April 24, 2013
Paperless Tickets and Licenses
The Sacramento Bee reports that a California legislative committee (if you really want to know, it’s called the Assembly Arts, Entertainment, Sports, Tourism and Internet Media committee) “gutted” a bill that would have illegalized “paperless” tickets. Paperless tickets are more (or is it less?) than what they sound like – they are a way for companies like Ticketmaster to sell seats without permitting purchasers to resell those seats. Purchasers must show their ID and a credit card to attend the show. The bill pitted two companies, Live Nation (owner of Ticketmaster) and StubHub, against each other.
This bill and the related issues should be of interest to contracts profs because it highlights the same license v. sale issues that have cropped up in other market sectors where digital technologies have transformed the business landscape. Like software vendors and book publishers, Ticketmaster is concerned about the effect of technology and the secondary marketplace on its business. Vendors, using automated software (“bots”), can quickly purchase large numbers of tickets and then turn around and sell these tickets in the secondary marketplace (i.e. at StubHub) at much higher prices. Both companies argue that the other is hurting consumers. Ticketmaster argues that scalpers hurt fans, who are unable to buy tickets at the original price and must buy them at inflated prices. Stub Hub, on the other hand, argues that paperless tickets hurt consumers because they are unable to resell or transfer their tickets.
The underlying question seems to be whether a ticket is a license to enter a venue or is it more akin to a property right that can be transferred. Or rather, should a ticket be permitted to be only a license or only a property right that can be transferred? The proposed pre-gutted legislation would have taken that decision out of the hands of the parties (the seller and the purchaser) and mandated that it be a property right that could be transferred. In other words, it would have made a ticket something that could not be a contract. Of course, given the adhesive nature of these types of sales, a ticket as contract would end up being like any other mass consumer contract – meaning the terms would be unilaterally imposed by the seller. In this case, that would mean the ticket would be a license and not a sale of a property right.
It’s not just the media giants who are feeling the disruptive effect of technology - we contracts profs feel it, too.
[NB: My original post confused StubHub with the vendors who use the site. StubHub is the secondary marketplace where tickets can be resold. Thanks to Eric Goldman for pointing that out].
August 22, 2012
Cigarette Packaging and - Contracts?
Last week, the Australian High Court upheld a ban on company logos on cigarette packages. The law that was upheld also requires that the front of cigarette packages show images of the harmful effects of smoking (e.g. mouth ulcers, tumors, etc).
Okay, you might be wondering what this has to do with contracts. One of my current research interests (obsessions) is the idea of notice substituting for actual assent, especially with online contracts. A dinky hyperlink nestled at the bottom of a page can serve as "notice," at least in the eyes of some courts although most people don't actually notice them. The fuss over the cigarette packaging (and Big Tobacco really fought hard over this one) underscores something that is often lost on courts evaluating notice in contract cases -- the quality of the notice matters. A warning label in a small text box gets ignored; graphic visual depictions of injured human organs do not. Snazzy corporate labels make smoking seem cool; plain labels don't have that same cachet. Websites, too, could draw more attention to their contracts, but they don't. They certainly know how to grab our attention when they want it, with images and sounds. So why make legal terms so unobtrusive? Could it be that they don't really want us to read them?
June 20, 2012
Contracts and Pension Reform
I'm a little late with this post but I'm going to open up a political can of worms here on the blog and talk about pension reform. In California, two cities (including my hometown, San Diego) have voted to approve changes to their city's pension plans. The San Jose measure seems to make changes to plans for retired workers. I can understand how changes to plans for new employees might be legal, but I'm not sure how changes to existing plans and vested benefits can be considered legal. The contract law issues boggle the mind. Not surprisingly, the proposed changes to the San Jose plan are being legally challenged. It's going to get messy....
June 04, 2012
Seventh Circuit Affirms Dismissal of Labor Union's Contracts Clause Claims
Council 31 of the American Federation of State, County and Municipal Employees, AFL-CIO (the Union) represents 40,000 employees in the state of Illinois. It agreed to certain cost-saving measures, including deferred wage increases, in order to help Illinois address significant budget pressures. When Illinois did not emerge from its financial woes, it instituted a wage freeze, repudiating the earlier deal.
The Union brought suit, citing inter alia the Contracts Clause, and seeking an injunction forcing the state to pay the wage increases as they came due. Illinois brought a motion to dismiss, which the District Court granted. In Council 31 v. Quinn, the Seventh Circuit affirmed.
The case is procedurally complex, especially since the parties proceeded with arbitration, in which the Union prevailed in part, and that ruling is subject to an on-going appeal in the state courts. Meanwhile, the 7th Circuit addressed only constitutional claims brought pursuant to the Contracts Cluase and the Equal Protection Clause against Illinois Governor Quinn and from the State's Department of Central Management Services Director Malcolm Weems, both in their offiical capacities.
Although the Union characterized its claims as seeking only injunctive and declaratory relief, the true aim was to get the state to make expenditures from its treasury. As such, not withstanding Ex parte Young, the Eleventh Amendment barred the Union's Contracts Clause claims against the defendants.
Even if there were no Eleventh Amendment bar to the suit, the Court also found that the Union could not state a claim under the Contracts Clause because it alleged only an ordinary breach of contract, which is insufficient to constitute an "impairment" of contractual relations for the purposes of the Contracts Clause. The reasons why this is so have to do with the state's defenses to the Union's claims in the arbitration proceedings and the state court appeals thereof. The basic argument is that appropriate legislative appropriations were a condition precedent to its duties to pay the wage increases. If that argument succeeds, there was no contractual impairment. If it fails, there is no need for a federal court injunction because the Union will have prevailed.
The Court dismissed the Union's Equal Protection claim because the challenged state rules withstand rational basis scrutiny.
May 30, 2012
Breaking SoL News from Ohio
Watchdog.org reports a recent change made by the Ohio House concerning the statute of limitations (SoL) for lawsuits alleging causes of action for breach of contract. Until recently, a party in Ohio had up to 15 years after a cause of action accrued to file a lawsuit for breach of written contract. However, S.B. 224, which was unanimously passed on Thursday, May 24, 2012, reduces the time period to eight years. In most states, the SoL for braech of contract is six years or less.
Speaker William Batchelder, R-District 69 said “this law has dated back to the days of early statehood, when businesses and consumers moved at a much slower pace. Obviously the speed at which industry moves has increased rapidly since then and S.B. 224 brings Ohio more in line with today’s fast-paced world.”
We'll see if the governor signs the law and brings Ohio's SoL into line with that of other states.
[Christina Phillips & JT]
May 29, 2012
Guest Post: How Do Surety Bond Costs Affect Small Contracting Firms?
Here is the first guest post by guest blogger Danielle Rodabaugh
It's no secret that the economy plays a huge role when it comes to competition in the construction industry. When the economy is down, competition goes up, and small contracting firms typically have trouble competing with larger ones. When construction professionals are unprepared to pay for the surety bonds required for large projects, the opportunity for small firms to gain access to business becomes even more limited.
Before I go much further, I'd like to review the use of surety bonds in the construction industry, as the surety market remains relatively mysterious to those who work outside of it. As explained in more detail here, the financial guarantees provided by contractor bonding keep project owners from losing their investments.
Each surety bond that's issued functions as a legally binding contract among three entities. The obligee is the project owner that requires the bond as a way to ensure project completion. When it comes to contract surety, the obligee is typically a government agency that's funding a project. The principal is the contractor or contracting firm that purchases the bond as a way to guarantee future work performance on a project. The surety is the insurance company that underwrites the bond with a financial guarantee that the principal will do the job appropriately.
Government agencies require construction professionals to purchase surety bonds for a number of reasons that vary depending on the nature of a project. For example, bid bonds keep contractors from increasing their project bids after being awarded a contract. Payment bonds ensure that contractors pay for all subcontractors and materials used on a project. Performance bonds ensure that contractors complete projects according to contract. When contractors break these terms, project owners can make claims on the bonds to gain reparation.
The federally enforced Miller Act requires contractors in every state to file payment and performance bonds on any publicly funded project that costs $100,000 or more. However, state, county, city and even subdivisions might require contractors to provide additional contract bonds, such as license bonds or bid bonds, before they can be approved to work on certain projects. Or, sometimes local regulations require payment and performance bonds on publicly funded projects that cost much less than $100,000. Contractors should always verify that they're in compliance with all local bonding regulations before they begin planning their work on a project.
Although the purpose of contractor bonding is to limit the amount of financial loss project owners might have to incur on projects-gone-wrong, the associated costs can limit the projects that smaller contracting firms have access to.
Surety bonds do not function as do traditional insurance policies. When insurance companies underwrite surety bond contracts, they do so under the assumption that claims will never be made against the bonds. As such, underwriters closely scrutinize every principal before agreeing to issue a contract bond.
Furthermore, the premiums construction professionals have to pay to get bonded might come as a surprise to those who know little about contractor bonding. Contractors often get tripped up with how much surety bonds will cost and how they'll pay for them — especially when it comes to independent contractors who operate small firms. Surety bond premiums are calculated as a percentage of the bond amount. The higher the required bond amount, the higher the premium. Thus, purchasing bonds for large projects obviously costs contractors more than purchasing bonds for small projects.
The percentage rate used to calculate the premium depends on a number of factors, including the contractor's credit score, years of professional experience and record of past work performance. The stronger these variables are, the lower the surety bond rate. The weaker these variables are, the higher the surety bond rate.
As such, small firms often find it hard to compete for large projects because they struggle to either qualify for the required bonds or pay the hefty premiums. When contractors are unable to secure contractor bonding as required by law, they are not permitted to work on projects. This, consequently, typically limits large public projects to large contracting firms that can both qualify for and afford to purchase large bonds. Fortunately, when small contracting firms fail to qualify for the commercial bonding market, the Small Business Administration does offer a special bonding program to help them secure the necessary bonding.
Smaller contractors can improve their situation by reading up on the surety bond regulations that are applicable to their area. Those who understand the surety process and how various factors affect their bond premiums should find themselves better prepared to apply for the bonds they need.
[Posted by JT on behalf of Danielle Rodabaugh]
March 14, 2012
Postcard from New Zealand....The Case of the Missing SFC
In my first post about my observations of contracting culture in New Zealand, I mentioned the unusual lack of contracts that consumers are forced to sign compared to in the States. Why wasn't I forced to sign a scary, multi-page, fine print form before my family was carried away on (very) rocky waters to swim with sea creatures in the open ocean? (Where was the laundry list of potential hazards that the company was not liable for, e.g. jumping in before the propeller blades were shut off, drowning, shock from the freezing water, hypothermia, being suffocated by too tight wetsuit and rubbery head cover, getting kicked in the face by flippers worn by German tourist....) Why didn't our visit to a traditional Maorian village include a standard form releasing the village from all liability if we fell into a steam vent or ate one of the very alluring, perfectly round and unusually blue berries that were tradiitonally used for dye - and which are very poisonous?
And then I found out about New Zealand's tort reform law. Back in the early seventies (the heyday of consumer regulatory reform everywhere, it seems), New Zealand adopted the Accident Compensation Act which basically abolished the ability to sue for personal injuries (providing a comprehensive no-fault benefits and rehabilitation scheme instead). I found this article by Peter Schuck which does a great job of outlining the kiwi approach to tort reform (which is, incidentally, called "Tort Reform, Kiwi-Style).
The case of the missing SFC. Mystery solved!
March 13, 2012
Contracts Clause Issue in Florida
As reported in the Miami Herald, the Florida legislature attempted to close a budget gap through Senate Bill 2100, which cut state and local workers’ salaries by three percent, eliminated cost of living adjustments, and shifted savings into the general revenue fund to offset the state’s contribution to the workers’ retirement account. State worker and their unions challenged the law.
Last week, on cross-motions for summary judgment in Williams v. Scott, Circuit Court Judge Jackie Fulford ruled against the Florida legislature. Judge Fulford found that the three percent salary cut is an unconstitutional taking of private property without full compensation. Permitting the cut would condone a breach by the state of the workers’ contracts in violation of the workers’ collective bargaining rights. To rule otherwise, Judge Fulford noted, “would mean that a contract with our state government has no meaning, and that the citizens of our state can place no trust in the work of our Legislature.” Judge Fulford ordered the money returned with interest.
Judge Fulford first distinguished this case from a 1981 Florida Supreme Court (pictured) case, Fl. Sheriffs Ass’n. v. Dept. of Admin., 408 So. 2d 1033 (Fl. 1981), in which the court found no impairment of contract when a special risk credit was reduced from 3% to 2%. While that case implicated only individual elements of future accruals within the state retirement plan, this case involves a complete change of that system from a noncontributory to a contributory plan. In this case, Judge Fulford found an impairment of contractual rights and found that the impairment is substantial. State impairment of contractual rights is nonetheless permissible if the state can demonstrate a compelling interest. But Judge Fulford found that the state was unable to make such a showing. A significant budget shortfall is not enough.
Judge Fulford also found that Senate Bill 2100 would effect an unconstitutional taking under the Florida state constitution. Bill 2100 also violates collective bargaining rights protected under Florida’s constitution, according to Judge Fulford.
According to the Miami Herald, this ruling leaves a $1 billion hole in the state budget for the 2011-12 budget year, another $1 billion hole for the 2012-13 budget year, and also delivers a $600 million blow to the Florida Retirement System. Governor Rick Scott vowed to swiftly appeal the “simply wrong” decision so that it has no effect on the current budget. Scott called Judge Fulford’s ruling “another example of a court substituting its own policy preferences for those of the legislature.” For what it's worth, Judge Fulford was appointed by Governor Scott’s Republican predecessor as Governor of Florida.
[JT & Christina Phillips]
February 17, 2012
Snyder on How to "Dine and Ditch" Under the UCC
The ABA Journal reports that The Cheesecake Factory will begin posting drink prices in Massachusetts after a lawyer threatened suit. According to the article, the lawyer "threatened to sue under the Massachusetts Consumer Protection Act on behalf of a friend who was charged $11 for a margarita at a Cheesecake Factory in Chestnut Hill. The price was not on the menu and the server was only able to provide a range of drink costs."
The ABA Journal looks to our very own founder, Franklin Snyder, for guidance. Previously, Frank had commented in a New York Times column about Nello. This Manhattan restaurant has (had?) a practice of not mentioning the price of a white truffle pasta lunch special. This practice shocked a recent diner when he turned over a bill charging $275 for the dish. To the New York Times, Snyder commented:
“You might be interested in letting your readers know that a restaurant meal is a ‘sale of goods’ under Article 2 of the Uniform Commercial Code,” he wrote. “The code provides that where the buyer and seller have agreed to a contract but have not agreed on the price, the price is not what the seller subsequently demands. It’s a reasonable price for the goods at issue. Thus a customer has no obligation to pay for anything more than the reasonable price of a pasta meal at a trendy restaurant.”
He continued: “In this circumstance, a customer should make a reasonable offer for the value of the meal, then walk out and wait to be sued for breach of contract. Be sure to leave the restaurant full contact information so they can’t claim that you’re trying to steal something.”
Thanks for the tip, Frank! I'm heading over to Nello for the truffle pasta dish. I hope there isn't a price listed on the menu.
[Meredith R. Miller]
November 21, 2011
Quote of the Day [On Consumer Choice and Pre-Dispute Arbitration]
"It may seem extraterrestrial, but I have lived in a world where people did not have cell phones or the gadgetry we see in our daily lives. Folks did survive."
I happened upon the quote in this piece by Public Citizen in favor of the Arbitration Fairness Act. The reaction to the quote in that article:
"[Schwartz'] comment was obviously puzzling in a modern context, and distracted from the real issue at hand, consumer rip-offs perpetuated by wireless companies, particularly in the fine print of cell phone contracts. Schwartz’s answer to the problems: Give up your mobile device."
To be fair, I will place the quote in its greater context within Schwartz' testimony:
Another commonly employed argument against pre-dispute arbitration provisions is that
they disadvantage consumers and employees because these groups have no bargaining power or
have unequal bargaining power. This argument adds that these arbitration clauses are often
buried in the “fine print” or are in contracts written in “legalese,” leaving many consumers or
employees unaware that these provisions even exist. But, here is the key point mentioned in the
beginning of my testimony. Consumers and employees voluntarily enter these contracts. It may
seem extraterrestrial, but I have lived in a world where people did not have cell phones or the
gadgetry we see in our daily lives. Folks did survive. If consumers balked at these agreements
and refused to buy products or services unless they could litigate disputes, it is my belief that at
least one or more companies would offer a non-arbitration alternative; in fact in many industries
where arbitration is used, some non-arbitration alternatives exist. The argument that consumers
lack bargaining power is a fallacy; consumers gain more bargaining power everyday through
increased competition and more avenues, such as on the Internet, to rate products and services.
So, who has the better side of the debate? Is not participating in consumption a solution? If you don't like pre-dispute arbitration, don't have a cell phone? Would enough consunmers really give up their cell phones to create a market for a "non-arbitration alternative"?
[Meredith R. Miller]
November 11, 2011
From Our Far-Flung Correspondents: A New EU Sales Law on the Way?!?
Tadas Klimas, a contracts (among other things) prof in Lithuania and a friend of the blog has shared with us a link to his blog, Civitatus in which he reports on a new opt-in sales law for Europe. His introductory content is pasted in below, but you can get the full story on his blog:
“The train has left the station.” These were the words of Viviane Reding, Vice-President and Commissioner for Justice, Fundamental Rights and Citizenship, spoken at the ECR European Contract Law Hearing held at the European Parliament in Brussels on May 3rd, 2011 (which I attended). This is how the question of whether there will or will not be a pan-EU Contracts Code was answered. The “Commisar” was trying to convey the idea that a political decision has been made and that there indeed will be an EU Contracts Code.
Commissioner Reding did not speak with forked-train. It’s been a slow train coming, but the official proposals have now been made. In words more understandable by American standards, the bill has now (just about a month ago – October 11) been proposed and is in committee.
- Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law (includes the text of the new Sales Law)
- Impact Assessments
- Executive Summary
Here is an alternate link to the EU Sales Law
Among the highlights of the new trans-European code are these:
- It is an opt-in code. This is the reverse of the CISG, which is opt-out.
- It is both Business To Business and Business to Consumer.
- It affects all cross-border trading, including online sales.
- It is applicable to cross-border trading and is not applicable to internal (within-country, national) sales. Thus the regime it imposes is one in which consumers purchasing from a seller within the country the consumer resides in will find their contracts governed as per usual by the national law. But consumers from another EU country, if the contract so states, will find the contract (and their consumer-protection laws) governed by this new opt-in EU UCC (Art. 2) (EU Common Sales Law).
- Supposedly this regime will lower information-costs and enhance, encourage, and expand cross-border trading.
- And my favorite: it contains a facilitative section enabling the new code’s adoption by EU Member States for national (within-border) sales.
The rationale for the code is more or less the standard iteration in defense of such legal regimes (such as the CISG).
September 24, 2011
Law Profs, Free Textbooks and $$$
Although this isn’t my first post to the blog, it is the first I’ve written since being officially welcomed (confusing I know, but it has to do with the wonders of time releasing posts…) So, I want to thank Jeremy for the very nice introduction and for the invitation to join my highly esteemed co-bloggers. Now, on to the topic of law profs making extra ca$h!
Over at PrawfsBlawg , Howard Wasserman asks whether a law school may prohibit its professors from reselling courtesy copies of textbooks. I think the answer is that it may as an employment matter, just as it may issue codes of conduct and other rules so long as the prohibition doesn’t run afoul of existing institutional policies, contracts or employment laws (I don’t think any apply to this situation).
What I find more interesting from a contracts prof’s perspective, is whether the publisher may prohibit such resale. As Wasserman notes, "West and Foundation now place stickers on courtesy copies explicitly prohibiting resale." I’m not sure that such a prohibition is valid. As the commenters to his blog post note, the cases in this area are not models of clarity. The critical issue is likely whether the transaction is characterized as a “license or a sale.” If it is a license, the publisher generally can issue restrictions; if it is a sale (i.e. a transfer of title), they probably cannot. With software, courts may permit such restrictions because software transactions are typically viewed as licenses not sales, see Vernor v. Autodesk, for example. (self promotion alert: I disagree – I think it depends upon the transaction, i.e. mass market consumer or customized). With things other than software --notice that I didn’t say goods -- it’s a toss up. A relatively recent case, UMG Recordings v. Augusto, indicates that such a restriction on a label would not be upheld. In that case, the Ninth Circuit found invalid a label prohibiting transfer of ownership of a promotional music CD. The case is at odds with other Ninth Circuit decisions involving software. The ruling in UMG v. Augusto is complicated by the applicability of a federal statute, the Unordered Merchandise Statute, 39 U.S.C. §3009 which provides that mailed unordered merchandise “may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.” Although there was no money exchanged for the CD, the court found that there was a “gift or sale” for the purposes of the first sale doctrine because there was a transfer of title.
Another interesting issue is whether digital books constitute “software” or “other things.” As the hardcover textbook cedes more ground to its digital counterpart, the characterization of ebooks as “books” or “software” gains importance although the key issue will remain whether the digital content is licensed or sold. Publishers of ebooks are likely to use the language of “license” rather than “sale” to prohibit transfers of ebook copies. It’s not clear whether the courts will defer; if they do, it will limit the impact of UMG Recordings v. Augusto.
September 22, 2011
Jail time for violating a browsewrap??
May 11, 2011
Texas Criminal Lawyers Seek to Enforce Contract with Exonerated Defendants
Yesterday, the New York Times published a lengthy story about contracts between attorney and lobbyist Kevin Glasheen and his clients, exonerated prisoners who hired Mr. Glasheen to to sue municipalities and the state of Texas for wrongful imprisonment in return for a 25% contingency fee. Instead of filing suit, Mr. Glasheen lobbied the legislature to increase the payout to the wrongfully imprisoned. He was successful. Instead of being statutorily entitled to $50,000/year, the exonerated are now entitled to $80,000/year.
According to the Times, on that basis, Mr. Glasheen sent Steven C. Phillips, who had spent 25 years behind bars, a bill for over $1 million. A hefty portion of the fee would go to the co-founder and chief counsel of the Texas Innocence Project, apparently as a referral fee. Mr. Phillips sued, presumably seeking a declaration that he has no obligation to pay. Another exonerated prisoner joined the suit. In addition, the state bar association initiated a disciplinary action, as described here in the Lubbock Avalanch-Journal. According to the Times, the bar association characterizes the fees as prohibited and unconscionable. State legislation is in the works to prevent the collection of the such fees going forward.
Mr. Glasheen characterizes the controversy as a typical fee dispute and prognosticates dismissal. "Meanwhile, I've got drug behind the pickup truck." I'm not fluent in Texan, but that sounds to me like a reference to the horrific murder of James Byrd, Jr. Wow.
The contracts issue will depend on the actual contractual language, of course, which we do not have. Was Glasheen to be compensated for filing a law suit on his clients' behalf (which he did not do) or for lobbying, (which he did)?
Moreover, I don't get the math. As the article points out, the exonerated get their annual payments until they die or are convicted of another felony. But even in the best case, Mr. Glasheen should only be entitled to 25% of the difference between $80,000/year and $50,000/year multiplied by 25. That comes to $187,500, which would then have to be discounted to present value. In short, nothing like $1 million.
Mr. Glasheen claims he has already collected $5 million in fees from other exonerated prisoners. The Innocence Project also rises to Mr. Glasheen's defense, arguing in essence that they partnered with him because he is the best at getting money for exonerated prisoners, and you have to pay to get that kind of representation. Why doesn't Steven Phillips want to pay? According to the Times, Glasheen has a simple explanation: Phillips is a sociopath conditioned by the prison system to lie to survive.
He's the best alright.
May 02, 2011
NY Times on Law School Merit Scholarships
As if our co-blogger Meredith Miller had not depressed us enough on Friday with her thoughts on job prospects for recent graduates, the New York Times piled on in its Sunday Business section with this article about merit scholarships that may not be all that they seem.
The story is about students who are lured to schools with merit scholarships that will free them from their obligation to pay law school tuition, so long as they maintain a certain grade point average. Most students assume that this will be no problem, because they arrive at law school with gaudy GPAs. As this chart compiled by Stuart Rojstaczer shows, the average undergraduate GPA was 3.11 in 2006-07. In such a Lake Wobegon world where all the students are above average, it seems reasonable for newly admitted law students to think they can make the grade without breaking a sweat.
The Times concludes that schools are luring students in with merit scholarships and then withdrawing those scholarships from a shockingly high number of students. Why? The answer is obvious to anyone inside the legal academy: to pump up their U.S. News numbers, of course. Law schools want high LSATs and undergraduate GPAs in their first year class. So they use fellowships to draw in students whose test scores and GPAs would otherwise take them elsehwere.
But is there injustice involved? The report states that the phrase "bait and switch" comes up a lot and that students are "shocked when their scholarships disappear." Would the injustice not be greater if an underperforming merit scholar got to keep her scholarship while a dark horse student with a 3.5 GPA still had to pay her way? And is it really too much to expect students who are admitted with merit fellowships to ask about grade distributions or use -- I don't know, perhaps the internet -- to find out how likely it is that they will keep their fellowships? Law schools frequently use current students to recruit newly admitted students. Contacts with current students are an ideal way to get just this sort of information.
Moreover, what U.S. News-conscious law schools take away, other U.S. News-conscious law schools may give. That is, let's say a student went to a 4th-tier law school in order to get the free ride. After the first year, the student loses her free ride because of a low GPA. She likely can transfer to a 3rd-tier school, perhaps even one that wouldn't have taken her at all as a 1L -- let alone with a scholarship -- because the other side of gaming the U.S. News system is poaching transfer students from lower-ranked schools. The student will still end up paying full tuition for two years of law school, but the alternative is paying full tuition for three years of law school.
Yes, law schools should be up front with information about the likelihood that students will lose their fellowships. My guess is that, because of the optimism bias, providing that information would not hurt law school recruitment. According to the Times, Chicago-Kent offers students the choice between a guaranteed $9000/year fellowship and a $15,000 fellowship contingent on maintaining a 3.25 GPA. Ninety percent of the students assume the risk.
January 14, 2011
Federal Contractors and Arbitration of Sexual Assault and Harassment Claims
As reported in the Bureau of National Affairs (BNA) Federal Contracts Report (subscription necessary, alas) -- and nowhere else that I can find on the web -- on December 8, 2010, the Department of Defense (DoD) issued its final rule implementing Section 8116 of the 2010 Defense Appropriations Act, known as the Franken Amendment. The Amendment applies to DoD contracts of more than $1 million and provides that contractors awarded such contracts must not require employees to arbitrate their Title VII claims or "any tort relating to or arising out of sexual assault or harassment."
According to the BNA Report, the Franken Amendment was a response to the case of Jamie Leigh Jones, a former employee of government contractor and former Halliburton-subsidiary, KBR. Ms. Jones alleged that her fellow KBR employees drugged and gang-raped raped her while she was working for the company in Baghdad. She further alleged that KBR confiscated, hid and tampered with the rape kit compiled by an army doctor who treated Ms. Jones. KBR then allegedly confined Jones to a shipping container under armed guard and denied her food, water and medical treatment.
Jones's case inspired Senator Franken (pictured) because KBR argued that her claims were subject to arbitration and sought dismissal of her suit from the federal courts. The Fifth Circuit denied KBR's motion to compel arbitration and remanded the case to the District Court. KBR's petition for cert. was denied in March.
December 01, 2010
Drafting executive compensation contracts
There aren't many areas these days where contracts have to be more carefully crafted than that of executive compensation. So you may be interested in a webinar that BNA is putting on next week. Here's the info:
Living on the Edge: Avoiding 409A and 162(m) Pitfalls in a Shifting Environment
Thursday, December 09, 2010
1:00 PM - 2:30 PM ET
Agenda: This BNA webinar will explain how to approach the design and administration of your executive compensation programs (including employment and severance agreements) and avoid the ever-tightening net of tax penalties under Section 409A and 162(m). It will cover common "traps for the unwary" and foot faults that may result in unintentional violations of Sections 409A and 162(m) and provide practical suggestions to guide decision making in these areas to optimize compliance. It will focus on areas where compliance has proven particularly difficult and flag common situations that present the highest risk of IRS challenge. Attendees will acquire practical information on how to avoid common 409A and 162(m) violations, how to spot the violations when they have occurred, how to correct violations when possible, and how to assess penalties when the violation cannot be corrected. Since attendees are often not the only ones in their organizations responsible for the oversight of matters that can lead to 409A and 162(m) violations, attendees will leave with suggestions and tools to aid them in maximizing success by coordinating with others throughout their organizations.
- Traps for the unwary -- the 10 most common situations that risk 409A or 162(m) violations, and how to recognize and deal with them
- Common foot faults - how drafting or operational mistakes that seem minor can result in serious tax penalties
- Implementing compliance procedures, including coordination within the organization
- Presentation of practical tips for spotting compliance issues requiring legal review
- What to do if a violation is discovered - panic, corrections, penalties, gross-ups
July 01, 2010
Movie Futures No Longer in Production - An Update
Previously, we blogged about movie futures. Cantor Fitzgerald was expecting to open an online futures market that would allow film studios, institutions and moviegoers to place bets on the box-office revenue of Hollywood’s biggest releases. It even had the green light from regulators.
However, it looks like the current financial reform legislation has thrown rotten tomatoes at the plan. The LA Times reports:
With financial reform legislation that would outlaw trading in box-office futures headed toward final passage, the company is giving up on its plans, said Richard Jaycobs, the executive heading the effort for Cantor Fitzgerald.
"The broader opportunity of motion picture finance is still something we have to evaluate, but we know now we're not going to do futures contracts," he said. "The bill is quite clear."
Though the financial reform bill isn't yet law, its box-office futures provision was made retroactive to June 1 by the House-Senate conference committee that hammered out final language for the bill last week. That would put a stake into both Cantor Exchange and its main competitor, Media Derivatives, which received final approval from the commission June 14.
Jaycobs said his firm was simply overwhelmed by the lobbying power of the Motion Picture Assn. of America, which on behalf of the six major studios persuaded Sen. Blanche Lincoln (D-Ark.) to insert a box-office-futures ban in her original version of the bill. The association also got House-Senate negotiators last week to not only keep the provision but also make it retroactive.
"I've really come to respect the MPAA's ability to be effective on [Capitol] Hill," Jaycobs said.
The major studios and some others in Hollywood had argued that box-office futures markets could create negative publicity for movies before they're released and would be too easy to manipulate. Backers have said they would be a useful financial tool for film investors.
This is how a bill becomes 2000 pages.
[Meredith R. Miller -- h/t Allen Blair (Hamline)]
June 04, 2010
UCC Legislative Update
Since my last update, Mississippi and Wisconsin have enacted Revised Article 1, Mississippi has enacted the 2002 Articles 3 and 4 amendments, and Florida and Georgia have enacted Revised Article 7. Most of these enactments will take effect on July 1; all of them will be in effect by August 1.
Revised Article 1
As of June 1, 2010, Revised Article 1 was in effect in thirty-seven states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and West Virginia.
Mississippi SB 2419 and Wisconsin SB 472, enacted this spring, will take effect on July 1 and August 1, respectively. Pending bills in Massachusetts (HB 89) and Ohio (HB 490) have shown some signs of life; but both have many hurdles to clear to achieve enactment this year.
What constitutes "good faith" remains a bone of contention. Twenty-six of the 37 states in which Revised Article 1 is already in effect enacted the uniform § R1-201(b)(20) "honesty in fact and the observance of reasonable commercial standards of fair dealing" definition, while 11 retained the pre-revised 1-201(19) "honesty in fact" default standard and the heightened standard §§ 2-103(1)(b) & 2A-103(3) impose on merchants. Mississippi SB 2419 adopts uniform § R1-201(b)(20); Wisconsin SB 472 retains the bifurcated standard; and Indiana SB 501 replaces the bifurcated standard Indiana enacted in 2007 with the uniform § R1-201(b)(20) standard. As of August 1, twenty-eight states will require all parties to act honestly and observe reasonable commercial standards of fair dealing; while twenty-three (including DC and the 11 states that have not yet acted on Revised Article 1) will require mere honesty from non-merchants, reserving for merchants the further obligation to observe reasonable commercial standards of fair dealing.
Article 2 & 2A Amendments
Oklahoma's 2005 amendments to its versions of Sections 2-105, 2-106, and 2A-103 (about which I previously reported here) represent the only successful effort to amend any state's enactment in a manner consistent with any of the 2003 amendments. There has been no reported action on this year's Oklahoma HB 3104 (detailed in my last update), which would have enacted more of the 2003 amendments, since it was referred to committee on February 2, 2010 -- the day following its introduction.
Article 3 & 4 Amendments
As of June 1, 2010, the 2002 amendments to Articles 3 and 4 were in effect in eight states: Arkansas, Kentucky, Minnesota, Nevada, New Mexico, Oklahoma, South Carolina, and Texas. Indiana SB 501, enacted in May 2009, and Mississippi SB 2419, enacted in April 2010, each take effect on July 1, 2010.
The only reported pending Articles 3 and 4 bill is Massachusetts HB 90, which has been languishing for nearly seventeen months in the Joint Committee on Financial Services, to which it was referred on January 10, 2009.
Revised Article 7
As of June 1, 2010, Revised UCC Article 7 was in effect in thirty-six states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, and West Virginia.
Florida HB 731 and Georgia HB 451, both enacted in May, will take effect on July 1. Pending bills in Massachusetts HB 89 (see above) and Ohio HB 490 (ditto) have shown some signs of life; but both have many hurdles to clear to achieve enactment this year. Two other Revised Article 7 bills introduced or reintroduced this year -- Washington SB 5154 and Wisconsin AB 688 -- are, to borrow a line from Mike Myers's quotable Stuart Mackenzie, "teats up" for the time being (although the odds are good that one or both legislatures will revive Revised Article 7 in a future legislative session).
[Keith A. Rowley]
March 01, 2010
UCC Legislative Update
It has been a fairly quiet eight months on the UCC legislative front since my last update.
Revised Article 1
As of March 1, 2010, Revised Article 1 was in effect in thirty-seven states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and West Virginia.
State legislatures continue to grapple with the definition of "good faith," although the uniform § R1-201(b)(20) definition has the upper hand. Of the 37 enacting states, 26 have adopted the uniform definition, while 11 have retained the pre-revised definition that, in conjunction with § 2-103(1)(b), imposes a different good faith standard on merchants and non-merchants. Effective July 1, 2010, one of those eleven minority states (Indiana) will join the majority as SB 501, enacted in 2009 primarily for the purpose of amending Articles 3 and 4, also included a new good faith definition for Indiana's Article 1.
With many state legislatures occupied with more pressing issues of the moment, 2009 yielded only three new adoptions -- Alaska, Maine, and Oregon -- down from five in 2008, and seven in 2007. While a downward trend in new enactments eventually becomes inevitable once two-thirds of the states have signed on, 2009's three enactments were the fewest in a year since 2003 (when Idaho became the third state overall to enact Revised Article 1).
As of March 1, only two states -- Mississippi and Wisconsin -- appear to be serious candidates to enact Revised Article 1 in 2010.
Mississippi SB 2419, introduced and amended (to replace a choice-of-law provision that appeared to have derived from the original § R1-301 that all 37 enacting states have declined to adopt and the ALI and NCCUSL have disavowed with one that reflected the substitute § R1-301 the ALI and NCCUSL promulgated in 2008) in January, unanimously passed the Mississippi Senate on February 10. It is presently before the House Judiciary Committee.
Wisconsin AB 687, introduced on January 25 and amended on February 16 to replace the uniform R1-201(b)(20) "good faith" definition with the pre-revised 1-201(19) version, received the Assembly Committee on Financial Institutions's unanimous approval on February 26. It is presently before the Assembly Rules Committee.
Two other bills, Massachusetts HB 89 and Washington SB 5155, seem less likely to produce results.
Massachusetts HB 89, a fifth attempt to enact Revised Article 1 in the Commonwealth, was assigned to the Joint Committee on Economic Development and Emerging Technologies on January 20, 2009. No further action has been reported as of March 1, 2010.
Washington SB 5155, introduced on January 15, 2009, appeared to be drawn directly from the language of official Revised Article 1 circa 2001, including the original version of § R1-301. At an initial public hearing on January 23, 2009, all those testifying in support of and in opposition to the bill opposed the choice-of-law provision. The Washington Senate has taken no further action on the bill.
Article 2 and 2A Amendments
As of March 1, 2010, only three state legislatures (Kansas, Nevada, and Oklahoma) have considered bills proposing to enact the 2003 amendments to UCC Articles 2 and 2A. In 2005, Oklahoma amended Sections 2-105 and 2A-103 of its Commercial Code to add that the definition of “goods” for purposes of Articles 2 and 2A, respectively, “does not include information,” see 12A Okla. Stat. Ann. §§ 2-105(1) & 2A-103(1)(h) (West 2009), and amended its Section 2-106 to add that “contract for sale” for purposes of Article 2 “does not include a license of information,” see id. § 2-106(1). The net effect is similar to having enacted Amended §§ 2-103(k) & 2A-103(1)(n), both of which exclude information from the meaning of “goods” for purposes of Article 2 and 2A, respectively. Otherwise, no state has enacted any of the 2003 amendments.
While the list of states enacting any of the 2003 amendments may not change in the near future, the number of amendments Oklahoma enacts may. Introduced on February 1, 2010, Oklahoma HB 3104 proposes amendments to forty-nine sections of Article 2 and four sections of Article 2A. The bill includes neither the reformulation of Sections 2-206 and 2-207 nor the addition of Sections 2-313A and 2-313B included in the 2003 Article 2 amendments. Many of the amendments appear designed to facilitate electronic signatures and transactions and to accommodate the terminology surrounding them that grows out of UETA, E-SIGN, and Revised UCC Articles 1 and 7, or to otherwise align Article 2 and 2A terminology with that used in Revised Articles 1 and 7. That is not to say that HB 3104 proposes only cosmetic changes to Oklahoma's versions of Articles 2 and 2A. Several of the proposed amendments alter existing substantive rights, obligations, or remedies. Some of those alterations (e.g., raising the statute of frauds floor from $500 to $5,000) do not seem to be inherently controversial; some (e.g., granting/recognizing a right to cure after a justifiable revocation) may or may not be controversial depending on how courts have interpreted the current Article 2; and some (e.g., giving sellers the right to recover consequential damages) do seem inherently controversial. This, however, is neither the place nor the time for a detailed assessment of HB 3104.
Article 3 and 4 Amendments
As of March 1, 2010, the 2002 amendments to Articles 3 and 4 were in effect in eight states: Arkansas, Kentucky, Minnesota, Nevada, New Mexico, Oklahoma (for a second time), South Carolina, and Texas.
In addition to enacting the 2002 amendments to Articles 3 and 4 and the usual conforming amendments, Indiana SB 501, which Governor Mitch Daniels signed into law on May 12, 2009, but does not take effect until July 1, 2010 also revises the definition of “good faith” in Ind. Code § 26-1-1-201(19) to require all parties to act honestly and to observe reasonable commercial standards of fair dealing. At present, Ind. Code § 26-1-1-201(19) requires only “honesty in fact.” Like the rest of SB 501, this change will take effect July 1, 2010, and further tip the balance among enacting states in favor of the unitary good faith definition in uniform R1-201(b)(20).
As of March 1, 2010, the only pending Articles 3 and 4 bill is Massachusetts HB 90, which has been languishing for more than a year.
Revised Article 7
As of March 1, 2010, Revised UCC Article 7 was in effect in thirty-six states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, and West Virginia.
Additional bills are currently pending in Georgia, Massachusetts, Washington, and Wisconsin; but only the Wisconsin bill appears to be making any progress.
First introduced on February 18, 2009, Georgia HB 451 won unanimous approval in the Georgia House on March 12, and the Senate Judiciary Committee recommended passage on March 26. However, the legislature adjourned on April 3 without a third reading and final action in the senate. HB 451 was "recommitted" to the Georgia Senate on January 11, 2010. No further action has been reported.
Massachusetts HB 89, which also proposes adopting Revised Article 1, was assigned to the Joint Committee on Economic Development and Emerging Technologies on January 20, 2009. No further action has been reported.
Washington SB 5154 was introduced on January 15, 2009, scheduled for a public hearing on January 23, 2009, and then stalled, like its Revised Article 1 counterpart, but without as compelling a reason. It was "reintroduced and retained in present status" on January 11, 2010. No further action has been reported.
Wisconsin AB 688 was introduced on January 25, 2010. On February 22, the Assembly Committee on Jobs, the Economy and Small Business unanimously recommended passage. The bill is now before the Assembly Rules Committee.
[Keith A. Rowley]