Thursday, May 28, 2015
Monday, April 27, 2015
If it were up to General Motors, it may soon be illegal for you to tinker with your own car. That’s because the Digital Millennium Copyright Act (“DMCA”), an Act that started as anti-piracy legislation about a decade ago, now also protects coding and software in a range of products more broadly. Your car is one such product if it, as many cars do nowadays, it has an onboard computer. Vehicle makers promotes two arguments in their favor: first, that it could be dangerous and even malicious to alter a car’s software programming. Second, per the tractor maker John Deere, that “letting people modify car computer systems will result in them pirating music through the on-board entertainment system.” “Will”?! As the Yahoo article mentioning this story smartly pointed out, “[t]hat’s right— pirating music. Through a tractor.”
Isn’t that an example of a company getting a little too excited over its own products? Or am I just an incurable city girl (although one that occasionally likes country music)? Judging from the lyrics to a recent Kenny Chesney hit (“She Thinks My Tractor’s Sexy"), I see that opinions differ in this respect. To each her own.
Hat tip to Professor Daniel D. Barnhizer of the AALS listserve for sharing this story.
Thursday, April 2, 2015
I 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.
Tuesday, March 24, 2015
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.
Saturday, March 14, 2015
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.
Wednesday, March 11, 2015
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.
Thursday, February 26, 2015
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
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.
Tuesday, January 27, 2015
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.
Friday, January 23, 2015
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.
Tuesday, December 23, 2014
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.
Monday, December 22, 2014
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!
Wednesday, December 10, 2014
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?
Thursday, November 20, 2014
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.
Friday, October 17, 2014
The Alliance for Justice has released a documentary on forced arbitration called Lost in the Fine Print. It's very well-done, highly watchable (meaning your students will stay awake and off Facebook during a viewing), and educational. I recently screened the film during a special session for my Contracts and Advanced Contracts students. It's only about 20 or so minutes and afterward, we had a lively discussion about the pros and cons of arbitration. We discussed the different purposes of arbitration and the pros and cons of arbitration where the parties are both businesses and where one party is a business and the other a consumer. Many of the students had not heard about arbitration and didn't know what it was. Many of those who did know about arbitration didn't know about mandatory arbitration or how the process worked. Several were concerned about the due process aspects. They understood the benefits of arbitration for businesses, but also the problems created by lack of transparency in the process. I thought it was a very nice way to kick start a lively discussion about unconscionability, public policy concerns, economics and the effect of legislation on contract law/case law.
I think it's important for law students to know what arbitration is and it doesn't fit in easily into a typical contracts or civil procedure class so I'm afraid it often goes untaught. The website also has pointers and ideas on how to organize a screening and discussion questions.
Tuesday, October 14, 2014
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.
Monday, October 6, 2014
The New Jersey Supreme Court rendered a decision on September 23 that found an arbitration provsion unenforceable because the language was insufficient to alert a reasonable consumer that she was surrendering a constitutional or statutory right. The plaintiff, Patricia Atalese, entered into a contract with U.S. Legal Service Group, L.P. (USLSG) for debt adjustment services. Atalese paid USLSG approximately $5,000 for its services. She alleged that USLSG did very little for her and further, that it failed to mention that it was not a licensed debt adjuster in New Jersey. She sued, alleging that USLSG violated the Consumer Fraud Act and other consumer law.
The contract contained the following provision:
Arbitration: In the event of any claim or dispute between Client and the USLSG related to this Agreement or related to any performance of any services related to this Agreement, the claim or dispute shall be submitted to binding arbitration upon the request of either party upon the service of that request on the other party. The parties shall agree on a single arbitrator to resolve the dispute. The matter may be arbitrated either by the Judicial Arbitration Mediation Service or American Arbitration Association, as mutually agreed upon by the parties or selected by the party filing the claim. The arbitration shall be conducted in either the county in which Client resides, or the closest metropolitan county. Any decision of the arbitrator shall be final and may be entered into any judgment in any court of competent jurisdiction. The conduct of the arbitration shall be subject to the then current rules of the arbitration service. The costs of arbitration, excluding legal fees, will be split equally or be born by the losing party, as determined by the arbitrator. The parties shall bear their own legal fees.
The NJ Supreme Court found that despite arbitration's "favored status," not every arbitration clause, "however phrased," will be enforceable. NJ consumer law required that consumer contracts be written in a "simple, clear, understandable and easily readable way." Arbitration clauses, like other contractual clauses, must also be phrased in "plain language that is understandable to the reasonable consumer."
Here, the arbitration clause was on page 9 of a 23 page contract. It provided no explanation that the plaintiff was waiving her right to sue in court for breach of her statutory rights. The provision also did not explain the meaning of arbitration or indicate how it differed from a court proceeding. Finally, the court found that it was not written in plain language that would be "clear and understandable to the average consumer that she is waiving statutory rights." The court concluded:
"In the matter before us, the wording of the service agreement did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court. That deficiency renders the arbitration agreement unenforceable."
Very nice work, Supreme Court of New Jersey, for recognizing that "reasonable consumers" should not be expected to sift through fine print and make sense of legal mumbo jumbo.
Monday, September 29, 2014
The NYT had an article about e-cigarette label warnings today that was eerily appropriate given our symposium on Omri Ben-Shahar and Carl Schneider's book, More Than You Wanted to Know: The Failure of Mandated Disclosure. The reporter must have been following our blog symposium and seems to have come up with an example that supports the arguments made by Ben-Shahar and Schneider. The article explains how big tobacco companies have been putting warning labels on their e-cigarette packages that are more extensive than those on their tobacco cigarettes. There are several possible explanations for why they are doing this, ranging from the least cynical (they want to be good corporate citizens) to the more cynical (they are trying to set up their smaller e-cigarette competitors for later regulation, possibly reduce demand for e-cigs to boost sales of tobacco cigs, and protect themselves from liability).
I tend to be in the more cynical camp. Big tobacco companies are both attempting to protect themselves from liability by setting forth as many potential dangers of their product as they can, and they are positioning e-cigarettes as "just as" dangerous, if not more, than plain old tobacco cigarettes. The article notes something that readers of the book and blog already know - the disclosures have little effect on consumer purchasing decisions because nobody reads them. The strategy of big tobacco supports the arguments made by Ben Shahar and Schneider that disclosure hurts rather than helps consumers except there's one crucial difference - the companies are putting these extensive disclosures on the labels themselves. They are not mandated. By voluntarily disclosing the harms of e-cigs, big tobacco companies both protect themselves from liability and avert regulation. Doing away with mandated disclosure wouldn't prevent this kind of strategic selective disclosure --selective and strategic in the sense that these companies are only forthcoming with certain products and with certain types of disclosure. It's revealing that one of the companies claiming that e-cigarettes warrant more extensive disclosure than their tobacco counterparts is RJ Reynolds, which succesfully sued the FDA to prevent mandated graphic warnings on cigarette packages.
So - the battle about disclosure continues to rage....
Tuesday, September 23, 2014
On today's show, we read our homeowners insurance policy.
The details are amazing. Lava! Vermin! Falling objects! And, hiding in all the fine print, the story of how insurance works — and what makes it break.
The episode happens to have relevance to our ongoing symposium and even features a conversation with Daniel Schwarcz, one of the symposium contributors. If you listen, you'll hear Prof. Schwarcz admit that, to be sexy, insurance law might just need a little airbrushing.
Thursday, September 11, 2014
This is big - Governor Jerry Brown just signed a bill into law that would prohibit non-disparagement clauses in consumer contracts. The law states that contracts between a consumer and business for the "sale or lease of consumer goods or services" may not include a provision waiving a consumer's right to make statements about the business. The section is unwaivable. Furthermore, it is "unlawful" to threaten to enforce a non-disparagement clause. Civil penalties for violation of the law range from up to $2500 for a first violation to $5000 for each subsequent violations. (Violations seem to be based upon actions brought by a consumer or governmental authority, like a city attorney. They are not defined as each formation of a contract!) Furthermore, intentional or willful violations of the law subject the violator to a civil penalty of up to $10,000.
We've written about the dangers of non-disparagement clauses on this blog in the past. It's nice that one state (my home state, no less!) is taking some action. Will we see a California effect as other states follow the Golden State's lead? As I've said before, those non-disparagement clauses aren't such a good idea- now would be a good time for businesses to clean up their contracts.
Monday, August 25, 2014
As Jeremy Telman previously noted, the unhiring of Steven Salaita has caused quite a stir in academic circles. There was even an article in the Chronicle of Higher Education briefly discussing the contractual issues, which included the arguments made by Prof. Michael Dorf and Prof. David Hoffman. I think they both have good arguments but I tend to think this is a real contract and not an issue of promissory estoppel. The reason I believe this has to do with what constitutes a "reasonable interpretation" under these circumstances. I think both parties intended a contract and a "reasonable person" standing in the shoes of Salaita would have believed there was an offer. The offer was clearly accepted. What about the issue regarding final Board approval? Does that make his belief there was an offer - which he accepted - unreasonable? I don't think so given the norms surrounding this which essentially act as gap fillers and the way the parties acted both before and after the offer was accepted. I think the best interpretation - really, the only reasonable one given the hiring practices in academia - is that the Board approval was a rubber stamp but one that could be withheld if the hired party did something unexpected, like commit a crime. In other words, I think there was an offer that was accepted and that the discretionary authority of the board to approve his appointment was subject to the duty of good faith and fair dealing - i.e. the Board would only withhold approval for good cause. I don't think this was a conditional offer - the language would have to be much more explicit than it seemed to be and to interpret it that way would constitute a forfeiture (which courts don't like) - and yes, I considered whether it could be a condition to the effectiveness of a contract. That question caused me some angst but I still don't think it was given the hiring norms in general, and the way the parties acted.
There was, however, an implied term in the contract that Salaita would not do anything or that no information would come out that would change the nature of the bargain for the university. For example, if it turned out that he didn't really have a PhD or that he plagiarized some of his work, that would be grounds for the Board to refuse to approve his appointment. In that case, the Board could refuse to approve his hiring without breaching its good faith obligation.
The real dispute here is whether Salaita's tweets constituted a breach of that implied term (i.e. did it undermine the bargain that the university thought it was getting?) I think that's really what the disagreement in the academic community is about and why the real contractual issue has to do with interpretation - and the meaning of academic freedom.