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Tuesday, January 21, 2014

Tips on the Rise... but Who Benefits?

After a night on the town, you decide to hire not a traditional taxi company, but rather a new and similar service provider that uses third-party private drivers operating their individually owned, unmarked cars and smart application payment technology.  The app says, “Gratuity is included.”  Would you expect the tips you give to go in full to the drivers or for the tips to be shared with the taxi-like company?  Probably the former, although tipping tactics and expectations seem to be changing.

The question of whether the drivers in the above situation have a viable claim to the full amount of the tips will soon be resolved in California in O’Connor v. Uber Techs, 2013 BL  338258 (N.D. Cal. Dec. 5, 2013).  After determining that no implied-in-fact contract can be said to exist between the drivers and the taxi-like company “Uber,” the court so far determined that Uber and its passengers may have entered into an implied agreement regarding the tips from which the drivers were ultimately intended to benefit as third parties to the contract between Uber and passengers.

In the USA, tipping is widely considered a fair way for service personnel to earn a more decent living than if they had to rely on base salaries.  This intersects with the current debate about whether the federal minimum wage should be increased.  According to recent CNN TV news, if salaries reflected the productivity levels of United States workers, the minimum salary should be $28/hr.  It is currently $7.25

But what about consumers?  Tipping seems to rising more rapidly than both salaries and inflation rates in general.  Not long ago (ten years or so), tipping 10% in restaurants was considered the norm, at least in California and parts of the Western USA.  Now, food servers, the drivers in the above case and undoubtedly others expect 20%; a 100% increase in ten years or so.  Many Los Angeles restaurants have begun to automatically add this 20% gratuity to their guest checks (some still leaving an additional line open for tips…).  In comparison, the average inflation rage was 2.5% per year over the past ten years.  During the 12-month period ending November 2013, inflation was 1.2%.  Of course, salaries may be a more accurate yardstick.  According to the Social Security Administration’s Average Wage Index, salaries increased by approximately 33% over the past ten years (approx. 3% from 2011 to 2012).

To be sure, service personnel and other workers deserve a decent income for their efforts in a wealthy, industrialized nation such as the USA.  The question is whether the burden of this should be placed on consumers in the form of more or less “hidden” costs such as tax and tips in somewhat uncertain amounts or whether the employers should be expected to more openly list the true bottom-line costs of their services as is the case in other nations.  A better route may be to increase the federal minimum salary to the much-discussed (e.g., here) “living wage.”  At a minimum, it would seem that all tips given should go to the workers and not be a mere way for companies to award themselves more money.

Myanna Dellinger

Assistant Professor of Law

Western State College of Law

January 21, 2014 in Food and Drink, Legislation, Web/Tech | Permalink | TrackBack (0)

Monday, December 16, 2013

Consumer Financial Protection Bureau Preliminary Report on Arbitration

KirgisUPDATE: Paul Kirgis (pictured) provides a synopsis on the ADR Blog here.

Section 1028(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 instructs the Consumer Financial Protection Bureau (the “Bureau”) to study the use of pre-dispute arbitration contract provisions in connection with the offering or providing of consumer financial products or services, and to provide a report to Congress on the same topic.  This document, dated December 12, 2013, presents preliminary results reached in the Bureau’s study to date. 

Below are excerpts, with emphasis added, from the Executive Summary of the Bureau's preliminary findings:

  • In the credit card market, larger bank issuers are more likely to include arbitration clauses than smaller bank issuers and credit unions. As a result, while most issuers do not include such clauses in their consumer credit card contracts, just over 50% of credit card loans outstanding are subject to such clauses. (In 2009 and 2010 several issuers entered into private settlements in which they agreed to remove the arbitration clauses from their credit card consumer contracts for a defined period. If those issuers still included such clauses, some 94% of credit card loans outstanding would now be subject to arbitration.)
  • In the checking account market, larger banks tend to include arbitration clauses in their consumer checking contracts, while mid-sized and smaller banks and credit unions do not. We estimate that in the checking account market, which is less concentrated than the credit card market, around 8% of banks, covering 44% of insured deposits, include arbitration clauses in their checking account contracts.
  • In our [General Purpose Reloadable] GPR prepaid card sample, for which data are more limited than for our credit and checking account samples, arbitration clauses are included across the market.  Some 81% of the cards studied, and all of the cards for which market share data are available, have arbitration clauses in their cardholder contracts.
  •  Nearly all the arbitration clauses studied include provisions stating that arbitration may not proceed on a class basis. Around 90% of the contracts with arbitration clauses— covering close to 100% of credit card loans outstanding, insured deposits, or prepaid card loads subject to arbitration—include such no-class arbitration provisions. . . .
  • The AAA is the predominant administrator for consumer arbitration about credit cards, checking accounts, and GPR prepaid cards.
  • From 2010 through 2012, there was an annual average of 415 individual AAA cases filed for four product markets combined: credit card, checking account, payday loans, and prepaid cards.23 The annual average was 344 credit card arbitration filings, 24 checking account arbitration filings, 46 payday loan arbitration filings, and one prepaid arbitration filing. These numbers do not indicate the number of cases in which the filing was “perfected” and the matter proceeded to arbitration. . . . 
  • Not all these arbitration filings were made by consumers. For the three product markets combined, the standard AAA “claim form” records consumers filing an average of under 300 cases each year.  The remaining filings are recorded as mutually submitted or made by companies.
  • From 2010 through 2012, around half the credit card AAA arbitration filings were debt collection disputes—proceedings initiated by companies to collect debt, initiated by consumers to challenge the company’s claims in court for debt collection, or mutual submissions to the same effect. More than a quarter of these debt collection arbitrations also included non-debt consumer claims. . . . 
  • In contrast, very few of the checking account and payday loan AAA arbitration filings from 2010 through 2012 were debt collection arbitrations.
  • From 2010 through 2012, a slight majority (53%) of consumers were represented by counsel in the AAA arbitrations that we reviewed for these three product markets. For non-debt collection disputes, 61% of consumers had a lawyer at some point in the arbitration proceeding. For debt collection arbitrations, 42% of consumers had legal representation at some point in the proceeding. Companies were almost always represented by outside or in-house counsel in both debt collection and non-collection arbitrations.
  • From 2010 through 2012, almost no AAA arbitration filings for these three product markets had under $1,000 at issue. . . . There were an annual average of seven arbitrations per year filed with the AAA that concerned disputed debt amounts that were at or below $1,000. 
  • From 2010 through 2012, for arbitration filings before the AAA involving these three products, the average alleged debt amount in dispute was $13,418. The median alleged debt amount in dispute was $8,641. Looking only at filings that did not identify a disputed debt amount, and excluding one high-dollar outlier, the average amount at issue was $38,726, and the median $11,805.
  • Most arbitration clauses that we reviewed contain small claims court carve-outs. In 2012, consumers in jurisdictions with a combined total population of around 85 million filed fewer than 870 small claims court credit card claims—and most likely far fewer than that—against issuers representing around 80% of credit card loans outstanding.
  • Credit card issuers are significantly more likely to sue consumers in small claims court than the other way around. In the two top-30 counties by population in which small claims court complaints can be directly reviewed by electronic means, there were more than 2,200 suits by issuers against consumers in small claims court and seven suits by consumers against those issuers. . . .


December 16, 2013 in Current Affairs, Legislation | Permalink | TrackBack (0)

Monday, October 14, 2013

Op-ed on California's New Privacy Law

Nancy Kim (pictured) Kim, author of the recent book Wrap Contracts: Foundations and  Ramifications and contributing editor to the ContractsProf Blog (the official blog of the AALS Section on Contracts), has published an op-ed in the San Diego Union Tribune California's new "eraser" law.  

Nancy's post clarifies what the bill accomplishes and what it doesn't and makes a succinct argument for the law's importnace.

You can read it here.


October 14, 2013 in Commentary, Legislation | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 24, 2013

Paperless Tickets and Licenses


The Sacramento Bee reports that a California legislative committee (if you really want to know,  it’s called the Assembly Arts, Entertainment, Sports, Tourism and Internet Media committee) “gutted” a bill that would have illegalized “paperless” tickets.  Paperless tickets are more (or is it less?) than what they sound like – they are a way for companies like Ticketmaster to sell seats without permitting purchasers to resell those seats.  Purchasers must show their ID and a credit card to attend the show.  The bill pitted two companies, Live Nation (owner of Ticketmaster) and StubHub, against each other. 

This bill and the related issues should be of interest to contracts profs because it highlights the same license v. sale issues that have cropped up in other market sectors where digital technologies have transformed the business landscape.  Like software vendors and book publishers, Ticketmaster is concerned about the effect of technology and the secondary marketplace on its business.  Vendors, using automated software (“bots”), can quickly purchase large numbers of tickets and then turn around and sell these tickets in the secondary marketplace (i.e. at StubHub) at much higher prices.  Both companies argue that the other is hurting consumers.  Ticketmaster argues that scalpers hurt fans, who are unable to buy tickets at the original price and must buy them at inflated prices.  Stub Hub, on the other hand, argues that paperless tickets hurt consumers because they are unable to resell or transfer their tickets. 

The underlying question seems to be whether a ticket is a license to enter a venue or is it more akin to a property right that can be transferred.  Or rather, should a ticket be permitted to be only a license or only a property right that can be transferred?  The proposed pre-gutted legislation would have taken that decision out of the hands of the parties (the seller and the purchaser) and mandated that it be a property right that could be transferred.  In other words, it would have made a ticket something that could not be a contract.  Of course, given the adhesive nature of these types of sales, a ticket as contract would end up being like any other mass consumer contract – meaning the terms would be unilaterally imposed by the seller. In this case, that would mean the ticket would be a license and not a sale of a property right. 

It’s not just the media giants who are feeling the disruptive effect of technology  - we contracts profs feel it, too. 

[NB:  My original post confused StubHub with the vendors who use the site.  StubHub is the secondary marketplace where tickets can be resold.  Thanks to Eric Goldman for pointing that out].

[Nancy Kim]

April 24, 2013 in Commentary, Current Affairs, E-commerce, In the News, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 22, 2012

Cigarette Packaging and - Contracts?

Last week, the Australian High Court upheld a ban on company logos on cigarette packages. The law that was upheld also requires that the front of cigarette packages show images of the harmful effects of smoking (e.g. mouth ulcers, tumors, etc).

Okay, you might be wondering what this has to do with contracts.  One of my current research interests (obsessions) is the idea of notice substituting for actual assent, especially with online contracts. A dinky hyperlink nestled at the bottom of a page can serve as "notice," at least in the eyes of some courts although most people don't actually notice them.  The fuss over the cigarette packaging (and Big Tobacco really fought hard over this one) underscores something that is often lost on courts evaluating notice in contract cases -- the quality of the notice matters. A warning label in a small text box gets ignored; graphic visual depictions of injured human organs do not. Snazzy corporate labels make smoking seem cool; plain labels don't have that same cachet. Websites, too, could draw more attention to their contracts, but they don't. They certainly know how to grab our attention when they want it, with images and sounds. So why make legal terms so unobtrusive?  Could it be that they don't really want us to read them?

[Nancy Kim]

August 22, 2012 in In the News, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 20, 2012

Contracts and Pension Reform

I'm a little late with this post but I'm going to open up a political can of worms here on the blog and talk about pension reform.  In California, two cities (including my hometown, San Diego) have voted to approve changes to their city's pension plans. The San Jose measure seems to make changes to plans for retired workers. I can understand how changes to plans for new employees might be legal, but I'm not sure how changes to existing plans and vested benefits can be considered legal.  The contract law issues boggle the mind.  Not surprisingly, the proposed changes to the San Jose plan are being legally challenged.  It's going to get messy....


[Nancy Kim]




June 20, 2012 in Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, June 4, 2012

Seventh Circuit Affirms Dismissal of Labor Union's Contracts Clause Claims

7th CirCouncil 31 of the American Federation of State, County and Municipal Employees, AFL-CIO (the Union) represents 40,000 employees in the state of Illinois.  It agreed to certain cost-saving measures, including deferred wage increases, in order to help Illinois address significant budget pressures.  When Illinois did not emerge from its financial woes, it instituted a wage freeze, repudiating the earlier deal.

The Union brought suit, citing inter alia the Contracts Clause, and seeking an injunction forcing the state to pay the wage increases as they came due. Illinois brought a motion to dismiss, which the District Court granted.  In Council 31 v. Quinn, the Seventh Circuit affirmed.  

The case is procedurally complex, especially since the parties proceeded with arbitration, in which the Union prevailed in part, and that ruling is subject to an on-going appeal in the state courts.  Meanwhile, the 7th Circuit addressed only constitutional claims brought pursuant to the Contracts Cluase and the Equal Protection Clause against Illinois Governor Quinn and from the State's Department of Central Management Services Director Malcolm Weems, both in their offiical capacities.

Although the Union characterized its claims as seeking only injunctive and declaratory relief, the true aim was to get the state to make expenditures from its treasury.  As such, not withstanding Ex parte Young, the Eleventh Amendment barred the Union's Contracts Clause claims against the defendants.  

Even if there were no Eleventh Amendment bar to the suit, the Court also found that the Union could not state a claim under the Contracts Clause because it alleged only an ordinary breach of contract, which is insufficient to constitute an "impairment" of contractual relations for the purposes of the Contracts Clause.  The reasons why this is so have to do with the state's defenses to the Union's claims in the arbitration proceedings and the state court appeals thereof.  The basic argument is that appropriate legislative appropriations were a condition precedent to its duties to pay the wage increases.  If that argument succeeds, there was no contractual impairment.  If it fails, there is no need for a federal court injunction because the Union will have prevailed.

The Court dismissed the Union's Equal Protection claim because the challenged state rules withstand rational basis scrutiny.


June 4, 2012 in Government Contracting, Labor Contracts, Legislation, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 30, 2012

Breaking SoL News from Ohio

Ohio reports a recent change made by the Ohio House concerning the statute of limitations (SoL) for lawsuits alleging causes of action for breach of contract.  Until recently, a party in Ohio had up to 15 years after a cause of action accrued to file a lawsuit for breach of written contract.  However, S.B. 224, which was unanimously passed on Thursday, May 24, 2012, reduces the time period to eight years.  In most states, the SoL for braech of contract is six years or less.

Speaker William Batchelder, R-District 69 said “this law has dated back to the days of early statehood, when businesses and consumers moved at a much slower pace.  Obviously the speed at which industry moves has increased rapidly since then and S.B. 224 brings Ohio more in line with today’s fast-paced world.”

We'll see if the governor signs the law and brings Ohio's SoL into line with that of other states.

[Christina Phillips & JT]


May 30, 2012 in In the News, Legislation | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 29, 2012

Guest Post: How Do Surety Bond Costs Affect Small Contracting Firms?

Here is the first guest post by guest blogger Danielle Rodabaugh

It's no secret that the economy plays a huge role when it comes to competition in the construction industry. When the economy is down, competition goes up, and small contracting firms typically have trouble competing with larger ones. When construction professionals are unprepared to pay for the surety bonds required for large projects, the opportunity for small firms to gain access to business becomes even more limited.
Before I go much further, I'd like to review the use of surety bonds in the construction industry, as the surety market remains relatively mysterious to those who work outside of it.  As explained in more detail here, the financial guarantees provided by contractor bonding keep project owners from losing their investments.

Each surety bond that's issued functions as a legally binding contract among three entities. The obligee is the project owner that requires the bond as a way to ensure project completion. When it comes to contract surety, the obligee is typically a government agency that's funding a project. The principal is the contractor or contracting firm that purchases the bond as a way to guarantee future work performance on a project. The surety is the insurance company that underwrites the bond with a financial guarantee that the principal will do the job appropriately.

Government agencies require construction professionals to purchase surety bonds for a number of reasons that vary depending on the nature of a project. For example, bid bonds keep contractors from increasing their project bids after being awarded a contract. Payment bonds ensure that contractors pay for all subcontractors and materials used on a project. Performance bonds ensure that contractors complete projects according to contract. When contractors break these terms, project owners can make claims on the bonds to gain reparation.

The federally enforced Miller Act requires contractors in every state to file payment and performance bonds on any publicly funded project that costs $100,000 or more. However, state, county, city and even subdivisions might require contractors to provide additional contract bonds, such as license bonds or bid bonds, before they can be approved to work on certain projects. Or, sometimes local regulations require payment and performance bonds on publicly funded projects that cost much less than $100,000. Contractors should always verify that they're in compliance with all local bonding regulations before they begin planning their work on a project.

Although the purpose of contractor bonding is to limit the amount of financial loss project owners might have to incur on projects-gone-wrong, the associated costs can limit the projects that smaller contracting firms have access to.

Surety bonds do not function as do traditional insurance policies. When insurance companies underwrite surety bond contracts, they do so under the assumption that claims will never be made against the bonds. As such, underwriters closely scrutinize every principal before agreeing to issue a contract bond.

Furthermore, the premiums construction professionals have to pay to get bonded might come as a surprise to those who know little about contractor bonding. Contractors often get tripped up with how much surety bonds will cost and how they'll pay for them — especially when it comes to independent contractors who operate small firms. Surety bond premiums are calculated as a percentage of the bond amount. The higher the required bond amount, the higher the premium. Thus, purchasing bonds for large projects obviously costs contractors more than purchasing bonds for small projects.

The percentage rate used to calculate the premium depends on a number of factors, including the contractor's credit score, years of professional experience and record of past work performance. The stronger these variables are, the lower the surety bond rate. The weaker these variables are, the higher the surety bond rate.

As such, small firms often find it hard to compete for large projects because they struggle to either qualify for the required bonds or pay the hefty premiums. When contractors are unable to secure contractor bonding as required by law, they are not permitted to work on projects. This, consequently, typically limits large public projects to large contracting firms that can both qualify for and afford to purchase large bonds. Fortunately, when small contracting firms fail to qualify for the commercial bonding market, the Small Business Administration does offer a special bonding program to help them secure the necessary bonding.

Smaller contractors can improve their situation by reading up on the surety bond regulations that are applicable to their area. Those who understand the surety process and how various factors affect their bond premiums should find themselves better prepared to apply for the bonds they need.

[Posted by JT on behalf of Danielle Rodabaugh]

May 29, 2012 in Commentary, Government Contracting, Legislation, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 14, 2012

Postcard from New Zealand....The Case of the Missing SFC

Nz first week 308 (640x480)In my first post about my observations of contracting culture in New Zealand, I mentioned the unusual lack of contracts that consumers are forced to sign compared to in the States. Why wasn't I forced to sign a scary, multi-page, fine print form before my family was carried away on (very) rocky waters to swim with sea creatures in the open ocean? (Where was the laundry list of potential hazards that the company was not liable for, e.g. jumping in before the propeller blades were shut off, drowning, shock from the freezing water, hypothermia, being suffocated by too tight wetsuit and rubbery head cover, getting kicked in the face by flippers worn by German tourist....) Why didn't our visit to a traditional Maorian village include a standard form releasing the village from all liability if we fell into a steam vent or ate one of the very alluring, perfectly round and unusually blue berries that were tradiitonally used for dye - and which are very poisonous?

And then I found out about New Zealand's tort reform law. Back in the early seventies (the heyday of consumer regulatory reform everywhere, it seems), New Zealand adopted the Accident Compensation Act which basically abolished the ability to sue for personal injuries (providing a comprehensive no-fault benefits and rehabilitation scheme instead). I found this article by Peter Schuck which does a great job of outlining the kiwi approach to tort reform (which is, incidentally, called "Tort Reform, Kiwi-Style).

The case of the missing SFC. Mystery solved!

 [Nancy Kim]

March 14, 2012 in Legislation, Travel | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 13, 2012

Contracts Clause Issue in Florida

As reported in the Miami Herald, the Florida legislature attempted to close a budget gap through Senate Bill 2100, which cut state and local workers’ salaries by three percent, eliminated cost of living adjustments, and shifted savings into the general revenue fund to offset the state’s contribution to the workers’ retirement account.  State worker and their unions challenged the law. 

Fla SupremeLast week, on cross-motions for summary judgment in Williams v. Scott, Circuit Court Judge Jackie Fulford ruled against the Florida legislature.  Judge Fulford found that the three percent salary cut is an unconstitutional taking of private property without full compensation.  Permitting the cut would condone a breach by the state of the workers’ contracts in violation of the workers’ collective bargaining rights.  To rule otherwise, Judge Fulford noted, “would mean that a contract with our state government has no meaning, and that the citizens of our state can place no trust in the work of our Legislature.” Judge Fulford ordered the money returned with interest.

Judge Fulford first distinguished this case from a 1981 Florida Supreme Court (pictured) case, Fl. Sheriffs Ass’n. v. Dept. of Admin., 408 So. 2d 1033 (Fl. 1981), in which the court found no impairment of contract when a special risk credit was reduced from 3% to 2%.   While that case implicated only individual elements of future accruals within the state retirement plan, this case involves a complete change of that system from a noncontributory to a contributory plan.  In this case, Judge Fulford found an impairment of contractual rights and found that the impairment is substantial.  State impairment of contractual rights is nonetheless permissible if the state can demonstrate a compelling interest.  But Judge Fulford found that the state was unable to make such a showing.   A significant budget shortfall is not enough.  

Judge Fulford also found that Senate Bill 2100 would effect an unconstitutional taking under the Florida state constitution.  Bill 2100 also violates collective bargaining rights protected under Florida’s constitution, according to Judge Fulford.

According to the Miami Herald, this ruling leaves a $1 billion hole in the state budget for the 2011-12 budget year, another $1 billion hole for the 2012-13 budget year, and also delivers a $600 million blow to the Florida Retirement System. Governor Rick Scott vowed to swiftly appeal the “simply wrong” decision so that it has no effect on the current budget.  Scott called Judge Fulford’s ruling  “another example of a court substituting its own policy preferences for those of the legislature.”   For what it's worth, Judge Fulford was appointed by Governor Scott’s Republican predecessor as Governor of Florida.

[JT & Christina Phillips]


March 13, 2012 in Government Contracting, Legislation, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Friday, February 17, 2012

Snyder on How to "Dine and Ditch" Under the UCC

Frank-snyder1The ABA Journal reports that The Cheesecake Factory will begin posting drink prices in Massachusetts after a lawyer threatened suit.  According to the article, the lawyer "threatened to sue under the Massachusetts Consumer Protection Act on behalf of a friend who was charged $11 for a margarita at a Cheesecake Factory in Chestnut Hill. The price was not on the menu and the server was only able to provide a range of drink costs."  

The ABA Journal looks to our very own founder, Franklin Snyder, for guidance.  Previously, Frank had commented in a New York Times column about Nello.  This Manhattan restaurant has (had?) a practice of not mentioning the price of a white truffle pasta lunch special.  This practice shocked a recent diner when he turned over a bill charging $275 for the dish.  To the New York Times, Snyder commented:

“You might be interested in letting your readers know that a restaurant meal is a ‘sale of goods’ under Article 2 of the Uniform Commercial Code,” he wrote. “The code provides that where the buyer and seller have agreed to a contract but have not agreed on the price, the price is not what the seller subsequently demands. It’s a reasonable price for the goods at issue. Thus a customer has no obligation to pay for anything more than the reasonable price of a pasta meal at a trendy restaurant.”

He continued: “In this circumstance, a customer should make a reasonable offer for the value of the meal, then walk out and wait to be sued for breach of contract. Be sure to leave the restaurant full contact information so they can’t claim that you’re trying to steal something.”

Thanks for the tip, Frank! I'm heading over to Nello for the truffle pasta dish.  I hope there isn't a price listed on the menu.

[Meredith R. Miller]

February 17, 2012 in About this Blog, Commentary, Contract Profs, Food and Drink, In the News, Legislation | Permalink | Comments (3) | TrackBack (0)

Monday, November 21, 2011

Quote of the Day [On Consumer Choice and Pre-Dispute Arbitration]

Victor Schwartz testifying before the Senate Judiciary Committee concerning the Arbitration Fairness Act:

"It may seem extraterrestrial, but I have lived in a world where people did not have cell phones or the gadgetry we see in our daily lives. Folks did survive."

I happened upon the quote in this piece by Public Citizen in favor of the Arbitration Fairness Act.  The reaction to the quote in that article:

"[Schwartz'] comment was obviously puzzling in a modern context, and distracted from the real issue at hand, consumer rip-offs perpetuated by wireless companies, particularly in the fine print of cell phone contracts. Schwartz’s answer to the problems: Give up your mobile device." 

To be fair, I will place the quote in its greater context within Schwartz' testimony:

Another commonly employed argument against pre-dispute arbitration provisions is that
they disadvantage consumers and employees because these groups have no bargaining power or
have unequal bargaining power. This argument adds that these arbitration clauses are often
buried in the “fine print” or are in contracts written in “legalese,” leaving many consumers or
employees unaware that these provisions even exist. But, here is the key point mentioned in the
beginning of my testimony. Consumers and employees voluntarily enter these contracts. It may
seem extraterrestrial, but I have lived in a world where people did not have cell phones or the
gadgetry we see in our daily lives. Folks did survive. If consumers balked at these agreements
and refused to buy products or services unless they could litigate disputes, it is my belief that at
least one or more companies would offer a non-arbitration alternative; in fact in many industries
where arbitration is used, some non-arbitration alternatives exist. The argument that consumers
lack bargaining power is a fallacy; consumers gain more bargaining power everyday through
increased competition and more avenues, such as on the Internet, to rate products and services.

So, who has the better side of the debate?  Is not participating in consumption a solution?  If you don't like pre-dispute arbitration, don't have a cell phone? Would enough consunmers really give up their cell phones to create a market for a "non-arbitration alternative"?  

[Meredith R. Miller]

November 21, 2011 in In the News, Legislation | Permalink | Comments (1) | TrackBack (0)

Friday, November 11, 2011

From Our Far-Flung Correspondents: A New EU Sales Law on the Way?!?

Tadas Klimas, a contracts (among other things) prof in Lithuania and a friend of the blog has shared with us a link to his blog, Civitatus in which he reports on a new opt-in sales law for Europe.  His introductory content is pasted in below, but you can get the full story on his blog:

“The train has left the station.” These were the words of Viviane Reding, Vice-President and Commissioner for Justice, Fundamental Rights and Citizenship, spoken at the ECR European Contract Law Hearing held at the European Parliament in Brussels on May 3rd, 2011 (which I attended). This is how the question of whether there will or will not be a pan-EU Contracts Code was answered. The “Commisar” was trying to convey the idea that a political decision has been made and that there indeed will be an EU Contracts Code.

Commissioner Reding did not speak with forked-train. It’s been a slow train coming, but the official proposals have now been made. In words more understandable by American standards, the bill has now (just about a month ago – October 11) been proposed and is in committee.

Euro_banknotesThe proposals, including the draft legislation (code) itself, can be downloaded here:

Here is an alternate link to the EU Sales Law

Among the highlights of the new trans-European code are these:

  1. It is an opt-in code. This is the reverse of the CISG, which is opt-out.
  2. It is both Business To Business and Business to Consumer.
  3. It affects all cross-border trading, including online sales.
  4. It is applicable to cross-border trading and is not applicable to internal (within-country, national) sales. Thus the regime it imposes is one in which consumers purchasing from a seller within the country the consumer resides in will find their contracts governed as per usual by the national law. But consumers from another EU country, if the contract so states, will find the contract (and their consumer-protection laws) governed by this new opt-in EU UCC (Art. 2) (EU Common Sales Law).
  5. Supposedly this regime will lower information-costs and enhance, encourage, and expand cross-border trading.
  6. And my favorite: it contains a facilitative section enabling the new code’s adoption by EU Member States for national (within-border) sales.

The rationale for the code is more or less the standard iteration in defense of such legal regimes (such as the CISG). 


November 11, 2011 in Contract Profs, Current Affairs, Legislation | Permalink | Comments (0) | TrackBack (0)

Saturday, September 24, 2011

Law Profs, Free Textbooks and $$$

Although this isn’t my first post to the blog, it is the first I’ve written since being officially welcomed (confusing I know, but it has to do with the wonders of time releasing posts…) So, I want to thank Jeremy for the very nice introduction and for the invitation to join my highly esteemed co-bloggers. Now, on to the topic of law profs making extra ca$h!

Over at PrawfsBlawg , Howard Wasserman asks whether a law school may prohibit its professors from reselling courtesy copies of textbooks. I think the answer is that it may as an employment matter, just as it may issue codes of conduct and other rules so long as the prohibition doesn’t run afoul of existing institutional policies, contracts or employment laws (I don’t think any apply to this situation).

What I find more interesting from a contracts prof’s perspective, is whether the publisher may prohibit such resale. As Wasserman notes, "West and Foundation now place stickers on courtesy copies explicitly prohibiting resale." I’m not sure that such a prohibition is valid. As the commenters to his blog post note, the cases in this area are not models of clarity. The critical issue is likely whether the transaction is characterized as a “license or a sale.” If it is a license, the publisher generally can issue restrictions; if it is a sale (i.e. a transfer of title), they probably cannot. With software, courts may permit such restrictions because software transactions are typically viewed as licenses not sales, see Vernor v. Autodesk, for example. (self promotion alert: I disagree – I think it depends upon the transaction, i.e. mass market consumer or customized). With things other than software --notice that I didn’t say goods -- it’s a toss up. A relatively recent case, UMG Recordings v. Augusto, indicates that such a restriction on a label would not be upheld. In that case, the Ninth Circuit found invalid a label prohibiting transfer of ownership of a promotional music CD. The case is at odds with other Ninth Circuit decisions involving software. The ruling in UMG v. Augusto is complicated by the applicability of a federal statute, the Unordered Merchandise Statute, 39 U.S.C. §3009 which provides that mailed unordered merchandise “may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.” Although there was no money exchanged for the CD, the court found that there was a “gift or sale” for the purposes of the first sale doctrine because there was a transfer of title.

Another interesting issue is whether digital books constitute “software” or “other things.” As the hardcover textbook cedes more ground to its digital counterpart, the characterization of ebooks as “books” or “software” gains importance although the key issue will remain whether the digital content is licensed or sold. Publishers of ebooks are likely to use the language of “license” rather than “sale” to prohibit transfers of ebook copies. It’s not clear whether the courts will defer; if they do, it will limit the impact of UMG Recordings v. Augusto.

September 24, 2011 in Contract Profs, Legislation, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Thursday, September 22, 2011

Jail time for violating a browsewrap??

In connection with a book I am currently writing on online agreements, I've been thinking a lot (perhaps too much?) about "terms of use" or "browsewrap" agreements. Law professors love to hate 'wrap agreements and bemoan the lack of assent associated with them. But to what extent are these so-called contracts actually problematic? One potential problem is that there are other laws that may interact with and exaggerate the unfairness of calling these terms "contracts." A recent op-ed by George Washington law professor Orin Kerr touches upon one such law, the Computer Fraud and Abuse Act (CFAA). The CFAA was aimed at computer hacking and makes a misdemeanor any computer use that "exceeds authorized access." That's where the lowly, sneaky browsewrap steps in. According to Kerr, "the Justice Department believes that it applies incredibly broadly to include terms of use violations". In other words, if you exceed a website's terms of use - on Facebook, this could mean you failed to keep your contact information "accurate and up-to-date"-- you have exceeded your authorization to use the site. And you haven't only breached a "contract", but you may have committed a crime...?!


September 22, 2011 in Commentary, Current Affairs, E-commerce, Legislation, Web/Tech | Permalink | TrackBack (0)

Wednesday, May 11, 2011

Texas Criminal Lawyers Seek to Enforce Contract with Exonerated Defendants

Cell Yesterday, the New York Times published a lengthy story about contracts between attorney and lobbyist Kevin Glasheen and his clients, exonerated prisoners who hired Mr. Glasheen to to sue municipalities and the state of Texas for wrongful imprisonment in return for a 25% contingency fee.  Instead of filing suit, Mr. Glasheen lobbied the legislature to increase the payout to the wrongfully imprisoned.  He was successful.  Instead of being statutorily entitled to $50,000/year, the exonerated are now entitled to $80,000/year.  

According to the Times, on that basis, Mr. Glasheen sent Steven C. Phillips, who had spent 25 years behind bars, a bill for over $1 million.  A hefty portion of the fee would go to the co-founder and chief counsel of the Texas Innocence Project, apparently as a referral fee.  Mr. Phillips sued, presumably seeking a declaration that he has no obligation to pay.  Another exonerated prisoner joined the suit.  In addition, the state bar association initiated a disciplinary action, as described here in the Lubbock Avalanch-Journal.  According to the Times, the bar association characterizes the fees as prohibited and unconscionable.  State legislation is in the works to prevent the collection of the such fees going forward.

Mr. Glasheen characterizes the controversy as a typical fee dispute and prognosticates dismissal.  "Meanwhile, I've got drug behind the pickup truck."  I'm not fluent in Texan, but that sounds to me like a reference to the horrific murder of James Byrd, Jr.  Wow.  

The contracts issue will depend on the actual contractual language, of course, which we do not have.  Was Glasheen to be compensated for filing a law suit on his clients' behalf (which he did not do) or for lobbying, (which he did)?  

Moreover, I don't get the math.  As the article points out, the exonerated get their annual payments until they die or are convicted of another felony.  But even in the best case, Mr. Glasheen should only be entitled to 25% of the difference between $80,000/year and $50,000/year multiplied by 25.  That comes to $187,500, which would then have to be discounted to present value.  In short, nothing like $1 million.

Mr. Glasheen claims he has already collected $5 million in fees from other exonerated prisoners.  The Innocence Project also rises to Mr. Glasheen's defense, arguing in essence that they partnered with him because he is the best at getting money for exonerated prisoners, and you have to pay to get that kind of representation.  Why doesn't Steven Phillips want to pay?  According to the Times, Glasheen has a simple explanation: Phillips is a sociopath conditioned by the prison system to lie to survive.  

He's the best alright.


May 11, 2011 in In the News, Legislation, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, May 2, 2011

NY Times on Law School Merit Scholarships

As if our co-blogger Meredith Miller had not depressed us enough on Friday with her thoughts on job prospects for recent graduates, the New York Times piled on in its Sunday Business section with this article about merit scholarships that may not be all that they seem.

The story is about students who are lured to schools with merit scholarships that will free them from their obligation to pay law school tuition, so long as they maintain a certain grade point average.  Most students assume that this will be no problem, because they arrive at law school with gaudy GPAs.  As this chart compiled by Stuart Rojstaczer shows, the average undergraduate GPA was 3.11 in 2006-07.  In such a Lake Wobegon world where all the students are above average, it seems reasonable for newly admitted law students to think they can make the grade without breaking a sweat. 

The Times concludes that schools are luring students in with merit scholarships and then withdrawing those scholarships from a shockingly high number of students.  Why?  The answer is obvious to anyone inside the legal academy: to pump up their U.S. News numbers, of course. Law schools want high LSATs and undergraduate GPAs in their first year class.  So they use fellowships to draw in students whose test scores and GPAs would otherwise take them elsehwere. 

But is there injustice involved?  The report states that the phrase "bait and switch" comes up a lot and that students are "shocked when their scholarships disappear."  Would the injustice not be greater if an underperforming merit scholar got to keep her scholarship while a dark horse student with a 3.5 GPA still had to pay her way?  And is it really too much to expect students who are admitted with merit fellowships to ask about grade distributions or use -- I don't know, perhaps the internet -- to find out how likely it is that they will keep their fellowships?  Law schools frequently use current students to recruit newly admitted students.  Contacts with current students are an ideal way to get just this sort of information. 

Moreover, what U.S. News-conscious law schools take away, other U.S. News-conscious law schools may give.  That is, let's say a student went to a 4th-tier law school in order to get the free ride.  After the first year, the student loses her free ride because of a low GPA.  She likely can transfer to a 3rd-tier school, perhaps even one that wouldn't have taken her at all as a 1L -- let alone with a scholarship -- because the other side of gaming the U.S. News system is poaching transfer students from lower-ranked schools.  The student will still end up paying full tuition for two years of law school, but the alternative is paying full tuition for three years of law school.

Yes, law schools should be up front with information about the likelihood that students will lose their fellowships.  My guess is that, because of the optimism bias, providing that information would not hurt law school recruitment.  According to the Times, Chicago-Kent offers students the choice between a guaranteed $9000/year fellowship and a $15,000 fellowship contingent on maintaining a 3.25 GPA.  Ninety percent of the students assume the risk. 



May 2, 2011 in About this Blog, Commentary, Law Schools, Legislation | Permalink | Comments (0) | TrackBack (0)

Friday, January 14, 2011

Federal Contractors and Arbitration of Sexual Assault and Harassment Claims

Al_Franken_Official_Senate_Portrait As reported in the Bureau of National Affairs (BNA) Federal Contracts Report (subscription necessary, alas) -- and nowhere else that I can find on the web -- on December 8, 2010, the Department of Defense (DoD) issued its final rule implementing Section 8116 of the 2010 Defense Appropriations Act, known as the Franken Amendment.  The Amendment applies to DoD contracts of more than $1 million and provides that contractors awarded such contracts must not require employees to arbitrate their Title VII claims or "any tort relating to or arising out of sexual assault or harassment."

According to the BNA Report, the Franken Amendment was a response to the case of Jamie Leigh Jones, a former employee of government contractor and former Halliburton-subsidiary, KBR.  Ms. Jones alleged that her fellow KBR employees drugged and gang-raped raped her while she was working for the company in Baghdad.  She further alleged that KBR confiscated, hid and tampered with the rape kit compiled by an army doctor who treated Ms. Jones.  KBR then allegedly confined Jones to a shipping container under armed guard and denied her food, water and medical treatment. 

Jones's case inspired Senator Franken (pictured) because KBR argued that her claims were subject to arbitration and sought dismissal of her suit from the federal courts.  The Fifth Circuit denied KBR's motion to compel arbitration and remanded the case to the District Court.  KBR's petition for cert. was denied in March.  


January 14, 2011 in Current Affairs, Government Contracting, Legislation | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 1, 2010

Drafting executive compensation contracts

1908RandallCountyCourthouseCanyonTexas907TJnsn There aren't many areas these days where contracts have to be more carefully crafted than that of executive compensation.  So you may be interested in a webinar that BNA is putting on next week.  Here's the info:

Living on the Edge: Avoiding 409A and 162(m) Pitfalls in a Shifting Environment
Thursday, December 09, 2010
1:00 PM - 2:30 PM ET

Agenda: This BNA webinar will explain how to approach the design and administration of your executive compensation programs (including employment and severance agreements) and avoid the ever-tightening net of tax penalties under Section 409A and 162(m). It will cover common "traps for the unwary" and foot faults that may result in unintentional violations of Sections 409A and 162(m) and provide practical suggestions to guide decision making in these areas to optimize compliance. It will focus on areas where compliance has proven particularly difficult and flag common situations that present the highest risk of IRS challenge. Attendees will acquire practical information on how to avoid common 409A and 162(m) violations, how to spot the violations when they have occurred, how to correct violations when possible, and how to assess penalties when the violation cannot be corrected. Since attendees are often not the only ones in their organizations responsible for the oversight of matters that can lead to 409A and 162(m) violations, attendees will leave with suggestions and tools to aid them in maximizing success by coordinating with others throughout their organizations.

Program Highlights:

  • Traps for the unwary -- the 10 most common situations that risk 409A or 162(m) violations, and how to recognize and deal with them
  • Common foot faults - how drafting or operational mistakes that seem minor can result in serious tax penalties
  • Implementing compliance procedures, including coordination within the organization
  • Presentation of practical tips for spotting compliance issues requiring legal review
  • What to do if a violation is discovered - panic, corrections, penalties, gross-ups


December 1, 2010 in Commentary, Legislation, Meetings | Permalink | Comments (0) | TrackBack (0)