conservationists thus decry the sale, claiming that it is “perverse” to kill even one of a species that is so rapidly becoming extinct.  The argument has been made that critically endangered species should not be valued more dead than alive.  If humans cull the aging, natural predators will have to go one step “down the ladder” for the next one; a healthier one.  Who are we to continually mess with nature in these ways?  Counterarguments are made that poachers are the real problem, not a “single sale.”  And so it goes.

At bottom, the irony in killing such an animal to “increase” the population is, indeed, great.  This particular contract was not.

Myanna Dellinger

January 14, 2014 in Commentary, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, January 13, 2014

Prospects for Reform at the Consumer Financial Protection Bureau

CFPB
President Obama announcing nomination of Richard Cordray as CFPB Director

The New York Times reported last week on what it called The Consumer Financial Protection Bureau's (CFPB) next "crusades."  That would not be my preferred term, but yes, the regulatory agenda is ambitious. 

As the story recounts, The CFPB has already fined major companies, including American Express, GE Captial Retail Bank and Ocwen Financial for misleading business practices.  Last Friday, it issued new regulations for the mortgage industry.  

The CFPB's agenda in the coming year includes the following areas:

  • Arbitration (see our earlier blog post on the CFPB's preliminary report);
  • Bank overdraft fees;
  • Student loans;
  • Debt collection;
  • Credit report disputes; and 
  • Prepaid cards

It is an ambitious agenda.  Let's see if it will have much of an impact on consumer financial protection.

[JT]

January 13, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 7, 2014

More News on Government Technology Contracts

SuperWe have perviously posted examples of government contracting difficulties relating to technology contracts and websites.  Saturday's New York Times featured this op-ed by Georgetown Law Professor David A. Super (pictured), which chronicles technology contracting problems that have disproportionately affected the poor.  

Some recent technology contracts gone wrong that did not make the headlines:

  • 66,000 Georgia food stamp recipients and about half that many Medicaid recipients had their benefits terminated for failing to respond to renewal notices that, through a contractor's error, had never been sent;
  • A Massachusetts contractor deactivated food stamp cards because new ones had been sent without seeking any confirmation that the new ones had been received; and
  • A contractor's errors made food stamps unavailable to people in 17 states.

Super concludes:

Properly supervised contractors can use technology to improve the delivery of government services. But attention, oversight and willingness to act decisively to remedy fiascoes seem to depend on the wealth and clout of those who are affected. As Obamacare regains its footing, that lesson shouldn’t be forgotten.

[JT]

January 7, 2014 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Monday, January 6, 2014

Union Contract Paves the Way for Boeing to Remain in Seattle Area

777sAs reported here in The New York Times, Boeing's machinists union has agreed to a new eight-year labor contract in which the union sacrificed some benefits in order to guarantee that Boeings 777X aircraft will be built at is Washington State plant.  The union local's leaders opposed the new contract, but the national union urged them to hold a vote, and 51% of those participating voted to accept the contract.

According to the Times, Washington state was the logical choice for  the construction of Chicago-based Boeing's 777X.  However, the company sought tax breaks and a new union contract before agreeing to use its existing infrastructure on the new project.  The state legislature quickly approved tax breaks that will be good through 2040 and save the company an estimated $9 billion, but when the machinists originally rejected the new contract offer, Boeing began shopping around for a new location for its plant.  

[JT]

January 6, 2014 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, December 26, 2013

Seller of Rothko Painting Wins Case Against Buyer and Dealers for Breach of Confidentiality Agreement

Untitled 1961In 2007, Marguerite Hoffman decided to sell a major painting by Mark Rothko, and the buyer and delers agreed to keep the sale confidential. Mrs. Hoffman's husband, soft-drinks bottling magnate Robert K. Hoffman, had died the year before, and she wanted to quietly raise money from a discreet buyer.  After a trial earlier this month, a jury in Dallas federal court found that two New York art dealers and a billionaire collector breached the confidentiality agreement, but also awarded plaintiff damages in an amount much less than she had sought.  According to the WSJ:

The 2007 sale, to Studio Capital, a Belize-registered company advised by Mexican-born financier David Martinez, was arranged by prominent New York art dealer Robert Mnuchin and his then-partner, Dominique Lévy. The transaction, in which Mrs. Hoffman received $17.6 million, involved a letter agreement that "all parties agree to make maximum effort to keep all aspects of this transaction confidential indefinitely."

But according to Mrs. Hoffman's lawsuit, the private transaction came to light three years later when Studio Capital turned around and sold the painting in a highly publicized auction at Sotheby's, where it fetched $31.4 million and indirectly revealed the Hoffmans' prior ownership in marketing materials.

Mrs. Hoffman sued Mr. Mnuchin's and Ms. Levy's art gallery, L&M Arts, and Mr. Martinez and Studio Capital, claiming breach of contract. She claimed she could have sold the painting at auction herself and received far more, had she not wanted secrecy. In closing arguments, her attorney, Roger Netzer of Willkie Farr & Gallagher, argued that damages should be between $12.4 million and $22.4 million, based on disputed expert testimony about the art market before the 2008 financial crash.

Jurors in U.S. District Court found all three defendants did breach the agreement, and the panel assessed two types of damages, one of $500,000 and another totaling $1.2 million. The judge ruled that Mrs. Hoffman will have to choose between the two sums, although it is conceivable her counsel may try to claim both types of damages, for a total of $1.7 million.

"I am elated," said Mrs. Hoffman after the verdict. "This case was always about something other than money. It was about justice and integrity and honesty and trust and friendship."

Jonathan Blackman, an attorney at Cleary Gottlieb Steen & Hamilton, who represented Mr. Martinez and Studio Capital, said the limited damages amount to a defense victory. "We feel very good," he said. "After three years and enormous legal expenses on the part of the plaintiff, the elephant labored and came forth with a mouse." He said his clients plan to challenge the damages and breach-of-contract findings.

Major transactions in the art world often involve secrecy, and confidentiality clauses of differing stripes have become common in recent years. Before the trial, some lawyers said a victory by Mrs. Hoffman could have broad implications for the art world by threatening to turn such confidentiality agreements into restrictions or even prohibitions of resales.

Bill Carmody, an attorney at Susman Godfrey who represented defendant L&M Arts in the case, said "it was obviously a huge win for us," because the "jury awarded her a mere fraction of the $20-plus million she wanted."

[Meredith R. Miller]

 

December 26, 2013 in In the News | Permalink | TrackBack (0)

Wednesday, December 25, 2013

The Botched Obamacare Website Rollout and Government Contracts

It seemed unthinkable that the Obama administration could have so badly botched the rollout of the website associated with Obama's signature legislation, the Affordable Care Act (aka Obamacare).   However, as The New York Times reported here on Monday, and as we have already discussed here and here, the technological fumble may be a result of broader problems in the structures of government procurement systems which may finally get the attention they deserve because of the high-profile Obamacare rollout fiasco.  

SebeliusTo reduce the Times' report to its essence, the process of winning a government contract is very complex and daunting.  There are two problemmatic consequences of this structural element of government contracting.  First, it is hard for small companies or companies without expertise in the government procurement process to jump through all the hoops associated with that process.  Second, when the contracts are both long term and deal with technology, the government in some cases would be better served by working with smaller, more nimble contractors that can innovate and adapt as technology develops.  With technology improving at the rate at which it improves, the government cannot afford to get locked into multi-year contracts with entities that are not in a position to adapt as quickly as technology advances.  As the Times puts it:

Longstanding laws intended to prevent corruption and conflict of interest often saddle agencies with vendors selected by distant committees and contracts that stretch for years, even as technology changes rapidly. The rules frequently leave the government officials in charge of a project with little choice over their suppliers, little control over the project’s execution and almost no authority to terminate a contract that is failing.

“It may make sense if you are buying pencils or cleaning services,” said David Blumenthal, who during Mr. Obama’s first term led a federal office to promote the adoption of electronic health records. But it does not work “when you have these kinds of incredibly complex, data-driven, nationally important, performance-based procurements.”

A review of large-scale government contracts entered into over the past decade deemed only 4.6% successful, while 40% failed.  The rest were simply termed "challenged".  In what has become a familiar narrative (see, e.g., this Brennan Center report on the Obama administration's failed attempts to rein in overclassification), the Obama administration has taken steps to address the problem, but those steps are widely regarded as inadequate, in part because the administration is unable to overcome institutional resistance to change.  In this case, the standoff seems to be a result of resistance from the Office of Management and Budget to congressional legislation that would have exempted the Pentagon form the reform mandate. 
 
The solution for long-term projects involving technology seems to be to break up government contracts into small subcontracts and to partner with small companies that can focus on one task and make certain that the tecnology they employ is up-to-date throughout the life of the contract.
 
[JT]

December 25, 2013 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Friday, December 20, 2013

$3.6 Million Seized from Starlin Castro's Bank Accounts for Breach of Contract

CastroChicago Cubs shortstop Starlin Castro (pictured) has reportedly had $3.6 million seized from his bank accounts in connection with an alleged breach of contract as reported here in the Chicago Tribune.  The seizure relates (although how is unclear) to an alleged contract that Castro's father entered into when Castro was 15 years old with a baseball training school in the Dominican Republic.  The alleged contract provided that the school was entitled to three percent of Castro's earnings as a professional ball player. 

According to the Tribune, the money has already been seized from several banks, but the Tribune also reports that Castro's former coach at the school is "planning" to sue Castro.  It is not clear why the school is able to seize funds based on a planned suit, but perhaps the coach is contemplating a separate law suit from that already initiated by the school.  Still, since the Tribune suggests that Castro will counterclaim and claims that the suit is baseless, it is hard to understand how the seizure could have taken place prior to adjudication on the merits.   Castro stole only nine bases last year (and was caught stealing six times).  He is not a flight risk.  

It is also not clear where the $3.6 million figure comes from.  The Tribune reports that Castro signed a $60 million deal with the Cubs in 2012.  So, he is due a bit under $7 million/year, which he has been paid for one year.  Even if the school is due to be paid for the full $60 million, three percent of $60 million is $1.8 million, but why would the school be entitled to be paid before Castro has been paid?

And just for those of you who have any interest in my occasional gripes about absurd sports salaries.  Castro was ranked 22nd among shortstops last year.  I'm not certain but I suspect that those rankings are based exclusively on offensive numbers, which is ridiculous when it comes to shortstops, who are key defensive players.  Castro's fielding percentage was 26th last year out of 28 shortstops who played more than 100 games.  While Castro's offensive numbers were way off last year, his defensive numbers were a bit better than prior years.  No shortstops near Castro in the rankings made even half of what he made.  But he is guaranteed nearly $7 million a year even if his defense never picks up, he hits a punchless .250 and is as big a threat to get picked off as he is to steal a base.  Baseball salaries are no more rational than CEO salaries and both are in need of reform.

[JT]

December 20, 2013 in Celebrity Contracts, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 11, 2013

Congressional Study Finds that Violation of Federal Labor Laws Is No Bar to the Award of Federal Contracts

As reported here in The New York Times, a new congressional study found that the U.S. government continues to enter into contracts with firms that have been assessed heavy penalties for violating fundamental labor laws.  According to the report (unfortunately the Times provides no link and I could not find one through a quick Google search), 18 companies that received federal contracts were among the recipients of the 100 largest fines issued by the Occupational Safety and Health Administration.  Thirty-two federal contractors were among the leading companies in the amount of back pay owed to employees for wage violations.  

OSHA
There were about 50 companies that, among them, totalled nearly 1800 violations.  These companies were awarded $81 billion in contracts and paid nearly $200 million in fines and other assessments.  

The congressional committee that produced the report called for higher standards but did not go so far as to recommend that companies with major violations of labor law be considered ineligible for the award of government contracts.

[JT]

UPDATE:

Thanks to our anonymous tipster (see comments below), we have been able to find the full study.  Below is the Executive Summary:

Executive Summary

Each year, the United States pays out over $500 billion in taxpayer dollars to private companies for goods and services, much of which is used to pay the salaries of millions of workers. Taken together, companies that receive government contracts employ an estimated 22 percent of the American workforce, approximately 26 million workers.

Some of the nation’s largest federal contractors fail to pay their workers the wages they have earned or provide their employees with safe and healthy working conditions. The analysis found that almost 30 percent of the top violators of federal wage and safety laws are also current federal contractors.

Specifically:

  • Eighteen federal contractors were recipients of one of the largest 100 penalties issued by the Occupational Safety and Health Administration (OSHA) of the Department of Labor between 2007 and 2012. Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding federal contracts in 2012.
  • Forty-two American workers died during this period as a result of OSHA violations by companies holding federal contracts in 2012.
  •  Thirty-two federal contractors received back wage assessments among the largest 100 issued by the Wage and Hour Division of the Department of Labor between 2007 and 2012.
  • Thirty-five of these companies violated both wage and safety laws.
  • Overall, the 49 federal contractors responsible for large violations of federal labor laws were cited for 1,776 separate violations of these laws and paid $196 million in penalties and assessments. In fiscal year 2012, these same companies were awarded $81 billion in taxpayer dollars.

Federal law is intended to prevent taxpayer dollars from increasing the profits of companies with a record of violating federal law in two ways: by requiring contracting officers to assess a prospective contractor’s responsible compliance with federal law prior to awarding a contract, and by allowing agencies to suspend or debar contractors for certain behavior, including violations of federal law, in order to protect the integrity of taxpayer dollars.

In recent years, the federal government has increasingly used the contracting process to procure employee-based service work such as cleaning, security, and construction. However, a new analysis shows that taxpayer dollars are routinely being paid to companies that are putting the livelihoods and the lives of workers at risk. Many of the most flagrant violators of federal workplace safety and wage laws are also recipients of large federal contracts.

Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding current federal contracts.Unfortunately, this report demonstrates that the officials responsible for determining if a prospective contractor is a responsible entity prior to awarding a contract lack access to information on labor violations and lack the tools to evaluate the severity or repeated nature of these types of violations.

This is true even though the Clean Contracting Act of 2008 specifically required that a database be established to help agencies evaluate violations of federal law in making a responsibility determination. Some of the many incidents of misconduct that are not currently available to contracting officers in this database include:

  • The death of a 46-year-old father of four, who was working as a washroom operator at a Cintas Corporation facility in Tulsa, Oklahoma. He was killed after being swept into an industrial dryer when he attempted to dislodge a clothes jam. The dryer continued to spin with him inside for 20 minutes at over 300 degrees. Cintas received $3.4 million in federal contracts in fiscal year 2012.
  • The death of two employees of a Mississippi shipbuilding and ship repair company owned by ST Engineering Limited, who were killed when highly flammable materials being used to prepare a tugboat for painting ignited, leading to an explosion and fire. Findings of the investigation included failure to properly ventilate a confined space and lack of a rescue service available for a confined space. ST Engineering received $1.9 million in federal contracts in fiscal year 2012.
  • The deaths of seven workers at an Anacortes, Washington refinery owned by Texas based Tesoro Corporation, who were killed when a heat exchanger ruptured and spewed vapor and liquid that exploded. The workers who died were standing near the area of the rupture specifically to attempt to stop leaks of the volatile, flammable gases in the facility which had not been inspected for 12 years prior to the rupture. Tesoro received $463 million in federal contracts in fiscal year 2012.

The federal government is not required to contract with the private sector. Indeed, many of the functions that private contractors carry out for the government could be done equally well or better by government employees. But, when the government does solicit work from the private sector, it should use taxpayer dollars in a way that promotes compliance with federal law and improves the quality of life for working Americans.

Ensuring that the government contracts with actors who do not engage in serious or repeated violations of federal labor law is one important step to further that goal. Recommendations that will better protect taxpayer dollars and promote compliance with laws that protect the lives and livelihoods of American workers by those who receive taxpayer money include:

  • Improvements in the quality and transparency of Department of Labor information regarding violations of federal law.
  • Publication of an annual list of federal contractors that were assessed penalties or other sanctions, and as well as additional information concerning contractor compliance with labor law by the Department of Labor.
  • Improvement of contracting databases administered by the General Services Administration including increasing public transparency and expanding the amount of misconduct information included in those databases.
  • Issuance of an Executive Order requiring contracting officers to consult with, and obtain recommendations from, a designated official at the Department of Labor about violations of federal labor law when making responsibility determinations.
  • Issueance of an Executive Order to establish additional tools – beyond the existing responsibility determination and suspension and debarment process – that contracting officers, in consultation with the Department of Labor, can use to ensure that contractors comply with federal labor law.

 

 

December 11, 2013 in Government Contracting, In the News | Permalink | Comments (1) | TrackBack (0)

Monday, December 9, 2013

Breach of a Promise to Marry

RingEvery once in a while, a student will send me a story about contracts, but when multiple students send me the same story, you know they must be desparate for a study break -- and that there is some rather comical contracts story in the news.

And so it is with this story about a woman who won a $50,000 judgment on her claim that her fiance had breached his promise to marry her.  A Georgia appellate court upheld the judgment, which included an award of attorney's fees, on appeal.   The court more or less treated the couple as married and upheld an award of roughly half the property acquired during the relationship, which was a house valued at $86,000.   The couple had co-habited for ten years and had a child together.  The woman had looked after the child, as well as one she had from a previous relationship.  

The man had had sexual relationships with other women both before and after he led his live-in partner to believe that he would marry her and gave her a ring worth $10,000.  For what it's worth, the woman also had other sexual relationships. 

According to media reports, the defendant's argument on appeal was that his alleged promise arose in the context of a meretricious relationship and was therefore unenforceable. Moreover, he denied any intention to marry.  He claims he never said "will you marry me" or words to that effect. He just gave her a ring.

The meretriciousness argument is rather confusing, as a defense to the claim that he broke a promise, since the promise was to cleanse the relationship of its meretriciousness.  As the appellate court noted, according to FoxNews, “the object of the contract is not illegal or against public policy.”  If we still live in a world in which courts think they can pass judgment on people's long-term relationships (and we seem to), then a court is likely to uphold an agreement that will "make an honest woman" of the plaintiff.  

The award of damages is also confusing.  the effect of the ruling seems to be to treat the couple as married even though they weren't.  In effect, the court is recognizing a common law marriage where such marriages do not seem to be recognized.  I suppose the court could do so as a mechanism of giving the woman her expectation for the broken promise.  The California Supreme Court endorsed such an approach in Marvin v. Marvin, but other courts have rejected marriage by judicial decree where the legislature has expressed its disapproval of recognition of common law marriages.

[JT]

December 9, 2013 in Commentary, In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Saturday, December 7, 2013

Will Tough Mudder's Liability Waiver Hold Up?

Tough Mudder hosts extreme 10-mile obstacle course challenges.  If you are unfamiliar with the company, this video should give you a sense of the challenges Tough Mudder creates: 

Before a participant may enroll in an event and run the course, he/she must agree to an assumption of risk, waiver of liability and indemnity agreement.

Outdoor magazine has a story this month about the tragic death of Avishek Sengupta at a Tough Mudder event in Maryland.  He jumped into the deep, muddy pool at the "Walk the Plank" obstacle and did not emerge.  His tragic death is recounted in harrowing detail in the Outdoor magazine article, which mentions that Avishek's family has sued Tough Mudder and Amphibious Medics, a subcontractor that was onsite to provide rescue services.  

Central in the case will be the enforceability of the waiver of liability.  The parties weren't too fortchoming with litigation strategy but the article does provide:

Tough Mudder won't discuss its strategy for the Senguptas' legal action—nor will anyone from Amphibious Medics—but if the suit goes forward, its lawyers will likely stress the fact that Avi signed what Tough Mudder calls a Death Waiver, exculpating the company of liability for certain acts of "ordinary negligence" and "inherent risks," such as "inadequate or negligent first aid and/or emergency measures" and "errors in judgment by personnel working the event."

But the Boston-area firm Gilbert and Renton, representing Avi's estate, will likely argue that such waivers do not relieve Tough Mudder of the legal "duty of care" that exists whenever a business knowingly creates predictable hazards for the public. In the case of Walk the Plank, the predictable hazard—drowning—is clear enough. Hence the presence of a rescue diver and lifeguards at the obstacle on the day Avi drowned.

This will be an important and interesting case for liability waivers.  Worth following.

[Meredith R. Miller]

 

  

December 7, 2013 in Games, In the News, Sports | Permalink | Comments (0) | TrackBack (0)

Monday, December 2, 2013

California Controller Sues SAP for Failed Payroll System

CA State SealAccording to this report from the Courthouse News Service, California Controller John Chiang is suing SAP Public Services (SAP), a company with which the state of California had contracted for payroll services software (MyCalPAYS) that would assist California in managing payments to its 240,000 employees.  After three years of development and eight months of trials, California alleges that SAP still has not managed to get the system to work.

The system was projected to cost California taxpayers just over $100 million, but by the time it was cancelled, it had cost $260 million and never worked right, according to the state.  The state claims that MyCalPAYS was tried out on a test goup, and the results were disastrous: overpayments, underpayments, failures to report deposits in retirement accounts, childcare payments and medical contributions.  Although the state complained before declaring SAP to be in default, SAP contended that the system was working as designed.  

As Courthouse News Service reports, California encounered similar problems when it contracted with software developer Deloitte to manage its statewide judicial case management system.  

California, Kathleen Sebelius feels your pain.  

[JT]

December 2, 2013 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 26, 2013

Starbucks Managers Get to Share in Tip Pool, Says District Court

TipOn November 21, 2013, the U.S. Court of Appeals for the Second Circuit decided  Barenboim v. Starbucks Corp., a case brought by a class consisting of Starbucks baristas who challenged a company rule that forces them to share tips with shift supervisors.  
 
Plaintiffs contended that the District Court had erred in refusing to construe New York Labor Law § 196-d to prohibit Starbucks from distributing pooled tips to shift supervisors becasue such Starbucks employees are "agents" as that word is used in the statute. Section 196-d provides that  “[n]o employer or his agent or an officer or agent of anycorporation, or any other person shall demand or accept, directly or indirectly, any part of thegratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee.”  The Second Circuit affirmed the District Court's grant of summary judgment in favor Starbucks.  
 
The case had previously been certified to the New York Court of Appeals, which rejected plaintiffs' argument that § 196-d bars any employeee with supervisory responsibility from sharing in pooled tips. So long as personal service to patrons is a principle or regular part of the employees' duties, they may share in tips.  Supervisory employees may not share in tips when they have the authority to make employment decisions relating to the baristas.
 
The Second Circuit ruled that, given the limited nature of the supervisory duties performed by shift supervisors, coupled with their principal responsbilities for providing personal servcie to patrons, the shift supervisors' principal responsibilities to provide personal service to patrons, they did not exercise  ‘meaningful or significant authority or control over subordinates.  As a result, the Court ruled that Starbucks does not violate § 196-d by permitting shift supervisors to share in pooled tips.
 
[JT]

November 26, 2013 in Food and Drink, In the News, Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 20, 2013

NY Appellate Court Reinstates Claim Based on Couple's Oral Cohabitation Agreement

2ddeptLaura Dee (plaintiff) and Dena Rakower (defendant) lived together in a committed, same-sex relationship for nearly 18 years and are the parents of two children.  In her complaint, Dee alleges that they had an oral “joint venture/partnership agreement” whereby Dee would share in Rakower's assets, including Rakower’s retirement contributions and earnings, in exchange for Dee leaving her full-time job to care for their children.  The couple’s entire relationship pre-dated the passage of New York’s Marriage Equality Act.  Upon termination of the couple’s relationship, Dee sued Rakower for, among other claims, breach of contract.  The trial court dismissed the cause of action for breach of contract; in a divided opinion, the Appellate Division  (Second Department) reinstated that claim.

The majority of the appellate court reasoned that the allegations in the complaint sufficiently plead a cause of action for breach of contract:

The alleged contractual agreement between the parties was supported by consideration. "Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him [or her]" * * * The consideration here for the alleged contract is the forbearance of the [Dee’s] career, the inability to continue to save toward her retirement during that forbearance, and her maintenance of the household in return for a share in [Rakower’s] retirement benefits and other assets earned during the period of forbearance. * * * Since [Dee] also alleged that [Rakower] breached the alleged agreement and that she has sustained damages as a result of that breach, at this pleading stage, the eighth cause of action [to recover damages for breach of contract] must survive dismissal * * *.


The fact that the alleged agreement was made by an unmarried couple living together does not render it unenforceable. "New York courts have long accepted the concept that an express agreement between unmarried persons living together is as enforceable as though they were not living together, provided only that illicit sexual relations were not part of the consideration of the contract'" (Morone v Morone, 50 NY2d 481, 486, quoting Rhodes v Stone, 63 Hun 624, 624 [citations omitted]). "[W]hile cohabitation without marriage does not give rise to the property and financial rights which normally attend the marital relation, neither does cohabitation disable the parties from making an agreement within the normal rules of contract law" (Morone v Morone, 50 NY2d at 486; see Matter of Gorden, 8 NY2d 71, 75).

The case at bar is similar to Morone v Morone (50 NY2d 481). In Morone, the parties cohabited as husband and wife although they were not married. The plaintiff claimed that the parties had entered into an oral partnership agreement whereby, among other things, they agreed that the net profits of their partnership would be used and applied for their equal benefit **. The plaintiff devoted herself exclusively to their relationship and this endeavor. The Court of Appeals concluded that the plaintiff sufficiently stated a breach of contract cause of action.
There is no reason, on this record, at this early stage of the litigation to conclude, as the Supreme Court did, that the oral agreement between the parties cannot serve as the basis for a breach of contract cause of action. ***

Contrary to the Supreme Court's determination and the opinion of our dissenting colleague, [Dee’s] failure to specifically allege that there was a "meeting of the minds" as to how the assets would be distributed upon the termination of the parties' relationship does not compel the conclusion that the complaint fails to state a cause of action to recover damages for breach of contract.  * * * The complaint specifically alleges that the parties agreed to share equally the defendant's retirement account accrued during that period of time that the plaintiff did not work at a job that provided a retirement plan without consideration of the direct and indirect contributions of the parties or when such contributions were made. Thus, as alleged, there is sufficient definiteness to the material terms of the alleged agreement between the parties to establish an enforceable contract (see Joseph Martin, Jr., Delicatessen v Schumacher, 52 NY2d 105, 109). The failure to include the mechanism for the implementation of the parties' alleged agreement does not negate the allegations in the complaint that they entered into an agreement with regard to the rights to their assets.

The dissent, however, took the view of the oral agreement, stating that “the complaint is devoid of any allegation as to whether and how their assets and pension benefits would be divided in the event the parties were to no longer be together.”  The dissent opined that “read[ing] such a provision into the parties’ agreement, where none is expressed in the complaint, would result in the invention of an implied contractual provisions which, as noted, is prohibited by our law for agreements between unmarried persons living together.”   Then the dissent expressed concern that Dee seeks “equitable distribution” without alleging that the parties had expressly agreed to such a distribution:

Distilled to its essence, the plaintiff in this action seeks "equitable distribution" of the defendant's assets and future pension benefits without alleging in the complaint that the defendant had promised to share them if the parties did not stay together. Indeed, there is no allegation that the parties had any meeting of the minds as to the distribution of property or assets upon a termination of their relationship. Absent such an allegation, and absent an affidavit from the plaintiff clarifying or expanding her description of the parties' agreement to cover such an eventuality, the complaint fails to state a cause of action. The plaintiff's theory of recovery is dependent upon implying terms for the distribution of retirement benefits to circumstances involving the dissolution of the parties' familial relationship. The Supreme Court properly refrained from implying such provisions into the oral contract in determining that, under the circumstances alleged, the "complaint lacks a contract for the court to enforce."

No aspect of this partial dissent speaks to the merits of the New York's more recent enactment of the Marriage Equality Act. This Court is sensitive to the complications occasioned by various forms of familial relationships that necessarily result in financial agreements or entanglements. The judiciary, however, is limited in addressing and determining the ownership and/or distribution of familial assets, absent either the existence of a lawfully recognized marriage or an enforceable expressed contract between persons in a cohabitational relationship.

 According to an article in the NYLJ about the case:

The court agreed to resolve the appeal though the parties settled, apparently  accepting the position of Dee's pro bono attorney, Michele Kahn of Kahn &  Goldberg, that the case involved important issues for both gay and heterosexual  couples.

Kahn noted in a letter to the court that there were "tens of thousands of  unmarried, mostly gay, couples in the State." Although those couples can now  marry, she said "questions will remain" about the application of equitable  distribution laws to "specific and identifiable promises and agreements" prior  to their marriages.

Kahn also argued that, according to the Census Bureau,"an increasing number  of couples are rejecting the institution of marriage."

"The manner in which this couple conducted their lives—relying and acting  upon each others' specific promises, without formal writings, is the way that  most unmarried couples live their lives," she wrote. "Inevitably, many of these  couples will break up, and inevitably many of these couples will be involved in  litigation over property and assets that were acquired during the relationship,"  Kahn wrote.

Dee v. Rakower, 2013 NY Slip Op 07443 (2d Dep't Nov. 13, 2013).

[Meredith R. Miller]

November 20, 2013 in In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 13, 2013

A Bitter Cup

Starbucks lost an arbitration fight with Kraft Foods and is being fined nearly $2.8 billion.  Yes, you read that right - that's billion with a B.  At the center of a dispute was a 1998 contract that required Kraft to distribute and market Starbucks brand coffee to U.S. retailers.  The agreement was supposed to terminate in 2014 but Starbucks didn't want to wait that long.  It complained that Kraft wasn't doing a good job promoting its coffee and offered Kraft $750 million to terminate the contract.  Kraft rejected but Starbucks ended it in 2011 anyway (and entered into a deal with Green Mountain Coffee Roasters) which led Kraft to commence arbitration proceedings. 

Another reminder to think carefully about those long durations in contracts - you can never predict how things will go and it's a good idea to really think about those termination provisions.

 

[Nancy Kim]

November 13, 2013 in Current Affairs, Food and Drink, In the News, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Obligation to Return the Cash?

A New Haven rabbi purchased a desk on Craigslist for under $200.  When the desk couldn't fit through the doorway, he and his wife took it apart.  There was $98k in cash in a bag behind one of the drawers.  As one article explains:

"Right away my wife and I sort of looked at each other and said we can't keep this money."

They picked up the phone and called the original owner. They recorded the call on cellphone video.

"I saw there was a bag back there and through the bag I saw one 100 dollar bill and I', like, Oh my gosh there's money in there'. And i picked it up and this is pretty heavy. And I brought it over to the table and sort of counted it up and was like 'oh my gosh'."

The original owner was speechless. "Oh my gosh, because I... oh my God," she said.

The former owner had stuffed her inheritance in the desk and forgot where she put the money.

My sense is that the good rabbi did the right thing.  But was he legally obligated to return the cash?  He certainly received more than he bargained for, but seller beware?  Or, would the seller be able to claim mutual mistake to rescind the contract?

[Meredith R. Miller]

November 13, 2013 in In the News | Permalink | Comments (0) | TrackBack (0)

A Slam Dunk of a Deal

In a situation that underscores the importance of thinking twice about very long term contracts, the NBA wants to end a contract which requires it to pay two brothers a percentage of its broadcast revenues.  Back in 1976, the Silna brothers owned an ABA franchise, the Spirits of St. Louis.  When the ABA merged with the NBA, the Silnas agreed to this bargain - they would dissolve their team in exchange for 1/7 of the television revenues for the four ABA teams that were merged.  The four teams were the Indiana Pacers, the San Antonio Spurs, the Brooklyn Nets and the Denver Nuggets. 

Sure, back in 1976, the Silnas might have looked silly for giving up a huge buyout for something that seemed pretty worthless (the NBA wasn't even televised prime time) but now the deal is being called "the greatest sports deal of all time."  

Not kidding about that "all time" either - the Silvas reportedly received $19 million under the contract last season and the contract term is "in perpetuity."  Fat chance the NBA will be able to scream foul on the basis of lack of mutuality...

 

[Nancy Kim]

November 13, 2013 in Current Affairs, Games, In the News, Miscellaneous, Sports, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 6, 2013

Eric Goldman on Getting from "Dope" to "Nope"

GoldmanOn Monday, the Distrct Court for the  Southern of New York issued its opinion in  Beastie Boys v. Monster Energy Company, 12 Civ. 6065 (PAE) (S.D.N.Y. November 4, 2013).  The issue in the case was whether DJ Z-Trip had authorized Monster Energy to use a remix and video Z-Trip (Mr. Z-Trip?) had made of Beastie Boys songs.   Z-Trip wrote to Monster Energy saying, "Dope!" in the context of series of exchanges with Monster Energy over use of of the remix, and Monster Energy construed that word as consent.

Santa Clara Law Professor Eric Goldman (pictured) has a thorough anlysis here.

[JT]

November 6, 2013 in Celebrity Contracts, Contract Profs, In the News, Music, Recent Cases, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 5, 2013

What's the Cost of Entrance to the Met?

Free?  Suggested donation of $25?  Free on some days?  There are two lawsuits currently seeking to clarify.  According to the NYT:

MetUnder a clause in its original 1876 lease for the space, and according to an 1893 state law, the suits contend, the museum is required to allow visitors to be admitted free on most days of the week.       

“This is a case about democracy in New York,” said Andrew G. Celli Jr., a lawyer for the plaintiffs. “We had a partnership between the government and the arts communities, and it is clear that the bargain has broken down.”       

Many visitors make a different sort of bargain when they visit the museum, an internal one involving rapid and conflicting questions of guilt, moral obligation, personal financial prudence and not wanting to look cheap.       

Meanwhile, the Met said that free admission went the way of free love back in 1970, when a new deal struck between the city and the museum effectively superseded all the old arrangements. Though controversy raged around the introduction of the new “Pay What You Wish” policy back then, those were simpler times, with simpler sums: many visitors paid less than 25 cents to receive the famous Met buttons (which were briefly tickets and are now stickers).       

“The agreement with the city specifies that there has to be some minimal contribution,” said Harold Holzer, the Met’s senior vice president for public affairs. “There are people who express their own interpretation of the policy by paying very little. But something is required.”       

There is no question that except for the most alert visitor, a murkiness surrounds the matter of how to gain entry to the museum correctly. First, there are the signs that set out admissions prices in bold type — $25 for adults; $17 for those over 65 — and also contain the smaller, unbolded word “recommended.” Then there are the printed materials noting that a perk of annual membership (cost: $60 and up) is free admission, the implication being that members get huge savings — which, in fact, they do not, since technically they are not required to pay very much to begin with.       

There are Internet deals, including a recent offer from Groupon, that offer discounted tickets but fail to point out that visitors already have the right to unilaterally discount their own tickets.       

“I know lifetime New Yorkers who don’t quite know what it all means,” Mr. Celli said. “And it’s much harder if you’re not a New Yorker.”       

In its defense, the Met points out that it charges nothing for special exhibitions and that even $25 does not cover the cost of a museum visit.       

If the Met loses in court, it stands to forfeit some $40 million in annual revenue, or about 16 percent of its $250 million operating budget. An adverse decision could also affect other museums in the city, like the American Museum of Natural History, which has a similar suggested admissions policy.       

To understand the plaintiffs’ arguments, it is necessary to go back to the 1870s, when the state authorized the Parks Department to set aside land for a grand new art museum of which the city could be proud. Whether the museum should charge admission was one of the most hotly contested issues surrounding its inception. In the end, its lease with the city specified that on four days a week it “be kept open and accessible to the public free of charge.” In 1893, the state legislature enacted a law changing that to five days and two nights a week. That left the museum able to charge for admission on non-free days.       

And that was where the matter stood, more or less, until the early 1970s, when the museum was running at a deficit, and its director, Thomas Hoving, asked the city for permission to charge general admission daily. The City Council balked. “A penny today may be a dollar tomorrow,” warned Councilman Carter Burden, according to court papers.       

But a deal was hatched between Hoving and August Heckscher, the redoubtable New York City Parks Commissioner and Administrator of Recreation and Cultural Affairs. Heckscher said he would allow the museum to charge a fee as long as its amount was “left entirely to the individual’s discretion.”

Heckscher promised to direct the city’s Corporation Counsel office to amend the museum’s lease, but it never did. (The museum says no amendment was needed because, as the museum’s landlord, the city can set whatever rules it wants.)       

According to the two lawsuits — one that says the museum deceives its visitors and is guilty of fraud, and the other a class-action suit seeking recompense for people who claim that they were duped by the policy — the Heckscher-Hoving agreement violates the lease and the law. The plaintiffs in the suits comprise five museumgoers, including a persistent critic of, and past litigant against, the museum on other matters, and two Czech citizens who responded to an Internet appeal for people who said they had been misled into paying the full suggested admissions price.

More here.

[Meredith R. Miller]

November 5, 2013 in In the News, Recent Cases | Permalink | Comments (1) | TrackBack (0)