ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

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)

Saturday, October 3, 2015

Gag Clauses in Consumer Contracts

They’re still doing it: companies not wanting negative online reviews of their products or services attempt to contractually prohibit unsatisfied customers from posting such feedback. Not only that, but some companies also seek to take legal and other retaliatory action against their customers if they defy such attempted clauses.

For example, the FTC recently instigated suit against weight-loss company Roca Labs for threatening legal action against customers writing negative comments about the company’s allegedly ineffective weight loss powder.  (H/t to my colleagues on the AALS Contracts listserv for mentioning this story).  When one of Roca Lab’s customers posted a comment on the Better Business Bureau website, the company cited to their contract with the client that stated, “You will not disparage RL and/or any of its employees, products or services... If you breach this agreement... we retain all legal rights and remedies against the breaching customer..."  The company also asked the customer for information about her contacts on Twitter and Facebook (she luckily declined…).

There is no federal law prohibiting companies from trying to suppress negative reviews, but the FTC alleged unfair practices, among other things because the clause in question was buried in fine print.  The issue may also be a First Amendment problem, according to an attorney for, a third-party website that, as the name indicates, allows negative reviews of companies.

I could not agree more that the voice of customers who have been disappointed for good reason should be heard. It is, frankly, ridiculous what some companies can get away with in this country in this day and age, in my opinion.  (In the EU, for example, much more consumer-friendly regulations exist. In the USA, the legislative balancing of consumers v. companies often, in my opinion, is more of a slant favoring businesses, but that’s a thought for another day).  But here’s the thing: what about the true risk of disgruntled customers posting reviews that don’t quite reflect what really happened, that exaggerate the situation, or that simply make things seem worse than what they really were?  Even with emoticons, things can seem very harsh once written down even if they were not necessarily meant to be. 

Take, for example, popular hosting website Airbnb.  My husband and I own a historically registered house that requires a lot of upkeep and fixing after 90 years of neglect, so we signed up as hosts to try it out and, of course, to make a little extra money.  We love it!  We meet the most interesting people that truly enjoy our house. But as one’s success on that and other websites is, in reality, often tied closely to having a large amount of very good reviews, we also live with the constant worry that one day, somebody could post a negative review about something that most people would probably consider seemingly minor (our house is almost 100 years old, and there are necessarily small kinks with a house like that).  See also Nancy Kim’s recent blog on our apparently increasing need to judge each other negatively. At least Airbnb allows its users to post comments to reviews, but not all websites follow such practice.

My point is simply this: it is, of course, to go overboard to require one’s paying customers to not post negative reviews via contractual clauses or other methods. But how do we balance the need for true and honest, productive reviews with the risk of disgruntled and perhaps even dishonest customers?  Comment below!

October 3, 2015 in Current Affairs, In the News, Legislation, True Contracts, Web/Tech | Permalink | Comments (2)

Tuesday, September 22, 2015

Lyft's TOS Can't Save It From the TCPA (or Why Contract Law's Version of Consent Needs to Get With the Program)

The FCC recently issued a Citation and Order to Lyft  which alleges that its terms of service violate the Telephone Consumer Protection Act (TCPA).  Under the TCPA, a company that wants to inflict autodialed phone messages or text messages for marketing purposes must first obtain the express prior written consent of the recipient. Furthermore, FCC regulations forbid requiring such consent as a condition of purchasing any goods, services or property. Significant penalties result from failure to comply with the TCPA and the accompanying rules.  Lyft has already updated its TOS in response to the FCC's action.

Lyft's terms of service required its customers to consent to autodialed calls and texts.  Prospective customers are required to check a box stating "I agree with the Terms of Service."  The sign-up page includes a link to the Lyft TOS.  Section 6 of the Lyft TOS stated:

"By becoming a User, you expressly consent and agree to accept and receive communications from us, including via e-mail, text message, calls, and push notifications to the cellular telephone number you provided to us. By consenting to being contacted by Lyft, you understand and agree that you may receive communications generated by automatic telephone dialing systems and/or which will deliver prerecorded messages sent by or on behalf of Lyft, its affiliated companies and/or Drivers, including but not limited to: operational communications concerning your User account or use of the Lyft Platform or Services, updates concerning new and existing features on the Lyft Platform, communications concerning promotions run by us or our third party partners, and news concerning Lyft and industry developments. IF YOU WISH TO OPT-OUT OF PROMOTIONAL EMAILS, TEXT MESSAGES, OR OTHER COMMUNICATIONS, YOU MAY OPT-OUT BY FOLLOWING THE UNSUBSCRIBE OPTIONS PROVIDED TO YOU.Standard text messaging charges applied by your cell phone carrier will apply to text messages we send. You acknowledge that you are not required to consent to receive promotional messages as a condition of using the Lyft Platform or the Services. However, you acknowledge that opting out of receiving text messages or other communications may impact your use of the Lyft Platform or the Services."

 The terms stated that consumers may opt out by using "unsubscribe options," but the FCC investigation discovered that such an option didn't really exist.  There was no easy way to find the unsubscribe option and consumers had to navigate Lyft's website to find the opt-out page.  Even  if they did manage to find it, if they opted out, they couldn't use the service. 

This is another instance where contract law's easy assent rules don't actually help businesses and cause too much confusion.  While a consumer may have "consented" to the autodialing and the texts under contract law, the FCC rules require something that is more like what most people consider to be consent - express written consent and a real choice not to agree.  A default opt-in unless you opt-out (and even that's illusory), well - that just doesn't cut it under the TCPA and the FCC rules.  Sadly, in contract law, too often it does.

Contract law should get with the program and follow the commonsense version of consent adopted by the FCC. 


September 22, 2015 in Current Affairs, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (1)

Monday, August 24, 2015

Contracting to Pollute

Hugely successful auto-maker Tesla is making very good money not only on its electric cars, but also on its contracts selling zero emission credits to rivaling automakers. New environmental standards in eleven states require that by 2025, 15% of a car company’s sold fleet must be so-called “zero emission” vehicles.  If a company cannot meet existing standards, they can purchase zero emissions credits from other companies that can. Tesla is one of those.

This year, Tesla has sold approximately $68 million worth of credits to competing automakers, which represents 12% of its overall revenue. Overall, Tesla is doing very well: its net profit for the first quarter of this year was more than $11 million and its shares have been reported to be up more than 165% so far this year.

This raises the question that I also raised here on this blog in another post earlier this summer: is the emissions trading scheme a good idea, or does it simply allow for glorified “contracts to pollute”? As with many other things in the law, both could be seen to be the case. See this report that casts doubt on whether carbon credits help or hurt the agenda. Some call them "hot air,"perhaps for good reason. But at least Tesla is, hopefully, challenging other automakers to innovate to pollute less.

Another question, though, is the use of the euphemism “zero emissions.” Electric vehicles are arguably better seen from an environmental point of view than traditional cars, but they are not “zero” emissions.  They could, instead, be called “emissions elsewhere” vehicles.  That, of course, does not sound nearly as good. However, the electricity used for electric cars is produced somewhere. The true question is: by what means? If the electricity stems from dirty coal-fired power plants, the solution is not as good as it sounds, although concentrating the pollution in one large plant may be better than having many individual cars produce power on the road. That is a question for another forum. Suffice it to say that choice is good, and if car buyers could also in all locales could always decide exactly how to source their electricity (from, for instance, solar power), the matter would be different. That is not (yet) the case. So for now, “zero emission” vehicles are actually not so.

August 24, 2015 in Current Affairs, In the News, Legislation, Travel, Web/Tech | Permalink | Comments (0)

Tuesday, August 4, 2015

A Justified Existence for Some California Law Schools?

A new Los Angeles Times investigation has revealed that nine out of ten students drop out of unaccredited law schools in California.  Of the few students that graduate, only one in five ultimately become a lawyer.  In other words, a mere 2% of the people that initially enroll in an unaccredited law school end up being attorneys.  Shameful at best.  One example of one person who did not make it as an attorney is former Los Angeles mayor Antonio Villaraigosa who went to “People’s College of Law” and took the bar four times, but never passed.

Unaccredited law schools are said to flourish in California. The state is one of only three in the nation that allow students from unaccredited law schools to take the bar test (the others are Alaska and Tennessee).  Unaccredited schools in California are held to very few academic standards by regulatory bodies and, by their very nature, none by accrediting agencies.

Most of the unaccredited law schools are owned by small corporations or even private individuals.  One, for example, is owned by a“Larry H. Layton, who opened his school in a … strip mall above a now-shuttered Mexican restaurant. He thought the Larry H. Layton School of Law, which charges about $15,000 a year, would grow quickly. But according to the state bar records, he has had six students since 2010.”  

Experts again say that action must be taken.  For example, Robert Fellmeth, the Price Professor of Public Interest Law at the University of San Diego School of Law, has stated that unaccredited schools “aren't even diploma mills, they are failure factories.  They're selling false hope to people who are willing to put everything out there for a chance to be a lawyer."  

As before, the problem goes beyond unaccredited law schools.  Several ABA accredited law schools also demonstrate both poor employment and bar passage statistics, although the problem seems to be the most severe when it comes to unaccredited schools. 

This story is not new to your or many others.  However, it serves as a reminder of the continued importance of both insiders and outsiders taking a renewed look at regulations for (and broader expectations of) law schools in California and beyond. As always, purchasers of anything including educational “services” (which, as the above other and many other studies show, can all too easily turn out to be disservices) should be on the lookout for what they buy. A great deal of naivety by new students seems to be contributing to the problem.  However, that does not justify the tactics and perhaps even the existence of some of these educational providers. Having said that, I also – again – cannot help ask myself what in the world some of these students are thinking in believing that they can beat such harsh odds. Hope springs eternal, it seems, when it comes to wanting to become a California attorney.

August 4, 2015 in Commentary, Contract Profs, Current Affairs, In the News, Law Schools, Legislation, Teaching | Permalink | Comments (0)

Sunday, August 2, 2015

The Legal War on Traditional Cable Companies Continues

Remember Aereo, the company trying to provide select TV programs and movies using alternatives to traditional cable TV programming?  That company went bankrupt after a U.S.  Supreme Court ruling last year.

A federal court in Los Angeles just ruled that online TV provider FilmOn X should be allowed to transmit the programs of the nation’s large broadcasters such as ABC, CBS and Fox online, albeit not on TV screens.  See Fox Television Stations, Inc. v. FilmOn X, LLC, in the U.S. District Court for the Central District of California, No. 12-cv-6921. Of course, the traditional broadcasters have been aggressively opposing such services and the litigation so far.  Recognizing the huge commercial consequences of his ruling, Judge Wu certified the case for an immediate appeal to the Ninth Circuit Court of Appeals.

Said FilmOn’s lawyer in an interview: “The broadcasters have been trying to keep their foot on the throat of innovation.  The court’s decision … is a win for technology and the American public.” 

The ultimate outcome will, of course, to a very large extent or perhaps exclusively depend on an interpretation of the Copyright Act and not so much contracts law as such, but the case is still a promising step in the direction of allowing consumers to enter into contracts for only what they actually need or want and not, at bottom, what giant companies want to charge consumers to protect income streams obtained through yesteryear’s business methods.  Currently, many companies still “bundle” TV packages instead of allowing customers to select individual stations.  In an increasingly busy world, this does not seem to make sense anymore.  Time will tell what happens in this area after the appeal to the Ninth Circuit and other developments.  Personally, I have no doubt that traditional broadcasting companies will have to give in to new purchasing trends or lose their positions on the market.

August 2, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Television, Web/Tech | Permalink | Comments (0)

Thursday, July 30, 2015

Contracts for Trophy Hunting A Bad Idea

I earlier blogged on an American TV personality's contract to hunt and kill one of the most highly endangered species on earth: a black rhino.  That hunt has now been completed at a price tag of $350,000.  The asserted reasoning for wanting to undertake the hunt: the money would allegedly help the species conservation overall and the local population. Studies, however, show that only 3-5% of that money goes to the local population. Some experts believe that the money could be much better spent for both the local population and the species via, for example, tourism to see the animals alive.  This brings in three to fifteen times of what is created through so-called "trophy hunting."

This past week, the world community was again outraged over yet another American's hunt - this time through a contract with a local rancher and professional assistant hunter - of Cecil the Lion.  The price? A mere $50,000 or so.  This case has criminal aspects as well since the landowner involved did not have a permit to kill a lion. The hunter previously served a year of probation over false statements made in connection with his hunting methods: bow and arrow.

This is also how the locally famous and collared Cecil - a study subject of Oxford University - was initially hunted down, lured by bait on a car to leave a local national park, shot, but not killed, by Minnesota dentist Walter Palmer, and eventually shot with a gun no less than 40 hours after being wounded by Palmer.

Comments by famous and regular people alike have  been posted widely since then.  For example, said Sharon Osbourne: ""I hope that #WalterPalmer loses his home, his practice & his money. He has already lost his soul."

I recognize that some people - including some experts - argue for the continued allowance of this kind of hunting. Others believe it is a very bad idea for many biological, criminal, ethical, and other reasons to allow this practice.  If you are interested in signing a petition to Zimbabwe Robert Mugabe to stop issuing hunting permits to kill endangered animals, click here.  It will take you less than 60 seconds. 


July 30, 2015 in Celebrity Contracts, Commentary, Current Affairs, Famous Cases, In the News, Legislation, Science, Travel, True Contracts | Permalink | Comments (0)

Thursday, July 23, 2015

Porn, Perry and the Pope

You cannot say that we are boring you this week.  Our blogs have included considerations on advertising on porn sites and having one’s illicit affairs forgotten contractually. Add to that the news that this week, Roman Catholic nuns, the archdiocese of Los Angeles, the formerly Jesuit student turned California Governor Brown and Pope Francis all had something to say about contracting about major and, admittedly, some minor issues.

To start with the important: Pope Francis famously issued his Encyclical Letter Laudato Si’ “On Care for our Common Home.”  In it, he critiques “cap and trade agreements,” which by some are considered to be a mere euphemism for contractual permits to pollute and not the required ultimate solution to CO2 emissions. In the Pope’s opinion, “The strategy of buying and selling carbon credits can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.” Well said.

Governor Brown, however, disagrees: Brown shrugged off Francis' comments. "There's a lot of different ways," he told reporters, "that cap and trade can be part of a very imaginative and aggressive program."  Brown, however, does agree with the Pope that we are “dealing with the biggest threat of our time. If you discount nuclear annihilation, this is the next one. If we don’t annihilate ourselves with nuclear bombs then it's climate change. It’s a big deal and he’s on it.”

In less significant contractual news, Roar, Firework, and I Kissed a Girl and I Liked It singer Katy Perry is interested in buying a convent owned by two Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin. Why? Take a look at these pictures. The only problem is who actually has the right to sell the convent to begin with: the Sisters or the archdiocese. When two of the sisters found out the identity of the potential buyer (Perry), they became uninterested in selling to her because of her “public image.” They now prefer selling to a local restaurateur whereas the archdiocese prefers to complete the sale to Perry, although she bid less ($14.5 million) on the property than the restaurateur ($15.5 million). Perry may be about to learn that image is indeed everything in California, even when it comes to the Divine. Perry is no stranger to religion herself as she was, ironically, raised in a Christian home by two pastor parents. 

July 23, 2015 in Commentary, Contract Profs, Current Affairs, Famous Cases, In the News, Legislation, Music, Religion | Permalink | Comments (0)

Monday, July 20, 2015

Honda Enters into $24 Million Consent Order with CFPB over Discriminatory Loan Practices

CfpbOn July 14th, American Honda Finance Corporation (Honda) and the Consumer Financial Protection Bureau (CFPB) entered into a consent order (the Order).  The CFPB and the Civil Rights Division of the Department of Justice (DOJ) alleged that Honda had violated the Equal Credit Opportunity Act (ECOA) and its implementing legislation by permitting dealers to charge higher interest rates on auto loans on the basis of race and national origin.  

DOJAccording to the Order, after a joint investigation, the DOJ and the CFPB made found that, during the time period covered, on average, African-American borrowers were issued loans that resulted in an extra $250 in interest payments over the course of the loan compared to loans issued to non-Hispanic whites.   Hispanics paid an extra $200 and Asians and Pacific Islanders paid an extra $150.  This result was the product of Honda's specific policy and practice.  

The Order gives Honda three options that it can pursue in order to prevent future violations of the ECOA in the future.  Honda will also pay $24 million into an escrow account.  The funds will be used to compensate borrowers for the excessive interest payments they were required to make.

As the CFPB notes on its website:

Today’s action is part of a larger joint effort between the CFPB and DOJ to address discrimination in the indirect auto lending market. In December 2013, the CFPB and DOJ took an action against Ally Financial Inc. and Ally Bank that ordered Ally to pay $80 million in consumer restitution and an $18 million civil penalty.

Hat tip to Michael Gibson of the OKCU School of Law.  Professor Gibson suggests that legal scholarship by Ian Ayres and others laid the foundation for this Order and others like it.

July 20, 2015 in Current Affairs, In the News, Legislation | Permalink | Comments (0)

Monday, June 8, 2015

Congress Considering Federal Legislation on Non-Competes

Franken MurphyAs reported in the Washington Post here, Senators Al Franken (left) and Chris Murphy (right) have introduced the Mobility and Opportunity for Vulnerable Employees (MOVE) Act.  The purpose of the Act is 

To prohibit employers from requiring low-wage employees to enter into covenants not to compete, to require employers to notify potential employees of any requirement to enter into a covenant not to compete, and for other purposes. 

The bill would prohibit non-compete clauses in the contracts of workers who earn $15/hour or less, unless the minimum wage is higher in the relevant jurisdiction.   According to the Post, 12.3% of all workers' contracts include non-compete clauses, including some workers who make minimum wage or a bit more.  The non-competes trap such workers in their current low-wage jobs when they could build in their work experience to pursue higher-paying jobs in the same field.  California law already prohibits enforcement of non-competes.

There are counter-arguments,.  Non-compete clauses protect employers and thus incentivize them to invest in their employees and give them on-the-job training in their fields.  If that training becomes portable, employers might be less willing to provide it.  However, as the Post story suggests, California's ban on non-competes has not prevented Silicon Valley from becoming a synonym for success in innovative, high-tech industries.  No doubt Congress will weigh the pros and cons in a matter fitting the dignity we associate with that august institution and, after mature deliberation, take decisive action.

Hat tip to Rachel Arnow-Richman, one of many academics consulted in the drafting of the MOVE Act.

June 8, 2015 in Labor Contracts, Legislation | Permalink | Comments (0)

Tuesday, May 26, 2015

Airbnb Update

We have previously blogged about “sharing economy” short-term rental company Airbnb at various times here.  Time for an update: The City of Santa Monica, California, just passed an ordinance that prohibits property owners and residents from renting out their places unless they remain on the property themselves.  This is estimated to prohibit no less than 80% of Airbnb’s Santa Monica listings (1,400 would be banned).  

The city plans to spend $410,000 in the first year to enforce the rule using three new full-time employees.  Violators may be fined by up to $500.  However, because Airbnb does not list addresses, staff will have to look at photos of the properties and drive around the city streets to try to identify the violators.   Doing so sounds awfully invasive and awkward, but that is nonetheless the plan.  Adds Assistant Planning Director Salvador Valles: “We can issue citations just based on the advertisement alone when we're using our business regulations.”  Other major cities are also trying to crack down on short-term rentals.

But why, you ask?  Good question.  In times when, as I have blogged about before and as is common knowledge, medium- and low-income earners are falling behind higher-income earners to a somewhat alarming extent, you would think the government could let people earn some additional money on what is, after all, their own property.  Cities, however, claim that short-term rentals drive up the rental prices by cutting into the number of residences that are available for long-term rentals.  “Even a study commissioned by Airbnb itself earlier this year found that Airbnb increases the price of a one-bedroom apartment in San Francisco by an average of $19 a month.”    Traffic concerns are also often mentioned in this context as are potential tax avoidance issues, although Airbnb has now started to deduct taxes from rental fees before transferring these to the landlords.

Airbnb’s end goal?  To go IPO.  The goal for at least some landlords?  Eighty-year-old Arlene Rosenblatt, for example, rents out her home in Santa Monica whenever she and her husband leave town to visit their seven grandchildren. She charges anywhere from $115 to $220 a night for her home, listing it on Airbnb and other sites and thus earning as much as $20,000 a year.  "I'm a retired schoolteacher," Rosenblatt says. "We don't get a lot of retirement income. My husband, all he has is his Social Security." 

Time will tell what happens in this latest clash between private property and contractual rights and government regulations. 

May 26, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Travel, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, May 18, 2015

Retirement Investment Brokers Contractually Bound to Act as Fiduciaries

Under a United States Labor Department plan, investment brokers may be required to bind themselves contractually as fiduciaries for their clients in the future.  Only a few states such as California and Missouri require brokers to act as fiduciaries at all times.  In others, brokers must simply recommend investments that are “suitable” for investors based on various factors, but are not required to adhere to the higher fiduciary “best-interest” standard.

The contemplated advantages are two-fold.  First, the rule is thought to better protect investors from broker recommendations that, if followed, would help the brokers earn more or higher fees, but fail to meet investors’ best interests.  A contractually stipulated duty would also help “deflate arguments that brokerages typically raise to deflect blame for bad advice, such as that an investor has in-depth financial know-how.  

Second, arbitration cases would be easier to prove.  This is so because arbitrators currently rely on state laws when determining the standard of conduct to be followed by the brokers, which is one of the threshold issues to be analyzed in investor cases.  A uniformly required fiduciary standard would, it is thought, be more investor-friendly.

Needless to say, there are also contrary views.  For example, some attorneys fear that investors’ lawyers will start or increase a hunt for more retirement account cases to represent.  Others worry about an increased amount of class action cases.

Regardless, given the complexity of today’s investment world, requiring brokers to act as fiduciaries for their clients does indeed seem like the “good step in the right direction” as the president of the Public Investors Arbitration Bar Association recently called the initiative. 

May 18, 2015 in Current Affairs, Legislation, True Contracts | Permalink | TrackBack (0)

Monday, April 27, 2015

Fixing Your Car Yourself Maybe a Violation of Contractual Rights in the Future

If it were up to General Motors, it may soon be illegal for you to tinker with your own car.  That’s because the Digital Millennium Copyright Act (“DMCA”), an Act that started as anti-piracy legislation about a decade ago, now also protects coding and software in a range of products more broadly.  Your car is one such product if it, as many cars do nowadays, it has an onboard computer.  Vehicle makers promotes two arguments in their favor: first, that it could be dangerous and even malicious to alter a car’s software programming.  Second, per the tractor maker John Deere, that “letting people modify car computer systems will result in them pirating music through the on-board entertainment system.”  “Will”?!  As the Yahoo article mentioning this story smartly pointed out, “[t]hat’s right— pirating music. Through a tractor.” 

Isn’t that an example of a company getting a little too excited over its own products?  Or am I just an incurable city girl (although one that occasionally likes country music)?  Judging from the lyrics to a recent Kenny Chesney hit (“She Thinks My Tractor’s Sexy"), I see that opinions differ in this respect.  To each her own.

Hat tip to Professor Daniel D. Barnhizer of the AALS listserve for sharing this story.

April 27, 2015 in Contract Profs, Current Affairs, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, April 20, 2015

Weekly News Roundup

DouglasMollThe Texas Lawyer reports that Texas has amended a statute that allows plaintiffs to recover attorneys' fees in breach of contract claims.  The statute originally allowed for recovery from an individual or a corporation.  The amendment permits recovery from any non-government entity.  As law Prof. Doug Moll (pictured) explains, the purpose of the policy is to encourage settlement and permit parties that could not pay their own attorneys' fees to sue for breach. "There is not a policy justification I can see for distinguishing between business forms in an attorney fee-shifting statute,"  Moll noted in defending the amendment.  The bill faced some opposition from groups that would not want to exempt state entities and from others who wanted the law to allow either side, not just plaintiffs, to collect attorneys' fees.  But lawmakers did not want to mess with Texas law.  

From the Philadelphia Business Journal, we get yet another classic municipal contracting case.  City meets company, city hires company to do some fancy, technical thing it can't do itself, city and company exchange allegations of breach of contract, and the parties settled for $4.8 million.  In this case, the city is Baltimore and the company is Unisys.  

As reported here in USA Today, one bi-product of the new nuclear deal with Iran is that Russia now feels free to send Iran S-300 missiles for use in its air-defense system.  The missile deal has been suspended since 2010, and Iran had sued Russia in Geneva, alleging breach of contract and seeking $4 billion in damages.  Iran now says that it will drop the case if Russia delivers the missiles.

April 20, 2015 in In the News, Legislation | Permalink | Comments (0) | TrackBack (0)

Friday, April 3, 2015

Playing Fair Down Under

In New Zealand, a ban on unfair terms in consumer contracts has taken effect and will, according to the Commerce Commission, will be enforced starting immediately.   The regulation forms part of the 2013 Fair Trading Act.  Australia introduced a similar ban in 2010.

The Consumer Organization “Consumer NZ” has launched its “Play Fair” campaign to increase awareness of the new law and related consumer issues.   According to Consumer NZ, companies had been given plenty of notice of the upcoming ban and thus to review their contracts in order to remove unfair terms, but had to a large extent failed to do so.

The Act will apply to standard-form consumer contracts often used by electricity retailers, gyms, TV service providers and many others.

But what makes a term “unfair”?  The Act defines a term as unfair if it would “would cause a significant imbalance between the rights of the company and the consumer, is not reasonably necessary to protect the legitimate interests of the company, [or] would cause detriment, whether financial or otherwise, to the consumer if it were to be applied or relied on.”   The Act contains a list of terms that courts are likely to regard as unfair.  This covers terms that would allow a company to unilaterally vary the terms of the contract, renew or terminate it, penalize consumers for breaching or terminating the contract, vary the price without giving consumers the right to terminate the contract, or vary the characteristics of the goods or services to be supplied.  

After intense lobbying by the insurance industry, that industry was exempted from the ban.

Even though this Act is a consumer protection device, only the New Zealand Commerce Commission can, for now, enforce it.  The contemplated fine for violations is $600,000.

In the USA, there are, of course, various statutory and common law protections against unfair terms such as those contained in the UCC as well as fraud protections.  However, the deterrence effect of these does not seem effective in relation to at least some industries.  Alternatively, perhaps the protections are not broad enough, sufficiently well-known, or sufficiently easy to enforce.  Or perhaps people just give up and deal with other companies, or pay what they are asked to do by the companies. 

I personally just spent no less than two hours chatting online with a major health care provider over their sudden allegation that a certain doctor I had used was “not in network” (with me thus allegedly owing a few thousand dollars to the insurance company) despite that particular provider being listed on the provider’s own website as “in network” and the doctor having confirmed this.  Eventually and after numerous contractual and factual arguments, I was able to persuade provider that I was right.  But how many others in my situation would simply give up and cave in to, as was the case, the provider’s repeated bootstrapping arguments that “their ultimate price was fair”?

Only two days later, I heard from a moving company that had agreed to move a car for me for $500 (and confirmed this twice) that the “price is actually $600.”  When I told them no, it is not, they repeated their allegation that “we did not have a contract.”  After telling them a few things about contract formation and modification principles and after declining listening to their attempted, time-consuming warnings about using other companies that were “scam artists,” I am now looking for a new contract another vendor.

Despite whatever legal protections we may officially have in this country against consumer fraud, it is still rampant.  New Zealand’s government enforcement system is interesting, but time will tell if they have more success preventing consumer fraud than we do here.

April 3, 2015 in Commentary, Current Affairs, Legislation, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2015

When Contractual Consent Isn't Enough

The problem with constructive consent, or substituting "manifestations of assent" for actual assent, in consumer contracts is that consumers often aren't aware what rights they've relinquished or what they have agreed to have done to them.  Too bad for consumers, right?  Well, it's also too bad for companies.  Companies that rely on contracts to obtain consumer consent may find that what suffices for consent in contract law just won't cut it under other law that seeks actual consumer consent.  Michaels, the arts and crafts store chain, found that out the hard way.  They were recently hit with two class action lawsuits alleging that their hiring process violates the Fair Credit Reporting Act (FCRA).  Job applications clicked an "I Agree" box which indicated "consent" to the terms and conditions which authorized a background check on the applicant.  As this article in the National Law Review explains, the FCRA requires that job applicants receive "clear and conspicuous" standalone notice if they are seeking consent from applicants to obtaining a background report.  A click box likely won't (and shouldn't) cut it.  Contracts that everybody knows nobody reads shouldn't be considered sufficient notice.  It would, of course, be much simpler if contractual consent were more aligned with actual human behavior....

March 19, 2015 in Commentary, Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, February 23, 2015

Contract Modifications – Differing Standards for Pop Stars?

2012 American Idol winner Phillip Phillips has lodged a “bombshell petition” with the California Labor Commissioner seeking to void contracts that Phillips now finds manipulative, oppressive, and “fatally conflicted.”  

Before winning season 11 of “American Idol,” Phillips signed a series of contracts with show producer “19 Entertainment” governing such issues as his management, recording and merchandising activities.  These contracts are allegedly very favorable to 19 Entertainment, for example allowing the company as much as a 40% share of any moneys made from endorsements, withholding information from Phillips about aspects of his contractual performance such as the name of his album before it was announced publicly, and  requiring Phillips to (once) perform a live show once without compensation.  19 Entertainment has also lined up such gigs for Phillips as performing at a World Series Game, appearing on “Ellen,” the “Today Show,” and “The View.”

It is apparently not unusual for those on successful TV reality shows to renegotiate deals at some point once their career gets underway.  Phillips claims that he too frequently requested this, but that 19 Entertainment turned his requests down.  Can he really expect them to agree to post-hoc contract modifications?

Very arguably not.  Under the notion of a pre-existing legal duty, a party simply cannot expect that the other party to a contract should have to or, much less, should be willing to change the contractually expected exchange of performances.  This seems to be especially so in relation to TV reality shows where the entire risk/benefit analysis to the producer is that the “stars” may or may not hit it big.  For hopeful stars, the same considerations apply: their contracts may lead them to fame and fortune… or not.  That’s the whole idea behind these types of contracts.  Of course, if industry practice is to change the contracts along the way and if both parties are willing to do so, they are free to do so.  Otherwise, the standards for contractual modifications are probably the same for entertainment stars as for “regular” contractual parties. 

Another issue in this case is whether an “agent” is a company or a physical person.  Under the California Talent Agencies Act (“TAA”), only licensed “talent agents” can procure employment for clients.   Phillips is attempting to apply the TAA to entertainment companies like 19 Entertainment.  If Phillips is successful, the ramifications may be significant for the entertainment industry in which companies very often negotiate deals with performers without taking the TAA into account.  In Citizens United v. Federal Election Commission, the United States Supreme Court famously gave personal rights to corporations, albeit only in the election context.   Time will tell how California looks at the issue of corporate personhood and responsibilities in the entertainment context.

Adjudications under the controversial TAA are notoriously slow and could leave contractual parites in “limbo” for a very long time.  Time and patience is not what Hollywood parties are known to have a lot of, so stay tuned for the outcome of this dispute.

February 23, 2015 in Celebrity Contracts, Current Affairs, In the News, Legislation, Television, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, January 22, 2015

Recent Scholarship: Mark Burge

Burge_Mark_100webTexas A & M School of Law Contracts Prof Mark Burge (pictured) has posted a new article on SSRN: 

Too Clever by Half: Reflections on Perception, Legitimacy, and Choice of Law Under Revised Article 1 of the Uniform Commercial Code

The Abstract is provided below, and the article is available for download here

The overwhelmingly successful 2001 rewrite of Article 1 of the Uniform Commercial Code was accompanied by an overwhelming failure: proposed section 1 301 on contractual choice of law. As originally sent to the states, section 1-301 would have allowed non-consumer parties to a contract to select a governing law that bore no relation to their transaction. Proponents justifiably contended that such autonomy was consistent with emerging international norms and with the nature of contracts creating voluntary private obligations. Despite such arguments, the original version of section 1-301 was resoundingly rejected, gaining zero adoptions by the states before its withdrawal in 2008. This article contends that this political failure within the simultaneous success of Revised Article 1 was due in significant part to proposed section 1-301 invoking a negative visceral reaction from its American audience. This reaction occurred, not because of state or national parochialism, but because the concept of unbounded choice of law violated cultural symbols and myths about the nature of law. The American social and legal culture aspires to the ideal that “no one is above the law” and the related ideal of maintaining “a government of laws, and not of men.” Proposed section 1-301 transgressed those ideals by taking something labeled as “law” and turning on its head the expected norm of general applicability. Future proponents of law reform arising from internationalization would do well to consider the role of symbolic ideals in their targeted jurisdictions. While proposed section 1-301 made much practical sense, it failed in part because it did not—to an American audience—make sense in theory.

January 22, 2015 in Legislation, Recent Scholarship | Permalink | TrackBack (0)

Tuesday, January 6, 2015

Payback for Payday Lenders

The U.S. Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. plans to create hurdles for lenders of payday and direct deposit advance loans.  Both types of loans are short-term loans intended to help consumers through a rough patch.  Payday loans are available at various storefront locations whereas direct deposit advance loans are for banks’ existing customers.

The problem with these types of loans is that they often trap people into cycles of mounting debt with annual interest rates of more than 500% and the need by some to take out an average of 10 loans a year amounting to a total of more than $3,000.

This is a crackdown on organizations that may be seen to pry on the already weak.  But is it also a setback for financially underprivileged consumers?  After all, if you need money now, you need money now.  I think the new proposed regulations are a step in the right direction as consumer protection, but at the same time, more is needed.  That “more” is a decent living wage so that so many people do not have to live not only paycheck to paycheck, but in fact pre-paycheck to pre-paycheck. 

In his 2015 State of the Union address, President Obama is expected to highlight the nation’s economic growth and falling unemployment rate.  However, as I have written here before, most people in the U.S. still do not see or feel the economic recovery.  Perception is reality.  Let’s hope that the economy soon improves so much that most people feel it.

Hat tip to Professor Miriam Cherry for alerting me to this story.

January 6, 2015 in Commentary, Current Affairs, Legislation | Permalink | Comments (3) | TrackBack (0)

Monday, December 29, 2014

No-tipping policies and increased minimum salaries

CNN reports that more and more restaurants are implementing no-tipping policies as, perhaps, a way of differentiating themselves from competitors.  For example, one restaurant builds both tax and gratuity into menu prices, allegedly resulting in its servers averaging about $16.50 an hour.  I have argued here before that it seems fair to me that the burden of compensating one’s employees should fall on the employer and not on, as here, restaurant patrons feverishly having to do math calculations at the end of a meal.

The law does not yet support employment contracts ensuring fair compensation of restaurant and hotel employees.  For example, federal law requires employers to pay tipped workers only $2.13 an hour as long as the workers earn at least the federal minimum wage of $7.25 an hour.  Talk about burden shifting…

But change seems to be on the way with private initiatives such as the restaurant no-tipping policy.  In Los Angeles, the City Council has approved an ordinance that raises the minimum wage for workers in hotels of more than 300 rooms to $15.37 an hour.  Of course, this will mainly affect large hotel chains, which predictably resisted the ordinance citing to issues such as the need to stay competitive price-wise and threatened circumventing the effect of the new law by laying off or not hiring workers to save money.  Funny since many of these hotels have been making vast amounts of money for a long time on, arguably, overpriced hotel rooms attracting a clientele that does not seem overly concerned about paying extra for things that are free in most lower-priced hotels (think wifi) and thus probably could somehow internalize the cost of fairly compensating its blue-collar workers. 

Much has been said about the “1%” problem and a fair living wage.  No reason to repeat that here.  However, it is thought-provoking that whereas the U.S. recession officially ended in June 2009 – five years ago - 57% of the U.S. population still believed that the nation was in a recession in March 2014.

Contracting and the economy is, of course, to a large extent a matter of seeking the best bargain one can obtain for oneself.  But even in industrialized nations such as ours, there is something to be said for also ensuring that not only the strongest, most sophisticated and wealthiest reap the benefits of the improved economy.  So here’s to hoping that more initiatives such as the ones mentioned above are taken in 2015.  At the end of 2014, it’s still “the economy, s$%^*&.”

December 29, 2014 in Commentary, Current Affairs, Labor Contracts, Legislation | Permalink | TrackBack (0)