ContractsProf Blog

Update on Franken Amendment: Jamie Leigh Jones interview

We previously mentioned the "Franken Amendment" to the 2010 Defense Appropriations bill, which would withhold defense contracts from companies like Halliburton if their contracts restrict employees from suing in court for claims such as sexual assault, battery and discrimination. 

Jamie Leigh Jones and her attorney appeared on the Rachel Maddow Show last night to tell ther story, and speak in support of the amendment.  If you are interested in this development, it is worth watching:

[Meredith R. Miller]

A Narrow Proposal Aimed at Mandatory Arbitration in the Contracts of Employees of Government Contractors

The broadly drawn Arbitration Fairness Act, which would invalidate pre-dispute arbitration clauses in employment, franchise and consumer contracts, has been milling about Congress.  Supporters of the Act have often pointed to the unbelievably grim story of Jamie Leigh Jones, an employee of Halliburton who was gang raped by fellow employees and detained in a shipping container while working oversees in Iraq.  Apparently she is not the only female employee of a government contractor to have endured such an unspeakable experience. 

Halliburton fought tooth-and-nail to invoke the arbitration clause in Ms. Jones’ employment contract and to thereby keep her claims against it out of court.  Ultimately, after four years of fighting for her right to sue in court, the Fifth Circuit recently construed the scope of Ms. Jones' arbitration clause narrowly, and held that Ms. Jones should not be compelled to arbitrate her claims.  But the Fifth Circuit’s holding, of course, is limited to that particular contract and that particular jurisdiction, and its reach and influence is as yet unknown. 

 Ms. Jones’ case is undoubtedly an egregious and extreme example of the potential injustices occasioned by pre-dispute (or “mandatory”) arbitration clauses in the employment context.  Those who support the Arbitration Fairness Act have told her story in support of its passage – leaving one to wonder whether the story, while a compelling one, was sui generis, and not a basis on which to paint a broad policy against pre-dispute arbitration in all employment contracts, as well as consumer and franchise contracts.

But, Stuart Smalley Sen. Al Franken has found bipartisan support in a narrower piece of legislation that would directly address cases like that of Ms. Jones.  He has proposed an amendment to the 2010 Defense Appropriations bill that would withhold defense contracts from companies like Halliburton if their contracts with their employees restrict employees from suing in court for claims such as sexual assault, battery and discrimination. 

Franken spoke eloquently and persuasively of the need for this legislation, which is so narrow in scope it seems hardly objectionable:

Though, some Republicans remained unwilling to walk across the aisle to meet Franken on this legislation; Sen. Jeff Sessions described the amendment as a “political attack on Halliburton.” 

Wait a second, who was attacked here?

[Meredith R.  Miller] [h/t Emily Small]

Mid-Year Legislative Update

With most state legislatures having concluded their business for the year, here is the 2009 mid-year legislative update.

Revised Article 1

As of January 1, 2009, Revised Article 1 was in effect in thirty-four states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and West Virginia.

Notwithstanding my suggestion elsewhere that the substitute § R1-301 NCCUSL and the ALI promulgated last year might “grease the skids” for additional enactments this year, 2009 has turned out to be a relatively quiet legislative year for Revised Article 1, with only three enactments -- down from five in 2008, and seven in 2007. While the most noteworthy nonuniformity among the thirty-seven enactments remains the definition of “good faith” -- with 26 states having adopted the uniform § R1-201(b)(20) definition and 11 having retained the pre-revised definition that imposes a different good faith standard on merchants and non-merchants -- all three 2009 enactments adopt the uniform definition and one of the eleven states (Indiana) that retained the pre-revised definition has amended its version of Revised Article 1 to adopt the uniform definition effective July 1, 2010.

As of June 30, Alaska (HB 102), Maine (LD 1403), and Oregon (SB 558) have enacted Revised Article 1 thus far this year. The Alaska and Oregon enactments take effect on January 1, 2010, with Maine’s following on February 15, 2010.

The Washington legislature failed to act on SB 5155 before adjourning sine die on April 26. (That’s probably just as well, because the introduced version of SB 5155 appeared to be drawn directly from the language of official Revised Article 1 circa 2001 and included the no-longer-official version of Revised 1-301 that all 37 enacting states have declined to adopt).

It is possible that the Massachusetts legislature will consider a Revised Article 1 bill sometime this year; however, having waited months for HD 89 to be assigned a bill number, and given the failure of four prior bills to garner a floor vote in either chamber, I would be surprised to see definitive action anytime soon.

Article 2 and 2A Amendments

As of June 30, 2009, only three state legislatures (Kansas, Nevada, and Oklahoma) had 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 Supp. 2008), 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 the 2003 amendments.

Article 3 and 4 Amendments

As of January 1, 2009, the 2002 amendments to Articles 3 and 4 were in effect in six states: Arkansas, Kentucky, Minnesota, Nevada, South Carolina, and Texas. By July 1, 2010, that number will increase by at least 50%.

As of June 30, 2009, Indiana (SB 501), New Mexico (SB 74), and Oklahoma (SB 991) have enacted the 2002 amendments to Articles 3 and 4. Oklahoma SB 991 will take effect on November 1, 2009; New Mexico SB 74 will take effect on January 1, 2010; and Indiana SB 501 will take effect on July 1, 2010.

In addition to enacting the 2002 amendments to Articles 3 and 4 and the usual conforming amendments, Indiana SB 501 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).

Revised Article 7

As of January 1, 2009, Revised UCC Article 7 was in effect in thirty-one states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Virginia, and West Virginia. As of July 1, Revised Article 7 will be in effect in South Dakota, as well.

This has been a relatively active legislative year for Revised Article 7. In addition to South Dakota SB 89, which takes effect on July 1, Alaska (HB 102), Maine (LD 1405), and Oregon (SB 558) have already enacted Revised Article 7 in 2009, and Louisiana HB 403 lacks only Governor Bobby Jindal's signature (or pocket veto). Alaska HB 102 and Oregon SB 558 will take effect on January 1, 2010, as will Louisiana HB 403 (if enacted). Maine LD 1405 will take effect on February 15, 2010.

Georgia HB 451 made significant progress toward adoption. First introduced on February 18, the Georgia House unanimously passed the House Judiciary Committee’s substitute version 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.

Washington SB 5154 stalled, like its Revised Article 1 counterpart, but without as compelling a reason.

UETA

Although the Georgia legislature did not pass HB 451 prior to adjourning, it did pass the Uniform Electronic Transactions Act (HB 126), to which Governor Sonny Perdue affixed his signature on May 5. As a result, effective July 1, 2009, Illinois, New York, and Washington will be the only states in which UETA is not in effect.

[Keith A. Rowley]

"Pay for Performance" sponsor explains legal reasoning . . . sort of

The sponsor of the "Pay for Performance Act of 2009" gives his reasoning in a Huffington Post piece today.  Freshman Rep. Alan Grayson (left), who introduced the bill, is a Harvard Law grad who was a staff clerk at the D.C. Circuit and used to do government contracts work at the Fried, Frank ifirm n D.C., but his explanation for why his bill is reasonable contains some dubious legal reasoning.  His basic argument is that "the taxpayers are owners [of these covered institutions], and owners of companies set salaries for their employees."

Setting aside whether the bill is a good idea -- lots of folks are lining up on either side -- Grayson's legal analysis is wrong.  The "taxpayers" (to pick nits, it's the 'government," not the "taxpayers" that owns the stake) certainly have an ownership interest in those entities where the government has taken a capital stake.

But it's not true that "owners" of public companies "set salaries for their employees."  It is the directors of a company who are responsible for making decisions on employment and compensation -- the owners' only remedy is to fire the directors.  That's not a nit-picky distinction.  There's a solid line of cases going back to McQuade v. Stoneham (1934) which hold that any attempt by shareholders to bind directors to whom they can employ and at what compensation is void.  Directors are free to ignore commands from their majority shareholders, and are, in fact, required to do so if they believe that the action isn't in the firm's best interest.

None of this is to say that the government can't do this -- that's one for the Con Law folks, probably -- but it is curious that a highly trainsed lawyer has offered a pretty dubious legal analysis in support of it.

[Frank Snyder]

[NOTE:  Edited to remove erroneous description of the scope of the act.  F.S.]

UCC Legislative Update

Nearly three months after both houses of the Illinois legislature passed SB 2080, Governor Rod Blagojevich signed it into law on August 22, making Illinois the 34th state to enact Revised UCC Article 1 and the 31st state to enact Revised UCC Article 7. 

As have all thirty-three prior state enactments, and consistent with the ALI's and NCCUSL's promulgation earlier this year of a substitute for the original version of uniform R1-301, Illinois Public Act 95-0895 (neé SB 2080) rejects the 2001 uniform version of R1-301 in favor of language generally tracking its version of pre-revised 1-105.  Act 95-0895 also rejects the uniform good faith definition in R1-201(b)(20), joining Alabama, Arizona, Hawaii, Idaho, Indiana, Nebraska, Rhode Island, Tennessee, Utah, and Virginia in opting to retain the bifurcated good faith standard of pre-revised 1-201(19) and 2-103(1)(b).

Act 95-0895 will take effect January 1, 2009.

[Keith A. Rowley]

NY Codifies "Professor Review Copy Not for Resale"

I vaguely recall a discussion on the Contracts Listserv about the legal weight (if any) of the publisher's stamp on textbooks proclaiming: "Professor Review Copy Not for Resale." Well, New York has passed the Textbook Access Act, the central purpose of which is to "promote open and transparent marketing, choice, pricing and purchasing of course materials." Section 724(1) happens to prohibit instructors from reselling complimentary copies of textbooks. The full text of the statute is made available by Prof. Minna Kotkin over at Clinicians With Not Enough To Do.

New York profs with bags packed for the Strand, consider yourselves forewarned.

[Meredith R. Miller]

Arbitration Fairness Act Moves to Full Committee

Prof. Paul Secunda / Workplace Prof Blog reports that, yesterday, the House Commercial and Administrative Law Subcommittee decided by a voice vote to report the Arbitration Fairness Act bill (H.R. 3010) favorably to the full House Judiciary Committee.  The bill would ban pre-dispute arbitration agreements in employment, consumer and franchise contracts. 

[Meredith R. Miller]

Ding, Dong, the Which* is Dead

At its annual meeting last week, the American Law Institute approved an amendment, which NCCUSL (a.k.a. the Uniform Law Commission) had previously approved, replacing the oft-jilted text of Revised UCC § 1-301 with language consistent with pre-Revised UCC § 1-105:

§ 1-301. Territorial Applicability; Parties’ Power to Choose Applicable Law.

  (a) Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.

  (b) In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), [the Uniform Commercial Code] applies to transactions bearing an appropriate relation to this state.

  (c) If one of the following provisions of [the Uniform Commercial Code] specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:

    (1) Section 2-402;

    (2) Sections 2A-105 and 2A-106;

    (3) Section 4-102;

    (4) Section 4A-507;

    (5) Section 5-116;

    [(6) Section 6-103;]

    (7) Section 8-110;

    (8) Sections 9-301 through 9-307.

In so doing, the bodies responsible for the Uniform Commercial Code followed the lead of thirty-two of the thirty-three states that have enacted Revised Article 1 to date. Only Louisiana — deferring to its Civil Code to ascertain the applicable law where the transaction does not fall within the scope of a more specific choice-of-law provision elsewhere in the UCC — has enacted a version of Revised § 1-301 that differs non-trivially from the new official version.

* - As in, "Which state's law do you want to govern our contract?"

[Keith A. Rowley]

Speaking of International Law ...

Moved by the spirit of Jeremy's recent shout out to the new International Law Prof Blog, I realized it has been more than a year since I last updated this blog's readers on the status of the U.N. Convention on Contracts for the International Sale of Goods (CISG) and the U.N. Convention on the Use of Electronic Communications in International Contracts (CUECIC).

Since last May, the number of CISG Contracting States stands fast at 70.  During that same span, the number of signatories to the CUECIC has increased from 10 to 18 with the additions of Colombia, Honduras, Iran, Montenegro, Panama, Philippines, Republic of Korea, and Saudi Arabia.  However, because none of the signatories have yet ratified or acceded to the CUECIC, it is not yet in effect in any country; whereas, depending on one's opinion on the effect of the U.S. Supreme Court's recent Medellin decision on the viability of the CISG in the United States, the CISG is in effect in either all of its Contracting States (except in transactions in which the parties have expressly contracted out of the CISG) or all of them except the U.S. (except in transactions in which the parties have expressly contracted into the CISG).

[Keith A. Rowley]

Not-Quite-Mid-Year UCC Legislative Update

Out of deference to friends and colleagues updating casebooks and statutory supplements for publication prior to the start of fall classes, as well as friends and colleagues teaching contracts or commercial law courses this summer or preparing or updating their own teaching materials for the fall, here's the early edition of this year's Mid-Year UCC Legislative Update.

Revised Article 1 (2001)

As of January 1, 2008, twenty-nine states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia -- had enacted Revised Article 1, and twenty-eight of those enactments were in effect (Kansas's version has a delayed effective date of July 1, 2008).

As of May 17, 2008, four more states -- Pennsylvania (HB 1152), South Dakota (SB 93), Tennessee (SB 3993), and Vermont (HB 563) -- have enacted Revised Article 1 thus far this year.  All four enactments will take effect on or before July 1, 2008.  With only one other pending bill -- Illinois SB 2080 -- having made any progress (the Illinois Senate passed it unanimously on April 9 and it is currently scheduled for a hearing before the Illinois House Judiciary Civil Law Committee on May 20), it appears that 2008 will yield the fewest new enactments since 2004.  That said, Revised Article 1 will be law in at least two-thirds of the states by July 1.

As I have discussed previously, the two primary bones of contention during the enactment process have been uniform R1-301's choice-of-law rules and uniform R1-201(b)(20)'s "good faith" definition.  None of the thirty-three enacting states has adopted uniform R1-301; instead, all have chosen to either leave their pre-revised 1-105 in place or to enact a substitute 1-301 with language consistent with pre-revised 1-105.  (Louisiana subsequently amended its substitute 1-301 to diminish the distinction between choice-of-law rules applicable to UCC and non-UCC transactions; but, a fuller exploration of that amendment is another topic for another day.)  There had been less uniformity with regard to defining "good faith."  Twenty-three states -- including Pennsylvania, South Dakota, and Vermont -- have enacted uniform R1-201(b)(20)'s "honesty in fact and the observance of reasonable commercial standards of fair dealing" definition; while ten states -- including Tennessee -- have retained pre-revised 1-201(19)'s "honesty in fact in the conduct or transaction concerned" definition, reserving the requirement of commercial reasonableness for merchants under 2-103(1)(b) & 2A-103(3).  If enacted as it currently reads, Illinois SB 2080 would make uniform R1-301 0-for-34 and would make Illinois the eleventh enacting state to retain the bifurcated good-faith standard.

In response to the widespread failure of uniform R1-301, NCCUSL has approved and the ALI will consider later this month a substitute uniform R1-301, which -- as so many states have already done while enacting Revised Article 1 -- retains the essence of pre-revised Section 1-105.

Amended Articles 2 & 2A (2003)

The 2003 amendments to Article 2 and 2A continue to stagnate.  Bills proposing their enactment have died unceremonious deaths in Kansas and Nevada.  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 Supp. 2008), 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.  Attempts to further amend Articles 2 and 2A in Oklahoma have been unsuccessful and no other state's legislature has considered a bill proposing to enact the 2003 Article 2 and 2A amendments.

Amended Articles 3 & 4 (2002)

For several years now, those who teach UCC Articles 3 and 4 have had to caution students that New York and South Carolina had not adopted the 1990 revisions of Article 3 and 4, on which most payments teaching materials focus much of their attention.  More recently, we have had to decide how much emphasis to give the 2002 amendments to Article 3 and 4 -- which, until April 15, only five states (Arkansas, Kentucky, Minnesota, Nevada, and Texas) had enacted.

By affixing his signature to SB 936 on April 15, Governor Mark Sanford made law a sweeping revision of South Carolina's Articles 3 and 4 that has the effect of enacting the 1990 revisions as amended by the 2002 amendments.

New York SB 4120 proposes comparably sweeping changes to New York's versions of Article 3 and 4. However, SB 4120 has not made any progress since it was introduced and referred to the Senate Judiciary Committee on March 27, 2007, and re-referred to the Committee on January 9, 2008.

The only other bill currently pending that proposes adopting the 2002 amendments to UCC Articles 3 & 4 (along with certain conforming amendments to other articles) is Oklahoma HB 2588, which was introduced on February 4, 2008.  On February 5, HB 2588 was referred to the House Judiciary and Public Safety Committee, which voted on February 28 to recommend passage.  No further action has been reported as of May 17, 2008.

Revised Article 7 (2003)

As of January 1, 2008, twenty-eight states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Indiana, Iowa, Kansas, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia -- had enacted Revised Article 7, and twenty-seven of those enactments were in effect (Kansas's version has a delayed effective date of July 1, 2008).

As of May 17, 2008, Pennsylvania (HB 1152) and Tennessee (HB 3950) have enacted Revised Article 7 thus far this year.  Both enactments will take effect on or before July 1, 2008.   

The only other pending bills are Illinois SB 2080 and Massachusetts HB 4302 -- both of which combine Revised Articles 1 & 7.  As discussed above, Illinois SB 2080 appears to be making progress toward enactment.  Massachusetts HB 4302, by contrast, appears to be headed nowhere.

[Keith A. Rowley]

Congress May Close Loophole for Defense Contractors

According to the Associated Press, as reported in the Orlando Sentinel, Congress is moving to close a loophole that until now has permitted military contractors to avoid paying taxes and evade the strictures of U.S. employment law by setting up off-shore shell corporations. 

According to the report, U.S.-based military contractors have been setting up subsidiaries in places like the Cayman Islands.  These subsidiaries then employ U.S. citizens who provide support services for the U.S. military abroad.  As foreign corporations doing work abroad, these subsidiaries do not pay social security or medicare taxes for their workers and need not abide by federal labor and anti-discrimination laws.  The A.P.'s investigation suggests that the off-shore subsidiaries exist only on paper, without an address or phone number. 

The House passed tax legislation two weeks ago that would treat  foreign subsidiaries of U.S. government contractors as U.S. corporations.  The Senate is now considering the measure.  Today's New York Times features an editorial urging passage of the legislation. 

[Jeremy Telman]

Vermont and Pennsylvania Enact Revised Article 1; Tennessee and Illinois Progress Toward Enactment

Governor Jim Douglas signed Vermont HB 563 into law on April 10.  Governor Ed Rendell did likewise to Pennsylvania HB 1152 on April 16.  Pennsylvania HB 1152, by its terms, takes effect on or about June 15, 2008.  Vermont HB 563, along with Kansas SB 183 (enacted last year) and South Dakota SB 93 (enacted earlier this year), will take effect on July 1, 2008.

Vermont HB 563 and Pennsylvania HB 1152 both eschew uniform R1-301 (making it 0-for-32 for those scoring at home) and adopt the uniform R1-201(b)(20) good faith definition (that tally now stands at 23-to-9 in favor of the new unitary standard).

Elsewhere:

The Tennessee Senate and House have approved slightly different versions of Tennessee SB 3993.  The Tennessee Senate is scheduled to vote next Monday (April 21) whether to accept the House's amended version.

The Illinois Senate has unanimously approved Illinois SB 2080, which now awaits a first reading in the Illinois House.

Massachusetts HB 4302 continues to idle.

The bills pending in Tennessee, Illinois, and Massachusetts all reject uniform R1-301.  The Massachusetts bill adopts the uniform R1-201(b)(20) good faith definition, while the bills pending in Tennessee and Illinois retain the bifurcated good faith standard currently in effect by replacing the language of uniform R1-201(b)(20) with "honesty in fact in the conduct or transaction concerned."

[Keith A. Rowley]

South Dakota Makes 30

By affixing his signature to SB 93 on March 13, 2008, Governor Mike Rounds made South Dakota the thirtieth state to enact Revised Article 1.  South Dakota's enactment, along with Kansas's (enacted last year), will take effect on July 1, 2008.

SB 93, like the versions of Revised Article 1 enacted in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia, rejects uniform R1-301.  (To date, only the U.S. Virgin Islands has adopted uniform R1-301.)

SB 93, like the versions of Revised Article 1 enacted in Arkansas, California, Colorado, Connecticut, Delaware, Florida, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Texas, and West Virginia, adopts uniform R1-201(b)(20)'s definition of "good faith."  By contrast, Alabama, Arizona, Hawaii, Idaho, Indiana, Nebraska, Rhode Island, Utah, and Virginia retained the pre-R1 “honesty in fact in the conduct or transaction concerned” definition in Article 1 and left 2-103(1)(b) & 2A-103(3) unchanged.

The bills currently pending in Massachusetts, Pennsylvania, Tennessee, and Vermont do not appear to be making much progress.  But, you can count on your faithful correspondent to alert you if that changes.

[Keith A. Rowley]

UCC Article 1 Legislative Update (2/22)

As of January 1, 2008, Revised UCC Article 1 was in effect in 28 states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia.  Kansas's version of Revised Article 1, enacted last year, will take effect on July 1.  Of the 29 state enactments to date, 0 of 29 include the uniform Revised 1-301 choice of law provision -- each of the 29 enacting state legislatures having opted instead for some variation of its state's pre-revised 1-105 -- and only 20 of 29 include the uniform 1-201(b)(20) definition of "good faith" -- 9 state legislatures opting to retain the pre-revised "honesty in fact" definition in Article 1 and reserve "the observance of reasonable commercial standards of fair dealing" requirement for parties and transactions subject to that standard under another Article.

As of February 22, 2008, bills proposing to enact Revised Article 1 were pending in five states: Massachusetts, Pennsylvania, South Dakota, Tennessee, and Vermont.  Massachusetts HB 4302, which succeeds the previously unsuccessful HB 3731, is currently awaiting a third reading in the Massachusetts House.  Pennsylvania HB 1152, which was tabled last fall after passing the Pennsylvania House, was removed from the table on February 12 and awaits a third reading in the Pennsylvania Senate.  South Dakota SB 93 unanimously passed the South Dakota Senate on January 29, unanimously passed the South Dakota House yesterday, and now awaits Governor Mike Rounds's approval (or lack of disapproval, as the case may be).  Tennessee HB 3949 and SB 3993 were both introduced on January 31 and are currently before their first committees in their respective introducing chambers.  Vermont HB 563 passed the Vermont House on January 24 and is now before the Vermont Senate Economic Development, Housing & General Affairs Committee.  All five currently-pending bills reject the uniform Revised 1-301 choice of law provision (opting instead for some variation of pre-revised 1-105) and embrace the unitary good faith standard of uniform Revised 1-201(b)(20).

[Keith A. Rowley]

UCC Revised Article 1 Update

As of January 1, 2008, Revised UCC Article 1 was in effect in 28 states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia.  Kansas's version of Revised Article 1, enacted last year, will take effect on July 1.  Of the 29 state enactments to date, 0 of 29 include the uniform Revised 1-301 choice of law provision -- each of the 29 enacting state legislatures having opted instead for some variation of its state's pre-revised 1-105 -- and only 20 of 29 include the uniform 1-201(b)(20) definition of "good faith" -- 9 state legislatures opting to retain the pre-revised "honesty in fact" definition in Article 1 and reserve "the observance of reasonable commercial standards of fair dealing" requirement for parties and transactions subject to that standard under another Article.

As of February 12, 2008, bills proposing to enact Revised Article 1 were pending in four states: Massachusetts, Pennsylvania, South Dakota, and Vermont.  Massachusetts HB 4302, which succeeds the previously unsuccessful HB 3731, is currently awaiting a third reading in the Massachusetts House.  Pennsylvania HB 1152, which was tabled last fall after passing the Pennsylvania House, was removed from the table today and awaits a third reading in the Pennsylvania Senate.  South Dakota SB 93 (apparently now with the blessing of the South Dakota Bar Associations Business Law Committee) unanimously passed the South Dakota Senate on January 29 and is now before the South Dakota House Judiciary Committee.  Vermont HB 563 passed the Vermont House on January 24 and is now before the Vermont Senate Economic Development, Housing & General Affairs Committee.  All four currently-pending bills reject the uniform Revised 1-301 choice of law provision (opting instead for some variation of pre-revised 1-105) and embrace the unitary good faith standard of uniform Revised 1-201(b)(20).

[Keith A. Rowley]

Gambling Debts Now Enforceable in U.K.

Britain’s Gambling Act of 2005 -- which comes into effect this year -- has garnered a lot of attention.  But one aspect of the new law hasn’t gotten much play, according to Carl Rohsler of London’s Hammonds. It’s the sentence in the act that says, "the fact that a contract relates to gambling shall not affect its enforcement."

That sweeping statement, says Rohsler, "wipes out over 200 years of precedent . . . not only in the UK but also in most common law jurisdictions around the world, that gambling contracts are debts of honour only."  Gambling houses that once had to demand that gamblers cough up the cash in advance (because they could not collect the debts in court) can now lend money to gamblers and collect their debts in the usual way. Rohsler’s comments on this development are here.  A more general introduction to the Act, by Paul Renney of London’s Campbell Hooper, is here.  (Free registration required for each.)

[Frank Snyder]

U.K. Courts Favoring Arbitration Clauses?

Courts in the U.K. are increasingly willing to enforce dispute resolution clauses in contracts, according to a client report from Jeremy Glover at London’s Fenwick Elliott. LLP. Glover examines the recent High Court decision in Harper v Interchange Group Limited [2007] EWHC 1834. (Free registration required.)

The case involved a dispute about commissions that Interchange was allegedly supposed to pay to Harper. The contract contained rather awkward clause, which provided that if the two parties were unable to reach agreement on the commission amounts:

then the dispute shall be referred, with the agreement of the Purchaser and Mr Harper, or in the absence of such agreement, by the President for the time being of the Institute of Chartered Accountants in England and Wales on the application of either of them, to an independent chartered accountant (being a partner of one of the "big 6" firms) who, once appointed, shall act as an expert (not as arbitrator) and whose decision shall, in the absence of manifest error, be final and binding on the parties.

One of Harper’s arguments was that the clause (presumably because it said that the accountant would not serve as an arbitrator) meant that the expert accountant was only supposed to calculate damages, but that issues of construction of the contract would have to go to the courts. Writing for the court, Mr. Justice Aikens disagreed.

[Frank Snyder]

China Gets New Labor Contract Law

This coming January 1, China will have a new law governing employment contracts. Among the requirements is one that all employees be provided with a written employment contract; failure to do so will turn the relationship into "indefinite" employment which can be terminated only for cause. And failure to specify a term may also lead to creation of "indefinite" employment. And trying to get around the rules by using a series of fixed-term contracts won’t likely work, either.

Samuel Estreicher and Winston Zhao of Cleveland’s Jones Day offer a rundown of the new law here. (Free registration required.)

[Frank Snyder]

UCC Articles 2 & 2A Legislative Update (7/1)

As of July 1, 2007, the 2003 amendments to Article 2 and 2A continue to stagnate.  Bills proposing their enactment have died unceremonious deaths in Kansas and Nevada.

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 Supp. 2007), 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.

Attempts to further amend Articles 2 and 2A in Oklahoma have been unsuccessful and no other state's legislature has considered a bill proposing to enact the 2003 Article 2 and 2A amendments.

Unless NCCUSL and the ALI return to the drawing board and initiate a legislative full court press (neither of which seems likely in the near future), the only amendments to Articles 2 and 2A likely to be of any relevance in the foreseeable future are conforming amendments required by a state's adoption of Revised Article 1 or 7 or amended Articles 3 and 4.

[Keith A. Rowley]

UCC Article 1 Legislative Update (7/1)

As of July 1, when Indiana SB 419, Iowa SF 535, and Rhode Island SB 105 take effect, Revised Article 1 (except for "uniform" R1-301, which no enacting state has adopted) will be law in a majority of states.  Also enacted earlier this year, North Dakota HB 1035 will take effect August 1, Florida SB 252 will take effect January 1, 2008, and Kansas SB 183 will take effect July 1, 2008.

The aforementioned bills, plus Utah SB 91, which was enacted in March and took effect April 30, bring to seven the number of new Revised Article 1 enactments in 2007.  This matches the number of Revised Article 1 bills enacted in 2002-04 combined (Alabama, Delaware, Hawaii, Idaho, Minnesota, Texas, and Virginia) and in 2005 (Arkansas, Connecticut, Montana, Nebraska, Nevada, New Mexico, and Oklahoma), and is one less enactment than in 2006 (Arizona, California, Colorado, Kentucky, Louisiana, New Hampshire, North Carolina, and West Virginia).  The only bill currently pending is Pennsylvania HB 1152, which idled on the Pennsylvania House Commerce Committee's docket for nearly two months before making it out of that committee and onto the docket of the House Rules Committee, which approved it last week.

As I have discussed several times, the two primary bones of contention during the enactment process have been uniform R1-301's choice-of-law rules and uniform R1-201(b)(20)'s "good faith" definition.  As noted above, none of the twenty-nine enacting states has adopted uniform R1-301; instead, all have chosen to either leave their pre-revision 1-105 in place or to enact a substitute 1-301 with language consistent with pre-revised 1-105.  There had been less uniformity with regard to defining "good faith."  Twenty states have enacted uniform R1-201(b)(20)'s “honesty in fact and the observance of reasonable commercial standards of fair dealing” definition; nine states have retained pre-revised 1-201(19)'s “honesty in fact in the conduct or transaction concerned” definition, reserving the requirement of commercial reasonableness for merchants under 2-103(1)(b) & 2A-103(3).  If enacted as it currently reads, Pennsylvania HB 1152 would make uniform R1-301 0-for-30 and would further tip the balance in favor of uniform R1-201(b)(20), making that tally 21-9.

[Keith A. Rowley]