Monday, November 2, 2015
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.
Monday, October 26, 2015
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:
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.
- 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!
Thursday, October 22, 2015
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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."
Wednesday, September 30, 2015
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 decision 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."
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.
Monday, September 14, 2015
Catching 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.
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 . . . .
Thursday, September 3, 2015
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.
Monday, July 20, 2015
I 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.
Tuesday, June 23, 2015
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.
Wednesday, June 17, 2015
The New York Times had an article in last weekend's Style section about the post-prom waiver. Apparently, in some suburbs, liability conscious parents and schools hosting a post-prom after party are asking teenagers and their parents to sign a waiver. My initial reaction was, Really? Has it come to this? But the more I thought about it, I could understand why some schools and parent- hosts might think it was a good idea. I did a quick search of "post prom waivers" and it seems that they serve several purposes.
First, they waive liability. The waiver would probably not be enforceable to stop lawsuits based upon negligence -- none of the ones I found even sought release for negligent acts on the part of the host - and certainly would not be effective to bar suits claiming gross negligence or recklessness on the part of the host. They generally did not overreach by which I mean they did not seek to waive liability for everything under the sun (like this Borat release).
Second, and related to the waiver, was an assumption of the risk clause. This requires the student and the student's parent to knowingly and voluntarily assume the risk of harm relating to the student's participation in post-prom activities. It seems as though post-prom activities have become much more active than when I was in high school - I found parties where there are extreme sports challenges and what looked like sumo wrestling!(?) The waivers also contained a medication release form, which given the laws in this area, is a prudent measure.
Third, and most useful, all the post-prom waivers I found established guidelines or rules of conduct. These clearly outline the school's (or host's) expectations for student behavior as well as parental responsibilities. They establish, for example, whether the event is a "lock-in" (meaning the students can't leave the premises) and the rules regarding pick-up times and who may attend the event. Given this is prom night, they also set out very clearly the expectations regarding drugs and alcohol - i.e. there will be NONE of that. Students and parents know that drugs and alcohol are not allowed, but putting this in the waiver allows the conversation to happen. More importantly, I think, it communicates to them that the school is not messing around. The language tends to be very express that illegal activity will not be tolerated and police will be called. Some people may think these types of reminders (and other disclosures) are not useful. I think it depends upon the disclosure. In a post-prom waiver, where the students and parents will be reading it for useful information, such as what to bring, etc, it reinforces expectations and allows parents to set up their own rules in the event the student breaks the school rules (i.e. no leaving the house all summer if I have to bail you out of jail at 3am...) All the waivers I read were also short and, for the most part, clearly written.
Finally, there are the indemnity type clauses. Unlike exculpatory clauses (which free the school/host from liability), an indemnity clause makes the student responsible for harm caused to others. Most of the ones I saw seemed fine - they required the students/parents to assume responsibility for any damages they caused. Again, I don't think this gives the host any more rights than they would otherwise have since you are generally liable for any property damage that you cause. It is useful, however, for setting expectations for conduct. Sure, you might have to check some of your wild physical activity - no whirling dervish dancing around the Ming vases - but from the host's point of view, understandable. It's also useful for setting expectations after you break the vase. You can't pretend it's unfair that you have to pay for it because you knew in advance. Kind of like those "You break it, you buy it," signs in stores.
I'm still not convinced that these waivers are a good idea although I don't think they are necessarily a bad idea as long as they are clearly written, short and, most of all, reasonable and limited in scope. It's unclear whether they will be enforceable, and again, I think it depends upon how reasonable they are in terms of scope and process (they are signed well in advance of the event and both the student and a parent/guardian must sign it). Given our litigious and form contracting society, I don't think they are going away.
Monday, June 8, 2015
I wanted to follow up on Jeremy Telman's posts about two cases, Andermann v. Sprint Spectrum and Berkson v. Gogo. Both cases involved consumers and standard form contracts. Both Sprint and Gogo sought to enforce an arbitration clause in their contracts and both companies presumably wanted to do so to avoid a class action. In Andermann v. Sprint Spectrum, there was no question regarding contract formation. The contract issue in that case involved the validity of the assignment of the contract from US Cellular to Sprint. The court found that the assignment was valid and consequently, so was the arbitration clause.
In Berkson v. Gogo, on the other hand, the issue was whether there was a contract formed between the plaintiffs and Gogo. As Jeremy notes in his post, this is an important case because it so thoroughly analyzes the existing wrap contract law. It also has important implications for consumers and the future of class actions.
Many arbitration clauses preclude class actions (of any kind). Judge Posner notes in his opinion in Andermann v. Sprint Spectrun:
"It may seem odd that (Sprint) wants arbitration....But doubtless it wants arbitration because the arbitration clause disallows class arbitration. If the Andermann's claims have to be arbitrated all by themselves, they probably won't be brought at all, because the Andermanns if they prevail will be entitled only to modest statutory damages."
Judge Posner may have been troubled by this if the facts were different. The Andermanns are claiming that Sprint's calls to them are unsolicited advertisements that violate the Telephone Consumer Protection Act, but Sprint needed to inform them that their service would be terminated because U.S. Cellular's phones were incompatible with Sprint's network. How else would they be able to contact their customers whose service would soon be terminated, Posner rhetorically asks, "Post on highway billboards or subway advertisements?....Post the messages in the ad sections of newspapers? In television commercials?" Sprint's conduct here "likely falls" within an exception to the law and hence, Posner notes "the claims are unlikely to prevail."
It's a different situation in Berkson v. Gogo. In that case, Gogo is allegedly charging consumers' credit cards on a monthly recurring basis without their knowledge. The plaintiffs were consumers who signed up to use Gogo's Wi-Fi service on an airplane, thinking it was only for one month. When Welsh, one of the plaintiffs, noticed the recurring charges, he was given a "partial refund." Welsh then hired a lawyer. Welsh's lawyer sent Gogo a letter notifying the company of the intent to file a class action lawsuit if it did not correct its practices and notify everyone who might have been charged in this manner. Gogo then allegedly sent a refund check directly to Welsh, not his lawyer (which would violate the rule not to directly contact someone represented by counsel). When Berkson, another plaintiff, noticed the charges and complained, the charges stopped; however, when he requested a refund for the period he was charged for the service but did not use it, the company allegedly refused.
I think that most people would agree that, if the facts alleged are true, Gogo likely violated consumer protection statutes. It also acted poorly by making it so hard to get a refund. Companies should not be permitted to act like this and consumers shouldn't have to threaten class action lawsuits to get their money back. (Gogo doesn't seem to dispute that they were charged during months they did not use the service).
This is where contract formation becomes so important. The class action in Berkson v. Gogo was allowed to proceed because the court found that there was no valid contract formation.
If there was a contract formed between Gogo and the plaintiffs, the arbitration clause would likely have been effective. (I say "would likely have been" because it wasn't even included until after Berkson signed up for the service. But let's put that aside for now and continue....). The arbitration clause - you guessed it - contained the following clause:
"To the fullest extent permitted by applicable law, NO ARBITRATION OR OTHER CLAIM UNDER THIS AGREEMENT SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SITE OR THE SERVICES, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED. In the event that this CLASS ACTION WAIVER is deemed unenforceable, then any putative class action may only proceed in a court of competent jurisdiction and not in arbitration.
WE BOTH AGREE THAT, WHETHER ANY CLAIM IS IN ARBITRATION OR IN COURT, YOU AND GOGO BOTH WAIVE ANY RIGHT TO A JURY TRIAL INVOLVING ANY CLAIMS OR DISPUTES BETWEEN US."
Now, under the recent line of federal cases (AT&T Mobility v. Concepcion, American Express v. Italian Colors, etc) interpreting the FAA, if a contract contains a mandatory arbitration clause, an arbitrator pretty much decides everything unless (1) the arbitration agreement is unconscionable; or (2) the agreement to arbitrate was never formed
Regarding (1), this doesn't mean that a court may determine whether any other contract provision was unconscionable - only the arbitration clause. So, if there's another clause that you want to argue is unconscionable -- let's say a recurring billing provision that is not conspicuous just as a random example -- you have to take that to the arbitrator. Furthermore, it's much harder now (after the line of US Supreme cases noted above) to argue that an arbitration clause is unconscionable. While many state courts had previously found mandatory arbitration clauses and class action waivers unconscionable, they may no longer find them unconscionable just because they impose arbitration. In other words, in order to be found unconscionable, the arbitration clauses have to be one-sided (i.e. only the consumer has to arbitrate) or impose hefty filing fees, etc. This, as I mentioned in a prior post, is why so many of these clauses contain opt-out provisions. Gogo's arbitration clause also contained an opt-out provision. But, as readers of this blog know, NOBODY reads wrap contract terms and I would be surprised if anyone opted out. The clause was also in capitalized letters and so would be conspicuous -- if only anyone clicked on the link and scrolled down to see it.
This is why Judge Weinstein's opinion is so important -he recognizes the burden that wrap contracts place on consumers:
"It is not unreasonable to assume that there is a difference between paper and electronic contracting....In the absence of contrary proof, it can be assumed that the burden should be on the offeror to impress upon the offeree -- i.e., the average internet user - the importance of the details of the binding contract being entered into...The burden should include the duty to explain the relevance of the critical terms governing the offeree's substantive rights contained in the contract."
If a contract contains a mandatory arbitration clause, a consumer who has been wronged and wants to argue that a standard form contract is unconscionable, would probably have to take it to an arbitrator unless there was no agreement to arbitrate in the first place. If there was no agreement formed at all, that would mean no agreement to arbitrate.
This is why it is so important not to find contract formation so easily and expect unconscionability to do all the heavy lifting of consumer protection. An arbitrator very well might do a good job - but we don't know that because an arbitration is a closed hearing. Arbitrators also don't go through the rigorous screening process that judges go through (both elected and appointed judges are thoroughly scrutinized). Furthermore, arbitral decsions are not generally made public, and so arbitration doesn't help with providing guidelines for acceptable business behavior. Judge Posner notes in his opinion, "It's not clear that arbitration, which can be expensive...and which fails to create precedents to guide the resolution of future disputes, should be preferred to litigation." Furthermore, if the arbitration clause contains a "no class" provision, it also forces a consumer to face a company's intimidating attorneys all alone ((because no lawyer is taking this type of case on a contingency basis and no consumer is going to pay a lawyer to attend this type of arbitration).
Berkson v. Gogo is notable for recognizing that website design and contract presentation matter in determining contract formation. Not every click is perceived the same way by consumers -- scrollwraps (where scrolling is required to read through all the terms) provides more notice than a "sign-in-wrap" which is merely a hyperlink next to a SIGN UP button. The reality is that nobody clicks on the Terms hyperlink with a sign-in wrap. As Judge Weinstein notes:
"The starting point of analysis must be the method through which an electronic contract of adhesion is formed. The inquiry does not begin, as defendants argue, with the content of the provisions themselves."
There are some who think that there's no harm in finding contract formation so easily because courts and the doctrine of unconscionability will protect consumers from really bad contract terms. They should think again. Mandatory arbitration clauses affect consumers' ability to seek redress which is why we should start taking contract formation seriously.
Monday, June 1, 2015
ARBITRATION NOTICE: EXCEPT IF YOU OPT-OUT AND EXCEPT FOR CERTAIN TYPES OF DISPUTES DESCRIBED IN THE ARBITRATION SECTION BELOW, YOU AGREE THAT DISPUTES BETWEEN YOU AND INSTAGRAM WILL BE RESOLVED BY BINDING, INDIVIDUAL ARBITRATION AND YOU WAIVE YOUR RIGHT TO PARTICIPATE IN A CLASS ACTION LAWSUIT OR CLASS-WIDE ARBITRATION.
(Side note - I found it rather lazy for Instagram not to include section numbers in its TOU. One of the reasons to have an opt-out provision is to guard against claims of unconscionability as in Hey, they had a choice! They could have opted out! It doesn't make sense then to make the user scroll through the entire agreement and try to find the arbitration clause instead of just referring to it).
The arbitration clause itself permits the user to opt-out "within 30 days of the date that you first became subject to this arbitration provision." Furthermore, the user has to provide written notice and send it to Instagram's offices.
Of course, very few users will opt-out. First of all, very few people read TOU. Second, a lot of people don't know what arbitration is so they don't know to opt-out. Finally, Instagram puts a "hurdle" in the user's way - they have to send a written notice. The last time I had to mail a card, it took me several days. I had to find an envelope, for one thing. Then I had to find some stamps. I don't even know where the post office is near my house and when I asked the cashier at the grocery store, he looked at me as though I were Rip Van Winkle --stamps?
Contrast the written notice requirement to opt-out with how Instagram updates its TOU:
"You agree that we may notify you of the Updated Terms by posting them on the Service, and that your use of the Service after the effective date of the Updated Terms (or engaging in such other conduct as we may reasonably specify) constitutes your agreement to the Updated Terms."
So, Instagram only has to post changes to its website but the user has to mail a notice to its headquarters in order to opt-out of arbitration? Why not have all notices be effective if sent via email? Maybe because some people might actually choose to opt-out of arbitration then.
Instagram's opt-out clause is not unusual - in fact, it's quite common. The CFPB recently issued its report on the use of arbitration clauses . It found that a fair number of banking and credit card agreements contained provisions allowing consumers to opt-out of arbitration clauses but that very few consumers chose to opt-out. There were a number of other interesting findings and the report is well worth reading although the report is rather long. Professor Jean Sternlight of University of Nevada - Las Vegas summarized some of the key findings here.
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.