ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, February 4, 2016

Uniform Commercial Code: 2016 Legislative Agenda

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

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

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

2016 LEGISLATIVE UPDATE FOR UCC ARTICLES

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

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

Wednesday, January 27, 2016

Uniform Commercial Code Adoptions: Here's the Current Scorecard

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

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

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

 

UCC SCORECARD

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

STATES

UCC

UCC11

(2001)

UCC2A

(1990)

UCC3/4

(1990)

UCC3/4

(2002)

UCC4A

(1989)

UCC5

(1995)

UCC6

(1989)

UCC7

(2003)

UCC8

(1994)

UCC9

(1998)

UCC9

(2010)

Alabama

1965

20042

1992

1995

 

19923

1997

1996

2004

1996

2001

2014 A

Alaska

1962

2009

1993

1993

 

19933

1999

1993

2009

1996

2000

2013 B

Arizona

1967

20062

1992

1993

 

19913

1996

2004

2006

1995

1999

2014 A

Arkansas

1961

2005

1993

1991

2005

19913

1997

1991

2007

1995

2001

2013 A

California

1963

2006

1991

1992

 

19903

1996

Rev 90

2006

1996

1999

2013C

Colorado

1965

2006

1991

1994

 

19903

1996

1991

2006

1996

2001

2012 B

Connecticut

1959

2005

2002

1991

 

1990

1996

1993

2004

1997

2001

2011 B

Delaware

1966

2004

1992

1995

 

1992

1998

1996

2004

1997

2000

2013 B

DC

1964

2013

1992

1994

2013

19923

1997

2015

2013

1997

2000

2013 A

Florida

1965

2007

1990

1992

 

1991

1999

1993

2010

1998

2001

2012 A

Georgia

1962

2015

1993

1996

 

19923

2002

2015

2010

1998

2001

2013 A

Hawaii

1965

20042

1991

1991

 

19913

1996

1998

2004

1997

2000

2012 A

Idaho

1967

20042

1993

1993

 

19913

1996

1993

2004

1995

2001

2012 A

Illinois

1961

20082

1991

1991

 

19903

1996

1991

2008

1995

2000

2012 A

Indiana

1963

20072

1991

1993

2009

19913

1996

2007

2007

1995

2000

2011 A

Iowa

1965

2007

1994

1994

 

19923

1996

1994

2007

1997

2000

2012 A

Kansas

1965

2007

1991

1991

 

1990

1996

1992

2007

1996

2000

2012 A

Kentucky

1958

2006

1990

1996

2006

19923

2000

1992

2012

1996

2000

2012 A

Louisiana

1974

2006

 

1992

 

19903

1999

1991

2009

1995

2001

2012 A

Maine

1963

2009

1992

1993

 

19923

1997

1992

2009

1997

2000

2013 A

Maryland

1963

20122

1994

1996

 

19913

1997

 

2004

1996

1999

2012 A

Mass.

1957

2013

1996

1998

 

19913

1997

1996

2013

1996

2001

2013 A

Michigan

1962

20122

1992

1993

2014

19923

1998

1998

2012

1998

2000

2012 A

Minnesota

1965

2004

1991

1992

2003

19903

1997

1991

2004

1995

2000

2011 A

Mississippi

1966

2010

1994

1992

2010

19913

1996

1994

2006

1996

2001

2013 A

Missouri

1963

 

1992

1992

 

19923

1997

2004

 

1997

2001

2013 A

Montana

1963

2005

1991

1991

 

19913

1997

1991

2005

1997

1999

2013 A

Nebraska

1963

20052

1991

1991

 

19913

1996

1991

2005

1995

1999

2011 A

STATES

UCC

UCC1

(2001)

UCC2A

(1990)

UCC3/4

(1990)

UCC3/4

(2002)

UCC4A

(1989)

UCC5

(1995)

UCC6

(1989)

UCC7

(2003)

UCC8

(1994)

UCC9

(1998)

UCC9

(2010)

Nevada

1965

2005

1991

1993

2005

19913

1997

1991

2005

1997

1999

2011 A

NH

1959

2006

1993

1993

 

19933

1998

1993

2006

1998

2001

2012 B

NJ

1961

2013

1994

1995

 

19943

1997

1994

2013

1997

2001

2013 A

NM

1961

2005

1992

1992

2009

19923

1997

1992

2005

1996

2001

2013 A

New York

1962

2015

1994

   

19903

2000

2001

2015

1997

2001

2015 A

NC

1965

2006

1993

1995

 

19933

1999

2004

2006

1997

2001

2012 A

ND

1965

2007

1991

1991

 

19913

1997

1993

2005

1997

2001

2011 A

Ohio

1961

2011

1992

1994

 

19913

1997

1996

2011

1997

2001

2012 A

Oklahoma

1961

2005

1991

1991

2009

1990

1996

1997

2005

1995

2000

2015 A

Oregon

1961

2009

1989

1993

 

19913

1997

1991

2009

1995

2001

2012 B

Penn.

1953

2008

1992

1992

 

1992 3

2001

1992

2008

1996

2001

2013 A

PR

                   

2012

2012 A

RI

1961

20072

1991

2000

 

19913

2000

2001

2006

2000

2000

2011 A

SC

1966

2014

2001

2008

2008

19963

2001

2001

2014

2001

2000

2013 A

SD

1966

2008

1989

1994

 

19913

1998

1993

2009

1998

2000

2012 A

Tenn.

1963

2008

1993

1997

 

19913

1998

1998

2008

1997

2000

2012 A

Texas

1965

2003

1993

1995

2005

19933

1999

1993

2005

1995

1999

2011 A

USVI

1967

2002

2001

2000

 

2001

2000

2002

 

2002

2002

 

Utah

1965

20072

1993

1993

 

1990

1997

1996

2006

1996

2000

2013 A

Vermont

1966

2007

1994

1994

 

19943

1999

1994

2015

1996

2000

2014 A

Virginia

1964

20032

1991

1992

 

19903

1997

2011

2004

1996

2000

2012 A

Wash.

1965

2012

1993

1993

 

19913

1997

1993

2012

1995

2000

2011 A

WV

1963

2006

1996

1993

 

19903

1996

1992

2006

1995

2000

2012 A

Wisconsin

1963

2010

1992

1996

 

19923

2005

2009

2010

1998

2001

2012 A

Wyoming

1961

2015

1991

1991

 

1991

1997

1991

2015

1996

2001

2013B

TOTAL

53

51

51

52

12

53

52

52

50

53

53

52

(Last updated 12-1-15)

 

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

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

3 Adopted the 2012 Amendment to UCC Article 4A.

A Adopted Alternative A of 9-503.

B Adopted Alternative B of 9-503.

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

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

Sunday, January 3, 2016

Legal Rights to Give up Your Travel Tickets

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

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

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

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

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

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

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

Happy New Year and safe travels!

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

Monday, December 21, 2015

Selling “Restorative Justice” for a Profit

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

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

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

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

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

Monday, December 14, 2015

The Emperor’s New (Warm Weather) Clothes?

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

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

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

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

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

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

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

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

Thursday, December 3, 2015

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

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

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

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

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

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

Tuesday, December 1, 2015

The (Il-)Legality of Workplace Bullying and Discrimination

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

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

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

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

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

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

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

Thursday, November 19, 2015

Numismatic Information is Worth How Much?!

Serious coin collectors still exist. Very serious ones.

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

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

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

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

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

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

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

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 www.pissedconsumer.com, a third-party website that, as the name indicates, allows negative reviews of companies. http://www.cbsnews.com/news/ftc-lawsuit-roca-labs-weight-loss-powder-gag-clause-customers-sued/

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)