ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, August 29, 2018

New Journal Just for Us!

The Journal of Strategic Contracting and Negotiation (JSCAN) is open for submissions!  JSCAN, a SAGE publication, is "an outlet for research and theory about practices that challenge the status quo in strategic contracting and negotiations, and the commercial implementation of business strategy or policy."  JSCAN is peer-reviewed and welcomes submissions in a wide variety of fields. It may have special appeal to those who write on contract-related topics that have cross-over appeal to those affiliated with business and business schools. (Disclosure:  I am on the editorial board).  You can find more information here.

August 29, 2018 in Miscellaneous | Permalink | Comments (0)

Wednesday, July 18, 2018

Surprise Charges for Emergency Room Services… Once Again

I blogged about the issue of emergency room and hospital “surprise charges” before, but this important issue is well worth re-addressing in the context of a new case.  Many court decisions and articles are still generated about the topic, but with no good solution yet from a patient/consumer point of view.

Here is the classic scenario: A person receives urgent medical care in an emergency room.  Upon admission, he or she is presented with a contract stating, for example, that he or she will pay for the services “in accordance with the regular rates and terms” of the hospital or emergency room.  But how does one ever know what those charges will be?  Does that make them an open price term?  If so, is the medical provider under an obligation to pay only the reasonable value of the services provided or can they charge pre-posted list rates?  Who decides what is “reasonable” and not in a market marked by, for most of us, very high prices?  If the provider charges what appears to be a very high amount, is the entire contract void for unconscionability?

A current case I came across addresses these issues (class certification was granted).  The uninsured “self-pay” patient, Mr. Cesar Solorio, signed a three-page admissions contract stating the above.  Once released, he got an un-itemized bill for $7,812.  He filed suit for breach of contract asking the court to, among other things, clarify how the contractual language “in accordance with the regular rates and terms of  [medical center] should be interpreted and applied.  Mr. Solorio alleges that the language constitutes an open price term that, under applicable law, is an agreement to pay only the reasonable value of the items received and not the posted rates by the medical center. Solorio also alleges that the medical charges were artificially inflated and more than four times higher than the actual fees and charges collected by the medical center. 

I still find these types of contracts highly problematic seen from a consumer/patient point of view. I have myself been subjected to a similar treatment (so to speak) by an emergency room that also, after the fact, sent me a much higher bill than what I was initially “promised” (orally and probably non-binding, but still).  Several items were double if not triple billed.  Patients can complain and complain, but what can we really do?  Not much, it seems, as these types of cases keep re-appearing. 

Yes, of course we want urgent medical treatment if we need it.  Yes, that is expensive.  But clearly, we also have a contractual (and moral) right notto be ripped off.  And maybe some services that might initially seem urgent could actually wait… In my own case and, I know, that of many others, medical providers are very eager to promote their treatment as highly necessary and urgent/”a good idea.”  That may, I hate to say, simply be a way for the medical providers to make more money.

As it is now, the burden seems to be on the patient seeking services to bargain for and document having received a promise that is limited in scope to … what?  Is this just an impossible issue to solve from a contractual point of view?  It seems to be.  That’s where health insurance comes into play, but reality remains that not everyone has that.  The “free market” takes over, but, in my opinion, that is far from optimum in this particular context.

The case is Cesar Solorio v. Fresno Community Hospital and Medical Center, Ca. Super. Ct. NO. 15CECG03165, 2018 WL 3373411. 

July 18, 2018 in Commentary, Miscellaneous, Science, True Contracts | Permalink | Comments (2)

Tuesday, July 10, 2018

Passport Issuance Not a Contractual Activity

Perhaps unsurprisingly, the Seventh Circuit Court of Appeals has held that a nation state issuing a passport to one of its citizens cannot be sued for breach of contracts or a tort, for that matter.

Chinyere Nwoke sued the a consulate of Nigeria after paying $500 for passports for her and her son that she never received.  Arguing breach of contract, the district court dismissed her claim under the Foreign Services Immunity Act.  On appeal, Ms. Nwoke invoked the exception for acts “based upon a commercial activity.”  Unknown

A foreign state is immune for federal jurisdiction for its “sovereign or public acts,” but not its acts that are “private or commercial in nature.”  Ms. Nwoke argued that the consulate’s actions were commercial because it was “making a profit from a fraudulent activity” (presumably charging for passports never actually issued).  However, courts do not consider a nation state’s motivation in determining whether an activity is sovereign or commercial.  Because private persons cannot issue passports, the consulate’s activities were of a sovereign nature and immunity thus applied.

This case makes sense, but is of course nonetheless unfortunate for Ms. Nwoke, whose only channel of complaint now seems to be to the government of Nigeria; a case of complaining to the very wrongdoer that oversaw the wrong. Government corruption remains a serious issue around the world.  

The case is Nwoke v. Consulate of Nigeria, 2018 WL 3216888

July 10, 2018 in Government Contracting, Miscellaneous | Permalink

Thursday, July 5, 2018

Classic Case on Choice of UCC or Common Law

A recent Indiana case demonstrates the continued necessity of distinguishing between the common law and the UCC.  Nothing too new in the case legally as I see it, but it lends itself well to classroom use. Unknown

A medical center entered into two contracts with a medical billing services company for records-management software and related services.  In Indiana and elsewhere, “where a contract involves the purchase of preexisting, standardized software, courts treat it as a contract for the sale of goods governed by the UCC.  However, to determine whether the UCC applies to a mixed contract for both goods and services, Indiana uses the “predominant thrust test.”  Courts ask whether the predominant thrust of the transaction is the performance of services with goods incidentally involved or the sale of goods with services incidentally involved. Id. To determine whether services or goods predominate, the test considers (1) the language of the contract; (2) the circumstances of the parties and the primary reason they entered into the contract; and (3) the relative costs of the goods and services.

In the case, the contractual language was neutral.  Next, the primary reason for executing the agreements was to obtain billing services.  The software was merely a conduit to transfer claims data to the billing services company in order to allow it to perform those services.  The goods – the software – were incidental.  The third and final factor—the relative cost of the goods and services—also pointed toward that conclusion.  As the Indiana Supreme Court has explained, “[i]f the cost of the goods is but a small portion of the overall contract price, such fact would increase the likelihood that the services portion predominates.”  Under the agreement, the medical center paid a one-time licensing fee of $8,000 for software; a one-time training fee of $2,000; and $224.95 each month for services and support for about nine years.  Thus, for the life of the Practice Manager agreement, the services totaled approximately $26,294—more than three times the $8,000 licensing fee for the software.  Under the agreement, the medical center also paid a one-time licensing fee of $23,275 for the software; a one-time training fee of $4,000; and $284 per month for services and support for about six years.  Thus, the services totaled about $24,448—slightly more than the $23,275 software licensing fee. The relative-cost factor reinforces the conclusion that services predominated.  Thus, the ten-year common-law statute of limitations and not the four years under the UCC applied. Unknown-1

Interestingly, the case also shows that because the UCC did not apply, plaintiff’s claim for good faith performance under the UCC dropped out too.  In Indiana, a common-law duty of good faith and fair dealing arises “only in limited circumstances, such as when a fiduciary relationship exists,” which was not the case here.  The parties were thus not under a duty to conduct their business in good faith. Yikes!  This should allow for some good classroom discussions.

The case is Pain Center of SE Indiana LLC v. Origin Healthcare Solutions LLC

July 5, 2018 in Contract Profs, Miscellaneous, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Friday, June 15, 2018

It's True: People Really Are Getting Dumber and Dumber

New scientific studies have proven what we might all have been jokingly saying, but which apparently is true: the world population is increasing, but IQ levels are decreasing.   The reason?  Nurture, not nature. 

The studies claim that after 1975, IQ levels started to drop because of, it is thought, "environmental factors."  These could include pollution, changes in the education system and media environment, nutrition, reading less, and being online more.   Yikes.

"It's not that dumb people are having more kids than smart people, to put it crudely. It's something to do with the environment, because we're seeing the same differences within families," said one of the co-authors and lead researchers on the project.

For us, this is not good news for obvious reasons.  But are we, in fact, a contributing cause?  I know that some of my students, for example, do not enjoy and sometimes simply will not read long homework assignments, don't read privately, and indeed spend large amounts of time online.  I'm sure your students are not very unlike mine in that respect.  Other studies that I don't have handy here also demonstrate that our students have difficulty reading longer texts simply because they are not used to reading anything much longer than blog posts, twitter feeds, and maybe the occasional article here and there, but certainly not books.  

Read the entire findings.  References to "changes in the education system" and "decreasing access to education" are disturbing.

 

 

June 15, 2018 in Commentary, Contract Profs, In the News, Law Schools, Miscellaneous, Science, Teaching | Permalink | Comments (1)

Friday, May 25, 2018

Contracts under the GDPR

As you probably know from all the privacy policy updates cluttering your inbox, the EU General Data Protection Regulation (GDPR) is now effective and businesses must comply or face heavy penalties.  One of the requirements is that in order to obtain consent to data collection, contract terms must be "clear and concise" and consent must be opt-in rather than opt-out (meaning no pre-ticked boxes).  The website XKCD has a version of what to expect in updated privacy policies from businesses seeking to comply with the GDPR - stay informed and take a look.

May 25, 2018 in Current Affairs, Miscellaneous | Permalink | Comments (0)

Wednesday, October 25, 2017

Diamonds are Also a Man’s Best Friend – Just Remember the Writing

Here is your classic Parol Evidence Rule and oral contracts case, diamonds, faulty translations, millions of dollars, and all.

In 2009, David Daniel invested $3.35 in a 50% ownership interest in the jewelry and coin business Continental Coin, thus co-owning it with Nissim Edri. The partnership agreement was oral only. In 2014, Daniel sought to sell his interest. Edri agreed to pay half of the initial contribution as well as some other amounts for a total of $4.2 million. Edri could not pay this amount and thus suggested Daniel taking approx.. 95 diamonds from the inventory instead. This time, the parties did get a writing that, however, was in Hebrew. Images

The problem with that was that Edri could not understand the first two pages and subsequently did not agree with the poorly translated version of the contract. This stated, among other things (my emphasis): Unknown

“We the undersigned, David Daniel and Nissim Edri, hereby declare, in full faith, that the merchandise to be collected today, Friday, 2/21/2014 from CONTINENTAL COIN & JEWLERY CO is and [sic] a payment in full complete repayment for David Daniel's investment in CONTINENTAL COIN & JEWELRY in the sum total of $4,000,000.

“This agreement is signed with a complete understanding that, in the event there are any adjustments to be made between David Daniel and Nissim Edri, they will be handled with good will and in complete consent by both parties.

“David takes from the partnership four million dollars in merchandise that was evaluated by the company while he was a partner[.]”

ImagesOf course, a dispute arose as to the true value of the 95 diamonds collected. Daniels claims they were worth less than $2 m. Edri responded that if Daniel was not satisfied with the diamonds, he could return the merchandise in its entirety whereupon Edri would sell them and pay Daniels as each was sold. Daniels brought suit, citing to their prior oral agreement to deliver diamonds worth $4m and to an agreement on the valuation method, which was to be settled in good faith.

As you can guess, the court made short shrift of Daniels’ attempt to bring in any prior oral agreements on what was to happen if the diamonds delivered were actually not worth $4 m. Said the court: “Daniel contends the merchandise he collected upon signing the written agreement was worth substantially less than $4 million under the valuation method specified in the parties' former oral agreement. In direct conflict with that claim, the written agreement provides that “the merchandise” he collected was “a payment in full complete repayment For David Daniel's investment in CONTINENTAL COIN & JEWELRY in the sum total of $4,000,000.” Because Daniel's claim was premised on a purported oral agreement that was inconsistent with the integrated terms of a final written agreement, the trial court properly rejected his breach of oral contract claim under the parol evidence rule.

So there. Perhaps out $2m. Goes to show that you can never really trust anyone in contractual processes, not even apparent friends.

The case is David Daniel v. Nissim Edri, et al., 2017 WL 4684347

October 25, 2017 in Contract Profs, Miscellaneous, True Contracts | Permalink

Wednesday, October 4, 2017

Fraud and Bad Faith No Excuse for Liability in Related Contract

The Eight Circuit Court of Appeals has held that conduct tending to show fraud and bad faith in relation to one contract is not an excuse for not performing in a closely related contract.

Dr. Halterman signed a recruitment agreement, an employment contract, and a promissory note in the amount of $50,000 as a “signing advance” – a loan - for his upcoming work as a doctor with the Johnson Regional Medical Center (“JRMC”). The recruitment agreement stipulated that the monthly payments on the signing advance would be forgiven so long as Dr. Halterman’s employment at JRMC “continued.” It did not. Five months into his employment, Dr. Halterman quit, citing to, i.a., JRMC’s fraudulent misrepresentations in negotiating his call-coverage obligations and bad faith in that respect. Dr. Halterman had also suffered a shoulder injury that both parties at one point agreed would result in him not being able to do all the work for JRMC that the parties had originally agreed upon.

JRMC claimed repayment of $37,894 still owed by Dr. Halterman when he resigned without, in the hospital’s opinion, a “legal defense.” Dr. Halterman sought to excuse himself from having to repay the remainder of the loan.

The appellate court agreed with JRMC that Dr. Halterman’s obligations to pay the remaining debt were not excused by his allegations (or eventual proof) of fraud or breach of the duty of good faith in the employment contract. An executory contract procured by fraud is not binding on the party against whom the fraud has been perpetrated. Here, Dr. Halterman sought not to perform under the employment contract, but the court found that the loan agreement was an entirely separate contract that thus still had to be performed.

This situation could have been avoided with more legally apt language, of course. Such language could have included express conditions stating that the loan was not to be repaid under a set of circumstances covering, for example, fraud. However, I find it troublesome that the legal effects of three contracts that clearly were meant to relate to and arguably depend on each other were separated decisively as the court did here. In fact, the parties disagreed on whether the three executed documents should be considered separately or as one single contract. The court analyzed the employment contract as separate from the recruitment agreement and note, which were treated as one. That may or may not make sense. Granted, it may make sense that sophisticated parties such as these could simply, if they had intended one single legally binding contract to arise, have worded their documents accordingly. On the other hand, it does not make much common sense to find that a “recruitment” contract is entirely different from an “employment” contract; the two are clearly connected. If fraud has arisen, is not the result of the above that the party acting fraudulently – the hospital, allegedly – can if not outright recover from a fraud, then at least avoid losses from it? Although I do agree with the outcome here, it seems like it to me that some troublesome aspects of this finding remain, namely that an employer apparently got away with broken employment promises fairly scot-free. That’s not fair.

The case is Johnson Regional Medical Center v. Dr. Robert Halterman, 867 F.3d 1013 (Eighth Cir. Ct. of App. 2017).

October 4, 2017 in Current Affairs, Labor Contracts, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, October 2, 2017

Pagination Worth $5.5 m

A contract worth $11 b. Two such major parties as Yahoo!, Inc. and SCA Promotions, Inc. And still the contract does not specify precisely what the payments due are supposed to be for.

UnknownIn 2014, Yahoo wanted to sponsor a perfect bracket contest in connection with the 2014 NCAA Men's Basketball Tournament, with a $1 billion prize for any contestant who correctly predicted the winner of all 63 games. SCA provides risk management for marketing and prize promotions. In return for a fee, SCA agreed to pay the $1 billion prize if any contestant won the contest. Images

Two invoices, dated December 27, 2013, were attached to the Contract with continuous pagination. According to the second invoice, the contract fee was $11 million. Yahoo owed an initial deposit of $1.1 million to SCA “[o]n or before December 31, 2013”; the remaining $9.9 million was due to SCA “[o]n or before February 15, 2014.”

The contract permitted Yahoo to cancel the contract with fees varying depending on when Yahoo cancelled. The relevant provision read as follows:

Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract. In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph … Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor (emphasis added).

Yahoo subsequently cancelled, but argued that it only owed SCA a cancellation fee of $550,000 because “50% of the fee” means 50% of the $1.1 million that Yahoo had already paid to Yahoo as an interim payment. SCA argued that the cancellation fee was $5.5 because “50% of the fee” means 50% of the $11 million total contract fee.

The Fifth Circuit Court of Appeals agreed with SCA: “The district court determined that the Contract's terms do not expressly set an $11 million fee. According to the district court, nowhere does the Contract specify or identify the invoices, when they will be paid, or otherwise provide that the fee is $11 million. But the Contract references invoices several times, and it provides that “this contract, including exhibits and attachments, represents the entire final agreement between Sponsor [Yahoo] and SCA, and supersedes any prior agreement, oral or written.” Although the Contract does not explicitly identify the invoices to which it refers, two invoices are attached to the Contract with pagination continuous with the rest of the Contract … It is clear from the Contract's terms that the invoices are part of the Contract. See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (“Documents incorporated into a contract by reference become part of that contract.”). Accordingly, the district court's conclusion that the Contract does not specify an $11 million fee was in error.”

Once again, students and practitioners: be clear when you draft documents! Unambiguous language and specific references can be worth millions, if not billions, of dollars.

The case is SCA Promotions, Inc., v. Yahoo!, Inc., 868 F.3d 378 (Fifth Cir. 2017).

October 2, 2017 in Contract Profs, Miscellaneous, Sports, True Contracts | Permalink | Comments (0)

Tuesday, September 19, 2017

“Making Money is Still Allowed” – As Are False Pricing Strategies

The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.

Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale. Unknown

Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).

The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).

Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”

So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.

Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”

I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter? Images

I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.

The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).

September 19, 2017 in Commentary, E-commerce, Miscellaneous, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (1)

Sunday, August 20, 2017

Los Angeles Allegedly Violates Free Speech Rights with Entertainment Contracts

Pershing Square in downtown Los Angeles is an outdoor area that is regularly the home of free summer concerts and demonstrations of various kinds throughout the year. You would think you could snap as many photos as you wanted of events there since it is an outdoor, public area, right? Cropped_26394084682_722974dd19_k.0

This past summer, the answer was no. A photojournalist wanted to take pictures of, among others, the B-52s. However, he was informed of a policy that had been set up with the performers per contractual agreement. The policy barred professional photography equipment, albeit not cell phone usage, from the square during concerts.

ACLU has complained to the Los Angeles City Attorney and the General Manager of the Department of Recreation and Parks, claiming that the city does not have a right to contract away the general public’s First Amendment rights because some performers want it that way.

How do you see contractual rights intersecting with the First Amendment in the government contracting context? Comment below!

August 20, 2017 in Current Affairs, Government Contracting, In the News, Miscellaneous, Music, True Contracts | Permalink | Comments (0)

Friday, July 28, 2017

Why Pyeatte v. Pyeatte May Be the Best Teaching Tool in Contracts Law

Our friend and esteemed colleague, Professor Charles Calleros, has kindly sent the following as a guest contribution to the ContractsProf Blog.  Enjoy!

Recently Val Ricks has collected a number of essays from colleagues on best and worst cases for the development or application of contract law.  In addition to participating in that project, Charles Calleros invites faculty to upload and post links to essays about their favorite cases as teaching tools (regardless whether the cases advance the law in an important way). He starts the ball rolling with this Introduction to his essay on "Why Pyeatte v. Pyeatte Might be the Best Teaching Tool in the Contracts Casebook":

Pyeatte v. Pyeatte, a 1983 decision of the Arizona Court of Appeals, did not break new ground in the field of contracts. Nonetheless, I assert that it is one of the best pedagogic tools in the Contracts casebook, for several reasons:

  •  *          The facts are sure to grab the attention of first-semester law students: A law grad reneges on a promise to support his ex-wife through graduate school after she supported him through law school during their marriage;

*          This 1980’s opinion is written in modern plain English, allowing students to focus on substance, while also learning a few necessary legal terms of art.

*          After their immersion in a cold and rather unforgiving bath of consideration and mutual assent, students can finally warm up to a tool for addressing injustice: quasi-contract;

*          The opinion’s presentation of background information on quasi-contract provides an opportunity to discuss the difference between an express contract, an implied-in-fact contract, and an implied-in-law contract; 

*          Although the wife’s act of supporting her husband through law school seems to beg for reciprocation or restitution, students must confront judicial reticence to render an accounting for benefits conferred between partners in a marriage, exposing students to overlap between contract law and domestic relations law;

*          The appellate ruling of indefiniteness of the husband’s promise – presented in a later chapter in my casebook, but looming vaguely in the background of the discussion of quasi-contract – invites critique and perhaps even speculation that the appellate panel felt comfortable denying enforcement of the promise precisely because it knew it could grant restitution under quasi-contract; and

*          The court’s admonition that expectation interest forms a ceiling for the calculation of restitution reveals a fascinating conundrum that brings us back to the court’s ruling on indefiniteness. . . .

You can find the whole essay here.

July 28, 2017 in Commentary, Contract Profs, Famous Cases, Law Schools, Miscellaneous, Recent Scholarship, Teaching, True Contracts | Permalink | Comments (2)

Tuesday, July 11, 2017

Law Firm Associate Makes $1.5 Billion Mistake

Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:

General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.

What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.

How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:

“The plaintiffs' complaint offers the following autopsy of the error[]: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”

The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.

A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”

The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742

July 11, 2017 in Current Affairs, Famous Cases, In the News, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, June 30, 2017

Whose Idea was Oscar-Winning Movie “Inside Out”?

Denise Daniels of Minnesota, who says that she has worked with children’s social and emotional development for more than four decades, claims that she pitched her idea for what became the 2015 animated box office success "The Moodsters" to Disney-owned Pixar a number of times between 2005 and 2009 with the understanding that she and her team would be compensated if Disney used her idea.

Ms. Daniels just filed a complaint in federal court in the Central District of Los Angeles stating that she had an implied-in-fact contract that obligated Disney to compensate and credit her if the studio used her idea. Ms Daniels also argues that "The Moodsters" would have featured five color-coded, anthropomorphic characters, each representing a single emotion: happiness, sadness, anger, love and fear. The characters would reside in an abstract world within a child. The movie "Inside Out" features five characters based on the emotions joy, sadness, anger, fear and disgust. The characters reside in the mind of a young girl named Riley, who must learn to adjust to a new life when her family moves to San Francisco. 603342

In March, Disney was also sued over 2016's "Zootopia." In that lawsuit, a screenwriter claimed that the studio stole his original idea and copied his designs for the movie's animal characters.

So, how would you advise your students to best take care of the interests of clients seeking advise in pitching ideas to major entertainment companies? “Get a contract in writing ahead of time” is easier said than done. If you really have a good idea for a movie or the like, how do you even get to talk to a studio about it without at least revealing something about your idea? - And if you do, might it then not already be too late? For example, it seems odd to seek to discuss potential ideas with an entertainment company simply saying “I have a good idea, but first, let’s talk legal details.” Wouldn’t the company just tell you to get lost, if you even got a response at all? On the other hand, so many of these suits seem to take place that at least some sort of preliminary writing seems to be a good idea for both parties.

In 2004, Disney lost a case over profits for ABC’s “Who Wants to be a Millionaire,” which resulted in a $320-million verdict against Disney in favor of a British licensing company.

Is Disney just too risk-willing in these types of cases, or are private individuals people egged on by the chance of winning some “big money”? It’s hard to tell. Asked why Daniels waited two years before filing her lawsuit against Disney, Daniels’ attorney says “you don’t file these cases lightly” and that such time gaps are not unusual in these types of cases.

Thus, the moral of this story might simply be: get something in writing and if anything goes wrong, take legal action as soon as possible to be on the safest side possible.

June 30, 2017 in Film, In the News, Miscellaneous | Permalink

Friday, May 26, 2017

Ancestry.com Doesn't Want Your DNA Forever (At Least, Not Anymore)

Earlier this week, Stacey Lantagne wrote a post about Ancestry.com’s Terms and Conditions. Among other things, it gives Ancestry.com a perpetual license to use its customers' DNA for…well, pretty much anything.  Attorney Joel Winston wrote about the terms here and his post quickly went viral. The social media backlash was fast and furious – and Ancestry.com now claims that it didn’t really mean what it said in its terms. They also say that they will take out that provision (although as of this writing, it is still there). It seems that nobody reads wrap contracts – even the companies that draft them.

This is another example of how consumers often do care what’s in the TOS, even if they don’t read them. Not reading (and so not knowing what’s in the terms) is not the same as not caring that the terms apply. It’s also another encouraging example of a company responding to market demand for different contract terms. Shades of General Mills….

May 26, 2017 in Current Affairs, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Sunday, May 21, 2017

Show Cars, Wavering Owners, and Oral Contracts

We all know the importance of “getting it in writing.” At the same time, we also all know how hard it can be to actually implement that, especially when it comes to a party you trust. An appellate case out of California shows how even simple emails could probably have saved the parties a lot of agony, especially in a non-commercial context where tempers may flare.

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In 2010, Richard Grace bought a classic 1967 VW bus from Drew Colome, who also specialized in restoring older vehicles to show standards. Indeed, Grace stated to Colome that he wanted the bus to be restored to become an “excellent to outstanding” bus that he could show or, no less, “the best bus in the world” (yes, alarm bells should be going off by now by anyone dealing with such a purchaser). Grace also sent an email to Colome asking for the “BEST original and correct bus in the world,” stating that he would like to enter the bus in “two or three of the BEST [car] shows.” Colome understood that to mean a car show in Irvine, California, where show cars are allowed to feature non-original car parts. Discussions had also included the Pebble Beach car show in which only original car parts can be used. Restoring a car to Pebble Beach standards can take three years or more. Colome testified that since Grace already knew a great deal about classic cars and car shows, he (Grace) would also understand the timelines involved in the restoration project.

A year and half into the project, Grace again stated in an email to Colome that Grace wanted “THE BEST” and did not want to rush the job. At that point in time, Grace apparently thought that the final restoration would take no more than two further months. Colome testified that it would take at least seven months longer. Half a year later, Grace told Colome that he wanted “to terminate the project” and would take the bus “regardless of where we [are] or what condition the bus was in.” At some point in time, Grace also mentioned the fact that he had hoped to have the restored bus in time for his birthday.

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Colome then delivered the bus to Grace in a winery parking lot (yes, really), believing that Grace would not try to drive the bus and later testifying that the bus was in fact “ not safe to drive.” Grace did, however, drive the bus, but found it difficult to steer and the bakes to not function properly. Grace subsequently paid another mechanic $12,500 to put the bus in working condition and sold it for $98,000.

Grace then filed suit against Colome for breach of oral contract. Grace alleged that Colome breached the parties' contract by "[f]ailing to restore [Grace's] 1967 21-Window VW Bus to show condition." After a bench trial, the court entered judgment in favor of Colome on all issues. Among other things, the court found that Grace failed to establish that he contracted with Colome in June 2010 for the restoration of the bus to the standards of Pebble Beach, that Colome did not breach the agreement because Grace prevented his performance when he retrieved the bus in August 2012, that Grace did not reasonably communicate his intention to drive the bus upon retrieval, and that Grace failed to establish that Colome's failure to complete the restoration of the bus was a breach of reasonable expectations under the contract because no time for completion was specified in the contract and a reasonable time would have been approximately three years.

With this case, you have to ask yourself why Colome did not, especially with a buyer like this, make sure to at least send an email stating the details of the deal as he understood them. A simple “reply” with some details and questions as to the expectations of the buyer would have worked wonders, it seems. Of course, Colome won the case anyway, but is it really reasonable, as here, to expect that a private buyer has all the knowledge about timelines, etc., involved in a specialty project such as this when you consider the fact that Colome was the expert who had restored between 90 and 120 VW buses? Why in the world would the parties not have gotten this in some sort of writing? Why would Colome, with a seemingly hot-tempered buyer like this, not have communicated more details in a deal such as this in at least an email? This seems unusual, especially given the fact that car mechanics always seem to issue “estimates” or “contracts” when I take my cars in for repair.

It seems that there were several miscommunications of intent and misunderstandings in this case. Of course, the case is more unique than a regular car repair job because of the special purposes of the car. On balance, the outcome of the case does seem fair both legally and factually. But it does, I think, raise some questions about the reasonable expectations of parties and why the parol evidence rule was not raised given the long time horizon of this job (three years). At a minimum, it again shows the importance of “getting it in writing,” even if that “just” takes the form of emailed communications.

May 21, 2017 in Miscellaneous, True Contracts | Permalink

Sunday, March 19, 2017

The Oxford Comma is (Still) Important

In case you have not yet heard about the recent First Circuit Court of Appeals case discussing the legal importance of a comma, here goes: A Maine statute lists the following activities as not counting for overtime pay: Images

The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.

Does that mean that drivers can get overtime because driving does count for overtime since “packing” covers both “shipment or distribution”? Or should the sentence be read as “packing for storage” as one thing and “distribution” another, thus precluding the drivers from earning overtime pay?

Circuit judge David J. Barron concluded that “the exemption’s scope is actually not so clear in this regard. And because, under Maine law, ambiguities in the state’s wage and hour laws must be construed liberally in order to accomplish their remedial purpose, we adopt the drivers’ narrower reading of the exemption.”

So, commas still matter. Consider too how “I love my parents, Lady Gaga and Humpty Dumpty” and “I love my parents, Lady Gaga, and Humpty Dumpty” are a little different. Language aficionados take note! Precise drafting still matters. Was this an outcome-oriented holding? Perhaps. But if so, a holding in favor of workers over a company in a case of interpretive doubt may, in today’s increasingly tough economy for middle and low-income earners, not be such a bad idea from a public policy point of view.

The case is O’Connor v. Oakhurst Dairy, No. 16-1901 (1st Cir. 2017).

March 19, 2017 in Commentary, Current Affairs, Famous Cases, In the News, Legislation, Miscellaneous, Recent Cases | Permalink | Comments (1)

Friday, March 17, 2017

No Lawsuit for Selling Suboptimally Sized Product

A group of plaintiffs suffering from glaucoma bought eye drops manufactured by six pharmaceutical companies. They claimed that the eye drops were unnecessarily large (no, let’s not go there this time): all drops sold by these manufacturers were larger than 16 microliters (equal to 10% of a tablespoon). The plaintiffs claim that unnecessarily large eye drops are wasteful because the human eye can only contain so much fluid. Anything in excess of that will simply overflow and be wasted, which is a waste of money.

The amount of fluid that the human eye can contain without overflowing varies from person to person. The defendants asserted that the amount often exceeds 16 microliters. Further, the active ingredient in each drop is only about 1% of the drop. The smaller the drop, the less therapeutic effect, they claimed (without explaining why, for example, two drops could not simply be applied by those with larger eyes…). Defendants also claimed that larger drops helps those with unsteady hands, such as the elderly, because “the smaller the drop, the likelier they are to miss.” Now, at least that makes sense… (not!).

As was said on the listserv, this is arguably not even a contract law case at all, especially because no allegation of misrepresentation, breach of contract, or the like was asserted. In the words of opinion author Judge Posner, this is merely a case of “you can do better by us” asserted by plaintiff consumers. “That is all they are arguing.” However, said Posner, “[o]ne cannot bring a suit in federal court without pleading that one has been injured in some way (physically, financially—whatever) by the defendant. That's what's required for standing. The fact that a seller does not sell the product that you want, or at the price you'd like to pay, is not an actionable injury; it is just a regret or disappointment—which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’”

So, what do we have here? No contracts violation, perhaps. Consumer fraud under the respective state acts? Apparently not. What we seem to have, however, is another instance of Corporate America taking advantage of consumers with the consent of even the federal judicial appellate system. Of course any product that is larger than what is needed per “portion” is wasteful and thus arguably taking unnecessary advantage of consumers. Whether or not that can be framed as an actionable legal issue in our system is another story altogether, sadly. Even worse: companies do apparently not want to do right by their own customers, in this case often elderly folks going blind! Episode32

This is, of course, not the only instance of needless and blatant consumer fraud (for that is what these instances are, at least in the common, if not the legal, sense of the word). More examples:

  • When you buy lotion, it is next to impossible to get the last, oh, 20% out of those pump-type containers unless you unscrew the pump and pour out the lotion.
  • Almost all perishable food items are sold in much larger portions than what is needed for most of us – think cottage cheese, yoghurt, lunch meats (OK, apart from those itty bitty bags, those are great), milk, you name it. People needing more could just buy two items! (That’s how it’s done with great success in many European countries, but heaven forbid that we ever learn anything from other countries.) The rest of us often have to throw out much of the food as it doesn’t last that long.
  • How about packaging? Huge bags of chips that are only 1/2 full? Same for cereal boxes? Sun screen spray bottles that are also only 1/3 full?
  • OK, I’m in a crappy mood about companies and organizations today, I admit. Of course the capitalist model is the best one, etc. etc. But it would be nice if more companies would focus more on decency, less waste in packaging and eventual product usage, and consumer needs. This eye drop story really is one of forcing consumers to waste product and thus money. Let’s just call a spade a spade.

On an unrelated note: I apologize for being so inactive on this blog for so long. I have had a disappointing contractual work experience that has drained me and continues to do so, frankly. I am trying the hardest I can to find interesting cases to blog about. Should you hear of any, I’d be delighted to be notified. I also invite guest bloggers to blog here with us. As always: thanks to my co-bloggers for their hard and excellent work!

The case described above is Eike, et al. v. Allergan, et al., No. 16-3334 (Seventh Cir. 2017).

Hat tip to my colleagues on the Contracts listserv for discussing this case.

March 17, 2017 in Commentary, Contract Profs, Current Affairs, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, February 3, 2017

No Class Actions For Investment Fraud Claims in the Eighth Circuit

In Holtz v. JPMorgan Chase Bank (the “Bank”), Judge Easterbook recently held that litigants may pursue state law contracts or fiduciary duty claims in an individualized manner, but not in the form of class action law suits under the Securities Litigation Uniform Standards Act of 1998 (“the Litigation Act,” 15 U.S.C. § 78bb (F)).

In the case, the plaintiffs alleged that the Bank gave its employees incentives to place clients’ money on the Bank’s own mutual funds, even when those funds have higher fees or lower returns than competing funds sponsored by third parties. The Bank allegedly failed to inform the clients of this conflict of interest or lied about it. Plaintiffs also argued that banks have fiduciary duty that they simply cannot contract out of under state contract law. J. Easterbrook recognizes that contract claims survive federal statutory pre-emption standards. Here, the Litigation Act is on point. However, to plead misrepresentations or omissions under the Act, the contract claims must not be “material.” (An omission is “material” when a reasonable investor would deem it significant to an investment decision.) In other words, the gravamen of litigation under the Act must, it seems, be statutory, and not purely contractual, issues. If the contractual issues are material, they must be litigated in the form of state law claims.

Per Easterbrook, “there are plenty of ways to bring wrongdoers to account – but a class action that springs from lies or material omissions in connection with federally regulated securities is not among them … If [the plaintiff] wants to pursue a contract or fiduciary-duty claim under state law, she has only to proceed in the usual way: one litigant against another.”

Another win in the “war” against class actions, it seems.

February 3, 2017 in Contract Profs, Current Affairs, Miscellaneous, True Contracts | Permalink | Comments (0)

Consent to Face Scanning

In a recent case, the video game publisher 2K recently won the right to collect and store gamers biometric data (in this case, face scans) indefinitely.  The face scanning technology is used in at least two of its NBA series games to allow gamers to create "personalized virtual basketball players". 

Plaintiffs agreed to allow them to do so when they agreed to the company’s terms and conditions.  The plaintiffs didn’t dispute that they had agreed to the terms or that they had consented to having their faces scanned; their objection was that they did not know that the scans would be stored “indefinitely” and that 2K could share the biometric data.  The court ruled that there was no harm under the Illinois Biometric Information Privacy Act.  The focus was not on contractual assent to the terms and conditions.  But this made me wonder, given how unobtrusive most terms and conditions are, and how easy it is to "manifest assent," shouldn't there be more stringent assent requirements when it comes to consent with respect to certain terms (such as the permanent storage and sharing of biometric data)?  Isn't it time we moved past the notion of blanket assent?

As more companies move toward biometric data for a wide range of reasons, we’re likely to see more problems with too-easy consent and wrap contracts.

February 3, 2017 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0)