ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Monday, December 29, 2008

Contracts Limerick of the Week: Transatlantic Financing

You may think that the one-week drought in Limericks was a product of the winter holidays, and you might be right.  Or it might be an attempt to build up the tension before the following: my last Contracts Limerick!!!  Well, it my not be my last, but it's my last for now.  I'm not going to do the whole Brett Favre thing ('though 'tis the season).  I'm just saying I've run out.  Not to worry (or rejoice), I still have enough Business Associations Limericks to last another few months.

Skelly_wrightJudge Skelly Wright (pictured) has been featured in previous Contracts Limericks.  He is known as a friend of the underdog, so when one of the parties is the United States, you might expect Skelly Wright to find for the other party.  Not so in Transatlantic Financing Corporation v. United States, a case that plumbed the depths, sounding out the limits of the impracticability doctrine.  Transatlantic might have hoped for a safe harbor in Skelly Wright's court, but its progress was impeded; in fact, blockaded by a hostile force:  common law precedent. 

In October 1956, the U.S. contracted with Transatlantic for a shipment of wheat to be carried by the SS Christos from Galveston to Iran.  The parties assumed that the ship would take the most direct route, through the Suez Canal, but by the end of October, the Canal was in a war zone and Egypt blocked it off.  The SS Christos would have to circumnavigate Africa in order to get to Iran, which entailed an additional expense of nearly $45,000.  Transatlantic asked the U.S. to modify the contract, but the U.S. refused.  The SS Christos completed its journey and then Transatlantic sought recovery based on the doctrines of impracticability and quantum meruit

Skelly Wright noted that since Transatlantic had already been paid under the contract, it could not rely on impracticability, which would have permitted avoidance of the contract if it applied.  However, other courts faced with similar facts had already found that the closing of the Suez Canal does not render a shipping contract commercially impracticable.  Because the contract had been completed and paid for, Skelly Wright also viewed recovery in quantum meruit as inappropriate.

Transatlantic Financing Corp. v. United States

His passage through Suez foreclosed,
Plaintiff sailed 'round the Horn and supposed
He'd find some utility
In impracticability
But Skelly Wright found he gets hosed.

An inelegant finale, but there it is.

[Jeremy Telman]

December 29, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 16, 2008

Business Associations Limerick of the Week: Basic Inc.

It is grading period, which leaves me with little time for posting.

Basic, Inc. v. Levinson does not have Limerickworthy facts, but it is too important a case to ignore, as it gives Supreme Court approval to the fraud-on-the-market theory, without which security fraud class actions would almost never make it past the certification stage.

Basic, Inc. v. Levinson

Is a plaintiff class free to rely
On word of a merger denied?
Yes, there's a presumption
For those with the gumption
To fraud on the market decry.

[Jeremy Telman]

December 16, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, December 15, 2008

Contracts Limerick of the Week: Clark v. West

William Clark had a great reputation as a prolific legal scholar.  In 1899, he was hired to teach law at Washington & Lee University.  According to Washington & Lee's website, he was fired within weeks and demanded to know the reason for his dismissal.  The President of the university explained that the grounds for dismissal were that Clark was "addicted to drink beyond what would be proper in a college professor." 

West publications nonetheless hired Clark to write a multi-volume treatise.  A bizarre provision in the contract provided that Clark would be entitled to $2/page in any case but $6/page if he were to abstain from drinking so long as he was working on the project.  It is undisputed that Clark was unable to do so, but he did complete the treatise and there is no indication that West was in any way dissatisfied with Clark's work. 

West duly paid Clark $2/page upon the completion of the treatise and Clark sued for full payment. New York's Court of Appeals sided with Clark, ruling that his sobriety was a condition to his entitlement to full payment but that the condition had been waived.

Clark v. West

Was Clark due six dollars a page
For his work as a bibulous sage?
Yes, be West's own volition
It waived the condition
Of temperance for the man it engaged.

[Jeremy Telman]

December 15, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 9, 2008

Business Associations Limerick of the Week: Escott v. BarChris

BowlerbowlingOrdinarily, I would not include a case like Escott v. BarChris in my Business Associations course. First off, it's long. Second, there's not much law in it, or at least not much law for which I like to hold my Business Associations students responsible. If I were teaching Securities Law, that would be another matter. On the other hand, it is a case about bowling alleys and, as I mentioned before here, it is thus indispensable to the course's bowling theme. It also contributes to the course's great sports cases, memorialized here, here and here.

The case involves the question of who can be liable for material misstatements in a registration statement. The short answer is, everybody who signed it, even if they did not read what they signed. A good lesson for students to learn before they attend their first board meeting.

Escott v. BarChris Construction

BarChris failed to disclose
The extent of its financial woes.
Read what you sign
Or the court will incline
To deliver you unto your foes.

[Jeremy Telman]

December 9, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, December 8, 2008

Contracts Limerick of the Week: Nanakuli Paving v. Shell Oil

Honolulu I've taught this case for years, and I've always considered it Limerickworthy, but only recently did the proper rhyme scheme occur to me. Giving credit where credit is due, I must acknowledge that my wife, the celebrated poet Catherine Tufariello, suggested the first rhyme word, but only because she never takes my poems seriously. Well, I showed her! The last rhyme word is all mine, and it may be a bit obscure to some, so I have added a link to clarify matters.

Nanakuli Paving and Rock Co. and Shell Oil had developed a symbiotic relationship in which Shell provided asphalt for Nanakuli's paving business, thus giving Shell a partner in Hawaii so that it could compete in the paving business there with its rival, Chevron, which supplied asphalt to Honolulu's leading paving company, H.B. Although the contract between Nanakuli and Shell provided that the price for asphalt would be Shell's posted price at the time of delivery, Nanakuli relied on trade usage evidence to argue that Shell had always granted Nanakuli price protection when rapid changes in petroleum prices would otherwise make Nanakuli's government contracts unprofitable. In fact, there was plenty of evidence that the paving business as it operated in Hawaii would have been commercially impossible without price protection.

Still, the issue was how to reconcile trade usage with a clear price term, as required under the UCC. The Ninth Circuit got creative (in my view) and distinguished permissible "cutting down" of an express term from "negating" it. A negation of the express price term, "Shell's Posted Price at the time of delivery," would have been to permit Nanakuli to set the price. Instead, the court simply "qualified" the express term with an implied term permitting price protection. That is obviously the right result based on commercial reasonableness, but it requires considerable suspension of disbelief.

Nanakuli Paving v. Shell Oil

Was the Ninth Circuit snorting patchouli
Letting parol in to help Nanakuli?
Shell Oil was brought low
As if by a blow
From the bat of a trade-use Gillooly.

[Jeremy Telman]

December 8, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 2, 2008

Business Associations Limerick of the Week: New Horizons v. Haack

This is a sad case about a woman, Allison Haack, who formed an LLC with her brother and was left on the hook when the LLC was dissolved because Ms. Haack did not abide by all necessary formalities in dissolving the association and could not account for all of its assets.

The case drives home the crucial point that states do business owners a great favor by letting them organize themselves as limited liability companies. All they ask in return is that the business owners make certain that the world is on notice that they are in fact LLCs. If the members of the LLC fail to do so, they are subject to something akin to veil-piercing, as was the unfortunate Ms. Haack.

Like most LLC cases, this one is not very colorful, nor is it great fun to teach, but it is set in Wisconsin's charming Kickapoo Valley, and I just like having reason to say "Kickapoo."

New Horizons v. Haack

She lost on appeal, poor Ms. Haack.
She could have won. But for the lack
Of a filing,
Ms. Haack would be smiling
And her finances back in the black.

[Jeremy Telman]

December 2, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, December 1, 2008

Contracts Limerick of the Week: Selmer v. Blakeslee Midwest

PosnerBlakeslee-Midwest owed Selmer $120,000, but it offered to pay only $67,000. As Selmer was on the brink of collapse and desperately needed the cash, it accepted the partial payment. Two years later, Selmer sued claiming that the settlement was the product of economic duress. Most courts might be sympathetic to such a claim, but this case was decided by Judge Posner, who believes that permitting an insolvent party to avoid a settlement on the basis of economic duress would remove all incentives for parties to enter into settlements with parties in financial distress, thus hastening the latter's ruin. So long as the Blakeslees of the world are not responsible for the economic hardship faced by the other party, a court should not permit avoidance of a settlement agreement on the basis of economic duress.  At least, that seems to be Posner's rule, although his discussion suggests that a court might take other factors into account as well, such as whether the settlement was somewhat close to the amount owed and whether there was some reason why the party, perhaps seeking to benefit from its partner's economic position, could not have paid the full amount owed.

As the editors of the casebook that I use, Contracts: Law in Action, point out, Judge Posner's rule might be a good one, but it likely was not the law of Wisconsin at the time Judge Posner decided this diversity case that was governed by Wisconsin law. Unfortunately, the governing precedent in Wisconsin, Wurtz v. Fleischman, does not set forth a very clear rule of law. The intermediate appellate court had decided the case based on a law review note that proposed treating duress as though it were a tort. Wisconsin's high court did not contradict that view but simply remanded to the trial court because the intermediate appellate court had decided factual issues.  But the Wisconsin court did not seem to think the rule for economic duress should depend on whether or not one party was resopnsible for the other party's economic difficulties.

My understanding is that most states follow some version of Posner's rule on economic duress.

Selmer v. Blakeslee-Midwest

In Selmer v. Blakeslee-Midwest,
Judge Posner creates a new test.
Mere business stress
Does not make duress.
Thus breaching parties are blessed.

[Jeremy Telman]

December 1, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 25, 2008

Business Associations Limerick of the Week: McConnell v. Hunt Sports Enterprises

Nationwide_arenaMcConnell v. Hunt Sports Enterprises, though a Business Associations case, has a strong contractual element to it. The question at hand is, to what extent can the members of an LLC contract around their fiduciary duties in the LLC agreement. The answer is, quite a bit, actually. Lamar Hunt and John McConnell formed an LLC called Columbus Hockey Limited in order to draw an NHL franchise to the city of Columbus, Ohio. Seems improbably, no? Nationwide Insurance didn't think so. That's why the Columbus Blue Jackets play their hockey in Nationwide Arena (pictured). Nationwide approached Hunt with an offer to build an arena and then lease it to the LLC. Hunt, purportedly acting on behalf of the LLC, turned down Nationwide's offer. McConnell later learned of the offer and decided to take it up on his own, acting with new partners and directly competing with the LLC.

Seems like a clear breach of fiduciary duty on McConnell's part, but the LLC agreement had some boilerplate language that permitted the parties to compete with one another. The court concluded that Hunt did not have authority to turn down Nationwide's offer and that McConnell breached no duty to Hunt or the LLC when he took up that offer on his own. Parties to an LLC agreement can contract around standard duties of loyalty, so long as they do not eliminate the duty entirely.

McConnell v. Hunt Sports Enterprises

McConnell, who always competes,
Was fed up with Hunt's rank deceits.
Hockey's new franchise
Is McConnell's new gran' prize
And Hunt haunts the nose bleed seats.

[Jeremy Telman]

November 25, 2008 in Contract Profs, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, November 24, 2008

Contracts Limerick of the Week: Baby M

Embryo_8_cellsI taught Baby M for the first time this year. The image at left shows Baby M, at eight cells. Well, it might be Baby M. I'm not really sure. There's not a lot of contracts doctrine in the case, but there is some. By including it in the syllabus, one places oneself in danger of having to mediate a dispute on reproductive rights, but it certainly does arouse student passions. I literally had two students screaming at each other from across the room. Fortunately, they were doing so with smiles on their faces. As occurred during the original Baby M controversy, much of the controversy in my classroom hinged on the question of May Beth Whitehead's fitness as a mother. She had, after all, threatened to kill the baby while she was hiding out in Florida. The New Jersey Supreme Court cut through all the confusion and simplified matters by declaring the case to be about the sale of a child. Such a sale violated both New Jersey's statutory scheme governing lawful adoptions and public policy. As the sale was impermissible, the Stern family's surrogacy contract with Ms. Whitehead could not be enforced. The future of Baby M was to be determined according to the traditional standard of the best interests of the child.

Baby M Limerick

"Illegal, criminal and void!"
Cried the court, more than slightly annoyed.
"Let's put a lid
On this sale of a kid."
But who'll pay for her sessions with Freud?

Things turned out better than the Limerick predicts for Baby M, at least according to this report. At the time of the report, Melissa Stern was a 21-year-old college student majoring in religion and contemplating a ministry. She found it "strange" when the Baby M case came up in her bioethics class. She also spoke with great warmth of her parents, the Sterns:

“I love my family very much and am very happy to be with them,” Melissa Stern says, referring to the Sterns. “I’m very happy I ended up with them. I love them, they’re my best friends in the whole world, and that’s all I have to say about it.”

[Jeremy Telman]

November 24, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 18, 2008

business Associations Limerick of the Week: Auerbach v. Bennnett

Tootsie_popsOur last Business Associations Limerick introduced the concept of demand in shareholder litigation. We now move on to the next option for boards seeking to stave off shareholder derivative litigation. If demand might well be excused as futile (which, interestingly enough, was more or less assumed in Auerbach v. Bennett, even though it's hard to see why it would be), the Board has the option of setting up a Special Litigation Committee (SLC) made up of disinterested (or brand new) directors who can then make a recommendation to the Board as to whether or not to permit the litigation to proceed. SLCs generally recommend dismissal of the suit, and the question here (under New York law) is what amount of deference is due to such an SLC recommendation. The answer, in New York, is that so long as the members of the SLC are not interested in the challenged transaction and undertook a thorough investigation, their recommendation will be accorded the benefits of the business judgment rule.

In this case, the shareholder derivative litigation related to allegations that GTE was engaged in foreign bribery. Its Board established an audit committee and found that there had indeed been bribery and took measures to prevent a recurrence. In response to a shareholder derivative suit, the Board formed an SLC which recommended dismissal of the suit. The court limited its review to the SLC's procedures and found the SLC both independent and sufficiently thorough. The standard for thoroughness is that the investigation was not a sham.

The interesting thing about this standard is that it would require a court to dismiss a suit based on the SLC's recommendation regardless of he underlying conduct. In this case, the court assumed that demand was excused, which would mean either that the majority of the Board was alleged to have been engaged in culpable conduct or that the Board was captured by those who were. Still, if the SLC was not personally compromised and they really investigated, the court would have to dismiss.

In short, an SLC is like the hard candy shell of a tootsie pop. So long as the shell is independent and its investigation is not a sham, the court will not break through the the gooey center.

Note, this is the rule for New York. Playing against type, Delaware courts are far less deferential to the recommendations of SLCs.

Auerbach v. Bennett

The Board's business judgment prescribed
That foreign officials be bribed.
If the Lit. Comm.'s disinterested
The court won't be interested
In shareholder rights circumscribed.

[Jeremy Telman]

November 18, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, November 17, 2008

contracts Limerick of the Week: Hoffman v. Red Owl Stores

Robert_scottHoffman v. Red Owl Stores is the classic case for illustrating the grounds for liability in cases of pre-contractual reliance. Generations of students have been drawn to the drama of Mr. Hoffman's heroic efforts. He started a grocery store in Wautoma, and then sold that profitable business, as well as a bakery, (while raising a family, volunteering as a local firefighter and inventing the internet in his spare time) based on his good faith belief in the pondscum he was dealing with from Red Owl Stores. Well, it's a nice story, but Columbia University's Robert E. Scott says it's not true. In his article, Hoffman v. Red Owl Stores and the Myth of Precontractual Reliance, 68 Ohio State Law Journal 71 (2007), Professor Scott contends that the case wasn't really about precontractual reliance and that lawyers would be leading unwary clients down the primrose path if they encouraged them to seek recovery based on that doctrine, which courts treat with great skepticism. Here's Professor Scott's abstract:

For decades there has been substantial uncertainty regarding when the law will impose precontractual liability. The confusion is partly attributable to the unfortunate case of Hoffman v. Red Owl Stores and to the unusual degree of scholarly attention that it has attracted. A careful examination of the record of the Hoffman case reveals facts that are much different from conventional understanding. The disagreement between Joseph Hoffman and Red Owl Stores resulted from a fundamental misunderstanding between the parties regarding the terms of Hoffman’s capital contribution to the franchise. The misunderstanding was largely a product of Hoffman’s penchant for moving assets around during the negotiation period, his failure to clarify the terms of his $18,000 capital investment, and the “no debt” condition attached to loans from his father-in-law. These facts show that neither promissory estoppel, negligent misrepresentation, unjust enrichment, or a failure to negotiate in good faith would have been a proper ground for imposing liability on Red Owl Stores. This result is consistent with a systematic survey of the case law showing that courts overwhelmingly decline to impose liability for representations made during preliminary negotiations. The preoccupation with reliance on preliminary negotiations has led scholars to ignore an important recent development in the law. A number of modern courts now impose a duty to bargain in good faith when parties make reliance investments following a “preliminary agreement” in which the parties agree to some terms but leave others open for further negotiation. Professor Scott argues that lawyers and academic commentators should turn their attention away from the Hoffman paradigm and instead focus on key issues that the contemporary cases have yet to resolve: when have parties reached sufficient agreement to trigger the duty to negotiate further in good faith, and precisely what does that duty entail?

Fair enough, but the court's approach in Hoffman v. Red Owl Stores, faulty though it may be, remains Limerickworthy.

Hoffman v. Red Owl Stores

Hoffman moved from Wautoma to Chilton
And his finances were slowly wiltin'.
Because legal science
Protects sound reliance,
He recovered from Red Owl's jiltin'.

or

He's more popular than Paris Hilton

[Jeremy Telman]

November 17, 2008 in Contract Profs, Famous Cases, Limericks, Recent Scholarship, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 11, 2008

Business Associations Limerick of the Week: Grimes v. Donald

Nietzsche Grimes v. Donald always makes me think of Nietzsche's Unzeitgemaesse Betrachtungen, cleverly translated as "Thoughts out of Season."  Grimes brought a shareholder derivative suit challenging an executive compensation scheme that permitted the CEO (Donald) to declare himself "constructively terminated" if he felt that the board was interfering with his management of the company.  Such a declaration would result in rich benefits to Donald.  Grimes claimed that the scheme amounted to an abdication by the board of its fiduciary responsibilities.  He also challenged the compensation as excessive.  The former claim, the court held, was direct; the latter, derivative. 

The case is of interest because of its discussion of Delaware's demand requirement.  We need the derivative suit mechanism to permit shareholders to hold boards of directors accountable, but we can't permit each shareholder to drag a corporation into court each time a shareholder disagrees with a board's decision.  Thus, shareholders are required to bring a demand to the board so that the board can first determine whether it is in the corporation's interest to pursue the claim. 

Demand is almost always refused and such refusals are subject to the business judgment rule.  So a well-counseled plaintiff will always claim that demand is excused as futile -- e.g., because a majority of the members of the board have an interest in the challenged transaction and cannot be expected to pursue a claim against themselves.  For reasons that are unclear, Grimes made demand and, after it was refused, he now sought to make all the arguments he should have made at an earlier point in the litigation. 

The Chancellor found that by making demand, Grimes had essentially conceded that demand was not excused.  The Delaware Supreme Court affirmed, noting in effect that his thoughts regarding demand futility were rendered out of season.

Grimes v. Donald

The payments to Donald were grand,
So Grimes made the required demand.
In findings most reasonable
The court found unseasonable
Grimes' claims, and its judgment will stand.

[Jeremy Telman]

November 11, 2008 in Famous Cases, Limericks, Teaching | Permalink | TrackBack (0)

Monday, November 10, 2008

Contracts Limerick of the Week: Carroll v. Beardon

Van_gogh_the_brothel_2Carroll is a great public policy case. It involves the sale of a brothel in Montana. The purchase price was in the neighborhood of $50,000, even though the property itself was worth only $6000. Moreover the mortgage was to be paid back in monthly installments, with the new madame paying the old madame $2000/month during the busy harvest months but only $1000 during the slower Winter and Spring.

If the court were to regard this case as I have described it, the contract would have to be illegal and therefore void and unenforceable. But the wise justices of the Supreme Court of Montana clearly recognized a well-established institution when they saw one. They left it to law enforcement officials to shut down the brothel if they saw fit to do so. In the meantime, Montana borrowed some law from its neighbors in Wyoming and decided that a sale such as this one could be enforced so long as the seller does not benefit from the buyer's illicit business. Applying that law to this case in such a way as to uphold the bargain requires some legal gymnastics beyond my abilities, but Montana court pulled it off and scored a perfect 10.

Inspired by my colleague, Bruce Berner, I could add that in a related case the court did void a similar sale of a massage parlor. It wasn't so much that the parlor idea was illegal or even void for public policy. But its proprietor rubbed the court the wrong way.

Carroll v. Beardon

In Montana arose a dispute
O'er a house of doubtful repute.
The seller madame,
Not in on the scam
May partake of her share of the loot.

[Jeremy Telman]

November 10, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 4, 2008

Business Associations Limerick of the Week: In re Wheelabrator Technologies, Inc.

Waste This case is a bit a dud, but it presents a lot of law in very little space, at least in the edited version provided in the Klein, Ramseyer & Bainbridge casebook that I use, so I continue to like it. The case deals with a challenged merger transaction in which Waste Management acquired Wheelabrator. Although the board seems to have done everything right in terms of recusals of board members who might have had a conflict of interest and submitting the merger for shareholder approval, some shareholders sued alleging breaches of the duties of loyalty and care. I like the fact that the court found that a three-hour board meeting was evidence of sufficient care in this context, especially since the court found that a two-hour meeting was a breach of the duty of care in van Gorkom. So now I know that if I really want to provide a tough duty of care question for my students, I have the board meet for 2 and 1/2 hours.

As to the duty of loyalty claim, the court found that, in this instance, the nature of the loyalty claim was an interested transaction rather than a dominant shareholder transaction. Before the merger, Waste controlled only 22% of Wheelabrator, and the court found that 22% was not sufficient control to dominate. Since the transaction was ratified, the business judgment rule applied.

In re Wheelabrator Technologies, Inc.

Wheelabrator merged into Waste
A decision perhaps made in haste.
Business judgment applied
Because ratified
By the shareholders who'd been displaced.

[Jeremy Telman]

November 4, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, November 3, 2008

Contracts Limerick of the Week: Battle of the Forms

At some point, the various battle of the forms cases all run together. Merchants exchange form price quotations, purchase orders, confirmations or invoices and then the courts perform the requisite 2-207 dance. It's fun to run the cases through the steps, but it does not inspire the poet. So, while the Muse sleeps, I offer this all-purpose Battle of the Forms Limerick:

To rhyme on the battle of forms
Would intrude upon poetic norms.
2-207 in verse
Might even be worse
Than an ode to the new tax reforms.

[Jeremy Telman]

November 3, 2008 in Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 28, 2008

Business Associations Limerick of the Week: In re eBay

EbayThis is a pretty simple case about usurpation of a corporate opportunity. Investment bankers approached eBay's principals with offers of shares in companies to be distributed in public offerings that the banks were underwriting. In return, the investment banks hoped to win eBay's business in future transactions in which eBay would need investment banking services. At the time of these transactions, getting one's hands on shares from such public offerings was very desirable, as the shares were inevitably undervalued and would appreciate quickly in value in the days after the public offering. Buying such shares and then quickly re-selling them is a practice known as "spinning." The shares were in effect a gift that resulted in millions of dollars in profits for the eBay executives. What did they do with those profits? Threw them on the pile, I suppose.

In any case, eBay shareholders sued, arguing that the profits really belonged to eBay and not to the executives. After all, the investment banks could have offered those shares to any random multi-millionaire or billionaire. They chose to offer the shares to eBay executives because the investment banks were interested in the company's business. The court agreed, finding that the investment opportunities were in eBay's line of business and that the company had an interest or expectancy in the opportunity.

In re eBay

"A billion? It's a beginning,
But I need more -- think I'll try spinning."
The court said "No way!
You have to repay
eBay, whose profits you're skimming."

[Jeremy Telman]

October 28, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, October 27, 2008

Contracts Limerick of the Week: Marvin v. Marvin

Lee_marvinMarvin v. Marvin provides for wonderful opportunities to discuss social issues relating to promises made in the context of marriages and other forms of cohabitation. Lee Marvin and Michelle Triola Marvin lived together for six years. At the start of their relationship, Lee was married to Betty Ebeling. At the end of his relationship with Triola, Lee Marvin married Pamela Freeley. Triola alleged that she and Lee had entered into an agreement whereby they would hold themselves out as husband and wife and that they would "share equally any and all property accumulated as a result of their efforts." After the demise of their relationship, Triola sought to enforce the alleged agreement, seeking a settlement in excess of $1 million. The trial court denied Triola relief, finding such promises unenforceable on public policy grounds. The Supreme Court of California, over a strident dissent that referred to the relationship as "meretricious," found that promises of the sort alleged can be enforced by a court and that such promises can also be implied through conduct.

Dick_van_dykeIn this particular case, the trial court on remand found that there was no agreement between the parties of the kind alleged by Triola. Apparently, the court found it unlikely that Marvin could have promised half his income to Triola while still married to his first wife. Moreover, while Triola could have recovered in quantum meruit for the non-sexual services she provided to Lee, she had already been duly compensated during the course of the relationship. The trial court's award of $104,000 in "rehabilitation" damages to Triola was overturned on appeal. Not to worry. Michelle knows how to land on her feet. According to her Wikipedia entry, she has lived with Dick van Dyke (pictured) for many years.

Oooooh, Rob! How could you ever leave Laura?!?

The case is especially timely these days with the on-going controversy over recognizing gay marriages and civil unions. Interestingly, some of my women students had very little sympathy for women who live for many years out-of-wedlock with men, bear and help raise the couple's children and support the man of the house while he pursues an education and a profitable career. This new feminism (or post-feminism or whatever it is) puts the burden on women in relationships to demand legal recognition of their status. But when it came to gay relationships, many of these same women changed their tune. Where marriage is not an option, the law must protect the rights and interests of people who commit to long-term cohabitation partnerships, regardless of gender and regardless of the nature of the relationship.

I've tried a couple of variants here.  You can vote for your favorite!!

Marvin v. Marvin

The Marvin court's ruling's propitious
For relationships non-meretricious.
Michelle can recover
From Lee, her ex-lover,
If his promises weren't capricious.

Michelle and Lee lived in sin,
A fact once viewed with chagrin.
Now she can recover
From her ex-lover
If he promised to keep her in gin.

[Jeremy Telman]

October 27, 2008 in Celebrity Contracts, Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 21, 2008

Business Associations Limerick of the Week: Broz v. Cellular Information Systems

Cell_phones
Robert Broz wore two corporate hats. He was the President and sole shareholder of RFB Cellular (RFB), and he was also a member of the board of Cellular Information Systems (CIS). A broker of telephone service licenses approached Broz in his RFB capacity and asked if he would be interested in a license known as Michigan 2. Broz checked with some of the principals of CIS, who had no objections, and then purchased the license for his own company. In fact, CIS was in financial difficulties and was seeking to unload its existing licenses rather than buying new ones.

Meanwhile, another company, PriCellular, was seeking to acquire both CIS and the Michigan 2 license. PriCellular lost out to Broz in the bidding war over Michigan 2, but when it acquired CIS, it sued Broz for usurpation of a corporate opportunity. The court adopts a four-factor test, or so it says. The case really turns on the fact that, at the time Broz took the opportunity, CIS was financially unable to do so. Having so found, I don't see how the court could reason that the other factors could or should play any role. In any case, it found that Broz had not usurped a corporate opportunity.

Broz v. Cellular Information Systems

Alleging some corporate faux pas,
PriCellular sued Robert Broz.
The outcome is clear
From that sound you all hear:
It's his butler, uncorking Shiraz.

[Jeremy Telman]

October 21, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Saturday, October 18, 2008

Contracts Limerick of the Week: Balfour v. Balfour

Kings_benchMr. and Mrs. Balfour lived together in Ceylon for 15 years. While Mr. Balfour was on leave from his position in Ceylon and the two were living in England, Mrs. Balfour developed rheumatic arthritis. Her doctors suggested that the cool, damp climate of England was just the thing for her condition, and so she stayed behind when hubby returned to Ceylon. She was to remain in England for three months in the hope that her condition might improve. In the meantime, Mr. Balfour promised to send her 30 pounds a month. But once in Ceylon, Mr. Balfour proposed to sweeten the offer by extending their separation in perpetuity. He also neglected to pay her the 30 pounds a month. They were later divorced, but Mrs. Balfour sued to collect on what she took to be a contractual obligation to pay her the promised amount. The trial court found in Mrs. Balfour's favor, reasoning that Mrs. Balfour's agreement to define his obligation to support her at 30 pounds/month was sufficient consideration for his promise.

In Balfour v. Balfour, the Court of Appeal reversed. There were three concurring opinions in the case. Lord Warrington found no contract because he found no bargain. Lord Duke was discomfited by the prospect of endless litigation between spouses seeking to enforce promises that are part of ordinary domestic relationships. Lord Atkins stressed that the parties had no intention to enter into legal relations and that marital promises such as this one thus are not the types of promises that the law ought to enforce. In short, whether or not a promise is legally binding depends on the state of mind of the parties at the time the promise is made.

The poet takes some liberties and assumes that Mr. Balfour did not leave his wife solely based on an antipathy to the arthritic.

Balfour v. Balfour

Balfour gave in to his id,
And stopped paying his wife thirty quid.
His word has no force,
For, before their divorce,
The pair did not think that it did.

[Jeremy Telman]

October 18, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 15, 2008

Statutory Poetry

Those who are subscribers to the AALS listserve, or who have had other occasion to interact with Sid Delong (Seattle) will not be surprised to see an example of his razor-sharp wit, but it was still a surprising amount of fun to see him take on the topic of “statutory poetry” in a short essay appearing in the Journal of Legal Education.  I had no idea that Sid could find poetry in the Model Rules of Professional Responsibility, 1.17, comment 13, yet he has:

This Rule applies to the sale of a law practice by representatives of a deceased, disabled, or disappeared lawyer.

Sid comments:  “[D]isappeared lawyer.’ What poignancy lies in that phrase!  The image triggers a flood of allusion: Judge Crater, the Chesire cat.  And consider the prosodic significance of the alliterative series ‘deceased, disabled, or disappeared.’  One cannot help but wonder what additional alternatives the poet considered and rejected: dissipated, diseased, demented, despondent, depressed, degenerate, dejected, defunct.”  In the rest of the essay Sid has fun with the UCC and the bankruptcy code, noting that some of his poetry analysis “confirms what many have long suspected: Revised Article 9 was drafted not by human beings at all, but by non-English speaking robots[.]”  The whole Essay is highly recommended (apparently not online except for the table of contents, but free in a faculty mailbox near you) especially if you are feeling in a mood that is either curmudgeonly or poetic (or both). 

[Miriam A. Cherry / Cross-posted at Concurring Opinions]

October 15, 2008 in Limericks | Permalink | TrackBack (0)