ContractsProf Blog

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

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Monday, July 20, 2015

A Love Letter to Alex Blumberg & Gimlet Media

I LoveLetter was never a business person.  I grew up hoping to some day live in a commune.  That dream collapsed when I experienced the idiocy of rural life, so I did the next least practical thing and got a Ph.D. in German history.  But now I teach contracts and business associations.  My brother is still living the dream (sort of), residing on a kibbutz in the Arava.  But the kibbutz has a factory that makes sealable plastic bags, and my brother actually works for an engineering company located on a neighboring kibbutz.  In short, there is no escape from commercial enterprise.

In some ways, Alex Blumberg's project is the perfect fit for someone like me, who teaches and studies commercial transactions from the convenient distance of the academy.  Blumberg comes from public radio, where he co-hosted Planet Money and was a producer for This American Life.  He decided to go over to the dark side and created his own media company, which eventually became Gimlet Media, a producer and distributor of high-quality podcasts.  I am not yet hooked on its other projects, but I am extremely taken with StartUp, and I recommend it to people who teach business courses, including business and media law.

In StartUp, Blumberg and his team wrestle publicly with every private thing associated with setting up a new company.  The show provides a unique, well-edited but still very intimate, behind-the-scenes view of new companies.  The first season focused on Blumberg's own company, Gimlet Media, including hilarious episodes devoted to naming the company.  Blumberg had settled on the name "Orelo," but when he told his wife that he had selected that name because it means "ear" in Esperanto, she burst out laughing, and when she finally caught her breath, she gasped out "That's so . . . dumb. . . . So dumb!"  He was also considering American Podcasting Corporation.  He explained to one of his unimpressed investors that the name would be a throwback to older media companies like ABC.  The disenchanted investor said something like, "No, no, I get it."  My real question that I wish the podcast had addressed is why did you form a corporation rather than an LLC?  That would have been a great episode for my business associations course!!

StartUp's second season covered a very different type of company, Dating Ring, an online dating service that was supposed to have, as its special gimmick, a team of matchmakers who actually set you up with people you will likely connect with.  I don't know if this was Blumberg's design, but I really loved the contrast between Season 1, which covered a company that I wanted to succeed and that did succeed, and Season 2, which covered I company that I wanted to fail, and pretty much did fail.  I hated Dating Ring from the moment its founders announced that they wanted to be the Uber of dating.  As followers of this blog know, Uber has its own problems, but the analogy highlighted the tension at the heart of Dating Ring's model -- they want to help you find true love, but they want to do it in a seamless, mechanized way.  They also considered advertising on porn sites, because nothing says "I want to bring you home to my mother" like "I met her through a website that was linked to on my favorite porn site."  Season 2 provides great insights into some of the many reasons why a company can fail, despite having smart, dedicated people with talent and energy and an idea that some investors think promising.

But the second season was also invaluable for its reporting on fundraising, on the mindset of people who want to become entrepreneurs and the crazy rollercoaster ride that most new companies experience.  At one point, Dating Ring's founders go to a consultant who is really like a couple's therapist for start-up founders.  From a distance it seemed a bit ridiculous, but one could also easily imagine how in such an intimate relationship the idea "I don't have a large enough equity stake" could translate into "I don't think you really love me and value me the way you ought to do."

I am looking forward to Season 3 almost as much as I am looking forward to Season 2 of Serial.

July 20, 2015 in Commentary, Miscellaneous | Permalink | Comments (0)

Tuesday, June 23, 2015

PayPal's New Agreement and the FCC

Last week, the Federal Communications Commission acted to approve a number of proposals that update the TCPA (Telephone Consumer Protection Act), popularly known as the  "Do Not Call" law that prohibits companies from interrupting consumers' dinner time conversations with pesky telemarketing calls.  They closed a number of existing loopholes and clarified that phone companies can now block robocalls and robotexts to cell phones. The ruling also makes it easier for consumers who have previously consented to withdraw consent. 

So what does this have to do with contracts?  We all know how easy it is to consent to online terms.  PayPal does, too.  PayPal recently informed its customers that it was unilaterally amending its User Agreement.  As anyone reading this blog knows, there are serious problems with unilateral modification clauses, especially in the context of wrap contracts that nobody reads.  Yet, some courts have found that these clauses are enforceable (others have found they are not because they lack consideration and/or notice/assent).  PayPal's recent announced modifications caught the attention of the Federal Communications Commission.  The FCC Chief expressed concern that PayPal's prospective agreement may run afoul of federal law.  The TCPA requires express written consent before any company can make annoying prerecorded telemarketing calls to consumers.  The written consent, however, isn't the ridiculous version of consent that suffices as contractual consent in some courtrooms.  There are certain requirements including that the agreement be "clear and conspicuous" and that the person is "not required to sign the agreement...as a condition of purchasing the property, goods, or services."  In other words, it can't be a "take it or leave it" situation.  Pay Pal's amended User Agreement, however, appears to contain "take-it-or-leave-it" language as it doesn't indicate how customers may refuse to consent to receive calls without having their account shut down.  Furthermore, unlike contract law where blanket assent is okay, blanket consent is not okay under the FCC rules.  (This blog post provides a nice overview of the issues and also notes that eBay (PayPal's soon-to-be former parent) encountered similar problems with the New York Attorney General). 

PayPal's agreement is not the only reason the FCC acted last week, but as Bob Sullivan points out in this post here, it may have been the reason it acted so quickly.  Expect to see an updated version of PayPal's agreement in the near future.

 

 

 

June 23, 2015 in Current Affairs, In the News, Miscellaneous, Web/Tech | Permalink | Comments (0)

Wednesday, June 17, 2015

Sign of the Times - The Post-Prom Waiver

The New York Times had an article in last weekend's Style section about the post-prom waiver.  Apparently, in some suburbs, liability conscious parents and schools hosting a post-prom after party are asking teenagers and their parents to sign a waiver.   My initial reaction was, Really?  Has it come to this?  But the more I thought about it, I could understand why some schools and parent- hosts might think it was a good idea. I did a quick search of "post prom waivers" and it seems that they serve several purposes. 

First, they waive liability.  The waiver would probably not be enforceable to stop lawsuits based upon negligence -- none of the ones I found even sought release for negligent acts on the part of the host - and certainly would not be effective to bar suits claiming gross negligence or recklessness on the part of the host.  They generally did not overreach by which I mean they did not seek to waive liability for everything under the sun (like this Borat release). 

Second, and related to the waiver, was an assumption of the risk clause.  This requires the student and the student's parent to knowingly and voluntarily assume the risk of harm relating to the student's participation in post-prom activities.  It seems as though post-prom activities have become much more active than when I was in high school - I found parties where there are extreme sports challenges and what looked like sumo wrestling!(?)  The waivers also contained a medication release form, which given the laws in this area, is a prudent measure.

Third, and most useful, all the post-prom waivers I found established guidelines or rules of conduct.  These clearly outline the school's (or host's) expectations for student behavior as well as parental responsibilities.  They establish, for example, whether the event is a "lock-in" (meaning the students can't leave the premises) and the rules regarding pick-up times and who may attend the event.  Given this is prom night, they also set out very clearly the expectations regarding drugs and alcohol - i.e. there will be NONE of that.  Students and parents know that drugs and alcohol are not allowed, but putting this in the waiver allows the conversation to happen.  More importantly, I think, it communicates to them that the school is not messing around. The language tends to be very express that illegal activity will not be tolerated and police will be called.  Some people may think these types of reminders (and other disclosures) are not useful.  I think it depends upon the disclosure.  In a post-prom waiver, where the students and parents will be reading it for useful information, such as what to bring, etc, it reinforces expectations and allows parents to set up their own rules in the event the student breaks the school rules (i.e. no leaving the house all summer if I have to bail you out of jail at 3am...)   All the waivers I read were also short and, for the most part, clearly written.

Finally, there are the indemnity type clauses.  Unlike exculpatory clauses (which free the school/host from liability), an indemnity clause makes the student responsible for harm caused to others.  Most of the ones I saw seemed fine - they required the students/parents to assume responsibility for any damages they caused.  Again, I don't think this gives the host any more rights than they would otherwise have since you are generally liable for any property damage that you cause.  It is useful, however, for setting expectations for conduct.  Sure, you might have to check some of your wild physical activity -  no whirling dervish dancing around the Ming vases - but from the host's point of view, understandable.  It's also useful for setting expectations after you break the vase.  You can't pretend it's unfair that you have to pay for it because you knew in advance.  Kind of like those "You break it, you buy it," signs in stores.

I'm still not convinced that these waivers are a good idea although I don't think they are necessarily a bad idea as long as they are clearly written, short and, most of all, reasonable and limited in scope.  It's unclear whether they will be enforceable, and again, I think it depends upon how reasonable they are in terms of scope and  process (they are signed well in advance of the event and both the student and a parent/guardian must sign it).  Given our litigious and form contracting society, I don't think they are going away.

 

June 17, 2015 in In the News, Miscellaneous, True Contracts | Permalink | Comments (0)

Monday, June 8, 2015

Class Actions, Arbitration and the Importance of Contract Formation

I wanted to follow up on Jeremy Telman's posts about two cases, Andermann v. Sprint Spectrum and Berkson v. Gogo.  Both cases involved consumers and standard form contracts.  Both Sprint and Gogo sought to enforce an arbitration clause in their contracts and both companies presumably wanted to do so to avoid a class action.  In Andermann v. Sprint Spectrum, there was no question regarding contract formation.  The contract issue in that case involved the validity of the assignment of the contract  from US Cellular to Sprint.  The court found that the assignment was valid and consequently, so was the arbitration clause.

In Berkson v. Gogo, on the other hand, the issue was whether there was a contract formed between the plaintiffs and Gogo.  As Jeremy notes in his post, this is an important case because it so thoroughly analyzes the existing wrap contract law.  It also has important implications for consumers and the future of class actions.

Many arbitration clauses preclude class actions (of any kind).  Judge Posner notes in his opinion in Andermann v. Sprint Spectrun:

"It may seem odd that (Sprint) wants arbitration....But doubtless it wants arbitration because  the arbitration clause disallows class arbitration.  If the Andermann's claims have to be  arbitrated all by themselves, they probably won't be brought at all, because the Andermanns if they prevail will be entitled only to modest statutory damages."

Judge Posner may have been troubled by this if the facts were different.  The Andermanns are claiming that Sprint's calls to them are unsolicited advertisements that violate the  Telephone Consumer Protection Act, but Sprint needed to inform them that their service would be terminated because U.S. Cellular's phones were incompatible with Sprint's network.  How else would they be able to contact their customers whose service would soon be terminated, Posner rhetorically asks, "Post on highway billboards or subway advertisements?....Post the messages in the ad sections of newspapers? In television commercials?"   Sprint's conduct here "likely falls" within an exception to the law and hence, Posner notes "the claims are unlikely to prevail."

It's a different situation in Berkson v. Gogo.  In that case, Gogo is allegedly charging consumers' credit cards on a monthly recurring basis without their knowledge.  The plaintiffs were consumers who signed up to use Gogo's Wi-Fi service on an airplane, thinking it was only for one month.   When Welsh, one of the plaintiffs, noticed the recurring charges, he was given a "partial refund."  Welsh then hired a lawyer.  Welsh's lawyer sent Gogo a letter notifying the company of the intent to file a class action lawsuit if it did not correct its practices and notify everyone who might have been charged in this manner.  Gogo then allegedly sent a refund check directly to Welsh, not his lawyer (which would violate the rule not to directly contact someone represented by counsel).  When Berkson, another plaintiff, noticed the charges and complained, the charges stopped; however, when he requested a refund for the period he was charged for the service but did not use it, the company allegedly refused. 

I think that most people would agree that, if the facts alleged are true, Gogo likely violated consumer protection statutes.  It also acted poorly by making it so hard to get a refund.  Companies should not be permitted to act like this and consumers shouldn't have to threaten class action lawsuits to get their money back.  (Gogo doesn't seem to dispute that they were charged during months they did not use the service).

This is where contract formation becomes so important.  The class action in Berkson v. Gogo was allowed to proceed because the court found that there was no valid contract formation. 

If there was a contract formed between Gogo and the plaintiffs, the arbitration clause would likely have been effective.  (I say "would likely have been" because it wasn't even included until after Berkson signed up for the service.  But let's put that aside for now and continue....).  The arbitration clause - you guessed it - contained the following clause:

"To the fullest extent permitted by applicable law, NO ARBITRATION OR OTHER CLAIM UNDER THIS AGREEMENT SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SITE OR THE SERVICES, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED. In the event that this CLASS ACTION WAIVER is deemed unenforceable, then any putative class action may only proceed in a court of competent jurisdiction and not in arbitration.

WE BOTH AGREE THAT, WHETHER ANY CLAIM IS IN ARBITRATION OR IN COURT, YOU AND GOGO BOTH WAIVE ANY RIGHT TO A JURY TRIAL INVOLVING ANY CLAIMS OR DISPUTES BETWEEN US."

Now, under the recent line of federal cases (AT&T Mobility v. Concepcion, American Express v. Italian Colors, etc) interpreting the FAA, if a contract contains a mandatory arbitration clause, an arbitrator pretty much decides everything unless (1) the arbitration agreement is unconscionable; or (2) the agreement to arbitrate was never formed

Regarding (1), this doesn't mean that a court may determine whether any other contract provision was unconscionable - only the arbitration clause.  So, if there's another clause that you want to argue is unconscionable -- let's say a recurring billing provision that is not conspicuous just as a random example -- you have to take that to the arbitrator.  Furthermore, it's much harder now (after the line of US Supreme cases noted above)  to argue that an arbitration clause is unconscionable.  While many state courts had previously found mandatory arbitration clauses and class action waivers unconscionable, they may no longer find them unconscionable just because they impose arbitration.  In other words, in order to be found unconscionable, the arbitration clauses have to be one-sided (i.e. only the consumer has to arbitrate) or impose hefty filing fees, etc.  This, as I mentioned in a prior post, is why so many of these clauses contain opt-out provisions.   Gogo's arbitration clause also contained an opt-out provision.  But, as readers of this blog know, NOBODY reads wrap contract terms and I would be surprised if anyone opted out.  The clause was also in capitalized letters and so would be conspicuous -- if only anyone clicked on the link and scrolled down to see it.

This is why Judge Weinstein's opinion is so important -he recognizes the burden that wrap contracts place on consumers:

"It is not unreasonable to assume that there is a difference between paper and electronic contracting....In the absence of contrary proof, it can be assumed that the burden should be on the offeror to impress upon the offeree -- i.e., the average internet user - the importance of the details of the binding contract being entered into...The burden should include the duty to explain the relevance of the critical terms governing the offeree's substantive rights contained in the contract."

 

If a contract contains a mandatory arbitration clause, a consumer who has been wronged and wants to argue that a standard form contract is unconscionable, would probably have to take it to an arbitrator unless there was no agreement to arbitrate in the first place.  If there was no agreement formed at all, that would mean no agreement to arbitrate. 

This is why it is so important not to find contract formation so easily and expect unconscionability to do all the heavy lifting of consumer protection.  An arbitrator very well might do a good job - but we don't know that because an arbitration is a closed hearing.   Arbitrators also don't go through the rigorous screening process that judges go through (both elected and appointed judges are thoroughly scrutinized).  Furthermore, arbitral decsions are not generally made public, and so arbitration doesn't help with providing guidelines for acceptable business behavior.  Judge Posner notes in his opinion, "It's not clear that arbitration, which can be expensive...and which fails to create precedents to guide the resolution of future disputes, should be preferred to litigation." Furthermore, if the arbitration clause contains a "no class" provision, it also forces a consumer to face a company's intimidating attorneys all alone ((because no lawyer is taking this type of case on a contingency basis and no consumer is going to pay a lawyer to attend this type of arbitration).

Berkson v. Gogo is notable for recognizing that website design and contract presentation matter in determining contract formation.  Not every click is perceived the same way by consumers -- scrollwraps (where scrolling is required to read through all the terms) provides more notice than a "sign-in-wrap" which is merely a hyperlink next to a SIGN UP button.   The reality is that nobody clicks on the Terms hyperlink with a sign-in wrap.  As Judge Weinstein notes:

"The starting point of analysis must be the method through which an electronic contract of adhesion is formed.  The inquiry does not begin, as defendants argue, with the content of the provisions themselves."

There are some who think that there's no harm in finding contract formation so easily because courts and the doctrine of unconscionability will protect consumers from really bad contract terms.  They should think again.  Mandatory arbitration clauses affect consumers' ability to seek redress which is why we should start taking contract formation seriously.

 

 

June 8, 2015 in Current Affairs, E-commerce, Miscellaneous, Recent Cases, Web/Tech | Permalink | Comments (0)

Monday, June 1, 2015

Opt-out arbitration provisions

As I mentioned in a previous post, I recently took a look at Instagram's terms of use.  I found it interesting that it contained an opt-out provision for arbitration.  A clause at the top of the page states the following in bold:

ARBITRATION NOTICE: EXCEPT IF YOU OPT-OUT AND EXCEPT FOR CERTAIN TYPES OF DISPUTES DESCRIBED IN THE ARBITRATION SECTION BELOW, YOU AGREE THAT DISPUTES BETWEEN YOU AND INSTAGRAM WILL BE RESOLVED BY BINDING, INDIVIDUAL ARBITRATION AND YOU WAIVE YOUR RIGHT TO PARTICIPATE IN A CLASS ACTION LAWSUIT OR CLASS-WIDE ARBITRATION.

(Side note - I found it rather lazy for Instagram not to include section numbers in its TOU.  One of the reasons to have an opt-out provision is to guard against claims of unconscionability as in Hey, they had a choice!  They could have opted out!  It doesn't make sense then to make the user scroll through the entire agreement and try to find the arbitration clause instead of just referring to it). 

The arbitration clause itself permits the user to opt-out "within 30 days of the date that you first became subject to this arbitration provision."  Furthermore, the user has to provide written notice and send it to Instagram's offices. 

Of course, very few users will opt-out.  First of all, very few people read TOU.  Second, a lot of people don't know what arbitration is so they don't know to opt-out.  Finally, Instagram puts a "hurdle" in the user's way - they have to send a written notice.  The last time I had to mail a card, it took me several days.  I had to find an envelope, for one thing.  Then I had to find some stamps.  I don't even know where the post office is near my house and when I asked the cashier at the grocery store, he looked at me as though I were Rip Van Winkle --stamps?  

Contrast the written notice requirement to opt-out with how Instagram updates its TOU: 

"You agree that we may notify you of the Updated Terms by posting them on the Service, and that your use of the Service after the effective date of the Updated Terms (or engaging in such other conduct as we may reasonably specify) constitutes your agreement to the Updated Terms."

So, Instagram only has to post changes to its website but the user has to mail a notice to its headquarters in order to opt-out of arbitration? Why not have all notices be effective if sent via email?  Maybe because some people might actually choose to opt-out of arbitration then.

Instagram's opt-out clause is not unusual - in fact, it's quite common.  The CFPB recently issued  its report on the use of arbitration clauses .  It found that a  fair number of banking and credit card agreements contained provisions allowing consumers to opt-out of arbitration clauses but that very few consumers chose to opt-out.  There were a number of other interesting findings and the report is well worth reading although the report is rather long.  Professor Jean Sternlight of University of Nevada - Las Vegas summarized some of the key findings here

 

 

 

 

June 1, 2015 in Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, May 28, 2015

Can Terms of Use Stop Richard Prince?

According to this article, the photographer, Richard Prince, is ripping off using other people’s Instagram photos – and selling them for lots of money ($90,000)!  Arguably, he can do this because it’s fair use  -- he blows the images up and makes minor changes to them, like removing captions and adding comments.  (One could also argue that it’s not fair use because he doesn’t change them enough).  Putting aside the copyright related issue (fair use or not fair use) and the privacy issue (are there any privacy related claims when you post on Instagram for the world to see – but don’t mean to have your photos used in this way?) – what intrigues me are the contract related issues.  I took a quick peek at Instagram's latest terms of use and there’s nothing in there that would really help someone whose photos were being used by Richard Prince.   And while Instagram's Community Guidelines are thoughtful and cover a variety of topics, they don’t address this problem.  But could its TOU address this issue – and should it?  What if Instagram put in its Terms of Use a provision that forbade visitors to its site from using other people's photographs for any purpose?  If so, what could the company do if a user violated that term?  It could, of course, ban the offending user from Instagram.  Could it sue for breach of contract – and if so, what damages could it claim? If people started to copy users’ photographs from Instagram and use them for their own purposes that would likely hurt Instagram’s business.  Instagram should consider how its Terms of Use can be amended to protect their users from this type of unauthorized use.

May 28, 2015 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, April 27, 2015

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

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

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

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

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

Thursday, April 2, 2015

August Wilson's Two Trains Running and R.2d Section 228

HamI just saw the Goodman Theater's production of August Wilson's Two Train's Running.  It is a great play, and this is a first-rate production in every way.  One character, Hambone, is a reification of contracts injustice.  Hambone painted a fence for an offstage character, Lutz.  Lutz promised to pay Hambone a chicken for his work and a ham if Hambone did an especially good job.  Lutz paid Hambone a chicken.  This occurred nine years prior to the action in the play.  Hambone's lines in the play consist almost entirely of "Give me my ham!" and "He gonna give me my ham!"  At one point, another character teaches him some additional slogans like "Black is beautiful," but Hambone is never too far from his mantra, as the aggrieved non-breaching party.

Although the play never references R.2d § 228, we are clearly in the realm of conditions of satisfaction.  Hambone's entitlement to the ham should have been determined on an objective basis.  All of the characters in the play seem agreed that, were such a standard applied, a finder of fact would certainly award Hambone a ham.  But Hambone is Black, poor, and ill-equipped for a legal battle.  Lutz is white and so powerful that he is able to define Hambone's character without ever suffering the indignity of appearing on stage. 

Does Hambone ever get his ham?  I don't want to give away too much so I will just say, yes and no.

April 2, 2015 in Commentary, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 24, 2015

Guest Post - Tina Stark on Contract Drafting at the Intersection of Law and Business

The following guest post is from Tina Stark, a Professor in the Practice of Law (retired) and the Founding Executive Director of Emory's Center for Transactional Law and Practice.  Tina is one of the pioneers of teaching transactional skills and the founder and first Chair of the AALS Section on Transactional Law and Skills.  She is also the author of Drafting Contracts:  How and Why Lawyers Do What They Do  and the editor and co-author of Negotiating and Drafting Contract Boilerplate  Welcome, Tina!

 

When I speak about contract drafting, I often state that contract drafting sits at the intersection of law and business. Students can learn about style, organization, process, interpretation, ambiguity, and clarity, but if they don't know the law and understand the deal, the contract will be ripe for litigation. 

 In  Buckingham v. Buckingham, 14335 314297/11, NYLJ at *1 (App. Div., 1st, Decided March 19, 2015), a well-known matrimonial lawyer botched the drafting of a prenuptial agreement. As drafted, the relevant provision stated that if the husband sold "MS or any of its subsidiaries or related companies," he was obligated to pay the wife a share of the proceeds. But the provision did not address the consequences of the husband's sale of any shares he owned in those businesses. Stated differently, the agreement gave the wife the right to proceeds from asset sales, but was silent about the right to proceeds from stock sales. 

 The couple married; time passed; and the marriage failed. Along the way, the husband sold shares of his business and the ex-wife wanted her share of the proceeds: about $950,000. The husband and the courts said "no." The court reasoned that the relevant language created a condition to the husband's obligation to pay sale proceeds to his ex-wife, but that language encompassed only asset sales. Therefore, because the husband's sale of shares did not satisfy the condition, the wife had no right to any proceeds. (Technically, there was a condition to an obligation and an obligation. The condition to the obligation was an asset sale, and the obligation was the husband's obligation to pay the wife a share of the proceeds. The husband's obligation to pay created the wife's reciprocal right to receive the proceeds.)

 As the dissent points out, the business deal was almost undoubtedly that the wife was entitled to money if the husband received proceeds from a business disposition. But the court held the provision unambiguously applied only to business dispositions that were asset sales, and it refused to rewrite the provision. Bottom line: the wife’s lawyer didn’t know the law. She didn’t understand the difference between an asset sale or a stock sale and language embraced only the former. This is a classic case of a business issue driving the litigation, not unclear, ambiguous drafting. It was “bad” drafting, but not for reasons of style, lack of clarity, or ambiguity. It was “bad” because it didn’t memorialize the parties’ intent. 

 And that's why matrimonial lawyers need to understand business and business law and how drafting sits at the intersection of law and business.

March 24, 2015 in Contract Profs, Miscellaneous, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Saturday, March 14, 2015

International Price Fixing Scheme

Secret backroom deals conducted in hotels and private apartments.  Dedicated phone lines.  Market-sharing agreements and price fixing activities.  Million-dollar deals.  Thinking oil, diamonds, shares or foreign exchange?  Think again!  Eleven of the top … yoghurt makers in France, including American-owned Yoplait, were recently fined approx. $200 million for the above activities, which affected about 90% of the French yoghurt market and thus “seriously disturbed” it.  

Yoplait, the majority of which is owned by U.S.-based General Mills, Inc., actually revealed the cartel under a French law that allows companies to self-report their price fixing activities in exchanged for reduced punishment.  So far, the company has received no fines.

Apparently, the French competition authorities are cracking down on deals such as the above.  The French government has also recently started cleaning out, so to speak, the ranks among shampoo, toothpaste and various cleaning product manufacturers.

Price fixing does, of course, disturb the free market forces.  When shopping in this country, it is remarkable how close prices for various everyday items are.  However, that does not mean that prices have been set in any illegal way.  Retailers such as gas stations, which are well-known at least in the Los Angeles area to have almost the same prices all the time, could just stick the head out the window to see how the competitors price their products.  But if mere yoghurt is worth the above risk, one wonders what else may be going on behind the scenes in the global corporate world.  Perhaps it’s better not to know.

March 14, 2015 in Current Affairs, Food and Drink, In the News, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 11, 2015

Contractual Dispute over Pricey Airport Water

We all know the feeling of having to pay twice as much - or more - for food and drink in airports compared to most other places.  Two vendors at the Los Angeles International Airport (“LAX”) are now taking this practice to the next level: they are suing each other for alleged contracts violations and price gouging.

Boutique retailer Kitson Stores runs two stores at LAX.  It apparently charges around $2.55 for a liter of water (roughly a quart) at those stores.  Competitor Hudson Group charges $5 a bottle (size unknown, but presumably roughly the same and expensive at any rate).  Kitson is alleging that Hudson is gouging passengers with its “hugely inflated” water prices and is trying to force Kitson out of business at the airport.  Hudson is countering that Kitson is hardly concerned about consumer price protections, but that this lawsuit is really a diversion from Kitson’s alleged contractual violations. 

Whichever turns out to be the case, airport prices are well known to be very high for everything from chewing gum to dinner.  Perhaps higher-than-usual rent prices are to blame, at least in part.  Of course, airport retailers also enjoy a captive market (almost literally).  Consumers are, however, still allowed to bring an empty bottle to the airport and fill it with free water from, for example, the increasing number of “bottle filling stations” that are thankfully also appearing in more and more airports.  This does seem to be a case of fake altruism, but is nonetheless a lawsuit that may resolve an important issue.

March 11, 2015 in Food and Drink, Miscellaneous, Travel, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, February 26, 2015

California Port and Freshwater Disputes – From Citrus Fruits to Water-Stealing Nudists

Two contracts issues have reappeared recently and both greatly affect the earning abilities of California citrus farmers, among others: the ability to ship products and the ability to grow them in the first place.

The shipping situation was - and still is - affected greatly by the recent employment contract dispute between shipping companies and dockworkers.  Recently, the parties reached a tentative deal on a new five-year contract after months of discussions that ended with a roughly 3% wage increase each year, a hike in pensions and continued union jurisdiction over the maintenance of truck trailers.  While the dispute was going on, many oranges destined for Chinese New Year celebrations overseas rotted away as activities in and around the ports of Los Angeles and Long Beach were impacted.  The docks still aren’t expected to return to normal until well into the season for Valencia oranges and past the season for navel oranges.  Importers of cars, among other things, have also recently expressed their problems keeping up with the demand for imported cars (which is huge in California).

For citrus and other farmers, the shipping problem is exacerbated by the ongoing very severe drought that California is experiencing for the fourth year in a row and that so far has resulted in 41% of the state finding itself in the most severe category of water shortages. 

While farmers up and down California’s agricultural San Joaquin Valley vehemently protest  P1030121
regulations limiting their access to freshwater, others are taking matters into their own hands: they simply steal water.  From the apparently more and more typical situation of subcontractors using fire hydrants without permits to people driving away with water from fire hydrants in trucks, siphoning it off canals, or tinkering with the pipes of their neighbors or local water providers, farmers are not the only ones getting desperate for water. 

Since we are talking California, there has to be a “weird” twist to the story: in the Silicon Valley, a water district has removed irrigation pipes that rangers say allowed … a nudist colony to make unauthorized water diversions from a waterfall. 

There is even a phrase for thieves of this nature: “water bandits.”  This situation is only about to get worse as the drought is predicted at above 80% certainty to become the worst in 1,000 years.    Some cities such as Los Angeles are offering tax initiatives for removing residential lawns.  Nonetheless, Californians will still have to grapple with the contractual and other rights to access to water – saline or otherwise - for some time to come.

February 26, 2015 in Current Affairs, Food and Drink, In the News, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 27, 2015

A Contract to Kill but no Intent to

A young Norwegian man has been fined $1,300 for accepting a contract to kill without the intent to follow up on it.  Yes, you read that right: all the authorities could charge this man with was contractual fraud.  Another 21-year old man ordered the killing of a teenage girl who had rejected the man’s romantic advances.  The punishment for the “offeror”?  Two years in prison with most of the sentence suspended because the suspect confessed.

Good thing that these men were caught and convicted of something… sort of a gruesome twist on the old, classic Al Capone story (of course, Capone only pled guilty to tax evasion and prohibition charges).  I know that the Scandinavian countries do not believe in the rehabilitative effects of relatively severe sentences such as those often dished out in the USA, but still...  Two years and $1,300 for an attempted contract on a teenage girl’s head?  That seems too lenient to me. 

January 27, 2015 in Famous Cases, In the News, Miscellaneous, True Contracts | Permalink | TrackBack (0)

Friday, January 23, 2015

Merchantability Applied to Legal Scholarship

Katowice Fair Building Collapse graphic

 

We know that merchantability means passing without objection in the trade. If law review articles were goods, what would that trade be? For law professors, it  seems like it is second and third year law students.  At some level it would also reviewers of works when a professor is considered for promotion. Recently, though, a colleague of mine and I did a bit of research and began to wonder if acceptable in the trade -- as defined by law students and law professors --  is a meaningful strandard within the trade of academia.

Law professors who do research are generally spending the money of others. The actual buyers are, therefore, those who pay  for the scholarship. Let's add that they have no idea what the standard is but would uniformly agree that every article should make someone or something better off and should reflect high quality research. Students and reviewers should be regarded as agents for those paying the bills.

If that is the measure of merchantability (and why wouldn't it be) then editors and reviewers should apply that standard in their own decisions. Clearly they do not and left to their narrow and inappropriate standard for merchantability we have  massive amounts of scholarship that, let's face  it, is written to justify being granted tenure.  There is little verification that most, no matter how carefully done or clever, actually benefits anyone. Some of it -- a small percentage -- is cited but rarely for the substantive points made as opposed to piggy-backing on a fact asserted in the first work.  Morever the research is often sloppy.  Here is an example. I recently read an article that makes the claim that a certain area of law is now consistent with empirical studies. I looked at the cite and it was to another professor who had not actualy done any empirical work and did not quite say what was claimed. And the work cited by that professor was not on the point made in the first article. In fact the most frequent cite is  the hearsay cite in which the author makes a claim because someone else made the same claim.

I expect readers of this will disagree but shouldn't the test of merchatability mean making someone or something (even if a fish) better off and shouldn't documentation be careful and accurate? Don't misunderstand, much of scholarship meets these standards. But much of what currently passes in the trade without objection does not. 

January 23, 2015 in Commentary, Current Affairs, Law Schools, Miscellaneous, Recent Scholarship, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 23, 2014

The Hobbit and the Meaning of a Bargain

I recently saw the last Hobbit movie, The Battle of the Five Armies.  I found it highly entertaining and was delighted to find a discussion about contracts between Bard, the leader of Laketown, and the King of the Dwarves, Thorin Oakenshield, during a pivotal moment in the movie.  The two engage in a back-and-forth about the meaning of a bargain, contract defenses (coercion and duress), and the importance of keeping promises.  In short, all the issues that come up regularly on this blog.  This isn't the first time that contracts have come up in a Hobbit movie. The morality of promise-keeping is an important theme in the movie as it has been in the others. 

Speaking of the Hobbit, the Weinstein brothers have lost their fight against Warner Bros. over the profits to the last two Hobbit movies.  As discussed previously on this blog, the issue involved the meaning of "first motion picture" of each book but not "remakes."  The Hobbit book was split into three movies and the Weinsteins argued that they should get a percentage from each movie; Warner Bros. claimed that they should only get royalties from the first Hobbit movie.  Unfortunately for contracts enthusiasts, the matter was sent to arbitration against the wishes of the Weinstein Bros. who wanted it to play out in court so we may never find out the basis for the arbitrator's ruling.

 

 

December 23, 2014 in Current Affairs, Film, Film Clips, Miscellaneous | Permalink | Comments (1) | TrackBack (0)

Monday, December 22, 2014

Gift or Curse?

After years of conducting research on the genes of various animals, George Doe (a pseudonym), an accomplished biologist with a PhD in cellular and molecular biology, decides to have his own genes examined for fun and to discover whether he may be genetically predisposed to cancer.  He buys a test kit online from one the many companies that provide such services these days.  He is so excited about the process that he also buys a kit for his mother and father as gifts.  They all have their genes tested.  George finds out that he is not predisposed to cancer.  But that’s not it.  He also finds out that another male who has had his own genes tested and is thus registered with the same company is “50% related” to George.  This can only mean one of three things: this other male is George’s grandfather, uncle or … half brother.  After intense and testy family discussions, George’s father apparently admits that he had fathered this other male before marrying George's mother.  George’s parents are now divorced and the entire family torn apart with no one talking to each other.

A very sad affair.  Of course, nothing appears to be contractually wrong with this case: at the bottom of one’s profile with www.23andme.com, the company that provided the tests in this case, George and his family had checked a small box indicating for them to do so “if you want to see close family members in this search program.”  The company is said to have close to one million people in its database.  With modern science, close family members can easily be identified out of such data if opting into being notified. 

Here, the company does not appear to have done anything wrong legally.  Quite the  opposite: if anything, the above shows that the buyers in these situations may not be sufficiently mentally prepared for the information they may discover through DNA testing.  Arguably, they should be.  After all, the old adage “watch out what you ask for, you may get it” still rings true.

But isn’t this situation akin to the various other situations we have blogged a lot about here this past year where customers buy various items online and click – or not – on various buttons, thus signaling at least alleged acceptance of, for example, terms of service requiring arbitration instead of lawsuits in case of disputes?  As I have argued, many people probably just clicks such buttons without fully realizing what the legal or, in cases such as the above, factual results may be.  Should online vendors be required either legally to make such check boxes or other online indicia of acceptance a lot more obvious?  Or should they at least be required to do so for reasons of business ethics? 

I think so.  Most working people are exceptionally busy these days.  Frankly, not many of us take the time to scrutinize the various implications - legal or otherwise – of the purchases we make online, especially because the agreements we accept in cyberspace are presented so very differently online, yet are so deceptively similar in legal nature that we probably feel pretty comfortable with simply clicking “I accept” as the vast majority of such transactions present no or only minor problems for us? And aren’t the vendors the party with the very best knowledge of some, if not most, of the problems that arise in these contexts?  How hard would it really be for them to make sure that they use all the “bells and whistles” to truly put people on notice of what typical problems encountered may be, exactly to avoid legal problems down the road?  One would think so, although, of course, customers also carry some of the burden of educating ourselves about what we buy and what that may mean.  This is perhaps especially so when such delicate issues as the above are involved.

For George Doe, the above unfortunately turned out to be much more of a curse that kept on giving instead of a gift that kept on giving.

On behalf of your blogging team here at ContractsProfs Blog: Happy Holidays!

December 22, 2014 in Commentary, Current Affairs, E-commerce, Miscellaneous, Science, Web/Tech | Permalink | TrackBack (0)

Wednesday, December 10, 2014

Carving Out and ICAM

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I read an interesting article the other day about parties to a contract agreeing to a broad arbitration provision and then carving out some issues that would be litigated should a problem arise. As with many others, I am involved in the International Commerical Arbitration Moot and, when I read the article, the issue seemed familiar. That is because this year's problem includes a contract with the following two provisions: 

"Art. 20 All disputes arising out of or in connection with the present contract shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with the said Rules. The seat of arbitration shall be Vindobona,
Danubia, and the language of the arbitration will be English. The contract, including this clause,
shall be governed by the law of Danubia.

Art 21: Provisional measures
The courts at the place of business of the party against which provisional measures are sought
shall have exclusive jurisdiction to grant such measures."

As you would expect, one of the parties in the problem asks for interim relief from the ICC while the other says interim measures are for courts only. Very often, if  not most of the time, the Moot problem is inspired by an actually case. Some years the students are able to find the case and, while it is never quite exactly on point, it can be helpful.

I could not help but wonder if this issue within this year's problem was inspired by a botched effort to carve interim relief out from the general provision. It would be pretty sloppy to draft something like the above but my hunch is that it has happened. 

I am curious to know how other ICAM team coaches have dealt with the issue. In particular, does the word "finally" in Article 20 have any particular signficance?

December 10, 2014 in Commentary, Conferences, Contract Profs, Current Affairs, Miscellaneous, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, November 20, 2014

Styl'n at the International Commercial Arbitration Moot

 

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In a couple of previous posts I've described the International Commerical Arbitration Moot (ICAM) and detailed some aspects of  this year's problem. None of this is news  to the contracts, sales, and arbitration professors around the country who are involved in this activity. Still I am surprised at how many schools do not have teams. I have also noted the possible use of the yearly ICAM problem as a source or inspiration of exam questions. 

For professors who are interested in starting a team there are many things to consider other than substance. These involve selecting and preparing a team.  Here at Florida this means trimming a class of 30 or so  hopeful students down to a team of 4 to 6.  It is a complicated task. We try as much as possible to hold try outs that resemble the actual competition in Vienna.  Other coaches know that the ICAM competition requires students to know the facts and law with precision and to have certain mannerisms that the mainly European judges find appealing.  For example, speaking slowly is critical since many if not most judges will have English as a second language. Also, the closer the English spoken is to British English, the better. Why? Most of the arbitrators will have learned English abroad. The use of virtually any slang means you should move up your departure date from Vienna because you will not go far in the competition.  "Gonna" must be "going to." "Wanna" must be "want to." No "big bucks." No "you guys." etc.  If there such a thing as an eloquent yet casual style, that seems to work best. Yes, theater is involved and the coaches are directors as much as teachers. Even "costumes" seem to count. I watched a rather uncomfortable session in which an arbitrator dressed down a competitor who had, well,  "dressed down"  by not having the top button of his shirt buttoned. I think most coaches would agree the competition starts when the students arrive at the U.S. departure airport because from that point forward they may be rubbing shoulders with the arbitrators they will encounter in Vienna. 

 

November 20, 2014 in Contract Profs, Film, Miscellaneous, Television, Travel | Permalink | TrackBack (0)

Friday, October 17, 2014

Documentary on Forced Arbitration

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.

October 17, 2014 in Commentary, Current Affairs, Film, Legislation, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 14, 2014

Want to make sandwiches? First, sign this non-compete...

Jimmy John's, a sandwich chain that frankly I had never heard of but which has over 2,000 franchise locations, apparently makes its employees sign pretty extensive confidentiality and non-compete agreements , as reported by Bob Sullivan and this Huffington Post article.  It's not clear to me what trade secrets are involved in making sandwiches, although I am a big fan of more transparency when it comes to what goes in my food and how it's made. As Bob Sullivan points out, in this economy, employment-related agreements for most employees are typically adhesion contracts. Making workers sign non-competes to get a job makes it much harder for them to get their next job.  In this case, the employee is prohibited from working for two years at any place that makes 10% of its revenue from any sandwich-type product (broadly defined to include wraps and pitas) that is within 3 miles of any Jimmy Johns location.  Given that there are 2,000 such locations, it could make it difficult for some food industry workers to find other jobs.

October 14, 2014 in Current Affairs, Food and Drink, Labor Contracts, Miscellaneous | Permalink | Comments (3) | TrackBack (0)