ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, April 18, 2016

The Perils of A Duty to Negotiate in Good Faith

I’ve recently finished writing a textbook on contract clauses which takes a different approach to teaching contracts.  The book, to be published in September, uses contract clauses and case excerpts to introduce doctrinal concepts and to teach students how to problem solve.  (I always thought it unfortunate that a typical 1L learns contract law without knowing what common contract clauses mean or how they relate to what they’ve been learning). One of the cases mentioned in my book is SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A. 3d 330 (Del. 2013).  I’ve been meaning to blog about this case for some time now because it’s an important one for readers of this blog and corporate lawyers everywhere and illustrates the importance of using the right words in a contract. 

SIGA and PharmAthene signed a term sheet for an eventual license agreement and partnership to further develop and commercialize an anti-viral drug for the treatment of small pox.  The term sheet was not signed and contained a footer on each page that stated “Non Binding Terms.”  Subsequently, the parties drafted a merger term sheet that contained the following provision:

“SIGA and PharmAthene will negotiate the terms of a definitive License Agreement in accordance with the terms set forth in the Term Sheet…attached on Schedule 1 hereto.  The License Agreement will be executed simultaneously with the Definitive [Merger] Agreement and will become effective only upon the termination of the Definitive Merger Agreement.”

 The license agreement term sheet was attached as an exhibit to the merger term sheet.  On March 10, 2006, the parties signed a merger letter of intent and attached the merger term sheet and the license agreement term sheet. 

On March 20, 2006, the parties entered into a Bridge Loan Agreement where PharmAthene loaned SIGA $3million for expenses relating to the merger and for costs related to developing ST-246.  It stated the following in Section 2.3:

“Upon any termination of the Merger Term Sheet….termination of the Definitive Agreement relating to the Merger, or if a Definitive Agreement is not executed…., SIGA and PharmAthene will negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the License Agreement Term Sheet …and [SIGA] agrees for a period of 90 days during which the definitive license agreement is under negotiation, it shall not, directly or indirectly, initiate discussions or engage in negotiations with any corporations, partnership, person or other entity or group concerning any Competing Transaction without the prior written consent of the other party or notice from the other party that it desires to terminate discussions hereunder.”

On June 8, 2006, the parties signed the Merger Agreement which contained a provision nearly identical to section 2.3 of the Bridge Loan Agreement and provided that if the merger was terminated, the parties agreed to negotiate in good faith to enter into a license agreement with the terms of the License Agreement term sheet.  The Merger Agreement also stated that the parties must use their “best efforts to take such actions as may be necessary or reasonably requested by the other parties hereto to carry out and consummate the transactions contemplated by this Agreement.”

Shortly thereafter, SIGA terminated the Merger Agreement and announced that it had received a $16.5million NIH grant.  SIGA also proposed different licensing terms from those contained in the term sheet and argued that the license agreement term sheet was not binding because of the “Non-Binding” footer.  PharmAthene sued -- and won.  SIGA appealed and the Supreme Court of Delaware found that the “express contractual language” obligated the parties to “negotiate in good faith with the intention of executing a definitive License Agreement” with terms “substantially similar” to the terms in the license agreement term sheet. 

The damages to PharmAthene ended up being around $200million– in other words, expectation damages.   In order to stop PharmAthene from enforcing the judgment while undergoing the appeals process, Siga filed for Chapter 11 bankruptcy.   Siga subsequently lost its second appeal to the Delaware Supreme Court, which upheld the award of expectation damages.

Last week, the U.S. Bankruptcy Court for the Southern District of New York approved a reorganization plan that sets the stage for SIGA to exit from bankruptcy.  The judgment is expected to be satisfied by October 20, 2016.

A long and expensive road for SIGA which could have been avoided by paying more attention to the language used in the contract.

April 18, 2016 in In the News, Miscellaneous, Recent Cases | Permalink | Comments (0)

Monday, March 28, 2016

Assent in Healthcare Contracts

Here, Stacey Lantagne reports on a very sad story of what can happen if health care customers fail to follow accurate procedure and, at bottom, dot all the I’s and cross all the T’s when contracting for health care services.

For me, this speaks to the broader issue of whether or not patients can truly be said to have given consent to all the procedures and professionals rendering services to patients. I think this is often not the case. As you know, Nancy Kim is an expert on this area in the electronic contracting context. She kindly alerted me to this story in the health care field.  (Thanks for that.) The article describes the practice of “drive-by doctoring” whereby one doctor calls in another to render assistance although the need for this may be highly questionable. The NY Times article describes an instance in which one patient had meticulously researched his health care insurance coverage, yet got billed $117,000 by a doctor he did not know, had never met, and had not asked for. That doctor had apparently shown up during surgery to “help.”

Of course, this is a method for doctors to make end runs around price controls. Other methods are increasing the number of things allegedly or actually performed for patients. Other questionable practices include the use of doctors or facilities that all of a sudden turn out to be “out of network” and thus cost patients much more money than if “in network.” I personally had that experience a few years ago. I had to have minor surgery and checked my coverage meticulously. The doctor to perform the surgery was in network and everything was fine. She asked me to report to a certain building suite the morning of the surgery. All went well. That is, until I got the bill claiming that I had had the procedure performed by an “out of network” provider. This was because… the building in which the procedure was done by this same doctor was another one than the one where I had been examined! When I protested enough, the health care company agreed to “settle” in an amount favorable to me.

In these cases, patients typically have very little choice and bargaining power. In the emergency context, what are they going to do? There is obviously no time to shop around. You don’t even know what procedures, doctors, etc., will be involved. The health care providers have all the information and all the power in those situations. However, in my opinion, that far from gives them a carte blanche to bill almost whatever they want to, as appears to be the case, increase their incomes in times when insurance companies and society in general is trying to curb spiraling health care costs.

In the non-emergency context, how much of a burden is it really realistic and fair to put on patients who are trying to find out the best price possible for a certain procedure, only to be blind-sighted afterwards? That, in my opinion, far exceeds fair contracting procedure and veers into fraudulent conduct. Certainly, such strategies go far beyond the regular contractual duty to perform in good faith.

Of course, part of this is what health care insurance is for. But even with good health care insurance, patients often end up with large out-of-pocket expenses as well. The frauds in this context are well known too: most health care providers blatantly offer two pricing scheme: one (higher) if they have to bill insurance companies, and a much lower price if they know up front to bill as a “cash price.”

We have a long ways to come in this area still, sadly.

March 28, 2016 in Commentary, Current Affairs, Miscellaneous, Science, True Contracts | Permalink | Comments (1)

Thursday, March 24, 2016

Couponing is Cool Again

Clipping coupons and bringing them to retail stores is passé, but online “couponing” is considered cool by consumers. 23% of consumers report that they use more coupons now than earlier because technology makes it easier to find and use them.  51% of the consumers who do use coupons say that they use them more than they did five years ago. Part of this may be a reflection of declining personal incomes, and part may be because the recession has demonstrated the value of savings to many people.

Former CEO of J.C. Penney Ron Johnson was famously ousted when he decided to eliminate the chain’s coupons and no less than 590 annual sale events (yes, almost twice per day!). JCP has now settled a lawsuit that alleged that the company falsely inflated its prices (showing “regular” and “original” prices that had never been in effect) in order to be able to have such sales. http://www.usatoday.com/story/money/2015/11/11/jcpenney-settles-lawsuit/75567958/

Where does a reasonable store draw the line between these two ends of the spectrum? With the truth, of course, and letting the chips fall where they may in a fiercely competitive marketplace. Needless to say, that is tough to do with shareholder expectations of endless growth and earnings. One thought might be for retailers to offer more items for sale that are actually appealing, unique and well fitting (when it comes to clothes) rather than the same boring outfits everyone else offers. Just a thought in times when vendors such as the Gap and Banana Republic, for example, are suffering from immense “product acceptance challenges” (read: boring stuff no one wants to buy).

March 24, 2016 in E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (1)

Thursday, February 18, 2016

Contracts Humor: It's Not Just for Law Schools

A cautionary tale:

A&E AppleSign

February 18, 2016 in Miscellaneous, Quotes, Web/Tech | Permalink | Comments (0)

Friday, January 15, 2016

Very, Very Frequent Flyers Do Not Have Separate Contracts with Airlines

If a customer belongs to an airline’s frequent flyer program, but flies so often that one obtains an elevated status under that program, is the customer then also by implication governed by a separate contract with the airline and not just the “basic” version of the frequent flyer rules?

No, according to a Seventh Circuit Court of Appeals opinion in Hammarquist v. United Continental Holdings, Inc. (Nos. 15-1836 and 15-1845).

In the class action lawsuit against beleaguered United Airlines, plaintiffs were members of the airline’s “MileagePlus” program. Condition no. 1 of the program rules stated that the airline had the “right to change the Program Rules, regulations, benefits, conditions of participation or mileage levels … at any time, with or without notice ….” Plaintiffs, who had obtained “Premier” status argued that under the Premier Program, an alternative modification provision prohibited United from changing the benefits that had already been earned, but which could, per airline tradition and the basic program rules, only be enjoyed the following year. The court made short shrift of that: The plaintiffs did not dispute that the parties’ contractual relationship was governed by the Program Rules that, under precedent established in Lagen v. United Continental Holdings, the elevated status of some frequent flyers does not result in a free-standing contracts separate from the underlying frequent flyer program being established. United Airlines had not made any contractual representations that would render it unable to change the benefits under the basic contract.

Plaintiffs also argued that at the most, United Airlines should only be allowed to change the benefits once a year and not, as had apparently been the case, in the
middle of the year. Plaintiffs relied on the airline’s website, which had stated th That changes were possible “from year to year,” but also that “unless otherwise stated,” the basic Program Rules applied to the Premier Program. That, according to the plaintiffs, meant that the airline could not change the benefits “at any time” as had been stated in the frequent flyer rules. The court found that United Airlines had never “stated” that Condition no. 1 did not also apply to its very frequent flyers, and that the airline had never contractually promised that changes could only be implemented only from year to year.

Nice try, but in this case, a contractually fair enough outcome, it seems. United Airlines “cannot be liable for breaching a contract that it did not make.”

January 15, 2016 in Current Affairs, Miscellaneous, Recent Cases, Travel, True Contracts | Permalink | Comments (1)

Monday, December 21, 2015

Selling “Restorative Justice” for a Profit

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

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

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

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

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

Pearls Before Swine

I'd never heard of the comic strip, Pearls Before Swine, before yesterday but my colleague Glenn Smith alerted me to their especially blog-appropriate offering in yesterday's paper.

December 21, 2015 in Miscellaneous, Web/Tech | Permalink | Comments (0)

Thursday, December 10, 2015

Five Flavors of Legal Services

Will the legal hiring and general business situation never change for the better? Maybe, but commentators still think that future change on the legal market will come from structural and innovative, rather than cyclical, change. For example, in addition to relatively simple steps such as hiring outside staffing agencies and sharing office centers, some firms are launching their own subsidiaries providing legally related services such as contract, data and cyber security management along with ediscovery.

Until recently, law firms offered these and other services. As outside service providers have proved to be able to provide certain key services more efficiently and cost effectively than traditional law firms, the latter have lost business that they are now desperately trying to recoup.

Imitation is still the most sincere form of flattery. It is not only on the market for legal services that copycats abound; this has also proved to be the case with, for example, many shared economy service websites such as Uber, Lyft, Airbnb, VRBO and others. As soon as one company idea and website turns out to be successful, others just like it seem to shoot up within weeks or months.  However, instead of simply trying to do what others are already doing and doing well, it would be nice if companies – law firms among them – would try to think about how they could do things better instead of just trying to, as often seems the case, (re)gain business by taking market shares from others. Exactly how law firms should do so is, of course, the million-dollar question, but it seems clear that innovation is prized both within and beyond the legal field. That will benefit our students if jobs are created by actual law firms rather than by service providers not hiring people with JDs.

December 10, 2015 in Commentary, Current Affairs, E-commerce, Labor Contracts, Miscellaneous, Web/Tech | Permalink | Comments (0)

Wednesday, December 2, 2015

Terms and Conditions May Apply

Do you need a three-minute break with some adhesion-contract humor? Want to restore your faith that there is some utility to the unconscionability doctrine? Watch the video linked at the end of the excerpt below from Elite Daily.  Here is their lead-in:

How many times have you checked off “agree to terms and conditions” without reading said terms? The better question may be, have you ever read any terms and conditions before signing?

Many times, you’re signing away any right to the content you share, including photos and videos, while allowing big companies to make huge profits off your work. Often, you’re signing away your private data, addresses, friend’s information or more. You’re also usually signing away your right to ever take legal action against the company.

YouTuber Jena Kingsley wanted to prove just how quickly we will all sign away our information for the chance at gaining something for free. But, as the saying goes, you never get something for nothing.

Check out just how fast people will sign up to win a free iPad and the hilarious consequences that follow, in this video.

H/T: Miriam Cherry (St. Louis University)

December 2, 2015 in Film Clips, Miscellaneous | Permalink | Comments (1)

Thursday, November 19, 2015

Numismatic Information is Worth How Much?!

Serious coin collectors still exist. Very serious ones.

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

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

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

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

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

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

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

Monday, November 2, 2015

Lego Turns Down Order for Millions of Lego Bricks to be Used for "Political" Purposes

Danish toy building brick maker Lego recently turned down an order for several million lego bricks that were to have been used in an art exhibit by Chinese artist and human rights activist Ai Weiwei in Melbourne.   Why?  Because Lego refrains from “actively engaging in or endorsing the use of Lego bricks in projects or contexts of a political agenda.” 

The bricks would have been used for two projects, one of which would have consisted of mosaic portraits of twenty Australian advocates for human rights and for information and Internet freedom.  Prominent lawyers such as Michael Kirby and Geoffrey Robertson would have been depicted as would have WikiLeaks founder Julian Assange.

Last year, Mr. Ai used Legos to create mosaic portraits of 176 political exiles and prisoners of conscience in an exhibit on Alcatraz Island in San Francisco.  At that time, Mr. Weiwei bought the toys via a nonprofit helping him develop the Alcatraz exhibition.

This is apparently not the first time that the Lego Group is turning down otherwise valuable contracts for its popular bricks.  Just this year, Lego rejected a proposal to make Lego figures of the female United States Supreme Court justices, also because such use was considered “political.” (Huh?!)  Previously, Lego has tried to persuade a Polish artist to withdraw an installation that used Lego bricks to depict a Nazi concentration camp (Lego, in turn, withdrew that request after lawyers got involved.).

China’s reaction to the Ai Weiwei story? The state-run Chinese Global Times reported that “as China becomes more powerful, commercial organizations and national governments will become more well behaved and more scared to apply a double standard to China.” (Link to Global Times not available, but see here for coverage from NPR and the NY Times)  Surely, at least part of that statement must be a mistranslation.  If not, then let’s indeed hope that governments and corporations alike become better behaved (if not, could we give them time out?).

Does this case make sense from a business point of view?  Perhaps, if the company wants to err on the extremely cautious side of avoiding negative PR in general.  Or is this perhaps rather an issue of not risking to upset a very valuable and increasingly affluent country such as China?  Should it matter to a manufacturer what its products are sold for?  Said Weiwei: “A company that sells pens [also] cannot tell a writer that he or she can’t do political or romantic writing. It’s really none of their business.” 

Having been born and raised in Denmark, Lego’s attitude surprises me somewhat.  Danes – whether organizations or individuals – often weigh in on important social issues.  Danes are often not afraid to speak their minds on important social issues.  That is simply how “small talk” and opinion-making is formed in the nation.  As a nation, Denmark often touts itself as a world leader when it comes to other complex issues such as comprising the environment, energy and health care even though those could also be seen as “political” in nature.  On that backdrop, Lego’s attitude seems even more conservative from a PR point of view, but of course, it is a multi-million dollar company worried about the bottom line.  Fair enough, but in a way, it would be refreshing if companies would take more responsibility for the ultimate effects of their products.  Some are.  For example, some companies are voluntarily reducing the sugar content in their products or at least providing less sugary alternatives to traditional products.  Others are not (the gun industry, to mention one).  But where, such as in the Lego case, companies decide to be overly cautious in relation to issues that do not seem all that controversial and that are not even funded or otherwise supported by the vendor itself, it seems that we are risking censorship via corporatism. 

The future of Weiwei’s exhibits is unknown, but he is reported to be making use of Lego collection points after having received numerous offers of Lego donations on social media. 

November 2, 2015 in Commentary, Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0)

Monday, October 26, 2015

Retirement Plans

I expect that when I am retired I will have time to devote myself full time to the joy of dealing with the utility and telecommunications companies, because avoiding being ripped off by these monopolists is really a full-time job.  Two recent examples:

Mobile_phone_evolution1. I don't have a smart phone.  I hate telephones, so I get by with a dumb phone and a pre-paid plan.  I spend about $200/year on my cellphone.  My wife is similar, but she probably spends half as much.  

I recently travelled to Europe, and I needed to make exactly one phone call when I arrived.  There was no simple way to avoid making the phone call, and having a phone with which to place the call was easier than stealing an iPhone from an unsuspecting tourist.  I called my service provider and asked if there was a simple and inexpensive way for me to use my phone for three days in Belgium.  Three disconnections and over an hour later, I thought I had a way to do so FOR FREE!  I was told that they would send me a new sim card.  If I sent the card back within 30 days, there would be no charge.  A $26 charge would show up on my credit card, but it would be removed once I returned the sim card.  This sounded too good to be true.  Had my call been re-routed to some scam artist?  On the Internet, I checked and re-checked the number I had called while I was on hold (I had a lot of time to check), and I had the customer service person repeat himself several times to make certain I understood the terms.

Very long story short, my service provider did charge me $26, and then wanted to add something like $80/month for the new phone service I had allegedly ordered.  After perhaps another two hours on hold/arguing with "customer service" people, the service provider did what they had repeatedly told me was impossible.  They gave me a full refund (except for the original $26, which was a shipping and handling charge).  I could live with that.  I could console myself that being able to make that phone call was worth $26, even though I would never have agreed to that in advance.

One week later, I received a $50 refund from the telephone service provider.  I have no idea how they arrived at that figure.  I chalk it up to even more incompetence.  I wanted to try to return the refund, to which I am not entitled  (beyond the $26), but I know that doing so will take far more time than it is worth.  I will consider the "refund" a partial payment for the extensive legal advice I offered about the fraud in which they had engaged by repeatedly telling me that the sim care would cost me nothing and then trying to charge me for it.  

2. Adventures with the cable company: Telecom icon

  • Unannounced, guys from the cable company dig a hole in our backyard and leave us with an open cable box with cables shooting out of the top of it.  They tell me they will be back in a day or two to close the box and bury the lines going across my yard and the yards of my neighbors on either side.
  • We receive notice that we must upgrade our cable box, and we follow onscreen instructions to have it sent to us.
  • We receive an invoice with a new charge for "additional outlets"
  • We install the new cable box and while speaking with someone who activates it remotely, I set up a service call so that they can come back, close up the cable box, fill in the hole and bury the cable before the ground freezes.
  • The next morning I receive a call confirming the cancellation of my service call.
  • I call back immediately, outraged that I have to re-schedule a service call that I never cancelled, and I am able to get it rescheduled, although the cable company still says that they have a record indicating, that in the 12 hours since I scheduled the service call,  I called them to cancel it.
  • While on the phone, I ask them about the "additional outlet" charge, and they inform me that it is a shipping and handling charge for the new cable box (that they insisted that I needed).

I pointed out that it is misleading (to say the least) to call a shipping and handling charge an "additional outlet" charge.  Because I was livid, or perhaps just because I bothered to ask, they agreed to remove the "additional outlet" charge.  Similarly, we are now enjoying a $50 "discount" on our cable services because I threatened to switch to a satellite dish and because we "had not had a discount in a while."  

It does now seem to be the policy of the monopolists that they will just keep raising the rates of loyal customers until they crack, and then they will lower them until they see an opportunity to start ratcheting up the price again.  Last year, I got fed up with what we were being charged for garbage collection, placed a phone call, and got the bill reduced by 50%.  I then told my neighbors that they should all do the same.  And they did.  And it worked.

How all of this slips below the radar and is not the subject of federal regulation or class actions is beyond me!

October 26, 2015 in Commentary, Miscellaneous | Permalink | Comments (1)

Thursday, October 22, 2015

Call for Submissions: Valparaiso University Law Review

VU LawMy law school's Law Review has a few spots open for this Volume's Issue 3.

The Law Review has achieved a top 80 ranking in Washington and Lee Law School's Student Edited General Journal Rankings based on journal cites and case cites.  It has also achieved a top 100 ranking in the Expresso Law Review Rankings for 2014–15 and has featured articles in recent years from important and influential scholars such as Professor Larry Kramer, former Dean of Stanford Law School and Professor G. Edward White of the University of Virginia School of Law.  Our students are eager to have submissions on contracts law and contracts-related subjects.

Please send your submissions to lawreview@valpo.edu and our Articles Editor, Stephanie Kroeze, will be in contact with you. 

October 22, 2015 in Law Schools, Miscellaneous | Permalink

DNA Test Kits, Law Enforcement and TOS

23andme just issued a report that indicates that it has received 4 requests for  customer information from law enforcement agencies and the FBI.  The company was able to fend off those requests.  Given that the company has over a million customers, that's not a large number, but the implications are chilling.  As Jeremy Telman and I argue in a forthcoming article, the personal data collected by private companies may be used by the government in ways that may surprise us (and, in some cases, deprive of us basic constitutional rights....)  23andme extracts its customers consent by including the following in its TOS:

"Further, you acknowledge and agree that 23andMe is free to preserve and disclose any and all Personal Information to law enforcement agencies or others if required to do so by law or in the good faith belief that such preservation or disclosure is reasonably necessary to: (a) comply with legal process (such as a judicial proceeding, court order, or government inquiry) or obligations that 23andMe may owe pursuant to ethical and other professional rules, laws, and regulations; (b) enforce the 23andMe TOS; (c) respond to claims that any content violates the rights of third parties; or (d) protect the rights, property, or personal safety of 23andMe, its employees, its users, its clients, and the public. In such event we will notify you through the contact information you have provided to us in advance, unless doing so would violate the law or a court order."

Nevermind that this provision is not one that most customers would have bothered to read, hidden as it is behind a hyperlink and buried in the text.  You can read more about the potential use of DNA test kits by law enforcement agencies here and here

But wait - there's more!  As I was scrolling through 23andme's terms, I found another provision that potentially affects even more customers:

"Genetic Information you share with others could be used against your interests. You should be careful about sharing your Genetic Information with others. Currently, very few businesses or insurance companies request genetic information, but this could change in the future. While the Genetic Information Nondiscrimination Act was signed into law in the United States in 2008, its protection against discrimination by employers and health insurance companies for employment and coverage issues has not been clearly established. In addition, GINA does not cover life or disability insurance providers. Some, but not all, states and other jurisdictions have laws that protect individuals with regard to their Genetic Information. You may want to consult a lawyer to understand the extent of legal protection of your Genetic Information before you share it with anybody.

Furthermore, Genetic Information that you choose to share with your physician or other health care provider may become part of your medical record and through that route be accessible to other health care providers and/or insurance companies in the future. Genetic Information that you share with family, friends or employers may be used against your interests. Even if you share Genetic Information that has no or limited meaning today, that information could have greater meaning in the future as new discoveries are made. If you are asked by an insurance company whether you have learned Genetic Information about health conditions and you do not disclose this to them, this may be considered to be fraud."

This is information that might be very useful to a potential customer.  So why is this buried way down in the TOS?  Maybe because it might make potential customers think twice about purchasing the kit?  (Ya think?)  Back in the good old days, companies posted potential dangers relating to the use of their products and services where you could see them.  We used to call them notices and they had to be conspicuous.  Now they bury them in the fine print and call them "contracts." 

 

October 22, 2015 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0)

Wednesday, September 30, 2015

Binding Future Selves

On a recent plane ride, I was fortunate enough to have brought along Kaiponanea Matsumura's article, "Binding Future Selves," 75 Louisiana L. Rev. 71 (2014) which tackles the very complicated issue of Matsumuradecision making in the context of agreements involving "intimate subjects" such as procreation and child-rearing.  He raises a lot of issues that kept my mind engaged during the long flight. Here's the abstract:

"Courts traditionally treat a person entering an agreement as the same person at the time of enforcement notwithstanding the passage of time or an intervening change of mind. For certain agreements between intimates, however, courts have adopted the novel view that the enforcement of a person's earlier commitment would improperly constrain that person's will rather than serve as an expression of it. These cases rest on the assumption that an intervening change has created meaningful — and legally significant — differences between the later self (at the time of enforcement) and the earlier self (at the time of commitment), and that the later self deserves protection from the earlier self's choices.

This "different selves" rationale has arisen primarily in the context of agreements pertaining to matters like embryo disposition, surrogacy, and parentage. Courts and commentators appear to believe that the centrality of these types of choices to personhood justifies exceptions to general contract principles. But even assuming choices of this sort differ from choices embodied in "normal" contracts, the different selves rationale does not provide a principled basis for resolving a dispute between the selves; it does not explain why a choice central to personhood made at an earlier time is less central to that person than a choice made at a later time.

This Article contributes to the existing literature on several fronts. It reveals the increasing adoption by courts of the different selves rationale, which, until recently, was thought to be merely theoretical. It also exposes the ungrounded assumptions on which the rationale rests: that it applies only to a certain set of choices, that it can identify the proper choices to protect, and that it can actually protect those choices. Finally, this Article uses the different selves rationale as an occasion to examine the role of personal identity in contract law. Theories of personal identity emphasize the importance of self-continuity and future-regarding action, both of which are disserved by an approach that prizes a person's preference at the time of dispute rather than her earlier commitment."

September 30, 2015 in Miscellaneous, Recent Scholarship | Permalink | Comments (0)

Tuesday, September 22, 2015

Lyft's TOS Can't Save It From the TCPA (or Why Contract Law's Version of Consent Needs to Get With the Program)

The FCC recently issued a Citation and Order to Lyft  which alleges that its terms of service violate the Telephone Consumer Protection Act (TCPA).  Under the TCPA, a company that wants to inflict autodialed phone messages or text messages for marketing purposes must first obtain the express prior written consent of the recipient. Furthermore, FCC regulations forbid requiring such consent as a condition of purchasing any goods, services or property. Significant penalties result from failure to comply with the TCPA and the accompanying rules.  Lyft has already updated its TOS in response to the FCC's action.

Lyft's terms of service required its customers to consent to autodialed calls and texts.  Prospective customers are required to check a box stating "I agree with the Terms of Service."  The sign-up page includes a link to the Lyft TOS.  Section 6 of the Lyft TOS stated:

"By becoming a User, you expressly consent and agree to accept and receive communications from us, including via e-mail, text message, calls, and push notifications to the cellular telephone number you provided to us. By consenting to being contacted by Lyft, you understand and agree that you may receive communications generated by automatic telephone dialing systems and/or which will deliver prerecorded messages sent by or on behalf of Lyft, its affiliated companies and/or Drivers, including but not limited to: operational communications concerning your User account or use of the Lyft Platform or Services, updates concerning new and existing features on the Lyft Platform, communications concerning promotions run by us or our third party partners, and news concerning Lyft and industry developments. IF YOU WISH TO OPT-OUT OF PROMOTIONAL EMAILS, TEXT MESSAGES, OR OTHER COMMUNICATIONS, YOU MAY OPT-OUT BY FOLLOWING THE UNSUBSCRIBE OPTIONS PROVIDED TO YOU.Standard text messaging charges applied by your cell phone carrier will apply to text messages we send. You acknowledge that you are not required to consent to receive promotional messages as a condition of using the Lyft Platform or the Services. However, you acknowledge that opting out of receiving text messages or other communications may impact your use of the Lyft Platform or the Services."

 The terms stated that consumers may opt out by using "unsubscribe options," but the FCC investigation discovered that such an option didn't really exist.  There was no easy way to find the unsubscribe option and consumers had to navigate Lyft's website to find the opt-out page.  Even  if they did manage to find it, if they opted out, they couldn't use the service. 

This is another instance where contract law's easy assent rules don't actually help businesses and cause too much confusion.  While a consumer may have "consented" to the autodialing and the texts under contract law, the FCC rules require something that is more like what most people consider to be consent - express written consent and a real choice not to agree.  A default opt-in unless you opt-out (and even that's illusory), well - that just doesn't cut it under the TCPA and the FCC rules.  Sadly, in contract law, too often it does.

Contract law should get with the program and follow the commonsense version of consent adopted by the FCC. 

 

September 22, 2015 in Current Affairs, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (1)

Monday, September 14, 2015

Why an Absurd Prank Call about Comcast Worked

PrankCatching up on my podcast listening, I just heard last week's episode of Reply All, a show about the Internet.  The focus of this episode is a prank telephone call that seemed to come from Comcast.  The prankster represented herself as a Comcast representative and threatened the Comcast customer that Comcast would fine him or disconnect his service if he did not remove some hostile tweets he had posted expressing dissatisfaction with that service.   The prank worked; he removed a hostile tweet, but when the prankster upped the ante and tried to get him to remove more tweets, he hung up.

Two takeaways:

1.  Adults make prank calls, and they are very sophisticated.  They can fool your caller i.d., and as a result they can fool you.  This is just sad and obnoxious, but the bigger concern is that the same techniques can be used to steal your identity.  Probably best at this point in our relationship with technology to never answer your phone.

2. The prank worked because, as we have reported about repeatedly, companies now do try to prevent customers from posting negative reviews on social media, and it is completely credible that a large media company like Comcast would empower itself to discipline customers in this way.  For the record, as Reply All showed, Comcast does not do so.  

But they could.  

But they don't.  

But they could, or at least they could try to do so and thus chill people into keeping mum about how much they hate Comcast or TimeWarner or AT&T or Verizon or Sprint or T-Mobile or . . . . 

September 14, 2015 in Miscellaneous, Web/Tech | Permalink | Comments (2)

Thursday, September 3, 2015

The NLRB and Independent Contractors

The National Labor Relations Board recently issued a decision , Browning-Ferris Industries of California, Inc., d/b/a/ BFI Newby Island Recyclery,  that establishes a new standard for determining who is a joint employer.  

BFI Newby Island Recyclery hired Leadpoint, a staffing services company, to provide some workers for its recyclery.  BFI and Leadpoint had signed a temporary labor services agreement which could be terminated by either party upon thirty days' notice.  The agreement stated that Leadpoint was the sole employer of the workers and that nothing in the Agreement shall be construed as creating an employment relationship between BFI and the personnel supplied by Leadpoint.  In other words, the agreement contained language that is pretty standard in independent contractor agreements.  The agreement also provided that Leadpoint would recruit, interview, test, select and hire personnel for BFI.  BFI was not involved in Leadpoint's hiring procedures.  BFI, however, had the authority to "reject any Personnel and...discontinue the use of any personnel for any or no reason."  Again, this is fairly standard language in independent contractor agreements.  In a departure from precedent, the NLRB ruled that a company that hires a contractor to provide workers may be considered a joint employer of those workers if it has the right to control them even if it does not actively supervise them. The dissenters were rather unhappy and their opinions are worth reading as they lay out the expected impact of the ruling.  

It's a significant decision and one that should make lawyers take another look at their clients' independent contractor agreements to see whether they contain language that indicates the potential to control the contractor's employees. While the language in the contract was not the only factor influencing the Board's decision, it was an important one.

September 3, 2015 in Current Affairs, Labor Contracts, Miscellaneous | Permalink | Comments (0)

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)