ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, August 29, 2016

“Trophy hunting” contracts – unenforceable for reasons of public policy

Allow me to highlight my most recent article on the questionable ecosystem viability and contractual common law validity of so-called “trophy hunting” contracts. With these contracts, wealthy individuals in or from, often, the Global North contract for assistance in hunting rare animals for “sport.” Often, these hunts takes place in the Global South where targeted species include giraffes, rhinos, lions, and other vulnerable if not outright threatened or endangered species.  Images
A famous example of this is Minnesota dentist Walter Palmer killing “Cecil the Lion” in 2015 causing widespread outcry in this country and around the world. Trophy hunting also takes place in the USA and Canada, where targeted animals include polar bears, grizzly bears, and big horn sheep.

Trophy hunting should be seen on the background of an unprecedented rate of species extinction caused by several factors. Some affected species are already gone; others are about to follow. Western black rhinoceroses, for example, are already considered to have become extinct in 2011.   The rest of the African rhinoceros population may follow suit within the next twenty years if not sufficiently protected. In the meantime, more than 1.2 million “trophies” of over 1,200 different kinds of animals were imported into the United States just between 2004 and 2015. In addition to the extinction problem, the practice may also have ecosystem impacts because, among many other factors, the trophies often stem from or consist of alpha animals.

UnknownOf course, no one is arguing that rare species should be driven to extinction, in fact, quite the opposite: both trophy hunters and those opposing the practice agree that such species should be conserved for the future. However, the question lies in how to do so. Some argue that trophy hunting creates not only highly needed revenue for some nations, but also brings more attention to the species conservation issue.

I argue that at least until there is much greater certainty than what is currently the case that the practice truly does help the species in the long run (and we don’t have much time for “the long run”!), legal steps must be taken against the trophy hunting. Even when positive law such as hunting laws and/or the Endangered Species Act (“ESA”) do not address the issue (yet), common law courts may declare contracts that have proved to be “deleterious effect upon society as a whole,” “unsavory,” “undesirable,” “nefarious,” or “at war with the interests of society” unenforceable for reasons of public policy. Images-2

In the case of Cecil, African lions had been proposed for listing under the ESA when the animal was killed, but the listing did not take effect until a few months later. The case, others like it, and several studies demonstrate that a sufficient and sufficiently broad segment of the population have come to find the killing of very rare animals so reprehensible that common law courts can declare them unenforceable should litigation on the issue arise. This has been the case with many other contracts over time. The same has come to be the case with trophy hunting. As long as doubt exists as to the actual desirability of the practice from society’s point of view – not that of a select wealthy individuals – the precautionary principle of law calls for nations to err on the side of caution. The United States prescribes to this principle as well.

The article also analyzes how different values such as intrinsic and existence values should be taken into account in attempts to monetize the “value” of the practice. Instead of the here-and-now cash that may contribute to local economies (much revenue is also lost to corruption in some nations), other practices such as photo safaris are found by several studies to contribute more, especially in the long term. (Note that Walter Palmer paid a measly USD 50,000 for his contract with the landowner and local hunting guide).

Finally, the article draws in arguments under the public trust doctrine and the state ownership of wildlife doctrine. Ethically, these animals belong to all of us (or none of us). Images-1

Trying to save rare animals by shooting them simply flies in the face of common sense. It also very arguably violates notions of national and international law.

August 29, 2016 in Commentary, Current Affairs, Famous Cases, In the News, Legislation, Recent Scholarship, Science, Travel, True Contracts | Permalink | Comments (0)

Thursday, August 25, 2016

Rent-to-Own Contracts: Caveat Emptor or Unconscionable Behavior?

The New York Times reports here (paid access) on the increasing use of so-called “rent-to-own” housing contracts. Under these contracts, companies from big Wall Street giants to a slew of small landlords hoping to strike it rich lend or, should I say, purport to sell homes to tenants who contractually commit to make all repairs on the homes no matter how major or minor (yes, you read that right: all repairs… and it gets more extreme than that, read on!). Typically, tenants under such contracts are not told what repairs are needed, yet face a contractual deadline for making sure that the houses in question are brought up to local code. Unlike most typical home purchases, rent-to-own contracts do not require the tenant/buyer to obtain an independent home inspection.  Images-2

We probably all know how many things can go wrong with older homes, even newer ones. Examples of how bad things can go in this context thus abound. One tenant moved into a home not having been told that it had several unresolved building code violations and had to remain vacant by city order. Another moved into a home that had no heat, no water, and major problems with its sewage system that led to nearly $10,000 in repairs (many of these homes have been purchased by the lender for less than $10,000 and are not worth very much more than that, if any). A third example describes a woman moving into a home with her three children and partner in Michigan, living in the house during cold winter with the only heat sources being one electric heater and a wood-burning stove in the kitchen, only to be evicted and charged $3,100 in overdue rent after she stopped paying rent because of the heat issue.

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People who accept these kinds of contracts often do not qualify for mortgages. Banks have virtually stopped making mortgages on homes worth less than $100,000, which leaves millions of people with few options for - now or one day - owning their own homes.

One company that rents homes on a rent-to-own basis does so “as is,” calling the contracts “hybrid leases” that allow people to build up “implied equity.” If tenants are evicted during the contract (typically of a seven-year-duration), they get no credit for money spent on repairs or renovations. Neither do they receive any equity unless they actually end up buying the home at the end of the contract term. At that point, they still need financing for the home which, as mentioned, many people just cannot obtain.

A number of legal questions arise in this context, among them several contractual ones such as the role of caveat emptor vs. the violation of a possible duty to disclose. If the landlords know of the problems from which many of these houses suffer, should they disclose this knowledge? On the other than, shouldn’t these potential (long-term) buyers be presumed to have at least enough savvyness to not promise to bring a home that they do not own outright up to Code by a certain deadline? Then again, are landlords fraudulent in their dealings with these folks when the landlords require such potentially extensive repairs when, as the owners of the homes, they presumably if not actually have actual knowledge of the problems from which these houses suffer? What about the statement that renters get “implied equity?” What in the world does that mean, if anything? Do low-income folks that may never have been homeowners truly understand what it means to bring a home “up to Code” and buying “as is?” Does it matter? And what about the doctrine of unconscionability, which is alive and well in some states such as California? If nothing else, this case seems to smack of both procedural and substantive issues. Images

In some states, landlords are required to keep homes and apartments in habitable condition. But rent-to-own contracts have, for good reason, been said to reside in a gray area of the law: are they rental contracts? - Or purchase contracts? Or something else?

Further, rent-to-own contracts may, to some extent, resemble contracts for deeds. However, the latter are subject to basic consumer-lending regulations such as the Federal Truth in Lending Act.

The housing market again seems to host highly questionable practices. This story almost reads as a contract or property law issue-spotting exam. Meanwhile, housing sharks seem to be swimming relatively freely in some areas of the nation.

For further information, see Alexandra Stevenson and Matthew Goldstein, Rent-to-own Homes: A Win-Win for Landlords, a Risk for Struggling Tenants, the New York Times, Aug. 21, 2016.

August 25, 2016 in Commentary, Current Affairs, In the News, Legislation, Miscellaneous, True Contracts | Permalink | Comments (0)

Wednesday, August 3, 2016

Leveling the Playing Field in the MA Job Market

Yesterday, Stacey noted how employers should be careful not to be too greedy when dealing with employees. Another example of the backlash – judicial or legislative – that may be the result if employers overstep what ought to be reasonable limits in interactions with their employees is a new law in Massachusetts that prohibits employers from asking job candidates about their salary history as part of the screening process or during an interview.

Why indeed should they be able to do so?! In a free market, freedoms cut both ways: just as an employee can, of course, not be sure to get any particular job at any particular salary, the employer also cannot be sure to be able to hire any particular employee! There is no reason why employers should enjoy financial insight about the employee when very often, employees don’t know about the salaries at the early stages of the job negotiation process. Both parties should be able to come to the negotiation table on as equal terms as possible, especially in this job market where employers already often enjoy significant bargaining advantages.

Massachusetts also requires Commonwealth employers to pay men and women equally for comparable work.

August 3, 2016 in Commentary, Current Affairs, E-commerce, Labor Contracts, Legislation | Permalink | Comments (0)

Tuesday, July 5, 2016

Ticket Scalping Machines – An Intersection between Contracts and Criminal Law

Have you ever tried buying concert tickets right when they were made available for sale on the Internet, only to find out mere minutes later that they were all sold out? Or, for that matter, highly coveted camping reservations in national or some state parks?

Where once, we all competed against the speed of each other’s fingertips and internet connections, nowadays, “ticket bots” quickly snatch up tickets and reservations making it virtually impossible for human beings to compete online. Ticket bots are, you guessed it, automatic computer programs that buy tickets at lighting speed. They can even read “Captcha boxes;” those little squiggly letters that you have to retype to prove that you are not a computer. Yah, that didn’t work too well for very long.

“A single ticket bot scooped up 520 seats to a Beyonce concert in Brooklyn in three minutes. Another snagged up to more than 1,000 U2 tickets to one show in a single minute, soon after the Irish band announced its 2015 world tour.”

Ticket bots scoop up tickets for scalpers who then resell them on other websites, marking the tickets up many times the original price. (I’m actually not saying that state and national parks are cheated that way, maybe camping reservations in those locations are just incredibly popular as hotel prices have increased and incomes are staggering. I personally used to be able to, with t Imageshe help of a husband and several computers, make campground reservations for national holidays, but those days are long gone…”we are now full.”).

Ticket bots are already illegal in more than a dozen states. New York is considering cracking down on this system as well. However, the most severe penalty under New York law is currently fines in the order of a few thousand dollars where ticket scalpers make millions of dollars. A new law proposes jail time for offenders. This is thought to better deter this type of white-collar crime in the ticket contract market.

July 5, 2016 in Commentary, Current Affairs, E-commerce, In the News, Legislation, Web/Tech | Permalink | Comments (0)

Monday, June 13, 2016

Airlines Not Required to Honor Pricing Glitches

Stories such as this [https://www.washingtonpost.com/lifestyle/travel/i-flew-to-abu-dhabi-for-265-round-trip-heres-how-you-can-do-the-same/2016/06/07/fc33cbea-29a3-11e6-b989-4e5479715b54_story.html] about finding incredibly cheap airlines to both national and international destinations because of airline computer pricing mistakes (real or otherwise…) have become commonplace. In 2012, the Department of Transportation established clear rules against changing the price of a ticket after purchase.  But in a new decision by the U.S. Department of Transportation, that rule will no longer be enforced:

“As a matter of prosecutorial discretion, the Enforcement Office will not enforce the requirement of section 399.88 with regard to mistaken fares occurring on or after the date of this notice so long as the airline or seller of air transportation: (1) demonstrates that the fare was a mistaken fare; and (2) reimburses all consumers who purchased a mistaken fare ticket for any reasonable, actual, and verifiable out-of-pocket expenses that were made in reliance upon the ticket purchase, in addition to refunding the purchase price of the ticket.

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Travelers’ websites thus now recommend that people hold off making further travel plans until a ticket and confirmation number have actually been issued. Some have further said about the glitch fares that “[t]ravel is not something that is only for the elite or [people] from certain economic brackets.” Of course, it shouldn’t be, but with the deregulation of the airline industry and steadily increasing prices and fees, history seems to be repeating itself: air travel is, for many, becoming unaffordable. This in spite of record-breaking profits for the airline industry benefiting from low oil prices and, I want to say of course, fares increasing, holding steady or certainly not decreasing very much.  Airline executives say they are sharing the wealth with passengers by investing some of their windfalls into new planes, better amenities and remodeled terminals. They're also giving raises to employees and dividends to investors.  Right… And whereas some years have been marked by bust, many more have been booming for the airlines.

Given that, why would the DOT be amenable to help out the airlines, and not passengers? Under contract law, mistakes that are not easily “spottable” have, traditionally, not been grounds for contract revocation. If one considers the contract to have been executed when the airline accepts one’s online offer, why should the airline, absent a clear error or other mitigating factors, not be expected to follow the common law of contracts as other parties will, depending on the circumstances, of course, likely have to? That beats me.

Some airlines are, however, choosing the honoring the mistake fares. Others don’t. Bad PR, you say? That also does not seem to matter. The most hated airline in the U.S. a few years back – Spirit Airlines – was also (at least then) the most profitable.

Hat tip to Matt Bruckner of Howard University School of Law for bringing this story to my attention.

June 13, 2016 in Current Affairs, E-commerce, Legislation, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, May 19, 2016

Gasgate

Another one bites the dust. GM is the most recent car company having to admit Unknown that it has reported overly optimistic figures about the gas mileage of, in this case, some of its 2016 SUVs sold in retail trade. Before GM, there was obviously VW, but also Mitsubishi, Hyundai, and Ford, all in the span of the past two years.

GM is temporarily halting sales of about 60,000 new 2016 SUVs because the vehicles' labels overstated their fuel efficiency. The 1-2 miles per gallon mileage overstatement was the result of improper calculations, according to GM. The company plans to compensate owners for the difference in miles per gallon and announce the program in the coming week.

Does this suffice as a remedy? Arguably, no one buys an SUV because of its low gas mileage, so in this case in contrast to the VW “dieselgate,” an argument that a customer bought a car because of its fuel efficiency is less plausible. But should that let GM off the hook in this case simply by saying that it will compensate for the fuel difference? How can an accurate prediction of what that will be over the time the SUV owners keep the car even be made? - For presumably, GM is not only planning to compensate the owners for the past difference, thinking that owners can now simply sell the cars if they are no longer satisfied with them? That seems unfair to the buyers as it is common knowledge that one cannot recover the value paid for a brand new case as with these 2016 models. Should criminal liability lie? OK, perhaps not for the 1-2 mile difference, but what about the systematic fraud committed by VW? Shouldn’t someone be held criminally liable for that?

Of course, a class-action lawsuit has been brought by some buyers. Has time come for everyone – the EPA, car makers, and car buyers – to realize that there is really only so much that can be done with the fuel efficiency of regular-engine cars? After all, hybrids and now electric cars are widely available and will probably cover the needs of the vast majority of car buyers, few of whom really need an SUV. They get much better “fuel” mileage than cars with traditional engines. Still, extreme consumer fraud is committed by at least some (or one…) of these car makers. Reckoning time seems to have come.

May 19, 2016 in Current Affairs, Famous Cases, In the News, Legislation, Science | Permalink | Comments (0)

Wednesday, May 18, 2016

Overtime Pay Regulations Expanded

The Department of Labor is finalizing a rule that will extend overtime pay to 4.2 million more Americans currently not eligible for such pay under federal law. This is expected to increase wages for workers by $12 billion over the next ten years and thus contribute to the relatively stagnant wages experienced by the majority of American workers in spite of six years of continual job growth and, now, solid profits by many companies.

The earnings situation did not use to be so poor for so many people. In fact, in 1975, 62% of full-time workers qualified for overtime pay. Today, only a measly 7% do.

As Henry Ford and others knew a long time ago: more money to more people will boost the economy for everyone, including businesses.

Read more about the ruling here Unknown
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May 18, 2016 in Labor Contracts, Legislation | Permalink

Wednesday, May 11, 2016

Banks and Class Action Prohibitions as “Contract Gotchas”

Contracts preventing consumers from filing class-action lawsuits against banks may soon be illegal if a proposed ruling by the Consumer Financial Protection Bureau takes effect. A hearing on the ruling will be held on Thursday, May 12, 2016.

For quite some time, clauses requiring consumers to arbitrate disputes with banks and banning class action lawsuits against banks in cases of disputes have been common. According to a prominent attorney to testify at Thursday’s hearing, one of the effects of required arbitration has been to make class action lawsuit highly unlikely.  Of course, a contractual clause outright prohibiting class action suits means that if a consumer wants to litigate the dispute and arbitration, he or she would have to do so in an individualized suit. Because of the low amounts typical at issue in bank-v-consumer disputes, such clauses have had the effect of preventing litigation. Even if it comes to litigation between banks and consumers, “consumers can easily be outgunned” by savvy banks who additionally are said to “like to drag things out,” a problem when consumers at the same time have to take time off from work to litigate.

The proposed rule would not ban arbitration clauses. Rather, it would prevent contract clauses from including language that bans consumers from joining class-action cases. Such bans are common, and they have become more widely enforced since the United States Supreme Court in 2011 held that the FAA requires state courts to honor bans even if state law prohibits them.

According to Consumer Bureau Director Richard Cordray, "signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong." Cordray also calls the current practice a "contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing."  The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness calls the proposed rules a “backdoor ban” on arbitration clauses, said to provide individual consumers the chance for “more financial relief than a class-action suit.” The Pew Charitable Trusts’ Consumer Banking Project states that it is probably true that banks will ditch arbitration clauses if the CFPB’s rules take effect, but “consumers will probably be just fine.”

May 11, 2016 in Current Affairs, In the News, Legislation, True Contracts | Permalink | Comments (0)

Tuesday, April 5, 2016

Unconscionable “Out-of-Network” Medical Service Charges

I recently blogged here about the healthcare insurance problem of patients not knowing ahead of time for what they will ultimately be charged and by whom. California is now introducing a bill (“AB 533”) seeking to prevent the problem of patients being unexpectedly charged out-of-network charges at in-network facilities when the facility subcontracts with doctors that are (allegedly) out-of-network.

The practice is widespread, at least in California. Nearly 25% of Californians who had hospital visits since 2013 have been very unpleasantly surprised with unexpectedly high bills after the fact for “out of network” services. This even after inquiring about the contractual coverage ahead of time and ensuring – or attempting to – that their providers were in network. Th

I personally had the same experience once as described in my recent blog. I also recently encountered a similar problem in South Dakota when, after asking about billing prices from an emergency room, was assured of one relatively modest price, only to be billed roughly ten times that amount a couple of months later for various unrecognizable items on the bill that the service provider, to add insult to injury, subsequently did not want to even discuss with me. (Yes, that is right: sick and in the emergency room, I was leery of hospital pricing and asked, only to still not get correct information.)

The onus of information-sharing should be on doctors and other medical provider. They should tell their patients if they are not in network, patients shouldn’t have to jump through an almost endless row of hoops just to find out their ultimate contractual obligations. Doctors will know immediately once you swipe your health insurance card, whereas patients have no way of knowing, as these stories show. Making matters even worse: what are patients supposed to do when they often don’t even see all the involved doctors ahead of time? Wake up during anesthesia and ask, “Oh, by the way, are you in network”? This practice is unconscionable and must stop. It is arguably an ethical obligation as well.

Because some hospitals, for instance, only accept employer-provided plans and not individual ones, some patients will always be out of network, thus allowing doctors to bill full charge. “This is a market failure. It allows doctors to exploit the monopoly that they have.”

Although it seems ridiculous, patients may, for now, have to turn the tables on the providers and scrutinize as many providers and facilities as they get in touch with 1) what the prices charged to the patients will be, and 2) if the providers are truly, actually, really in network (!).

Contractually, would patients win if they informed providers that they will only pay for in-network providers and only up to a certain amount? What else can a reasonable patient do in situations of such blatant greed and ignorance as these stories depict? Comment below!

April 5, 2016 in Commentary, Current Affairs, In the News, Legislation | Permalink | Comments (2)

Saturday, March 26, 2016

Things We Should Talk About When We Talk About Health Care

I just find this case so tragic and frustrating that I had to share with others, because that's just how I am, I like to spread those emotions around. But I think it's important, as we continue to debate how we do health care and health insurance in this country, to really think about the outcomes of these questions. And I have a nephew who was born premature and had to spend a little time in the NICU. My nephew is now a happy, energetic, clever five-year-old who we are very grateful for (even though we don't understand how five years have managed to pass, surely that's incorrect and he was just born yesterday, no?), but this case made me think of him and remember those first few scary days when you have a baby who you can't bring home with you. And how unforgiving bureaucracy can be in the face of your mere human emotions. 

Kurma v. Starmark, Inc., No. 12-11810-DPW, a recent case out of the District of Massachusetts, introduces us to the Kurmas. Their son was born about two months premature and was immediately hospitalized after birth and remained in the intensive care unit for over two months. His hospital bills totaled more than $667,000. It seems as if it was a happy ending for the baby boy and that he eventually went home with his parents, because the case doesn't tell us otherwise, so that at least seems like good news for the Kurmas. 

The bad news was that they failed to comply perfectly with all of the formalities of their health insurance policy, and for this reason the court found it had no choice but to find that the baby boy was not covered by his father's health insurance plan and therefore the Kurmas are responsible for the $667,000 hospital bill. 

Mr. Kurma had been employed by First Tek since 2006. First Tek enrolled in the Bluesoft Group Health Benefit Plan on July 1, 2010. Mr. Kurma and his family joined in the plan as soon as it became available. His wife at the time was already pregnant, and her pregnancy care was covered under the plan. Their son was born on October 7, 2010, three months after they joined the Bluesoft plan. 

What makes this case so tragic to me is that it wasn't as if Mr. Kurma did nothing to inform his health insurance that his baby son had been born. He did, in fact. He called his health insurance's claims processor on October 14, 2010, to inform him that his son had been born the previous week. Everybody agreed that this was timely notice to the health insurance company of the baby's birth. A week later, on October 21, Mr. Kurma received a letter from an affiliate of his health insurance company referring to "Baby Boy" and requesting medical information to determine the necessity of the baby's ongoing treatment. 

Mr. Kurma had several more conversations with his health insurance company during the month of October. The parties disputed what was said in those conversations, although they agreed that Mr. Kurma wished to add his newborn son to the health insurance plan. There was disagreement as to whether or not Mr. Kurma was told that he needed to provide his HR department at work with written notice of his son's birth in order to add him to the policy. At any rate, on November 8, 2010 (more than 30 days after the baby's birth, which was the time limit Mr. Kurma had under the policy), the health insurance company sent Mr. Kurma a "Certificate of Group Coverage" that "is evidence of your coverage under this plan." The new baby was listed as the individual to whom the coverage applied and the "Date coverage began" was given as October 7, 2010, the date of the baby's birth. To be honest, I would at that point, if I were Mr. Kurma, probably have considered the baby to have been covered, as that piece of paper would have seemed self-evident to me as "evidence of...coverage." However, this piece of paper contained a trick: It claimed the "Date coverage ended" as October 6, 2010, the date before the baby's birth. According to the health insurance company, this should have been a red flag to Mr. Kurma, as that was the health insurance company's way of indicating that it had refused coverage on the baby. I'm not entirely sure why the way to do this wouldn't have been to send a letter saying "We are not covering the baby," rather than sending some weird time-travel-y message like this. It would be a good policy for all of us to just say what we mean in communications like this, don't you think? This paper, far from raising any red flag that Mr. Kurma needed to do anything further, seemed to reassure Mr. Kurma that he had done everything he needed to do. 

And, even more confusingly, not even the insurance company itself, internally, seemed to know whether or not it thought the baby was covered. On November 4, an employee noted that the baby was automatically covered for the first month of his life and then needed to be formally added to the policy. A second note on November 5 corrected that to explain that the baby needed to be immediately enrolled in order to be covered. But it seems to me that if not even the health insurance company's own employees can figure out whether or not the baby was covered, it seems ridiculous to assume that a harried new father, with a baby in intensive care and a five-year-old at home to worry about, was supposed to be able to figure it out. 

On November 29, 2010, Mr. Kurma had a conversation with his health insurance company in which he stated that he had added his new son to the plan. That night he e-mailed HR at First Tek to ask them to add the baby to the plan. That e-mail was the first written contact Mr. Kurma had had with HR. It came, as you can see, more than 30 days after the baby's birth. Which was a violation of the policy, which provided, "You notify Us and the Claims Processor of the birth . . . within 30 days," with "Us" defined as Mr. Kurma's employer, First Tek. Mr. Kurma had only informed the claims processor within 30 days. 

In December 2010, Mr. Kurma was told for the first time that the health insurance company was denying coverage for his new baby. Confused, Mr. Kurma inquired as to why and was told it was his failure to return the written enrollment forms to his HR department within 30 days of the baby's birth. Mr. Kurma called his health insurance company to complain; they were unmoved. 

Mr. Kurma's employer, however, was moved by Mr. Kurma's situation. To be honest, it seems as if First Tek knew all along that Mr. Kurma's son had been born and was in intensive care, which makes sense to me, as it is the kind of thing that employers tend to know, if you're taking time off and such. First Tek's CEO actually contacted the health insurance company on behalf of Mr. Kurma, asking for leniency: "[Mr. Kurma] has a prematurely born child who is still in hospital and in deep sorrow and was not in a right frame of mind. Is there anything you can do to make the carrier make an exception?" The carrier--who nobody disputed was well aware of the baby's existence and Mr. Kurma's desire to add him to the plan--refused to make such an exception, insisting that it could not because First Tek (the company requesting leniency) had not been properly notified. Note that that was the only basis for the health insurance company's denial, as stated in the letter it sent Mr. Kurma: "The plan required that Mr. Kurma notify [the insurance company] AND his employer, within 30 days after the infant's date of birth. [The insurance company] received notification within the required time frame, but First Tek did not." No matter, apparently, that First Tek itself requested that its notice requirement be waived and at any right apparently believed itself to have been properly notified. 

Now the insurance plan in this case contained language that added further confusion to what was going on here: It gave First Tek "full, exclusive and discretionary authority to determine all questions arising in connection with this Contract including its interpretation." Under this clause, one might think that, if First Tek considered itself to have been validly notified, then it was. Not so fast, though. The insurance plan also contained language that the insurance company "has full, discretionary and final authority for construing the terms of the plan and for making final determinations as to appeals of benefit claim determinations . . . ." So whose interpretation, First Tek's or the insurance company's, should win here, when they both have some sort of "full" and "discretionary authority"?

The court concluded that this language meant that First Tek had authority over contract interpretation, but the insurance company had authority over claim determinations under the contract. Therefore, First Tek was correct in its assertion that the baby was enrolled, because that lay within First Tek's discretion. However, First Tek could not contradict the insurance company's determination, even accepting that the baby was enrolled, that the benefits were denied. I admit I'm so confused by this determination, I read this paragraph of the decision over several times, and I'm fighting a cold myself at the moment (and worrying about what health insurance coverage I'm going to mess up should I need to see a doctor over this illness!), so if I'm reading this wrong, please let me know, but this seems contradictory. What's the point of giving First Tek "ultimate" authority over who's enrolled under the policy if the health insurance company has "ultimate" authority to ignore First Tek's "ultimate" authority and deny benefits because it doesn't think people are enrolled? The court seems to think that this is a system that makes sense, but it mostly seems to me that it's just a fancy way of obscuring the fact that First Tek really had no authority here. Which might be fine as just a straightforward matter, but this is anything but straightforward: The contract manages to strip First Tek of authority by saying the opposite, much like the weird denial of coverage the insurance company sent that actually read that it was "evidence . . . of coverage." This is like being Alice in Looking-Glass Land, frankly. 

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At any rate, as you could probably tell was coming, Mr. Kurma loses this case. What's interesting is that he presents no claim that he ever informed First Tek in any way of the birth of his son within the relevant 30-day period. I find this difficult to believe, personally, and I don't know how there couldn't have been something he could have used to argue that he gave First Tek some notice, especially given the evidence that even First Tek's CEO tried to get coverage for the baby. But the court says there was no dispute that there had been no notice "of any kind," not even oral, and so Mr. Kurma failed under the terms of the policy. 

Mr. Kurma argued that First Tek clearly wished the baby to be enrolled and tried to intercede with the insurance company on Mr. Kurma's behalf. The court's reaction to this is unimpressed: the plan says what the plan says, and First Tek's desire not to follow the plan doesn't mean anything. (Of course, presumably First Tek didn't have a whole lot of opportunity to negotiate the terms of the plan in the first place.) Mr. Kurma also tries to argue estoppel, which fails because, again, the words of the plan were clear, and Mr. Kurma failed to follow them, so he can't argue estoppel. Likewise, there was no duty on the insurance company's part to explain to Mr. Kurma what steps he had to take to insure his son, and there was no bad faith on the insurance company's part in failing to do so. 

So, the end result is that the Kurma family is now over $667,000 in debt, as a result of having sought to save their son's life. This case just kills me. I know what the plan said, but I am a trained lawyer who found the words being said to Mr. Kurma confusing; I am bewildered by how it could be reasonable to expect Mr. Kurma to wade through all of this during what was doubtless the most stressful and emotionally exhausting time of his life. Think of how challenging you find it to deal with bureaucracy under ideal circumstances; imagine having to do it while your tiny infant son is fighting for his life in intensive care. And having to do it under circumstances where you're given dense pages of legalese, no assistance to walk through that legalese, and documents that say one thing while meaning the opposite. 

I know that insurance companies have a lot to deal with, too. And I know this insurance company didn't want to pay $667,000 in medical bills. I know this insurance company wanted to make sure it makes people jump through a few hoops first to make sure they really deserve the health care. But I just find this outcome in this case tragically absurd in a way that makes me despair for how we're dealing with health care in this country: Nobody disputed that the health insurance company was well aware Mr. Kurma's wife was pregnant and would presumably soon be having a child; nobody disputed that the health insurance company was well aware Mr. Kurma's son had been born and was hospitalized; nobody disputed that the health insurance company indicated to Mr. Kurma that it was evaluating the necessity of his son's medical treatment; nobody disputed that the health insurance company even sent "evidence of . . . coverage" to Mr. Kurma. And still the health insurance company didn't have to cover the baby, because of one missed hoop that the company it pertained to sought to waive entirely. 

Maybe your view is that Mr. Kurma should have been more on top of things. But I just think this seems like an incredibly harsh case. 

*********************************************************************************************************

Peter Gulia, an adjunct professor at Temple University Beasley School of Law, sent me this as a follow-up and I add it to the text here with his permission because I think it's a valuable contribution. 

Your great essay on Kurma v. Starmark, Inc. paints a striking story.  But let me give you a way to reconsider what happened.

The health plan is a “self-funded” health plan that is not health insurance.  The employer pays the claims from the employer’s assets.  (The employer likely has a stop-loss insurance contract that pays the employer, not the plan or any participant, if claims exceed specified measures.)

Starmark is not an insurer; it provides services to the employer, which also is the health plan’s sponsor, administrator, and named fiduciary.

In any moment during Mr. Kurma’s difficulties, the employer, acting as the plan’s administrator, could have instructed the processor to treat Kurma’s newborn as regularly enrolled.  Doing so would make the employer responsible to pay the mother’s and newborn’s medical expenses.

(Even if the employer asked:  “Is there anything [the processor] can do to make the carrier make an exception?”, this likely referred to trying to persuade the stop-loss insurer to provide more coverage than its contract promised.)

If one analyzes this case under the common law of contracts, one might classify it as a duty-to-read case.  The reported facts suggest the participant did not read the plan, and also did not read, at least not carefully, its summary plan description.

That Mr. Kurma suffered a loss because he didn’t sufficiently understand his employee-benefit plan’s conditions is harsh.  But it’s not because Starmark failed to perform its service agreement.  And it’s not because Starmark sought to avoid an expense it never would bear.

March 26, 2016 in Commentary, Legislation, Recent Cases, True Contracts | Permalink | Comments (1)

Monday, March 7, 2016

Regulating against Forced Arbitration in Consumer Cases

As Stacey writes just below this post, much is happening in the arbitration arena currently.

In December, the United States Supreme Court ruled that the 1925 Federal Arbitration Act pre-empts state law. Thus, when parties have executed agreements calling for arbitration rather than court resolutions, the arbiration clause will be upheld. The case was DirectTV, Inc. v. Imburgia, No. 14-462.

In the case, Imburgia’s contract stated that “[i]f ... the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 [the arbitration section] is unenforceable.” http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf

The Supreme Court noted that when DIRECTV drafted the contract, the parties likely believed that the words “law of your state” included California law that then made class-arbitration waivers unenforceable. But the Court’s subsequent holding in AT&T Mobility LLC v. Conception found that the Federal Arbitration Act pre-empts state law on the issue. Thus, parties cannot contractually bind themselves to invalid state law. When they refer to “state law,” this means only valid state law.

These rulings favor businesses, not consumers. This is so particularly so in cases between consumers and banks or credit card companies. A 2007 report found that over four years, arbitrators ruled in favor of the financial institutions in no less than 94% of the cases.  Of course, in the typical take-it-or-leave it style contract, consumers have the choice only of agreeing to arbitrate or not getting the desired service.

As for the belief that arbitration saves scarce judicial resources, it is noteworthy that businesses file four times as many lawsuits as individuals. “It is hard to imagine any company giving up its own right to sue another company in a business dispute.” Double standards abound here.

Meanwhile, in early February, Senators Leahy and Franken introduced the Restoring Statutory Rights Act. This would create an exception in the Arbitration Act for disputes involving individuals and small businesses. The only way individuals would enter into arbitration is if they agreed to do so after the dispute has been filed. That’s very different from the current process, which automatically shunts all customer disputes into binding arbitration.

The Consumer Financial Protection Bureau is also considering a ban in mandatory-arbitration provisions in contracts for credit cards and other financial services. The Centers for Medicare and Medicaid Services is looking to do the same in relation to nursing home contracts.

Acts and regulations are highly warranted in this context. We know where the Supreme Court currently stands on the issue. We do not know where it will go with a new justice soon to be appointed, but judicial branch action in this area may not be forthcoming any time soon.

March 7, 2016 in Famous Cases, Legislation, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, February 19, 2016

Regulation of Virtual Currency Businesses Act

ULCLogoAt any given time, the Uniform Law Commission/NCCUSL is engaged in many important and useful state-law drafting projects, but one of the more interesting ones for me is its current work in drafting a proposed Regulation of Virtual Currency Businesses Act. I have had the fantastic opportunity to act as an observer to the drafting committee and watch the stakeholders and commissioners navigate disparate policy perspectives and try find as-common-as-possible ground, while Chair Fred Miller keeps the group on task and Reporter Sarah Jane Hughes assimilates an incredible amount of debate into a rapidly evolving draft. The experience is a wonder that I would recommend to anyone with a serious interest in legislative policymaking. It also, for present purposes, helps illustrate both the benefits and limits of contract law in a nascent market-space.

Bitcoin_logo1The current drafting project arose out of the phenomenon of Bitcoin, the first technologically viable means of electronically transmitting value without the possibility of double spending or the need for a financial intermediary, like a bank. While the use cases for virtual currency technology are still in their relative infancy, states began to consider and enact disparate regulatory schemes, with New York's BitLicense regulatory framework being the most prominent example. While federal regulators and law enforcement have understandably focused on preventing the use of pseudonymous cryptocurrency to advance criminal enterprises and finance international terrorism, the state concerns have tended more toward protection of consumers and other users engaged in perfectly legal transactions. While Bitcoin does not require an intermediary any more than paper cash requires use of a bank, intermediaries--like digital wallet services--have arisen to fill the convenience role analogous to bank accounts. These virtual currency intermediaries are, for the most part, the principal target of state-law regulation and current work of the Uniform Law Commission.

Contract1What is the contract law angle here? It's this: In the absence of specially-crafted law of the sort now under consideration, the common law of contracts fills the void to enable some degree of enforceable private ordering. The flexibility of contract law is such that it can allow for the birth of business models no one contemplated as recently as the eve of Bitcoin's creation in 2008. The flexibility of such a legal regime is amazing. Contract law can, nonetheless, only facilitate business so far. Public-protective regulation is necessary to achieve widespread market acceptance beyond the universe of early-adopters and risk takers. Regulation carries its own risks, however, as a heavy-handed approach can stifle innovation and create anti-competitive barriers to market entry.

That--in many different flavors--is the policy question being grappled with in the Regulation of Virtual Currency Businesses Act, and the question is relevant in any other space where rapidly developing technology exceeds the capacity of existing law. Where do we apply protective public law, and what do we keep within the realm of private contracts?

 

February 19, 2016 in Commentary, Current Affairs, E-commerce, Legislation, Web/Tech | Permalink | Comments (0)

Thursday, February 4, 2016

Uniform Commercial Code: 2016 Legislative Agenda

ULCLogoThe Uniform Commercial Code is widely recognized as one of the great successes in the more-than-a-century-long history of drafting uniform state laws and model acts. Most parts of this joint enterprise between the American Law Institute (ALI) and Uniform Law Commission (ULC) have been adopted in all 50 states and other United States jurisdictions. Perhaps more remarkable than the UCC’s original wide adoption in the late 1960s is that the Code has been the subject major revisions over the past fifty years that themselves have gained widespread adoption, as we previously documented in some detail here.

These enactments don't just happen on their own, however, as the Uniform Law Commission targets and supports efforts to gain particular enactments in particular jurisdictions. Below is a copy of the ULC's Legislative Agenda for the Uniform Commercial Code for 2016. US Virgin IslandsOne piece of the agenda that stands out to me, as it affects a topic I've previously written about, is the plan to seek enactment of the 2008 version of Article 1's section 1-301 in the U.S. Virgin Islands.  The Virgin Islands is a noteworthy jurisdiction for being the only adopter of the 2001 rewrite of UCC Article 1 in its entirety, including its controversial (to Americans, at least) choice-of-law section that permitted parties to non-consumer UCC-governed contracts to choose governing law that had no relationship to the contract. The 2001 version of section 1-301 achieved no other enactments before being abandoned by the Commission in 2008 in favor of language tracking original-section 1-105, which required chosen contract law to bear a "reasonable relation" to a transaction.

Read on to see if there is any activity planned of interest to you or your state.

2016 LEGISLATIVE UPDATE FOR UCC ARTICLES

  • UPDATE ON UCC ARTICLE 1 (2001) [1] :  

 

    • Plans for introduction in 2016: Missouri; U.S. Virgin Islands (UCC1-301 Amendment).
    • UCC Article 1 (2001) has been adopted in 51 jurisdictions: Alabama[2], Alaska, Arizona2, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii2, Idaho2, Illinois2, Indiana2, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland2, Massachusetts, Michigan2, Minnesota, Mississippi, Montana, Nebraska2, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Ohio, Oregon, Pennsylvania, Rhode Island2, South Carolina, South Dakota, Tennessee, Texas, Utah2, Vermont, Virginia2, U.S. Virgin Islands, Washington, West Virginia, Wisconsin, Wyoming.
  • UPDATE ON UCC ARTICLE 2A (1987) (1990): 

 

    • UCC Article 2A (1987)(1990) has been adopted in 51 jurisdictions. It has not been adopted in Louisiana, Puerto Rico.
  • UPDATE ON UCC ARTICLES 3 AND 4 (1990):  

 

    • Plans for introduction in 2016: New York.
    • UCC Articles 3 and 4 (1990) have been adopted in 52 jurisdictions. They have not been adopted in: New York.
  • UPDATE ON UCC ARTICLES 3 AND 4 (2002):  

 

    • Plans for introduction in 2016: Massachusetts, Ohio.
    • UCC Articles 3 and 4 (2002) have been adopted in 12 jurisdictions: Arkansas, District of Columbia, Indiana, Kentucky, Michigan, Minnesota, Mississippi, Nevada, New Mexico, Oklahoma, South Carolina, Texas.
  • UPDATE ON UCC ARTICLE 4A (1989): 

 

    • UCC Article 4A (1989) has been adopted in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
  • UPDATE ON UCC ARTICLE 4A AMENDMENT (2012):   

 

    •  Plans for introduction in 2016: Connecticut, Delaware, Florida, Kansas, Oklahoma, U.S. Virgin Islands, Utah.
    • UCC Article 4A Amendment (2012) has been adopted in 44 jurisdictions: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, Wisconsin.
  • UPDATE ON UCC ARTICLE 5 (1995): 

 

    • UCC Article 5 (1995) has been adopted in 52 jurisdictions. It has not been adopted in: Puerto Rico.
  • UPDATE ON UCC ARTICLE 6 (1989): 

 

    • UCC Article 6 (1989) has been revised in one state: California. UCC6 has been repealed in 51 jurisdictions. It has not been repealed or revised in: Maryland.
  • UPDATE ON UCC ARTICLE 7 (2003):  

 

    • Plans for introduction in 2016: Missouri, U.S. Virgin Islands.
    • UCC Article 7 (2003) has been adopted in 50 jurisdictions: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.
  • UPDATE ON UCC ARTICLE 8 (1994): 

 

    • UCC Article 8 (1994) has been adopted in all 50 states plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
  • UPDATE ON UCC ARTICLE 9 (1999): 

 

    • UCC Article 9 (1999) has been adopted in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
  • UPDATE ON UCC ARTICLE 9 (2010): 

 

  • Plans for introduction in 2016: U.S. Virgin Islands.
  • UCC Article 9 (2010) has been adopted in 52 jurisdictions: Alabama1, Alaska2, Arizona1, Arkansas1, California3, Colorado2, Connecticut2, Delaware2, District of Columbia1, Florida1, Georgia1, Hawaii1, Idaho1, Illinois1, Indiana1, Iowa1, Kansas1, Kentucky1, Louisiana1, Maine1, Maryland1, Massachusetts1, Michigan1, Minnesota1, Mississippi1, Missouri1, Montana1, Nebraska1, Nevada1, New Hampshire2, New Jersey1, New Mexico1, New York1, North Carolina1, North Dakota1, Ohio1, Oklahoma1, Oregon2, Pennsylvania1, Puerto Rico1, Rhode Island1, South Carolina1, South Dakota1, Tennessee1, Texas1, Utah1, Vermont1, Virginia1, Washington2, West Virginia1, Wisconsin1, Wyoming2.

[1] Choice of Law provision:  All enacting jurisdictions except the U.S. Virgin Islands have enacted the choice-of-law provision (Section 1-301) in the 2008 Official Text.  The USVI enactment includes the 2001 text of that section.

[2] Definition of “good faith”:  retains the good faith standard found in pre-revised UCC1.

February 4, 2016 in Current Affairs, Legislation | Permalink | Comments (0)

Wednesday, January 27, 2016

Uniform Commercial Code Adoptions: Here's the Current Scorecard

ULCLogoPerhaps the greatest and most unintended misnomer in the field of commercial law is that the Uniform Commercial Code is called the Uniform Commercial Code. A more accurate name might have been the As-Uniform-as-Possible-Given-that-States-Are-Going-to-Do-Their-Thing Commercial Code. (That name admittedly doesn't roll off the tongue nearly as well as "UCC."). The picture is further complicated by the fact that the official code has itself been amended many times over the last several decades. 

For those of us who are interested in the status of UCC adoptions, however, our friends at the Uniform Law Commission (or NCCUSL, if you prefer the old-school name) have produced a handy one-stop scorecard showing which jurisdictions have adopted which revisions of the UCC. The scorecard is dated December 1, 2015, but I'm told on good authority by my colleague and ULC guru Bill Henning that it remains current today. Use the knowledge below to amaze and impress your commercial law friends around the water cooler--or else to drive your non-commercial law friends away from the water cooler.

On a technical note, you might need a wide screen (i.e., not a smartphone) to view the table in its proper format.

 

UCC SCORECARD

 50+ State Survey of Adoptions of Revised Official Text of the UCC

STATES

UCC

UCC11

(2001)

UCC2A

(1990)

UCC3/4

(1990)

UCC3/4

(2002)

UCC4A

(1989)

UCC5

(1995)

UCC6

(1989)

UCC7

(2003)

UCC8

(1994)

UCC9

(1998)

UCC9

(2010)

Alabama

1965

20042

1992

1995

 

19923

1997

1996

2004

1996

2001

2014 A

Alaska

1962

2009

1993

1993

 

19933

1999

1993

2009

1996

2000

2013 B

Arizona

1967

20062

1992

1993

 

19913

1996

2004

2006

1995

1999

2014 A

Arkansas

1961

2005

1993

1991

2005

19913

1997

1991

2007

1995

2001

2013 A

California

1963

2006

1991

1992

 

19903

1996

Rev 90

2006

1996

1999

2013C

Colorado

1965

2006

1991

1994

 

19903

1996

1991

2006

1996

2001

2012 B

Connecticut

1959

2005

2002

1991

 

1990

1996

1993

2004

1997

2001

2011 B

Delaware

1966

2004

1992

1995

 

1992

1998

1996

2004

1997

2000

2013 B

DC

1964

2013

1992

1994

2013

19923

1997

2015

2013

1997

2000

2013 A

Florida

1965

2007

1990

1992

 

1991

1999

1993

2010

1998

2001

2012 A

Georgia

1962

2015

1993

1996

 

19923

2002

2015

2010

1998

2001

2013 A

Hawaii

1965

20042

1991

1991

 

19913

1996

1998

2004

1997

2000

2012 A

Idaho

1967

20042

1993

1993

 

19913

1996

1993

2004

1995

2001

2012 A

Illinois

1961

20082

1991

1991

 

19903

1996

1991

2008

1995

2000

2012 A

Indiana

1963

20072

1991

1993

2009

19913

1996

2007

2007

1995

2000

2011 A

Iowa

1965

2007

1994

1994

 

19923

1996

1994

2007

1997

2000

2012 A

Kansas

1965

2007

1991

1991

 

1990

1996

1992

2007

1996

2000

2012 A

Kentucky

1958

2006

1990

1996

2006

19923

2000

1992

2012

1996

2000

2012 A

Louisiana

1974

2006

 

1992

 

19903

1999

1991

2009

1995

2001

2012 A

Maine

1963

2009

1992

1993

 

19923

1997

1992

2009

1997

2000

2013 A

Maryland

1963

20122

1994

1996

 

19913

1997

 

2004

1996

1999

2012 A

Mass.

1957

2013

1996

1998

 

19913

1997

1996

2013

1996

2001

2013 A

Michigan

1962

20122

1992

1993

2014

19923

1998

1998

2012

1998

2000

2012 A

Minnesota

1965

2004

1991

1992

2003

19903

1997

1991

2004

1995

2000

2011 A

Mississippi

1966

2010

1994

1992

2010

19913

1996

1994

2006

1996

2001

2013 A

Missouri

1963

 

1992

1992

 

19923

1997

2004

 

1997

2001

2013 A

Montana

1963

2005

1991

1991

 

19913

1997

1991

2005

1997

1999

2013 A

Nebraska

1963

20052

1991

1991

 

19913

1996

1991

2005

1995

1999

2011 A

STATES

UCC

UCC1

(2001)

UCC2A

(1990)

UCC3/4

(1990)

UCC3/4

(2002)

UCC4A

(1989)

UCC5

(1995)

UCC6

(1989)

UCC7

(2003)

UCC8

(1994)

UCC9

(1998)

UCC9

(2010)

Nevada

1965

2005

1991

1993

2005

19913

1997

1991

2005

1997

1999

2011 A

NH

1959

2006

1993

1993

 

19933

1998

1993

2006

1998

2001

2012 B

NJ

1961

2013

1994

1995

 

19943

1997

1994

2013

1997

2001

2013 A

NM

1961

2005

1992

1992

2009

19923

1997

1992

2005

1996

2001

2013 A

New York

1962

2015

1994

   

19903

2000

2001

2015

1997

2001

2015 A

NC

1965

2006

1993

1995

 

19933

1999

2004

2006

1997

2001

2012 A

ND

1965

2007

1991

1991

 

19913

1997

1993

2005

1997

2001

2011 A

Ohio

1961

2011

1992

1994

 

19913

1997

1996

2011

1997

2001

2012 A

Oklahoma

1961

2005

1991

1991

2009

1990

1996

1997

2005

1995

2000

2015 A

Oregon

1961

2009

1989

1993

 

19913

1997

1991

2009

1995

2001

2012 B

Penn.

1953

2008

1992

1992

 

1992 3

2001

1992

2008

1996

2001

2013 A

PR

                   

2012

2012 A

RI

1961

20072

1991

2000

 

19913

2000

2001

2006

2000

2000

2011 A

SC

1966

2014

2001

2008

2008

19963

2001

2001

2014

2001

2000

2013 A

SD

1966

2008

1989

1994

 

19913

1998

1993

2009

1998

2000

2012 A

Tenn.

1963

2008

1993

1997

 

19913

1998

1998

2008

1997

2000

2012 A

Texas

1965

2003

1993

1995

2005

19933

1999

1993

2005

1995

1999

2011 A

USVI

1967

2002

2001

2000

 

2001

2000

2002

 

2002

2002

 

Utah

1965

20072

1993

1993

 

1990

1997

1996

2006

1996

2000

2013 A

Vermont

1966

2007

1994

1994

 

19943

1999

1994

2015

1996

2000

2014 A

Virginia

1964

20032

1991

1992

 

19903

1997

2011

2004

1996

2000

2012 A

Wash.

1965

2012

1993

1993

 

19913

1997

1993

2012

1995

2000

2011 A

WV

1963

2006

1996

1993

 

19903

1996

1992

2006

1995

2000

2012 A

Wisconsin

1963

2010

1992

1996

 

19923

2005

2009

2010

1998

2001

2012 A

Wyoming

1961

2015

1991

1991

 

1991

1997

1991

2015

1996

2001

2013B

TOTAL

53

51

51

52

12

53

52

52

50

53

53

52

(Last updated 12-1-15)

 

1 Choice of Law Provision: All enacting jurisdictions except the U.S. Virgin Islands have enacted the choice-of-law provision (Section 1-301) in the 2008 Official Text. The USVI enactment includes the 2001 text of that section.

2 Definition of “good faith”: retains the good faith standard found in pre-revised UCC1.

3 Adopted the 2012 Amendment to UCC Article 4A.

A Adopted Alternative A of 9-503.

B Adopted Alternative B of 9-503.

C Adopted non-uniform safe harbor in 9-503.

January 27, 2016 in Current Affairs, Legislation | Permalink | Comments (0)

Sunday, January 3, 2016

Legal Rights to Give up Your Travel Tickets

Exactly one year ago, I blogged here about United Airlines and Orbitz suing a 22-year old creator of a website that lets travelers find the cheapest airfare possible between two desired cities. Travelers would buy tickets to a cheaper end destination, but get off at stopover point to which a ticket would have been more expensive. For example, if you want to travel from New York to Chicago, it may be cheaper to buy one-way airfare all the way to San Francisco, not check any luggage, and simply get off in Chicago.

The problem with that, according to the airline industry: that is “unfair competition” and “deceptive behavior.” (Yes, the _airline industry_ truly alleged that.) Additionally, the plaintiffs claimed that the website promoted “strictly prohibited” travel; a breach of contracts cause of action under the airlines’ contract of carriage.

It seems that the United Airlines attorneys may not have remembered their 1L Contracts course well enough, for a contracts cause of action must, of course, be between the parties themselves or intended third party beneficiaries. The website in question was simply a third party with only incidental effects and benefits under the circumstances. Without more, such a party cannot be sued under contract law. (This may also be a free speech issue.)

Orbitz has since settled the suit.  Recently, a federal lawsuit was dismissed for lack of personal jurisdiction over the now 23-year old website inventor. United Airlines has not indicated whether it plans further legal action.  

Along these lines, cruise ship passengers are similarly not allowed to get off a cruise ship in a domestic port if embarking in another domestic port unless the cruise ship is built in the United States and owned by U.S. citizens. This is because the Passenger Vessel Services Act of 1866 – enacted to support American shipping – requires passengers sailing exclusively between U.S. ports to travel in ships built in this country and owned by American owners. Thus, cruise ships traveling from, for example, San Diego to Alaska and back will often stop in Canada in order not to break the law. But if the vessel also stops in, for example, San Francisco and you want to get off, you will be subject to a $300 fine which, under cruise ship contracts of carriages, will be passed on to the passenger. See 19 CFR 4.80A and a government handbook here.

Convoluted, right? Indeed. Necessary? In this day and age: not in my opinion. As I wrote in my initial blogs on the issue, if one has a contract for a given product or service, pays it in full, and does not do anything that will harm the seller’s business situation, there should be no contractual or regulatory prohibitions against simply deciding not to actually consume the product or use the service one has bought. Again: if you buy a loaf of bread, there is also nothing that says that you actually have to eat it. You don’t have to sit and watch all sorts of TV channels simply because you bought the channel line-up. In my opinion, United Airlines and Orbitz were trying to hinder healthy competition and understandable consumer conduct. What is still rather incomprehensible to me in this context is why in the world airlines would have anything against passengers getting off at a midway point. It’s less work for them to perform and it gives them a chance to, if they allowed the conduct openly, resell the same seat twice. A win-win-win situation, it seems, for the original passenger, the airline, and the passenger that might want to buy the second leg at a potentially later point in time at whatever price then would be applicable. The same goes for the typically unaffordable “change fees” applied by most airlines: if they charged less (a change can very easily be done by travelers on a website with no airline interaction) and the consumer was willing to pay the then-applicable rate for the new date (prices typically go up, not down, as the departure dates approach), the airlines might actually benefit from being able to sell the given-up seat. Of course, they don’t see it that way… yet.

In many ways, traveling in this country seems to be going full circle in that it is becoming an expensive luxury. Thankfully, new low-cost airlines also appear on the market to provide much needed competition in this close-knit industry that, in the United States, seems to be able to carefully skirt around anti-trust rules without too many legal allegations of wrongdoing. (See here for allegations against United, American, Delta and Southwest Airlines for controlling capacity in order to keep airline prices up).

Happy New Year and safe travels!

January 3, 2016 in Commentary, Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, December 21, 2015

Selling “Restorative Justice” for a Profit

Shoplifting is a major problem to retailers. In 2014, for example, retailers lost $44 billion nationwide to theft by shoplifters, employees and vendors. But how about this for an apparently very popular “solution”: Retailers such as Bloomingdale’s, Wal-Mart, Burlington Coat Factory, DSW Inc. and even Goodwill Industries have signed up with CEC, a company that provides “restorative justice” for profit.

Here’s how it works: Retailers sign a contract with CEC under which CEC will provide “life skills” courses to shoplifters caught by the retailers. The retailers pay nothing for this “service.” Rather, shoplifters must pay the company $500 for a six-hour course and sign a confession. If they refuse to do so, they are threatened with criminal prosecution and allegedly intimidated in several other ways. According to CEC, “over 1 million individuals have gone through the core program.” Do the math (if you trust the company’s statement) and you’ll see that contracting to sell justice and self-help is apparently quite lucrative.

According to CEC, this is all a good thing. In a statement apparently now removed from the company’s website, but reported here, the company purports to give “low-level, first-time shoplifters a valuable opportunity to learn how to make better choices, while saving them a criminal record and sparing law enforcement resources.” According to CEC now [http://www.correctiveeducation.com/home/cec-restore]: “CEC’s Adult Educational Program focuses on developing practical skills that will help achieve social goals. The dual approach of addressing behavior while promoting provident living helps reinforce change.”

What’s the problem with this alleged win-win situation? According to at least the San Francisco city attorney, the conduct is a violation of the California Business and Professions Code. It also alleged to amount to extortion, false imprisonment, coercion and deception. The city attorney has filed suit. CEC defends, claiming that its “vision is to reinvent the way crimes are handled, starting with retail theft.” Indeed. Do we, however, trust companies to sell justice for us via private contracts? Comment below!

December 21, 2015 in Commentary, Current Affairs, Famous Cases, In the News, Legislation, Miscellaneous | Permalink | Comments (0)

Monday, December 14, 2015

The Emperor’s New (Warm Weather) Clothes?

On Saturday, a new international treaty surplanting the expired Kyoto Protocol was finally reached by 195 nations. For business contracting and numerous, if not all, aspects of life now and in the future, the global climate will be key. 

The main aim of the agreement is to keep temperature rise “well below” 2° C.  The nations will additionally “pursue efforts” to limit the temperature increase to 1.5° C. Thousands of scientists have for a long time reiterated the belief that temperatures rising above 2° Celsius could be devastating, so the aspirational goal of 1.5° C is, of course, a positive sign that national leaders may finally be realizing the dire straits of the planet’s climate situation.

So, this is good news, right? To some extent, yes. “The Paris Agreement for the first time brings all nations into a common ClimateChangecause based on their historic, current and future responsibilities.” However, current national commitments still do not go far enough. As they currently stand, we are headed towards a warming of more than 3° C; much higher than the scientifically advisable goal. The national pledges must be increased over time.  Starting in 2018, each country will have to submit new plans every five years to reach the 1.5/2° goal by 2100. The thought is that even though current coals do not suffice to keep climate warming to the agreed-upon limits, they will over time, starting soon.

History shows, though, that many nations have so far neither been ready nor politically able to make effective greenhouse gas reduction commitments. Previous aspirational goals have not been realized by the great majority of nations, although some not only met, but exceeded their commitments. It’s tempting to note that “time will tell if the situation changes this time,” but we simply don’t have much time to turn around the problem before it is too late for many regions, species and peoples around the world. For example, a temperature increase of 2° C will still be very problematic for low-lying nations such as many small island states, who seem to have been almost entirely forgotten about by many in this context. That, however, was considered one of the “prices” to be paid for reaching the deal. (A true contractual-like bargaining strategy.) Human rights are only mentioned in the preamble to the Agreement and not in the Agreement itself.

Nation themselves will determine their “intended nationally determined contributions,” which are not directly legally binding under notions of hard law as they are not mandatory with top-down enforcement if the nations fail to do so.  Among other factors, the word "contribution" and not, for example, "commitments" demonstrate the legal cautiousness of the agreement.  Nations must, of course, still strive to reach their goals under the UNFCCC and the notion of pacta sunt servanda, but these are not worded in a manner that gives them a firm, legally binding effect. The only directly legally binding parts of the Agreement are some procedural aspects such as the review procedures.

Of course, the reason why the Agreement was adopted by so many parties was precisely that no legal requirements were imposed on nations. Some, such as the United States, would not have accepted this. A senior Obama administration official notes that the Agreement "does not require submission to the Senate because of the way it is structured and because the pieces that are binding are already part of existing agreements.” A legally smart and pragmatic maneuver. But it still remains to be seen whether the United States and other nations act – and act quickly enough - to prevent the problem escalating in spite of good intentions.  I may be one of the few in this context, but I’m still skeptical. The intended time frames still seem too long to me and the actual promised action too meager. I fear that these are simply the “Emperor’s New Clothes,” celebrated so much, perhaps, because of so many years of no action.

Nonetheless, it is certainly remarkable and a very good sign that the world community finally agreed on the dangers posed by climate change and thus a 2° C limit.  That's a good start.  In the words of Miguel Arias Cañete, the European Union’s commissioner for energy and climate action, “[t]oday, we celebrate, [t]omorrow, we have to act. This is what the world expects of us.” But if we have simply turned a corner back to where we came from, namely hoping that sufficient action will be taken soon and pointing out that the world expects that, we might have celebrated a bit too early. I hope I am wrong. Climate change is like a cancer: horrible, always inconvenient, and tough to deal with at many levels. But the longer one waits in tackling it, the worse it will get.

December 14, 2015 in Commentary, Current Affairs, In the News, Legislation, Science | Permalink | Comments (0)

Thursday, December 3, 2015

How Much Disability Insurance Is Too Much? Well, That's a Highly Fact-Specific Question

I feel like one of the lessons of my Contracts class (aside from, you know, all the contract law stuff) is that disability insurance is the type of insurance policy most likely to end up in a published opinion in a casebook someday. Proving my point is a new opinion out of the 8th Circuit, The Northwestern Mutual Life Insurance Company v. Weiher, No. 14-3098.

In this case, Weiher, a dentist, applied for a disability policy from Northwestern in which he "specifically agreed" that he would cancel his previously existing disability policy from Great-West. As you could probably predict from the fact that this ended up in litigation, Weiher never canceled the Great-West policy. When he became disabled to the point that he could no longer practice dentistry, he submitted claims to both Northwestern and Great-West. When Northwestern found out that Weiher had never terminated his Great-West policy, it rescinded its policy, claiming that it would never have issued the policy had it known that Weiher wasn't going to cancel the Great-West policy. So Northwestern sued claiming that Weiher's promise to cancel the Great-West policy was a misrepresentation on Weiher's part that entitled Northwestern to rescind the policy. Weiher counter-claimed. The District of Minnesota granted Northwestern summary judgment because Weiher's failure to fulfill his promise to cancel the Great-West policy exposed Northwestern to greater risk and allowed Northwestern to rescind the contract. Weiher appealed. 

Weiher wins his appeal, not because his vow to cancel the Great-West policy wasn't a promise (the 8th Circuit finds that it was) and not because he didn't fail to fulfill that promise (the 8th Circuit agrees that he didn't), but because Northwestern failed to show that Weiher's failure to fulfill his promise increased Northwestern's risk. Under the relevant Wisconsin statute, the court found, Northwestern's ability to rescind the policy had to turn on specific increased risk in connection with Weiher's particular policy, not just generalized increased risk. All of Northwestern's evidence stated that Northwestern's custom was not to provide disability insurance to people who already had existing disability insurance policies because the risk of over-insurance would encourage fraudulent claims. However, Northwestern had no evidence that insuring Weiher here resulted in over-insurance to Weiher. There was simply no indication that the level of insurance Weiher was carrying between the two policies was too much. Northwestern's testimony on the subject admitted that it didn't know the specifics of Weiher's situation and could only talk in generalities. Therefore, the 8th Circuit concluded that Northwestern couldn't be entitled to summary judgment because it hadn't met its burden with regard to Weiher's specific policy. The 8th Circuit further noted that there was a factual dispute over whether Weiher's representation to cancel the Great-West policy was made with the intent to deceive Northwestern or if, as Weiher contended, he had intended to cancel the Great-West policy and had just forgotten. 

If you feel bad for Northwestern here, there's a dissent on your side: According to Judge Loken, Weiher's promise to cancel the Great-West policy was a condition precedent to Northwestern's policy kicking in, based upon widely accepted underwriting standards that warned against over-insurance. Wisconsin precedent, Judge Loken said, indicated that conditions precedent to insurance coverage should be respected if clearly stated. Based on that, the dissent would have found that Northwestern's policy was not effective until the condition precedent of cancellation of the Great-West policy had occurred (which it never did). 

December 3, 2015 in Legislation, Recent Cases, True Contracts | Permalink

Tuesday, December 1, 2015

The (Il-)Legality of Workplace Bullying and Discrimination

In cases where workers have quit their jobs because of intolerable workplace bullying and thus wish to assert illegal discrimination, the United States Supreme Court seems inclined to start the statute of limitations “clock” when the employee resigns rather than when the last discriminatory action takes place. Private sector workers typically have 180 days to report job discrimination to the Equal Employment Opportunity Commission (“EEOC”) whereas public sector employees must do so within 45 days.

The case is Green v. Brennan, No. 14-613.  In it, a postal worker claims that he was passed over for a promotion because he is black. When he complained to his employer, the United States Postal Service, he was allegedly forced to choose between retirement or a lower-paying job 300 miles away. He resigned and filed suit for constructive discharge, but missed the EEOC deadline. The trial and appellate courts disagreed as to when the statute of limitations should start to run, which would have made a difference in the case.

As the law currently stands, employees only enjoy legal protection against discrimination based on a relatively narrow range of underlying issues such as age, gender, national origin, race, religion or disability under, most relevantly, Title VII of the Civil Rights Act of 1964. But luckily, times are changing. Although employees in this country enjoy notoriously few of the rights and work norms that are taken for granted in so many other parts of the industrialized world, some states are doing something to change this situation, at long last. In California, for example, AB 2053 now requires California employers with 50 or more employees to include training in the prevention of “abusive conduct” to already existing requirements regarding sexual harassment. 

“Abusive conduct” is that which a “reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests.” “It may include repeated infliction of verbal abuse … that a reasonable person would find threatening, intimidating, or humiliating, or the gratuitous sabotage or undermining of a person’s work performance.” The conduct must be undertaken with malice. In other words, AB 2053 targets a wide range of workplace bullying that is not linked to “traditional” discrimination. Such conduct is surprisingly common and accepted by management to a surprisingly great extent in more places than you might think and in places that may or may not surprise you, including our very own field, legal academia.

Unfortunately, AB 2053 does not yet have sufficient legal “teeth” as defining “malice” and the bullying targeted by the law is difficult. Thus, in spite of the extent of the problem and its many recognized and severe consequences on both employers’ productivity and success levels as well as, of course, the employees’ varied interests, if an employee thinks she or he has an issue with his or her employer, the “resolution is likely [to come from] human resources, and not the courts.” 

What happens if a human resources department is disinterested in or for other reasons - corporate acceptance of workplace bullying, perhaps - unwilling to assist the employee? Perhaps not much, as the situation stands. But just as the Civil Rights movement started some place and built up at least some protections against some types of discrimination, modern notions of what constitutes workplace discrimination and its negative effects are, luckily, spreading. In spite of the usual initial criticism, AB2053 is a very good start. Undoubtedly, the common law will be able to shed further light on what modernly constitutes acceptable workplace behavior and what does not. That way, the law can get the required legal “teeth.” In the meantime, it is a sad observation about the modern American workplace that so many managers effectively tolerate or even undertake workplace harassment and that so few counterbalancing institutions in place in other cultures exist here, for instance trade unions. In contracts law, it’s all about the bargaining power. Most American workers have too little in today’s workplace.

December 1, 2015 in Commentary, Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0)

Thursday, November 19, 2015

Numismatic Information is Worth How Much?!

Serious coin collectors still exist. Very serious ones.

In a recent case before the Ninth Circuit Court of Appeals, an individual expert coin collector had offered to sell his knowledge regarding a “Brasher Doubloon” to a rare coin wholesale company for $500,000. A Brasher Doubloon is a $15 dollar coin minted by goldsmith Ephraim Brasher in late eighteenth-century New York. These rare coins are extremely valuable today. (The case is Swoger v. Rare Coin Wholesalers, 803 F.3d 1045 (Ninth Cir. 2015).

The parties met at a trade show to further discuss the coin collector’s theory that the coin in question was “the first United States coin issued for circulation … under authority of an Act of Congress.” The Act in question was “An Act Regulating Foreign Coins, and For Other Purposes,” chapter 5, 1 Stat. 300 (1793). The Act provided that certain “foreign gold and silver coins shall pass current as money within the United States, and be a legal tender for the payment of all debts and demands.” The Act also specified which countries’ coins qualified, how much the coins were required to weigh, etc.

The coin collector believed the coin to qualify under this provision because Spanish and Spanish colonial coins qualified at 27.4 Image1
grains per dollar. By analogy, the expert thought, that would require a Brasher Doubloon to weigh 411 grains. The coin collector reasoned that because the coin in question weighed 410.5 grains (oh, so close), it must have been minted pursuant to the Act. The wholesale coin company, however, refused to pay the collector for his information, not believing it proved that the coin really was minted “pursuant to the Act.” The expert brought suit, alleging fraud, breach of contract, and asserting damages under a theory of quantum meruit, among other things.

The appellate court found that the collector could not recover because he did not provide the information required under the contract. The Act, said the court, pertains to foreign coins only, not American ones.

Appellant also asserted a new theory on appeal: that because the coin was struck to “conform” to the weight in the Act for Spanish coins, it was used in commerce; in other words, “passed current as money” under the Act. That argument got swift treatment as well: the collector had promised information showing that the coin was, under a Congressional Act, legal tender, not that it was merely used as such by members of society.

As always, exact statutory reading is key, even in today’s contractual disputes.

November 19, 2015 in Labor Contracts, Legislation, Miscellaneous, True Contracts | Permalink | Comments (0)