Monday, June 8, 2015
As 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.
Tuesday, May 26, 2015
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.
Monday, May 18, 2015
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.
Monday, April 27, 2015
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.
Monday, April 20, 2015
The Texas Lawyer reports that Texas has amended a statute that allows plaintiffs to recover attorneys' fees in breach of contract claims. The statute originally allowed for recovery from an individual or a corporation. The amendment permits recovery from any non-government entity. As law Prof. Doug Moll (pictured) explains, the purpose of the policy is to encourage settlement and permit parties that could not pay their own attorneys' fees to sue for breach. "There is not a policy justification I can see for distinguishing between business forms in an attorney fee-shifting statute," Moll noted in defending the amendment. The bill faced some opposition from groups that would not want to exempt state entities and from others who wanted the law to allow either side, not just plaintiffs, to collect attorneys' fees. But lawmakers did not want to mess with Texas law.
From the Philadelphia Business Journal, we get yet another classic municipal contracting case. City meets company, city hires company to do some fancy, technical thing it can't do itself, city and company exchange allegations of breach of contract, and the parties settled for $4.8 million. In this case, the city is Baltimore and the company is Unisys.
As reported here in USA Today, one bi-product of the new nuclear deal with Iran is that Russia now feels free to send Iran S-300 missiles for use in its air-defense system. The missile deal has been suspended since 2010, and Iran had sued Russia in Geneva, alleging breach of contract and seeking $4 billion in damages. Iran now says that it will drop the case if Russia delivers the missiles.
Friday, April 3, 2015
In New Zealand, a ban on unfair terms in consumer contracts has taken effect and will, according to the Commerce Commission, will be enforced starting immediately. The regulation forms part of the 2013 Fair Trading Act. Australia introduced a similar ban in 2010.
The Consumer Organization “Consumer NZ” has launched its “Play Fair” campaign to increase awareness of the new law and related consumer issues. According to Consumer NZ, companies had been given plenty of notice of the upcoming ban and thus to review their contracts in order to remove unfair terms, but had to a large extent failed to do so.
The Act will apply to standard-form consumer contracts often used by electricity retailers, gyms, TV service providers and many others.
But what makes a term “unfair”? The Act defines a term as unfair if it would “would cause a significant imbalance between the rights of the company and the consumer, is not reasonably necessary to protect the legitimate interests of the company, [or] would cause detriment, whether financial or otherwise, to the consumer if it were to be applied or relied on.” The Act contains a list of terms that courts are likely to regard as unfair. This covers terms that would allow a company to unilaterally vary the terms of the contract, renew or terminate it, penalize consumers for breaching or terminating the contract, vary the price without giving consumers the right to terminate the contract, or vary the characteristics of the goods or services to be supplied.
After intense lobbying by the insurance industry, that industry was exempted from the ban.
Even though this Act is a consumer protection device, only the New Zealand Commerce Commission can, for now, enforce it. The contemplated fine for violations is $600,000.
In the USA, there are, of course, various statutory and common law protections against unfair terms such as those contained in the UCC as well as fraud protections. However, the deterrence effect of these does not seem effective in relation to at least some industries. Alternatively, perhaps the protections are not broad enough, sufficiently well-known, or sufficiently easy to enforce. Or perhaps people just give up and deal with other companies, or pay what they are asked to do by the companies.
I personally just spent no less than two hours chatting online with a major health care provider over their sudden allegation that a certain doctor I had used was “not in network” (with me thus allegedly owing a few thousand dollars to the insurance company) despite that particular provider being listed on the provider’s own website as “in network” and the doctor having confirmed this. Eventually and after numerous contractual and factual arguments, I was able to persuade provider that I was right. But how many others in my situation would simply give up and cave in to, as was the case, the provider’s repeated bootstrapping arguments that “their ultimate price was fair”?
Only two days later, I heard from a moving company that had agreed to move a car for me for $500 (and confirmed this twice) that the “price is actually $600.” When I told them no, it is not, they repeated their allegation that “we did not have a contract.” After telling them a few things about contract formation and modification principles and after declining listening to their attempted, time-consuming warnings about using other companies that were “scam artists,” I am now looking for a new contract another vendor.
Despite whatever legal protections we may officially have in this country against consumer fraud, it is still rampant. New Zealand’s government enforcement system is interesting, but time will tell if they have more success preventing consumer fraud than we do here.
Thursday, March 19, 2015
The problem with constructive consent, or substituting "manifestations of assent" for actual assent, in consumer contracts is that consumers often aren't aware what rights they've relinquished or what they have agreed to have done to them. Too bad for consumers, right? Well, it's also too bad for companies. Companies that rely on contracts to obtain consumer consent may find that what suffices for consent in contract law just won't cut it under other law that seeks actual consumer consent. Michaels, the arts and crafts store chain, found that out the hard way. They were recently hit with two class action lawsuits alleging that their hiring process violates the Fair Credit Reporting Act (FCRA). Job applications clicked an "I Agree" box which indicated "consent" to the terms and conditions which authorized a background check on the applicant. As this article in the National Law Review explains, the FCRA requires that job applicants receive "clear and conspicuous" standalone notice if they are seeking consent from applicants to obtaining a background report. A click box likely won't (and shouldn't) cut it. Contracts that everybody knows nobody reads shouldn't be considered sufficient notice. It would, of course, be much simpler if contractual consent were more aligned with actual human behavior....
Monday, February 23, 2015
2012 American Idol winner Phillip Phillips has lodged a “bombshell petition” with the California Labor Commissioner seeking to void contracts that Phillips now finds manipulative, oppressive, and “fatally conflicted.”
Before winning season 11 of “American Idol,” Phillips signed a series of contracts with show producer “19 Entertainment” governing such issues as his management, recording and merchandising activities. These contracts are allegedly very favorable to 19 Entertainment, for example allowing the company as much as a 40% share of any moneys made from endorsements, withholding information from Phillips about aspects of his contractual performance such as the name of his album before it was announced publicly, and requiring Phillips to (once) perform a live show once without compensation. 19 Entertainment has also lined up such gigs for Phillips as performing at a World Series Game, appearing on “Ellen,” the “Today Show,” and “The View.”
It is apparently not unusual for those on successful TV reality shows to renegotiate deals at some point once their career gets underway. Phillips claims that he too frequently requested this, but that 19 Entertainment turned his requests down. Can he really expect them to agree to post-hoc contract modifications?
Very arguably not. Under the notion of a pre-existing legal duty, a party simply cannot expect that the other party to a contract should have to or, much less, should be willing to change the contractually expected exchange of performances. This seems to be especially so in relation to TV reality shows where the entire risk/benefit analysis to the producer is that the “stars” may or may not hit it big. For hopeful stars, the same considerations apply: their contracts may lead them to fame and fortune… or not. That’s the whole idea behind these types of contracts. Of course, if industry practice is to change the contracts along the way and if both parties are willing to do so, they are free to do so. Otherwise, the standards for contractual modifications are probably the same for entertainment stars as for “regular” contractual parties.
Another issue in this case is whether an “agent” is a company or a physical person. Under the California Talent Agencies Act (“TAA”), only licensed “talent agents” can procure employment for clients. Phillips is attempting to apply the TAA to entertainment companies like 19 Entertainment. If Phillips is successful, the ramifications may be significant for the entertainment industry in which companies very often negotiate deals with performers without taking the TAA into account. In Citizens United v. Federal Election Commission, the United States Supreme Court famously gave personal rights to corporations, albeit only in the election context. Time will tell how California looks at the issue of corporate personhood and responsibilities in the entertainment context.
Adjudications under the controversial TAA are notoriously slow and could leave contractual parites in “limbo” for a very long time. Time and patience is not what Hollywood parties are known to have a lot of, so stay tuned for the outcome of this dispute.
Thursday, January 22, 2015
Texas A & M School of Law Contracts Prof Mark Burge (pictured) has posted a new article on SSRN:
Too Clever by Half: Reflections on Perception, Legitimacy, and Choice of Law Under Revised Article 1 of the Uniform Commercial Code
The Abstract is provided below, and the article is available for download here.
The overwhelmingly successful 2001 rewrite of Article 1 of the Uniform Commercial Code was accompanied by an overwhelming failure: proposed section 1 301 on contractual choice of law. As originally sent to the states, section 1-301 would have allowed non-consumer parties to a contract to select a governing law that bore no relation to their transaction. Proponents justifiably contended that such autonomy was consistent with emerging international norms and with the nature of contracts creating voluntary private obligations. Despite such arguments, the original version of section 1-301 was resoundingly rejected, gaining zero adoptions by the states before its withdrawal in 2008. This article contends that this political failure within the simultaneous success of Revised Article 1 was due in significant part to proposed section 1-301 invoking a negative visceral reaction from its American audience. This reaction occurred, not because of state or national parochialism, but because the concept of unbounded choice of law violated cultural symbols and myths about the nature of law. The American social and legal culture aspires to the ideal that “no one is above the law” and the related ideal of maintaining “a government of laws, and not of men.” Proposed section 1-301 transgressed those ideals by taking something labeled as “law” and turning on its head the expected norm of general applicability. Future proponents of law reform arising from internationalization would do well to consider the role of symbolic ideals in their targeted jurisdictions. While proposed section 1-301 made much practical sense, it failed in part because it did not—to an American audience—make sense in theory.
Tuesday, January 6, 2015
The U.S. Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. plans to create hurdles for lenders of payday and direct deposit advance loans. Both types of loans are short-term loans intended to help consumers through a rough patch. Payday loans are available at various storefront locations whereas direct deposit advance loans are for banks’ existing customers.
The problem with these types of loans is that they often trap people into cycles of mounting debt with annual interest rates of more than 500% and the need by some to take out an average of 10 loans a year amounting to a total of more than $3,000.
This is a crackdown on organizations that may be seen to pry on the already weak. But is it also a setback for financially underprivileged consumers? After all, if you need money now, you need money now. I think the new proposed regulations are a step in the right direction as consumer protection, but at the same time, more is needed. That “more” is a decent living wage so that so many people do not have to live not only paycheck to paycheck, but in fact pre-paycheck to pre-paycheck.
In his 2015 State of the Union address, President Obama is expected to highlight the nation’s economic growth and falling unemployment rate. However, as I have written here before, most people in the U.S. still do not see or feel the economic recovery. Perception is reality. Let’s hope that the economy soon improves so much that most people feel it.
Hat tip to Professor Miriam Cherry for alerting me to this story.
Monday, December 29, 2014
CNN reports that more and more restaurants are implementing no-tipping policies as, perhaps, a way of differentiating themselves from competitors. For example, one restaurant builds both tax and gratuity into menu prices, allegedly resulting in its servers averaging about $16.50 an hour. I have argued here before that it seems fair to me that the burden of compensating one’s employees should fall on the employer and not on, as here, restaurant patrons feverishly having to do math calculations at the end of a meal.
The law does not yet support employment contracts ensuring fair compensation of restaurant and hotel employees. For example, federal law requires employers to pay tipped workers only $2.13 an hour as long as the workers earn at least the federal minimum wage of $7.25 an hour. Talk about burden shifting…
But change seems to be on the way with private initiatives such as the restaurant no-tipping policy. In Los Angeles, the City Council has approved an ordinance that raises the minimum wage for workers in hotels of more than 300 rooms to $15.37 an hour. Of course, this will mainly affect large hotel chains, which predictably resisted the ordinance citing to issues such as the need to stay competitive price-wise and threatened circumventing the effect of the new law by laying off or not hiring workers to save money. Funny since many of these hotels have been making vast amounts of money for a long time on, arguably, overpriced hotel rooms attracting a clientele that does not seem overly concerned about paying extra for things that are free in most lower-priced hotels (think wifi) and thus probably could somehow internalize the cost of fairly compensating its blue-collar workers.
Much has been said about the “1%” problem and a fair living wage. No reason to repeat that here. However, it is thought-provoking that whereas the U.S. recession officially ended in June 2009 – five years ago - 57% of the U.S. population still believed that the nation was in a recession in March 2014.
Contracting and the economy is, of course, to a large extent a matter of seeking the best bargain one can obtain for oneself. But even in industrialized nations such as ours, there is something to be said for also ensuring that not only the strongest, most sophisticated and wealthiest reap the benefits of the improved economy. So here’s to hoping that more initiatives such as the ones mentioned above are taken in 2015. At the end of 2014, it’s still “the economy, s$%^*&.”
Saturday, December 13, 2014
In the UK, two sections of the Statute of Marlborough are facing repeal after being in force for 747 years. That’s right: the Statute was passed in 1267 and is thus older than the Magna Carta, which – although having been drafted in 1215 – was not copied into the statute rolls to officially become law until 1297. Two sections, however, still remain good law.
Why the suggested repeal? The two potentially obsolete sections address the ancient British power of “distress,” which allowed landlords to enter a debtor’s property and seize his/her goods. However, distress was abolished by new legislation this past March.
But don’t worry, our British colleagues are not about to do anything rash or unpopular. Although the Law Commission has proposed the repeal, a public consultation has been initiated to make sure that no one actually uses the two sections anymore.
Other newer, but nonetheless obsolete, laws are also being earmarked for removal. One is from the 1990s and was drafted to regulate the “increasing popularity of acid house parties.” Apparently, acid house parties are not in anymore and thus, the law is no longer needed.
In spite of the above, two sections of the Statute of Marlborough still remain in effect. One forbids individuals from seeking revenge for debt non-payment without being sanctioned to do so by the court (you gotta love the fact that in the UK, one can apparently get courts to approve one seeking revenge against one’s debtors). Another prevents tenants from ruining or selling off the landlord’s land. Fair enough…
Friday, October 17, 2014
The Alliance for Justice has released a documentary on forced arbitration called Lost in the Fine Print. It's very well-done, highly watchable (meaning your students will stay awake and off Facebook during a viewing), and educational. I recently screened the film during a special session for my Contracts and Advanced Contracts students. It's only about 20 or so minutes and afterward, we had a lively discussion about the pros and cons of arbitration. We discussed the different purposes of arbitration and the pros and cons of arbitration where the parties are both businesses and where one party is a business and the other a consumer. Many of the students had not heard about arbitration and didn't know what it was. Many of those who did know about arbitration didn't know about mandatory arbitration or how the process worked. Several were concerned about the due process aspects. They understood the benefits of arbitration for businesses, but also the problems created by lack of transparency in the process. I thought it was a very nice way to kick start a lively discussion about unconscionability, public policy concerns, economics and the effect of legislation on contract law/case law.
I think it's important for law students to know what arbitration is and it doesn't fit in easily into a typical contracts or civil procedure class so I'm afraid it often goes untaught. The website also has pointers and ideas on how to organize a screening and discussion questions.
Thursday, September 11, 2014
This is big - Governor Jerry Brown just signed a bill into law that would prohibit non-disparagement clauses in consumer contracts. The law states that contracts between a consumer and business for the "sale or lease of consumer goods or services" may not include a provision waiving a consumer's right to make statements about the business. The section is unwaivable. Furthermore, it is "unlawful" to threaten to enforce a non-disparagement clause. Civil penalties for violation of the law range from up to $2500 for a first violation to $5000 for each subsequent violations. (Violations seem to be based upon actions brought by a consumer or governmental authority, like a city attorney. They are not defined as each formation of a contract!) Furthermore, intentional or willful violations of the law subject the violator to a civil penalty of up to $10,000.
We've written about the dangers of non-disparagement clauses on this blog in the past. It's nice that one state (my home state, no less!) is taking some action. Will we see a California effect as other states follow the Golden State's lead? As I've said before, those non-disparagement clauses aren't such a good idea- now would be a good time for businesses to clean up their contracts.
Monday, August 11, 2014
Presidential Executive Order Refuses Government Contracts to Companies that Mandate Employee Arbitration
President Obama today signed a new Fair Pay and Safe Workplaces Executive Order refusing to grant government contracts of over a million dollars to companies who mandate their employees arbitrate disputes involving discrimination, accusations of sexual assault, or harassment. This new order mirrors protections Congress already provided to employees of Defense Department contractors in 2011 in the so-called “Franken amendment.” The order also requires prospective federal contractors to disclose prior labor law violations and will instruct agencies not to do business with egregious violators.
While the executive order is limited in its scope (only protects employees who work for companies with large government contracts and only applies to arbitration of certain kid of claims), it is a step toward the Arbitration Fairness Act, which would prohibit mandatory arbitration more braodly. More here.
Tuesday, July 15, 2014
By Myanna Dellinger
The city of Berkeley, California, may become the first in the nation to require that gas stations affix warning stickers to gas pump handles warning consumers of the many recognized dangers of climate change. The stickers would read:
Global Warming Alert! Burning Gasoline Emits CO2
The City of Berkeley Cares About Global Warming
The state of California has determined that global warming caused by CO2 emissions poses a serious threat to the economic well-being, public health, natural resources, and the environment of California. To be part of the solution, go to www.sustainableberkeley.com
Consumers not only in California, but worldwide are familiar with similar warnings about the dangers of tobacco. The idea with the gas pump stickers is to “gently raise awareness” of the greenhouse gas impacts and the fact that consumers have alternatives. In their book “Nudge,” Richard Thaler and Cass Sunstein addressed the potential effectiveness of fairly subtly encouraging individual persons to act in societally or personally improved ways instead of using more negative enforcement methods such as telling people what not to do. Gas pump stickers would be an example of such a “nudge.”
But is that enough? World scientists have agreed that we must limit temperature increases to approximately 2° C to avoid dangerous climate change. The problem is that we are already headed towards a no less than 5° C increase. To stop this tend, we must reduce greenhouse gas emissions by 80% or more (targets vary somewhat) by 2050. Stickers with nudges are great, but in all likelihood, the world will need a whole lot more than that to reach the goal of curbing potentially catastrophic weather-related calamities.
Of course, the oil and gas industry opposes the Berkeley idea. The Western States Petroleum Association claimsthat the labels would “compel speech in violation of the 1st Amendment” and that “far less restrictive means exist to disseminate this information to the public without imposing onerous restrictions on businesses.” Why this type of sticker would, in contrast to, for example, labels on cigarette packaging, be so “onerous” and “restrictive” is not clear. Given the extent of available knowledge of climate change and its potential catastrophic effects on people and our natural environment, the industry is very much behind the curve in hoping for “less restrictive means.” More restrictive means than labels on dangerous products are arguably needed. Even more behind the curve is the Association’s claim that the information on the stickers is merely “opinion” that should not be “accorded the status of ‘fact’”. The Berkeley city attorney has vetted the potential ordinance and found the proposed language to be not only sufficiently narrow, but also to have been adopted by California citizens as the official policy of the state.
It seems that instead of facing reality, the oil and gas industry would rather keep consumers in the dark and force them to adopt or continue self-destructive habits. That didn’t work in the case of cigarettes and likely will not in this case either. We are a free country and can, within limits, buy and sell what we want to. But there are and should be restrictions. In this case, the “restriction” is actually not one at all; it is simply a matter of publishing facts. Surely, in America in 2014, no one can seriously dispute the desirability of doing that.
The Berkeley City Council is expected to address the issue in September.
Thursday, May 8, 2014
By Myanna Dellinger
On May 8, 2014, Vermont became the first state in the nation to require foods containing GMOs (genetically modified organisms) to be labeled accordingly. The law will undoubtedly face several legal challenges on both First Amendment and federal pre-emption grounds, especially since giant corporate interests are at stake.
Scientists and companies backing the use of GMOs claim that GMOs are safe for both humans and the environment. Skeptics assert that while that may be true in the short term, not enough data yet supports a finding that GMOs are also safe in the long term.
In the EU, all food products that make direct use of GMOs at any point in their production are subjected to labeling requirements, regardless of whether or not GM content is detectable in the end product. This has been the law for ten years.
GMO stakeholders in the United States apparently do not think that we as consumers have at least a right to know whether or not our foods contain GMOs. Why not, if the GMOs are as safe as is said? A host of other food ingredients have been listed on labels here over the years, although mainly on a voluntary basis. Think MSGs, sodium, wheat, peanuts, halal meat, and now gluten. This, of course, makes perfect sense. But why should GMOs be any different? If, for whatever reason, consumers prefer not to eat GMOs, shouldn’t we as paying, adult customers have as much a say as consumers preferring certain other products?
Of course, the difference here is (surprise!) one of profit-making: by labeling products “gluten free,” for example, manufacturers hope to make more money. If they had to announce that their products contain GMOs, companies fear losing money. So why don’t companies whose products don’t contain GMOs just volunteer to offer that information on the packaging? The explanation may lie in the pervasiveness of GMOs in the USA: the vast majority (60-80%, depending on the many sources trying to establish certainty in this area) of prepared foods contain GMOs just as more than 80% of major crops are grown from genetically modified seeds. Maybe GMOs are entirely safe in the long run as well, maybe not, but we should at least have a right to know what we eat, it seems.
Thursday, April 3, 2014
Supreme Court Finds Breach of the Implied Duty of Good Faith and Fair Dealing Claim Barred by the Airline Deregulation Act
We have been following this case, Northwest, Inc. v. Ginsberg, which departed from the Ninth Circuit and arrived in the Supreme Court, which heard oral argument in the case in December. The facts are amusing and all-too-familiar.
Mr. Ginsberg joined Northwest's frequent flyer program in 1999 and in 2005 he achieved "Platinum Elite" status. In June 2008, Northwest Airlines (Northwest) sent Mr. Ginsberg a letter revoking his Platinum Elite membership with Northwest for "abuse." This was done, Northwest alleged, in accordance with its contractual right to terminate membership for abuse, as determined in its sole discretion. The letter noted that Mr. Ginsberg has contacted Northwest 24 times over a roughly six-month period to report, among other things, "9 incidents of your bag arriving late at the luggage carousel. . . ."
At this point, we interrupt this blog post for a bit of a rant. . . .
Wait a minute! Northwest compensated Mr. Ginsberg with travel vouchers, points and $491 in cash reimbursements, so one might think that Mr. Ginsberg's complaints were, at least in part, justified. So, over the course of six months, his bags were delayed or lost nine times, and Northwest accuses him of abuse. That, I think Mr. Ginsberg would agree, takes chutzpah!
We now return to our more sober summary of the case . . . .
The issue before the Supreme Court was whether Mr. Ginsberg's claim that Northwest had vioalted the implied covenant of good faith and fair dealing was preempted under the Airline Deregulation Act (the Act). The Act includes a preemption provisions which provides that . . .
a State, political subdivision of a State, or political authority of at least 2 States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.
The Act thus should preclude claims related to a price, route, or service. The Court had twice previously struck down state statutory schemes that regulated practices in the arline industry, including practices related to frequent flyer programs. The central issue before the Supreme Court was whether Northwest had voluntarily taken on additional contratual duties pursuant to its frequent flyer program. The Supreme Court, unanimously reversing the Ninth Circuit, held that it had not. Because the implied duty of good faith and fair dealing is implied, the Court held, it was imposed upon Northwest by the state and thus constituted a form of state regulation preempted by the Act.
The Court suggested that Ginsberg, or at least other, similarly situated plaintiffs, are not without alternative remedies. If Northwest really is abusing its discretion in administering its frequent flyer program, the Court suggests, airline passengers can choose to join some other airline's frequent flyer program (assuming there are significant differences and Mr. Ginsberg lives near an airport serviced by multiple airlines), and the Department of Transportation has authority to investigate and sanction the airline. Finally, the Court noted that while Mr. Ginsberg's good faith and fair dealing claim was pre-empted, his abandoned breach of contract claim might not have been.
Monday, March 3, 2014
Contracts between credit card holders and card issuers typically provide for late fees and “overlimit fees” (for making purchases in excess of the card limits) ranging from $15 to $40. Since these fees are said to greatly exceed the harm that the issuers suffer when their customers make late payments or exceed their credit limits, do they violate the Due Process Clause of the Constitution?
They do not, according to the United States Court of Appeals for the Ninth Circuit (In re Late Fee & Over-Limit Fee Litig, No. 08-1521 (9th Cir. 2014)). Although such fees may even be purely punitive, the court pointed out that the due process analyses of BMW of North America v. Gore and State Farm Mut. Auto Ins. Co. v. Campbell are not applicable in contractual contexts, but only to jury-awarded fees. In Gore, the Court held that the proper analysis for whether punitive damages are excessive is “whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred” and finding the award of punitive damages 500 times greater than the damage caused to “raise a suspicious judicial eyebrow”. 517 U.S. 559, 581, 583 (1996). The State Farm Court held that “few awards exceeding a single-digit ratio between punitive and compensatory damages … will satisfy due process. 538 U.S. 408, 425 (2003).
Contractual penalty clauses are also not a violation of statutory law. Both the National Bank Act of 1864 and the Depository Institutions Deregulation and Monetary Control Act provide that banks may charge their customers “interest at the rate allowed by the laws of the State … where the bank is located.” 12 U.S.C. s 85, 12 U.S.C. S. 1831(d). “Interest” covers more than the annual percentage rates charged to any carried balances, it also covers late fees and overlimit fees. 12 C.F.R. 7.4001(a). Thus, as long as the fees are legal in the banks’ home states, the banks are permitted to charge them.
Freedom of contracting prevailed in this case. But should it? Because the types and sizes of fees charged by credit card issuers are mostly uniform from institution to institution, consumers do not really have a true, free choice in contracting. As J. Reinhardt said in his concurrence, consumers frequently _ have to_ enter into adhesion contracts such as the ones at issue to obtain many of the practical necessities of modern life as, for example, credit cards, cell phones, utilities and regular consumer goods. Because most providers of such goods and services also use very similar, if not identical, contract clauses, there really isn’t much real “freedom of contracting” in these cases. So, should the Due Process clause apply to contractual penalty clauses as well? These clauses often reflect a compensatory to penalty damages ratio higher than 1:100, much higher than the limit set forth by the Supreme Court in the torts context. According to J. Reinhardt, it should: The constitutional principles limiting punishments in civil cases when that punishment vastly exceeds the harm done by the party being punished may well occur even when the penalties imposed are foreseeable, as with contracts. Said Reinhardt: “A grossly disproportionate punishment is a grossly disproportionate punishment, regardless of whether the breaching party has previously ‘acquiesced’ to such punishment.”
Time may soon come for the Supreme Court to address this issue, especially given the ease with which companies can and do find out about each other’s practices and match each other’s terms. Many companies even actively encourage their customers to look for better prices elsewhere via “price guarantees” and promise various incentives or at least matched, lower prices if customers notify the companies. Such competition is arguably good for consumers and allow them at least some bargaining powers. But as shown, in other respects, consumers have very little real choice and no bargaining power. In the credit card context, it may be said that the best course of action would be for consumers to make sure that they do not exceed their credit limits and make their payments on time. However, in a tough economy with high unemployment, there are people for whom that is simply not feasible. As the law currently stands in the Ninth Circuit, that leaves companies free to virtually punish their own customers, a slightly odd result given the fact that contracts law is not meant to be punitive in nature, but rather to be a resource allocation vehicle in cases where financial harm is actually suffered.
Monday, January 27, 2014
Severe Economic Disruptions from Climate Change
For many, climate change remains a far off notion that will affect their grandchildren and other “future generations.” Think again. Expect your food prices to increase now, if they have not already. Amidst the worst drought in California history, the United Nations is releasing a report that, according to a copy obtained by the New York Times, finds that the risk of severe economic disruptions is increasing because nations have so dragged their feet in combating climate change that the problem may be virtually impossible to solve with current technologies.
The report also says that nations around the world are still spending far more money to subsidize fossil fuels than to accelerate the urgently needed shift to cleaner energy. The United States is one of these. Even if the internationally agreed-upon goal of limiting temperature increases to 2° C, vast ecological and economic damage will still occur. One of the sectors most at risk: the food industry. In California, a leading agricultural state, the prices of certain food items are already rising caused by the current drought. In times of shrinking relative incomes for middle- and lower class households, this means a higher percentage of incomes going to basic necessities such as food, water and possible medical expenses caused by volatile weather and extreme heat waves. In turn, this may mean less disposable income that could otherwise spur the economy.
Disregarding climate change is technologically risky too: to meet the target of keeping concentrations of CO2 below the most recently agreed-upon threshold of 500 ppm, future generations would have to literally pull CO2 out of the air with machinery that does not yet exist and may never become technically or economically feasible or with other yet unknown methods.
Of course, it doesn’t help that a secretive network of conservative billionaires is pouring billions of dollars into a vast political effort attempting to deny climate change and that – perhaps as a consequence – the coverage of climate change by American media is down significantly from 2009, when media was happy to report a climate change “scandal” that eventually proved to be unfounded.
The good news is that for the first time ever, the United States now has an official Climate Change Action Plan. This will force some industries to adopt modern technologies to help combat the problem nationally. Internationally, a new climate change treaty is slated for 2015 to take effect from 2020. Let us hope for broad participation and that 2020 is not too late to avoid the catastrophic and unforeseen economic and environmental effects that experts are predicting.
Assistant Professor of Law
Western State College of Law