Monday, November 3, 2014
As reported on JDSupra here, the Florida District Court of Appeal for the Fourth District, sitting en banc, held that while an insurer’s liability for coverage and the extent of damages must be determined before a bad faith claim becomes ripe, the insured need not also show that the insurer is liable for breach of contract before proceeding on the bad faith claim.
We have also learned from JD Supra of Piedmont Office Realty Trust v. XL Specialty Ins. Co., 2014 U.S. App. LEXIS 20141 (11th Cir. Oct. 21, 2014), in which the United States Court of Appeals for the Eleventh Circuit, elected to certify to the Supreme Court of Georgia the question of whether an insured’s payment obligations under a judicially approved settlement agreement qualify as amounts that the insured is “legally obligated to pay,” and if so, whether the insured’s failure to have obtained the insurer’s consent to settle resulted in a forfeiture of coverage.
According this this report on Yahoo! Sports, Oklahoma State is suing the former Offensive Coordinator of its football team, Joe Wickline (who now is a coach for the University of Texas), and Wickline has countersued. According to the report, Wickline's contract with Oklahoma State require that he pay the balance of his contract ($593,478) if he left for another position and was not his new team's play-caller. Wickline claims that he is calling plays at Texas. What a bizarre thing to put in a contract. It's a reserve non-compete! In effect, Oklahoma State is saying that it would pay Wickline to call plays for a rival.
According to this report from the Courthouse New Service, Ted Marchibroda Jr., the son of NFL Football coach Ted Marchibroda, filed a $1 million malpractice lawsuit against Sullivan, Workman & Dee and trial lawyer Charles Cummings , alleging breach of contract, professional negligence and breach of fiduciary duty. In a 2011 lawsuit, Marchibroda accused sports agent Marvin Demoff of breaching an agreement to share the proceeds of NFL contracts for linebacker Chad Greenway. He claims that he is also owed money for recruiting center Alex Mack.
And continuing our sports report, Golf.com notes that golfer Rory McIlroy is taking a break from the "sport" to pursue his legal claims against his former management company, Horizon Sports Management. McIlroy claims that Horizon took advantage of his youth to extract an unconscionable 20% fee for McIlroy's off-the-course income. Horizon is claiming $3 million in breach-of-contract damages.
In a simpler companion case to the Sharpe v. AmeriPlan Corp. case about which we blogged earlier today, the Eighth Circuit affirmed the District Court's denial of a motion to compel arbitration in Quam Construction Co., Inc. v. City of Redfield. As reported here on Law.com, the case was relatively easy, since the contract at issue contained permissive language: "the parties may submit the controversy or claim to arbtiration." Given such language, the Eighth Circuit agreed with the Distrcit Court that arbitration could not be compelled.
Friday, October 24, 2014
Yesterday's New York Times included a "The Upshot" column by Jeremy B. Merrill. The print version was entitled Online, It's Easy To Lose Your Right to Sue [by the way, why can't the Times be consistent in its capitaliziation of "to"?], but the online version's title tells us how easy, One-Third of Top Websites Restrict Customers' Right to Sue. The usual way they restrict the right is through arbitration provisions and class-action waivers. They do so through various wrap mechanisms so that consumers are bound when they click "I agree" to terms they likely have not read and perhaps have not even glanced at.
Some websites attempt to bind consumers by stating somewhere on their websites that consumers are bound to the website's and the company's terms simply by using the company's website or its products (I'm looking at you, General Mills). The only thing surprising about this, given the Supreme Court's warm embrace of binding arbitration and class action waivers, is that two-thirds of websites still do not avail themselves of this mechanism for avoiding adverse publicity and legal accountability.
As I was reading this article, it started to sound very familiar -- a lot like reading this blog. And just as I was beginning to wonder why the Times was not ' quoting our own Nancy Kim, the article did just that:
When courts decide whether a website’s terms can be enforced, they look for two things, Ms. Kim said: First, whether the user had notice of the site’s rules; and second, whether the user signaled his or her agreement to those rules. Courts have ruled that simply continuing to use the site signals agreement. When browsewrap agreements have been thrown out, as in the Zappos case, courts have said that the site’s link to the terms wasn’t displayed prominently enough to assume visitors had noticed it.
Congratulations to Nancy on such prominent notice of her scholarship!
And congratulations to the Times for paying attention!
Monday, October 20, 2014
Class action lawsuits can be a great way for consumers to obtain much necessary leverage against potentially overreaching corporations in ways that would have been impossible without this legal vehicle. But they can also resemble mere litigiousness based on claims that, to laypeople at least, might simply seem silly. Decide for yourself where on this spectrum the recent settlement between Red Bull and a class of consumers falls. The background is as follows:
The energy drink Red Bull contains so much sugar and caffeine that it can probably help keep many a sleepy law professor and law student alert enough to get an immediate and urgent job done. I admit that I have personally enjoyed the drink a few times in the past, but cannot even drink an entire can without my heart simply beating too fast (so I don’t).
Red Bull’s marketing efforts promised consumers a “boost, “wings,” and “improved concentration and reaction speeds.” One consumer alleges in the class action suit that he “had been drinking the product since 2002, but had seen no improvement in his athletic performance.”
It strikes me as being a bad idea to pin one’s hopes on a mere energy drink to improve one’s athletic performance. These types of energy drinks seem to be geared much more towards a temporary sugar high than anything else. At any rate, if the drink doesn’t help, why continue drinking it for another 12 years?
Nonetheless, a group of plaintiffs filed claim asserting breach of express warranty, unjust enrichment, and violations of various states’ consumer protection statutes. The consumers claim that Red Bull’s deceptive conduct and practices mean makes the company’s advertising and marketing more than just “puffery,” but instead deceptive and fraudulent and thus actionable. The company of course denies this, but has chosen to settle the lawsuit “to avoid the cost and distraction of litigation.”
To me, this case seems to be more along the lines of Leonard v. Pepsico than a more viable claim. Having said that, I am of course not in favor of any type of false and misleading corporate claims for mere profit reasons, but a healthy dose of skepticism by consumers is also warranted.
Monday, October 13, 2014
We have posted previously about business entities that try to go after customers that give them negative reviews here and here. It seems, based on our limited experience, that threatening to sue customers for writing negative reviews is not a great business model.
Fortunately, there is a market solution. As reported in this weekend's column in The New York Times's "The Ethicist," businesses that recieve negative online reviews can just contact the reviewers and pay them to take down the review. According to the account in The Times, the author of a TripAdvisor review of a hotel entitled it "An Overpriced Dung Heap," but then accepted a 50% discount in return for removing the review. He should have bargained down to "Dung Heap," since the hotel probably was still a dung heap but perhaps was no longer overpriced.
The reviewer asked The Ethicist who was most unethical: himself, the hotel or TripAdvisor for hosting a system so easily corrupted. We don't get paid to weigh in on ethical matters. Actually, we don't get paid at all. But we do have opinions to vent, so here are some.
As The Ethicist acknowledged, what the hotel owner did was not illegal. An economist might reduce the question to one of efficiency. If the hotel owner thinks her money is well spent making bad publicity go away, rather than actually improving the quality of her hotel, that is a choice she can make as a business owner. The market may prove her wrong. The lack of negative reviews on TripAdvisor may not help if in fact one is greeted by a kickline of cockroaches and bedbugs when entering the guest rooms. The Ethicist dodges the stickier problem that TripAdvisor may contain only positive reviews of The Dung Heap Inn because the owners and their supporters flood the site with fake reviews. One would think that TripAdvisor's value would be correlated to its accuracy, but it is hard to see what measure TripAdvisor could take to insure that posts on its site are the real deal.
Wednesday, October 1, 2014
In a recently unsealed ruling, the U.S. Court of Claims has awarded $1.1 million in damages for breach of contract to a former undercover Drug Enforcement Administration ("DEA") informant who was kidnapped in Colombia and held captive for more than three months.
Here's a flavor from the opening paragraphs of the 52-page decision:
This breach-of-contract action comes before the Court after a trial on damages. In its decision addressing liability, the Court determined that the Drug Enforcement Administration (“DEA”) breached an implied-in-fact contract and its duty of good faith and fair dealing by failing to protect Plaintiff, an undercover informant. During an undercover operation in Colombia, Plaintiff, known as “the Princess,” was kidnapped and held captive for more than three months. Plaintiff claims that her kidnapping and prolonged captivity caused the onset of her multiple sclerosis and seeks compensatory damages in the amount of $10,000,000 for financial losses, inconvenience, future medical expenses, physical pain and suffering, and mental anguish arising from Defendant’s breach.
Because Plaintiff demonstrated that Defendant’s breach of contract was a substantial factor in causing the Princess’ kidnapping and captivity, and triggering her multiple sclerosis, the Court awards the Princess the value of her life care plan, $1,145,161.47. Plaintiff failed to prove any other damages.
The decision covers a number of issues related to damages. For example, the court holds that it was reasonably foreseeable at the time of contracing that a DEA informant would be kidnapped in Colombia and suffer resulting health issues:
The inquiry under foreseeability in this case is whether Plaintiff's damages, namely her multiple sclerosis and the ensuing costs of her medical care, were reasonably foreseeable at the time of contract formation. Anchor Sav. Bank, FSB, 597 F.3d at 1361; Pratt v. United States, 50 Fed. Cl. 469, 482 (2001) (“Whether damages are foreseeable is a factual determination made at the time of contract formation.”) (citing Bohac v. Dep't of Agriculture, 239 F.3d 1334, 1340 (Fed.Cir.2001)). Hence, Plaintiff must show that both the kidnapping, her ensuing health problems, and consequential financial costs of medical care constituted the type of loss that was reasonably foreseeable when the parties formed their implied-in-fact contract.
Plaintiff has established that her kidnapping was reasonably foreseeable at the time the contract was entered into. From the outset ASAC Salvemini voiced concerns for the Princess' safety, and DEA moved her family because of the dangers of her operation as part of her agreement to work with DEA. Evidence revealed that kidnappings were not uncommon in Colombia at the time. 2007 Tr. 270 (Princess); 2007 Tr. 1523 (Warren) (“[W]e got the report [the Princess] had been abducted. That was not an unusual report in Colombia then or now unfortunately.”). Plaintiff established that harm to undercover informants, including injury and death, were reasonably foreseeable consequences of a breach at the time of contract formation.
Knowing, as DEA did, of the dangers inherent in undercover operations aimed at highechelon Colombian traffickers, especially kidnapping in Col ombi a–a “hot spot”–the Princess' kidnapping and resultant harm to her health was a reasonably foreseeable type of injury at contract formation. The Court recognizes that DEA likely did not specifically foresee that the injury would be multiple sclerosis, but this is not a requirement for a showing of foreseeability. Anchor Savings Bank, FSB, 597 F.3d at 1362–63 (noting that “the particular details of a loss need not be foreseeable,” as long as the mechanism of loss was foreseeable) (quoting Fifth Third Bank v. United States, 518 F.3d 1368, 1376 (Fed.Cir.2008)).
Not the ordinary intrigue of the average contracts case.
SGS-92-X003 v. U.S., No. 97-579C (Ct. of Fed. Claims, filed Aug. 30, 2014)(republished Sept. 26, 2014).
Tuesday, September 23, 2014
On today's show, we read our homeowners insurance policy.
The details are amazing. Lava! Vermin! Falling objects! And, hiding in all the fine print, the story of how insurance works — and what makes it break.
The episode happens to have relevance to our ongoing symposium and even features a conversation with Daniel Schwarcz, one of the symposium contributors. If you listen, you'll hear Prof. Schwarcz admit that, to be sexy, insurance law might just need a little airbrushing.
Monday, September 22, 2014
We interrupt our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure, to bring you this news story about the dangers of non-disclosure. Sunday's New York Times, features a front-page article about people who discover that doctors unknown to them assisted in their surgeries. The doctors are sometimes out of network, and the costs can be astronomical.
For example, the Times story begins by telling of surgery performed on Peter Dreier. Most of the bills that followed were expected, but there was a $117,000 bill from an "assistant surgeon" of whose existence Dreier claims to have been unaware. It sounds like Mr. Dreier was the rara avis who actually took advantage of medical disclosure forms to eductate himself about his options and the costs. And so he was blindsided by the six-digit bill from an apparently undisclosed doctor.
[Just an aside here. $117,000 for three hours of work makes no sense in any context. It makes far less in this context, in which the "primary surgeon" accepted a negotiated fee of $6200.]
The Times also reports on Patricia Kaufman, who received bills totalling $250,000 from two plastic surgeons who sewed up an incision. She had had previous surgeries in which residents sewed up the incisions at a much lower cost. She and her husband claim that they had no idea who these doctors were until the bills started showing up.
According to the Times, insurance companies often pay the bills rather than fight, encouraging the practice. Some states, including New York, are now seeking to regulate such "drive by" surgeries. It is not clear why the insurance companies would pay for services that had not been disclosed in advance. Perhaps this is grist to the anti-disclosurite mill after all, if the out-of-network surgeons were in fact disclosed somehow in the stack of informed consent papers.
Monday, September 15, 2014
Last week, I was sitting in a waiting room while awaiting an oil change. CNN was on (too loudly and inescapably for my tastes, but I know my tastes are idiosyncratic). In urgent tones, the anchors repeatedly warned us that they had disturbing and graphic video that we might not want to watch. And then they played it. And then they played it again. They played it at actual speed; they played it in slow motion. They dissected it and discussed it, with experts and authorities, between commercial breaks and digressions into other "news," for the entire time I waited for the mechanics to finish with my car. It took over an hour, but that's another story . . .
The video showed a now-former NFL player hit a woman in an elevator, knocking her unconscious. The woman was his fiancee, Janay Palmer, and she is now his wife. What are we to conclude based on the grainy images that we watch because we can't bring ourselves to look away? My first conclusion is that Janay Palmer would not want us to be watching. My more tentative conclusion would be that every time we watch that video, we add to her humiliation and degradation.
At what point did Ms. Palmer give her consent to be videotaped, and at what point did she give consent to have this videotape used in this manner? Let's assume that the surveillance video had a useful purpose -- policing the premises to create a record in case a crime was committed. Let's also assume that we all are aware that when we are in public spaces, we know that video cameras might be present. If this video tape were shared with the police and used to prosecute a criminal, I think there would be strong arguments that Ms. Palmer gave implicit consent for the use of the surveillance video for such purposes. But how did the tape get to TMZ and then on to CNN? Did somebody profit from trafficking in the market for mass voyeurism?
It may be that we think that her consent is not required. We all know that we can be digitally recorded whenever we appear in public. That's just life in the big city in the 21st century. But perhaps we think that because we suffer from heuristic biases and believe that we and people we care about will never end up being the one being shown degraded and humiliated over and over again on national television and the Internet. Perhaps if we were less blinkered by such biases we would not ask whether Ms. Palmer has a right not to be associated with those grainy elevator-camera images. We would ask whether we have any right to view them.
Thursday, September 11, 2014
This is big - Governor Jerry Brown just signed a bill into law that would prohibit non-disparagement clauses in consumer contracts. The law states that contracts between a consumer and business for the "sale or lease of consumer goods or services" may not include a provision waiving a consumer's right to make statements about the business. The section is unwaivable. Furthermore, it is "unlawful" to threaten to enforce a non-disparagement clause. Civil penalties for violation of the law range from up to $2500 for a first violation to $5000 for each subsequent violations. (Violations seem to be based upon actions brought by a consumer or governmental authority, like a city attorney. They are not defined as each formation of a contract!) Furthermore, intentional or willful violations of the law subject the violator to a civil penalty of up to $10,000.
We've written about the dangers of non-disparagement clauses on this blog in the past. It's nice that one state (my home state, no less!) is taking some action. Will we see a California effect as other states follow the Golden State's lead? As I've said before, those non-disparagement clauses aren't such a good idea- now would be a good time for businesses to clean up their contracts.
Tuesday, September 9, 2014
We previously blogged about Ellington v. EMI, in which Duke Ellington's grandson essentially claims that EMI is double dipping into foreign royalties because it now owns the foreign subpublishers that are charging fees. The New York Appellate Division held that Ellington's 1961 royalties agreement is unambiguous and allows EMI to do this. Ellington has appealed to the New York Court of Appeals and oral argument is scheduled for Thursday. Oral argument will be streamed live on the Court's website.
Here's the summary of the case from the Court's Public Information Office:
In 1961, big-band jazz composer and pianist Duke Ellington entered into a then-standard songwriter royalty agreement with a group of music publishers including Mills Music, Inc., a predecessor of EMI Mills Music, Inc. (EMI). The agreement designates Ellington and members of his family as the "First Parties," and it defines the "Second Party" as including the named music publishers and "any other affiliate of Mills Music, Inc."
Regarding royalties for international sales, the agreement requires the Second Party to pay Ellington's family "a sum equal to fifty (50%) percent of the net revenue actually received by the Second Party from ... foreign publication" of his songs. Under such a "net receipts" arrangement, the foreign subpublisher retained 50 percent of the revenue from foreign sales and remitted the remaining 50 percent to EMI. EMI would then pay Ellington's family 50 percent of its net receipts, amounting to 25 percent of all revenue from foreign sales. At the time the agreement was executed, foreign subpublishers were typically not affiliated with American music publishers; but EMI subsequently acquired ownership of foreign subpublishers and, thus, fees that had been charged by independent foreign subpublishers are now charged by subpublishers owned by EMI.
In 2010, Ellington's grandson and heir, Paul Ellington, brought this breach of contract action against EMI, claiming EMI engaged in "double-dipping" by having its foreign subsidiaries retain 50 percent of revenue before splitting the remaining 50 percent with the Ellington family. He alleges this enabled EMI to inflate its share of foreign revenue to 75 percent, and reduce the family's share to 25 percent, in violation of its contractual agreement to pay the family 50 percent "of the net revenue actually received by the Second Party from ... foreign publication."
Supreme Court dismissed the suit, saying the parties "made no distinction in the royalty payment terms based on whether the foreign subpublishers are affiliated or unaffiliated with the United States publisher." The term 'Second Party' does not include EMI's new foreign affiliates, it said, because the definition "includes only those affiliates in existence at the time that the contract was executed."
The Appellate Division, Second Department affirmed, saying there is "no ambiguity in the agreement which, by its terms, requires [EMI] to pay Ellington's heirs 50% of the net revenue actually received from foreign publication of Ellington's compositions. 'Foreign publication' has one unmistakable meaning regardless of whether it is performed by independent or affiliated subpublishers." It said the definition of 'Second Party' includes only affiliates "that were in existence at the time the agreement was executed," not "foreign subpublishers that had no existence or affiliation with Mills Music at the time of contract."
Paul Ellington argues the agreement was intended to split foreign royalties 50/50 between EMI and his family, while allowing EMI to deduct a reasonable amount for foreign royalty collection costs, and EMI breached the contract by "diverting" half of the revenue to its own foreign subsidiaries. "Per the plain terms of the Agreement..., EMI is 'actually receiv[ing]' all the revenue, and it must, therefore, split it all equally with plaintiff." He argues the definition of Second Party includes affiliates EMI might acquire in the future, since there is no language limiting the term to affiliates then in existence. In any case, he says the language is ambiguous and cannot be resolved on a motion to dismiss.
Here's the Appellate Division decision in Ellington v. EMI.
Monday, September 8, 2014
In our first post about the Salaita case, we lamented how few posts really wrestled with the contractual (or promissory estoppel) issues in the case. Professor Kar’s post is the most detailed investigation of the contractual issues to appear to date. We also queried whether Salaita's potential constitutional claims against the University of Illinois might turn on the question of whether or not he had a contract with that institution, which is also the institution at which Professor Kar (pictured, at right) teaches. Kar notes:
Critics of the Chancellor’s decision argue that, even if there was no contract, Salaita’s rights to academic freedom vis-à-vis the University of Illinois should apply with equal force at the hiring as at the firing stage.
Professor Kar seems to disagree. He does not rule out entirely the possibility of constitutional and academic freedom claims in the absence of a contract, but he does note that "the existence of a contract should change the nature of the underlying arguments on both sides of this case."
Peofessor Kar's analysis is both passionate, in dealing with an issue that is creating genuine anguish at his institution, and dispassionate, in treating the Salaita case as a forum for the elaboration of his theory of contract law as empowerment. Based on the publicly-available facts, Professor Kar thinks Salaita's contractual claims are quite strong. As he puts it, "If the publicly known facts are all there is to know about this case, then I believe there very likely was a contract in this case, and that it may well have been breached." This is so because (in short), Salaita's offer letter incorporated by reference the American Association of University Professors' (AAUP) principles of academic freedom, and the AAUP interprets those principles to require (at least) warnings hearings before someone in Salaita's position can have his offer letter revoked. At this point, Professor Kar argues, his view of contract as empowerment becomes relevant to the analysis:
The power of the marketplace—in both academic and non-academic contexts—depends on parties’ capacities to make commitments that have certain objective elements to them. In this particular case, this means that the condition of Board of Trustee approval gave the Board some authority to refuse Salaita’s appointment—but not necessarily the authority it subjectively believes it has. If the Board’s unwillingness to approve this appointment reflects an undisclosed and idiosyncratic understanding of its authority, which diverges too sharply from the shared understandings of the national academic community, then there is likely a contract here. And it may well have been breached.
Professor Kar then proceeds to a discussion of the way out for the University of Illinois, which probably would involve a retreat. If the facts are as Professor Kar believes them to be, the Chancellor should "admit that the Salaita decision was in error and state that this matter is—properly speaking—outside of her hands."
I do not disagree with Professor Kar's analysis but I would like to push him on one point that I think is vital in this case and in his theory of empowerment generally. As a normative theory, I find Professor Kar's theory attractive, but I wonder about its applicability to situations of grossly unequal bargaining power, and I believe the Salaita case is such a situation. Professor Kar takes up this issue in earnest at the end of the second part of his work on contract as empowerment On page 73, Professor Kar acknowledges that parties "rarely enter into contracts from perfectly equal bargaining positions" and he notes that, "[i]t would therefore be significantly disempowering if parties were only bound by contracts negotiated in these circumstances."
But parties are routinely bound in circumstances when they have no real bargaining power. In such circumstances, even if Professor Kar is right that contracts law ought to be about empowerment, much of contract law (and this point has been made at great length by Peggy Radin, Nancy Kim, Oren Bar-Gill and others), is currently extremely disempowering for ordinary consumers and even for small businesses when (as in Italian Colors) they have to contract with corporate behemoths.
Professor Kar's assessment of Salaita's contractual claims turns on communal understandings of the contractual obligations that arise in such circumstances:
The University of Illinois is part of a much larger academic community, which extends well beyond the confines of Illinois. Its contractual interactions with other members of this community will thus be subjected to some tests for consistency with national understandings of how these interactions typically work. This includes national understandings about the appropriate relationship between government-appointed entities, like the Board of Trustees, and faculty decisions about hiring at academic institutions that aim to pursue knowledge impartially and in the absence of political influence.
As the conversation that has been taking place on the blogosphere thus far suggests, there may be no national consensus on the subject. Some contracts scholars will agree with Professor Kar; others, like Dave Hoffman, think that Salaita's contractual and promissory estoppel claims are weak, and they are weak precisely because Salaita lacked the bargaining power to protect himself. And if Salaita's case were to go before an adjudicatory body, it will not be decided based on whether contracts ought to be empowering but on whether the already empowered University of Illinois can escape any contractual obligation that might empower Professor Salaita.
Monday, September 1, 2014
Sunday's New York Times has a story by Gretchen Morgenson on the front page of its Business Section that illustrates an additional problem with binding arbitration. Arbitral panels can make arbitrary decisions to exclude evidence that could be outcome determinative. Courts do that as well, but while a court's rulings on evidentiary matters are reviewed for reversible error, it is not clear that courts have jurisdiction to review an arbitral body's evidentiary decisions.
Although Morgenson, a Pulitzer Prize winner, did her best to report all sides of the case, only the plaintiff and his attorney would speak with her. So we can't pretend we have all the facts. But here is what Morgenson reports:
Sean Martin, who works at Deutsche Bank, noticed five years ago that the firm was letting hedge fund clients listen in as analysts shared information about the markets before that information was shared with other investors. Martin reported the conduct at the time and was rewarded with his first ever negative performance review. He was moved out his work group and suffered a pay cut. In August 2012, he decided to pursue an arbitration, claiming retaliation and seeking recovery of lost wages. Under his employment agreement, disputes must be heard by arbitrators associated with the Financial Industry Regulatory Authority (Finra).
Streamlined discovery is supposed to be one of the advantages of arbitration. The purposes of the streamlining is supposed to be efficient resolution of claims. That is not happening in this case. The first hearings took place in March of this year, and at those hearings, the arbitral panel decided to exclude a number of crucial pieces of evidence that Martin sought to introduce. In addition, the Bank has asked that hearings for the case go on into 2105, six years after the alleged conduct took place and well over two years after Martin sought arbitration.
Martin was so dissatisfied with the panel's discovery decisions that he asked all three aribtrators to withdraw. They refused to do so. Martin then brought an action in the New York State Supreme Court (pictured above), seeking a stay of the arbitration proceedings and the removal of the panel. Mr. Martin's lawyer has done arbitrations before Finra before. It's not as if he is hostile to arbitration in principle. But this panel has gone "off the rails," he claims.
We'll see if the legal system can provide a remedy.
Tuesday, August 26, 2014
Intervening Illegality of Underlying Promises Does Not Cause Contract to Fail for Lack of Consideration; Does Not Breach Warranty
What happens when a party to an agreement terminates and begins to make quarterly termination (liquidated damage) payments as promised and then, while payments are being made, a law is past that makes the underlying promised performance illegal? The parties are sorting this out in a case against Orbitz.
In 2005, Orbitz and Trilegiant entered into an agreement (“Master Service Agreement,” or “MSA”) for Orbitz to provide “DataPass” marketing services. Pursuant to the MSA, Orbitz marketed Trilegiant’s services to Orbitz customers. If a customer enrolled in Trilegiant’s services, Orbitz would transfer the customer’s billing and credit card info to Trilegiant and, thereafter, Trilegiant would charge the customer and pay Orbitz a commission. As a result, customers were charged for Trilegiant’s services without ever affirmatively providing their credit card information to Trilegiant (though, they had arguably agreed to be charged when purchasing travel arrangements on the Orbitz site – I leave that part to Nancy Kim).
Customers eventually complained about their credit cards being charged without their knowledge. In 2007, Orbitz notified Trilegiant that it would be terminating the MSA. The MSA allowed for early termination but required Orbitz to make a series of quarterly termination payments (totaling over $18 million) through 2016.
In 2010, Congress enacted the Restore Online Shopper Confidence Act (“ROSCA”), which made the DataPass marketing practice illegal. Orbitz stopped making the quarterly termination payments to Trilegiant. Trilegiant sued Orbitz in New York and a recent decision of the trial court (Supreme Court, New York County, Ramos, J.) granted Trilegiant summary judgment on 3 of Orbitz’s 17 affirmative defenses.
First, the court rejected Orbitz’s defense of lack of consideration. The court explained:
Orbitz contends that there had to be consideration for each quarterly termination payment and that Trilegiant's continued use of DataPass is necessary to its claim against Orbitz. Orbitz argues that the consideration for the termination payments was supposed to be Trilegiant's forfeit of potential earnings, earnings that Trilegiant cannot forfeit if it is not in the business of DataPass (see Orbitz's Memorandum of Law at 8-9).
The law does not support Orbitz's argument. It is well settled that an agreement "should be interpreted as of the date of its making and not as of the date of its breach" (X.L.O. Concrete Corp. v John T. Brady and Co., 104 AD2d 181, 184 [1st Dept 2009]). Additionally, "[i]f there is consideration for the entire agreement that is sufficient; the consideration supports every other obligation in the agreement" (Sablosky v Edward S. Gordon Co., 73 NY2d 133, 137 ). A single promise "may be bargained for and given as the agreed equivalent of one promise or of two promises or of many promises. The consideration is not rendered invalid by the fact that it is exchanged for more than one promise" (2-5 Corbin on Contracts § 5.12).
Considerations of public policy also support this conclusion, because a promisor should not be permitted to renege on a promise either because that specific promise lacks textually designated consideration or because the promisor wants to avoid performance of multiple obligations when the promisee has already performed and has no further obligations concurrent with the promisor's performance (see 15 Williston on Contracts §45:7 [4th ed.]).
While Orbitz contends that Trilegiant has been unable to forfeit earnings from new DataPass customers since it ceased the practice in January 2010, that fact has no bearing on whether there was consideration for the termination payment provision in the MSA. The termination payments were part of the original MSA (see MSA at Ex. B), and Trilegiant is correct when it asserts that the existence of consideration for the MSA itself, whether "consist[ing] of either a benefit to the promisor or a detriment to the promisee" (Weiner v McGraw-Hill, 57 NY2d 458, 464 ), is not a disputed material fact in this case.
Additionally, courts do not look to the adequacy of consideration provided that there was consideration, "absent fraud or unconscionability" (Apfel v Prudential-Bache Sec. Inc., 81 NY2d 470, 476 ). There are no allegations that the MSA was fraudulently agreed upon or that it is unconscionable. Further, this Court has already held that the termination payments in the MSA do not constitute a penalty or unenforceable liquidated damages (see NYSCEF Doc. No. 97 at ¶5, Order entered 12/24/2013).
As this Court has previously stated, if these sophisticated parties to the original MSA wanted Orbitz's promise to pay each quarterly termination payment to be contingent on Trilegiant's continued use of DataPass and subsequent forfeiture of revenues, they could have so stipulated in the MSA (see NYSCEF Doc. No. 89 at p 6, Entered 10/7/2013). This Court finds that Orbitz's promise to pay all quarterly termination payments is supported by the same bargained-for consideration given by Trilegiant in exchange for Orbitz's various promises in the MSA as a whole.
Second, the court rejected Orbitz’s argument that Trilegiant lacked standing because it could not show that it was “ready, willing and able” to perform its obligations. The court reasoned:
Orbitz argues that its early termination in 2007 triggered the MSA liquidated damages remedy and that even though Trilegiant was relieved of its obligation to perform it still had to show it was able. Orbitz further argues that Trilegiant has adduced "no evidence whatsoever to prove that it was ready, willing, and able to perform its obligations under the MSA as of the time Defendants stopped making payments in 2010" (Orbitz's Memorandum of Law at p 10).
Whether the remedy constitutes liquidated damages or a separate provision of the MSA that establishes new obligations for Trilegiant and Orbitz whereby Orbitz is obligated to make quarterly payments and Trilegiant essentially is obligated only to collect them, is irrelevant in light of the fact that Trilegiant claims only general damages, which "include money that the breaching party agreed to pay under the contract" (See Biotronik A.G. v Conor Medsystems Ireland, LTD 22 NY3d 799, 805,  citing Tractebel Energy Marketing, Inc. v AEP Power Marketing, Inc., 487 F3d 89, 109 [2d Cir 2007]).
Trilegiant is not required to show its ability to perform through September 30, 2016, the date of the final quarterly termination payment. Even if, arguendo, Trilegiant was required to show it could have performed its obligations under the MSA, Orbitz's argument that those obligations would have included an ability to perform DataPass is unpersuasive. Whether Exhibit B of the MSA constitutes liquidated damages or a separate provision of the contract, Trilegiant is not textually obligated to do anything except not market to Orbitz's customers.
Furthermore, liquidated damage clauses benefit both potential plaintiffs "who [are] relieved of the difficult, if not impossible, calculation of damage, item by item" and potential defendants "who [are] insulated against a potentially devastating monetary claim in the event" of a breach and "[t]hus, public policy is served by the implementation of such clauses" (X.L.O. Concrete Corp. at 186).
Finally, the court rejected Orbitz’s argument that Trilegiant violated a warranty provision in the MSA in which the parties promised that performance of the agreement did not violate any law. The court reasoned:
While Orbitz contends that Trilegiant and similar DataPass practitioners "violated the rights of millions of Americans" (Orbitz's Response at 13), ROSCA does not refer to the violation of consumers' "rights" when it describes the actions of third party sellers, such as Trilegiant, who purchased consumers' credit card information (15 U.S.C. §8401 at Sec. 2). ROSCA's findings instead refer to DataPass as something that undermined consumer confidence and "defied consumers' expectations" (id. at Sec. 2(7)).
This Court has already held that ROSCA does not make any violating contracts unenforceable and the MSA is enforceable despite DataPass being presently illegal (see NYSCEF Doc. No. 89 at p 5, Entered 10/7/2013). Moreover, as this Court has already explained, "the primary purpose of ROSCA was to protect consumers (15 U.S.C. §8401), not marketers that were using DataPass as a tool" (NYSCEF Doc. No. 89 at p 4, Order entered 10/7/2013, citing Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 127 ).
Orbitz claims that Trilegiant has failed to show that it was not in violation of Section 6.1 of the MSA, based on the concept that an "express warranty is as much a part of the contract as any other term" (CBS, Inc. v. Ziff-Davis Pub. Co., 75 NY2d 496, 503 ).
A breach of warranty claim is established "once the express warranty is shown to have been relied on as part of the contract," and the claiming party then has "the right to be indemnified in damages for its breach [and] the right to indemnification depends only on establishing that the warranty was breached" (id. at 504).
Orbitz argues that there are disputed issues of fact as to Trilegiant's alleged breach of warranty, but Orbitz has not alleged damages for which it could be indemnified nor has it alleged any evidence of Trilegiant's breach of warranty that is not rooted in ROSCA's condemnation of DataPass. This Court has already held that ROSCA's enactment and findings do not relieve Orbitz from its obligations under the MSA, holding that "as a general rule also, forfeitures by operation of law are disfavored, particularly where a defaulting party seeks to raise illegality as a sword for personal gain rather than a shield for the public good" (NYSCEF Doc. No. 89 at p 4, Entered 10/7/2013, quoting Lloyd Capital Corp. at 128 [internal quotations omitted]).
Orbitz tries to use ROSCA's findings that DataPass was bad for consumers and the economy and Trilegiant's cessation of DataPass activity as evidence of conduct that would violate the MSA Section 6.1. These allegations do not create a question of fact. This Court has already held that "ROSCA does not provide that any violating contracts are rendered unenforceable or that its provisions were intended to apply retroactively" (see NYSCEF Doc. No. 89 at p 5, Entered 10/7/2013), and Trilegiant ceased DataPass almost a year before ROSCA made the practice illegal.
A case worth watching.
Trilegiant Corp. v. Orbitz, LLC, 2014 NY Slip Op 24230 (Sup. Ct. N.Y. Cty. Aug. 20, 2014)(Ramos, J.).
Friday, August 22, 2014
This story from the WSJ Law Blog falls right into the ContractsProf Blog sweet spot:
In October 2002, Los Angeles dentist Dr. Craig D. Gordon won a $1,605.73 default judgment against a 22-year-old former patient who was allegedly fitted with porcelain fillings to replace silver ones but never paid the bill.
The patient was Kim Kardashian, and nearly a dozen years later, Dr. Gordon has finally gotten his money back – with interest and an extra $1,500 thrown in. The twist is the money didn’t come from the now (in)famous Ms. Kardashian but from a California attorney who bought the uncollected judgment for $5,000 in an online auction that ended Thursday.
JudgmentMarketplace.com, a three-year-old site that gives creditors a forum for hawking uncollected debts, said the transaction marked the first time in the company’s history that the selling price for a listed judgment exceeded the total value of the principal and interest.
“Judgments usually sell for only pennies on the dollar,” said the site’s founder, Shawn Porat, a Manhattan resident.
He said the Kardashian judgment may have commanded a premium because of its novelty value. In other words, for $5,000, you can tell people at a cocktail party that a Kardashian is indebted to you.
Ms. Kardashian’s attorney, Todd Wilson, told Law Blog that she “never sought or received treatment by Dr. Gordon of any kind.”
The buyer, said Mr. Porat, could also expect the judgment to increase in value as more interest accrues. Under California civil procedure code, judgments automatically expire after 10 years, but before time runs out, a creditor may file a request for a 10-year renewal with the original court. And there’s no limit to how many times you can extend it.
“Although I wish she had just paid her bill like most of my clients do, I’m really glad to finally have closure on this incident,” Dr. Gordon said in a statement.
Interested in purchasing some celebrity debt of your own? WSJ Law Blog reports:
JudgmentMarketplace.com is also listing a $9 million wrongful death judgment against O.J. Simpson on behalf of Ronald Goldman’s mother, who is asking for at least $1 million. The 17-year-old judgment has accumulated more than $15 million in interest, according to the site.
Thursday, August 21, 2014
A lot of ink has been spilled over this subject, and I don't have much to add, except to note that I have not seen a very many good discussions of the contract issues.
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.
The main argument in the blogosphere is over whether or not the U of I's conduct is a violation of academic freedom. But there is also a secondary argument over whether Professor Salaita has a breach of contract of promissory estoppel claim against the U of I. The list of impressive posts and letters on the whole Salaita incident include:
Michael Dorf on Verdict: Legal Analysis and Commentary from Justia
Finally, Dave Hoffman stepped in on Concurring Opinions to address the promissory estoppel issues and then answers Michael Dorf's response
Hoffman makes strong arguments that there was no breach of contract here, because the offer was clearly conditional on Board approval. There are arguments that the promise breached was a failure to present Salaita's employment to the Board, but the remedy for that breach would simply be presentment, at which point both the claim and the appointment would go away (unless U of I has a change of heart on the matter).
We would have to know more about the process to make a more educated guess about whether or not a breach of contract claim here could succeed. I think it is relevant that, at the point Salaita was informed that the offer was rescinded, the Board could not meet before his employment would have begun. I suspect that his courses were already scheduled and that students had, at least provisionally, registered for them. I wonder if there were any announcements on the U of I website crowing about their recent hires. All of this would be relevant, it seems to me, to the state of mind of the parties regarding whether or not a contract had been made. It would be very sad for all of us in academia if it turned out to be the case that our offer letters mean nothing until the Board has spoken, as acceptance of a position usually involves major life changes, including giving notice at current jobs, moving to a new city, selling and buying a residence, etc.
I have no doubt that Dave Hoffman is right that promissory estoppel claims rarely succeed. I do think that some versions of the facts presented here suggest that this one might be a winner nonetheless or, as Hoffman suggests, is the kind of claim that is worth bringing at least in order to make the threat of discovery on the subject a strong inducement to the U of I to settle the case. But the remedy for promissory estoppel is probably not really the remedy Salaita seeks.
Professor Salaita's claims -- his academic freedom and constitutional claims -- go beyond the issues of contract and promissory estoppel. A lot has been written on this situation, and I haven't had a chance to read everything carefully, but I have yet to see a clear discussion of whether those claims hinge on Professor Salaita's contractual claims. It seems likely to me that if he had no contract, then he had no free speech or academic freedom rights vis a vis the U of I. And I don't think a promissory estoppel claim would get him such protections either. Or do people think that universities have a generalizable erga omnes duty to protect academic freedom?
Dave Hoffman has an additional post up on Concurring Opinions here.
Tuesday, August 19, 2014
Plaintiff sued the YMCA for injuries sustained when he slipped and fell on stairs that he alleged were negligently maintained. First, let’s get this out of the way:
The YMCA argued that plaintiff was contractually barred from seeking damages against the YMCA because plaintiff had voluntarily signed an exculpatory clause in his membership agreement. That clause provided:
I AGREE THAT THE YMWCA WILL NOT BE RESPONSIBLE FOR ANY PERSONAL INJURIES OR LOSSES SUSTAINED BY ME WHILE ON ANY YMWCA PREMISES OR AS A RESULT OF A YMWCA SPONSORED ACTIVITIES [SIC]. I FURTHER AGREE TO INDEMNIFY AND SAVE HARMLESS THE YMWCA FROM ANY CLAIMS OR DEMANDS ARISING OUT OF ANY SUCH INJURIES OR LOSSES.
A New Jersey trial court granted summary judgment dismissing the complaint. An appellate court reversed. The appellate court framed the issue as “whether a fitness center or health club can insulate itself through an exculpatory clause from the ordinary common law duty of care owed by all businesses to … invitees[.]” The court held that it could not.
While the New Jersey Supreme Court upheld an exculpatory clause in Stelluti v. Casapenn Enters., Inc., 203 N.J. 286 (2010), that case was characterized as involving allegations of injury based upon risks inherent in the activity (bike riding in a spin class). In Stelluti, the New Jersey Supreme Court did not specifically address or decide whether an exculpatory clause may waive ordinary negligence.
Given the expansive scope of the exculpatory clause here, we hold that if applied literally, it would eviscerate the common law duty of care owed by defendant to its invitees, regardless of the nature of the business activity involved. Such a prospect would be inimical to the public interest because it would transfer the redress of civil wrongs from the responsible tortfeasor to either the innocent injured party or to society at large, in the form of taxpayer-supported institutions.
The appellate court also noted that the agreement was presumably a contract of adhesion.
This is a case worth following if appealed to the New Jersey Supreme Court. And a good teaching case because it lays bare the tension between freedom to contract and overriding concerns about general public welfare.
Walters v. YMCA, DOCKET NO. A-1062-12T3 (Superior Ct. of N.J. App. Div. Aug. 18, 2014).
Now there's a headline that will make Fox News chortle with glee. The Al Jazeera news network purchased Al Gore's Current TV channel for $500 million. Gore's suit alleges that Al Jazeera still owed $65 million on the purchase price.
According to this report on the Guardian Liberty Voice, Al Jazeera may be withholding the final payment in an attempt to negotiate a discount on the sale price. According to the report, Al Jazeera has not garnered as many viewers as it hoped -- an anemic average of 17,000 during prime time, as compared with 1.7 million for Fox News and nearly 500,000 for CNN.
But with new crises erupting daily in the Middle East, things are looking up for all three.
Wednesday, August 13, 2014
I love concert tour riders -- those sometimes lengthy contract terms that reveal all of a band's idiosyncratic backstage requests. The most famous rider term is, of course, Van Halen's requirement of no brown M&Ms. And we've blogged about the explanation for this peculiar request more than once: here and here.
WNYC's John Schaefer hosted an extended discussion of tour riders on Soundcheck. My favorite is Iggy Pop's request: "One monitor man who speaks English and is not afraid of death."
The Brooklyn band Parquet Courts asked for:
- 1 bottle of communion grade red wine
- 1 bottle of white wine that would impress your average non-wine-drinking American
- 1 bottle of lower-middle shelf whiskey – cheap but still implies rugged masculinity
- Mixers for aforementioned mid-level whiskey, of slightly higher quality than the whiskey
- A quantity of “herbal mood enhancer”
- 1 copy of newspaper with the most interesting headline/front page picture (comic section must feature Curtis)
You can listen to the show here:
Today's New York Times features an article aptly titled (in the print version) "Under the Microscope." The article describes researchers' attempts to grapple with the ethical issues relating to projects such as Facebook's experiment on its users, about which we have written previously here and here. According to the article, researchers both at universities and at in-house corporate research departments are collaborating on processes to formulate ethical guidelines that will inform future research that makes use of users' information.
The article states that Facebook has apologized for its emotion experiment, in which it manipulated users' feeds to see if those users' own posts reflected the emotional tone of the posts they were seeing. It's not really clear that Facebook apologized for experimenting on its users. As quoted on NPR, here is what Facebook's Sheryl Sandberg said on behalf of the company:
This was part of ongoing research companies do to test different products, and that was what it was; it was poorly communicated . . . . And for that communication we apologize. We never meant to upset you.
As the Washington Post noted, Sandberg did not apologize for the experiement itself. Seen in its full context, Sandberg's statement is more akin to OKCupid's in-your-face admission that it experiements on its users, about which Nancy Kim posted here.
But the Times article focuses on Cornell University's Jeffrey Hancock, who collaborated with Facebook on the experiment. He seems to have no regrets. For Hancock, researchers' ability to data mine is to his field what the microscope was to chemists. Or, one might think, what the crowbar was to people doing research in the field of breaking and entering. Hancock is now working with people at Microsoft Research and others to lead discussions to help develop ethical guidelines applicable to such research.
The Times quotes Edith Ramirez, Chair of the Federal Trade Commission on the subject. She says:
Consumers should be in the driver’s seat when it comes to their data. . . . They don’t want to be left in the dark and they don’t want to be surprised at how it’s used.
By contrast, here is the Times's synopsis of Professor Hancock's views on how the ethical guidelines ought to be developed:
Companies will not willingly participate in anything that limits their ability to innovate quickly, he said, so any process has to be “effective, lightweight, quick and accountable.”
If the companies are subject to regulation before they can experiment on their users, it does not really matter whether or not they willngly participate. And the applicable standards have already been established under Institutional Review Board (IRB) rules. Significantly, as reported here in the Washington Post, although Professor Hancock works at Cornell, his participation in the Facebook study was not subject to Cornell's IRB review. In our previous posts, we have expressed our doubt that the Facebook study could survive IRB review (or that it yielded the information that it was supposedly testing for).
The Times article does not indicate that any of the people involved in devising rules for their own regulation have any expertise in the field of ethics. Why is letting them come up with their own set of rules in which they will "willingly participate" any better than expecting the wielders of crowbars to design rules for their safe deployment?
Monday, August 11, 2014
Presidential Executive Order Refuses Government Contracts to Companies that Mandate Employee Arbitration
President Obama today signed a new Fair Pay and Safe Workplaces Executive Order refusing to grant government contracts of over a million dollars to companies who mandate their employees arbitrate disputes involving discrimination, accusations of sexual assault, or harassment. This new order mirrors protections Congress already provided to employees of Defense Department contractors in 2011 in the so-called “Franken amendment.” The order also requires prospective federal contractors to disclose prior labor law violations and will instruct agencies not to do business with egregious violators.
While the executive order is limited in its scope (only protects employees who work for companies with large government contracts and only applies to arbitration of certain kid of claims), it is a step toward the Arbitration Fairness Act, which would prohibit mandatory arbitration more braodly. More here.