Thursday, June 12, 2014
(The next John Grisham?)
Another way to provoke interest in the subject might be to write an imaginative futuristic tale of a world controlled by EULAs, like Miriam Cherry has done here. Her fast-paced story is a mashup of Girl with a Dragon Tattoo, Boilerplate and Ender's Game - beach reading for contracts profs!
Tuesday, June 10, 2014
I've been thinking a lot about contract design, disclosure and consent recently, and had a chance to read Tess Wilkinson-Ryan, A Psychological Account of Consent to Fine Print, 99 IOWA L. REV. 1745 (2014) which (from the abstract):
"aims to unpack the beliefs, preferences, assumptions and biases that constitute our assessments of assent to boilerplate. Research suggests that misgivings about procedural defects in consumer contracting weigh heavily on judgments of contract formation, but play almost no role in judgments of blame for transactional harms. Using experimental methods from the psychology of judgment and decision-making, I test the psychological explanations for this disjunction, including motivated reasoning and reliance on availability heuristics."
Wilkinson-Ryan concludes that, while disclosures may not have noticeable effects on the assent process (i.e. whether consumers read or understand terms), they have "enormous effects on how we understand transactional harms." In other words, we are more likely to understand that the consumer has consented and that the consumer is to blame for having consented if the particular disputed issue has been disclosed.
Wilkinson-Ryan covers the same territory that Eric Zacks covered in a couple of earlier articles having to do with contracting behavior by firms and the effect of contract design on how consumers perceive their moral obligations. In the first article, Contracting Blame, 15 Univ. of Penn. J. of Bus. L. 169 (2012) Zacks (I’m quoting from the abstract again):
“explores the impact of the cognitive biases of judges and juries in the context of contract preparation and execution....This Article makes a novel link between behavioral literature and contract preparation and suggests that contract preparers may be able to manipulate adjudicators’ cognitive biases systematically. Exclusive of the economic bargain, contract provisions can provide attributional 'clues' about the contracting context that inform and reassure judicial interpreters that a particular contracting party is more blameworthy than another....In light of the significant implications of the existence and prospective use of such attributional clues for contract law theory and judgment, this Article proposes a broader contextual and adjudicative focus when contemplating contract law reforms.”
In the second, Shame, Regret and Contract Design, 97 Marquette L. Rev. (forthcoming), Zacks argues (again from the abstract):
“(c)ontracts can encourage individuals to feel shame, to blame themselves, to believe that contracts are sacred promises that should be specifically performed, to utilize faulty judgment heuristics when determining contract costs, and to rely on misperceived social norms with respect to challenging or breaching contracts. This may influence them not to breach or challenge an otherwise uneconomical, unconscionable, or illegal contract.”
The takeaway from these three articles? Firms are manipulating consumers through disclosure and contract design into performing contracts without real consent. The question then is what to do about it.
Wilkinson-Ryan’s article raises interesting questions about whether disclosure requirements have unintended consequences. I think her article provides additional support for Omri Ben Shahar and Carl Schneider's book, More Than You Wanted to Know: The Failure of Mandated Disclosure (Princeton, 2014).* But rather than concluding that disclosure is a lousy way to address the problem of consent (which it often is), I came to a slightly different conclusion based upon one of her studies. That study found that "making the firm's behavior more salient changed how subjects ranked the blameworthiness of the parties." Wilkinson-Ryan notes that, "(u)nless participants are prompted to think about the firm's drafting process as a set of choices, the drafter's role is not a salient factor in judgments of blame." In my book, Wrap Contracts, and elsewhere, I argue that courts should stop focusing on consumer's "duty to read" and focus instead on the company's "duty to draft reasonably." In other words, courts should consider whether the drafting firm could have presented and drafted the contract terms in a better, more understandable fashion rather than on whether the adherent "should" have noticed the terms. This shifts the burden of form contracting - and Wilkinson-Ryan's studies suggest, the moral blame -- from the non-reading consumer to the bad-drafting, morally culpable, company. Of course, requiring companies to draft reasonably (as distinguished from providing “reasonable notice”) doesn’t get us all the way there – but it may help shift the focus away from blaming the adherent-victim to thinking about the immorality of the drafting firm.
*This blog plans to host a symposium on their book sometime in the fall so stay tuned.
**Boycott Amazon and buy this book from the publisher's website.
Tuesday, May 27, 2014
Law and Society Association's Annual Meeting is only a few days away. There will be an Author Meets Reader Salon on my book, WRAP CONTRACTS on Friday, 5/30, 8:15am-10:00am in the Duluth Room. Shubha Ghosh (Wisconsin), Danielle Kie Hart (Southwestern) and Juliet Moringiello (Widener) will be joining me in what promises to be a lively discussion about those pesky clickboxes and pop-ups on your screens. If you are attending the meeting, please stop by and join us!
Saturday, May 24, 2014
"You can stop using our Services at any time, although we’ll be sorry to see you go. Google may also stop providing Services to you, or add or create new limits to our Services at any time."
and this unilateral modification clause:
"We may modify these terms or any additional terms that apply to a Service to, for example, reflect changes to the law or changes to our Services. You should look at the terms regularly. We’ll post notice of modifications to these terms on this page. We’ll post notice of modified additional terms in the applicable Service. Changes will not apply retroactively and will become effective no sooner than fourteen days after they are posted. However, changes addressing new functions for a Service or changes made for legal reasons will be effective immediately. If you do not agree to the modified terms for a Service, you should discontinue your use of that Service."
Friday, March 21, 2014
Microsoft has been in the news recently for accessing a user's Hotmail account without a court order. Microsoft revealed this information as part of a lawsuit it filed against a former employee who it accussed of stealing trade secrets. The company received information that a French blogger had access to Windows operating system software code and wanted to find out who was the blogger's source. Conveniently for Microsoft, the blogger had a Microsoft-operated Hotmail account. The company's accessing of the emails and instant messages of the blogger was lawful because - you guessed it - it was permitted under the company's terms of service which state:
We also may share or disclose personal information, including the content of your communications:
- To comply with the law or respond to legal process or lawful requests, including from law enforcement and government agencies.
- To protect the rights or property of Microsoft or our customers, including enforcing the terms governing your use of the services.
- To act on a good faith belief that access or disclosure is necessary to protect the personal safety of Microsoft employees, customers or the public.
Lest you think you can escape the intrusions of corporate peeking into personal communications by moving to another email provider, a quick check of the terms of service of Yahoo and Google showed nearly identical language in their privacy policies.
Google’s terms of service state:
We will share personal information with companies, organizations or individuals outside of Google if we have a good-faith belief that access, use, preservation or disclosure of the information is reasonably necessary to:
- meet any applicable law, regulation, legal process or enforceable governmental request.
- enforce applicable Terms of Service, including investigation of potential violations.
- detect, prevent, or otherwise address fraud, security or technical issues.
- protect against harm to the rights, property or safety of Google, our users or the public as required or permitted by law.
You acknowledge, consent and agree that Yahoo may access, preserve and disclose your account information and Content if required to do so by law or in a good faith belief that such access preservation or disclosure is reasonably necessary to: (i) comply with legal process; (ii) enforce the TOS; (iii) respond to claims that any Content violates the rights of third parties; (iv) respond to your requests for customer service; or (v) protect the rights, property or personal safety of Yahoo, its users and the public.
Interestingly, Microsoft's terms of service give the company less discretion to snoop through our emails than Google or Yahoo -- it can only do so to protect the company and its users. Google or Yahoo can access communications to protect third party property interests. But they wouldn't really do that without a court order, would they? Oh, right.
Thursday, February 27, 2014
Readers of this blog will remember that last year we hosted a lively symposium on Margaret Jane Radin's book, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law.
The debate about mass consumer form contracts is far from over....
Sunday, February 9, 2014
This article in the WSJ coincides perfectly with my syllabus as we are now finishing up our segment on offer and acceptance. Apparently, in the early to mid-nineties, the band Rocket from the Crypt agreed to let in free to their concerts anyone with a tattoo of the band’s logo.
As with many messy offer and acceptance scenarios, it started informally. The band members got tattoos of the logo – of a rocket blasting out of grave – and a few of their friends decided to do the same. Eventually, the band decided to let anyone with the tattoo get in free to see them play. They were a small band then and so whoever had the tattoo was probably a friend (or a friend of a friend) of a band member. But the band grew in popularity – and so did the number of tattooed fans. At their 2005 farewell concert, 500 rocket-tattooed fans got in free.
Now the band is preparing for their reunion tour. Tickets are selling out. There’s just one small problem. Many of the venues where they are scheduled to play don’t want to honor the free-admission-with-tattoo policy.
In my humble opinion, it doesn’t sound like the band actually made an offer to anyone, much less the public at large. The terms weren't definite - how big did the tattoo have to be? Could it be anywhere? For how long would fans get in free? Were there any limits?
But the band did honor the “tattoo-as-ticket” in the past. Does that then give rise to an implied contract? Or is there an equitable estoppel argument that could be raised given the fans’ reliance?
As interesting as this may be to ponder for contracts profs, in the end, I think there should be no enforceable contract and no estoppel claim for the simple reason that the band never intended to make an offer to the public at large. Furthermore, it doesn’t seem reasonable for someone to get a tattoo based upon what they understand to be the band’s informal policy of letting tattooed fans in free. The practice was a custom that grew organically, rather than a promise that must be kept as long as the band plays or the tattoo lasts. Not everything is a contract. If there was some sort of actual promise made, the band's promise was likely one to make a gift (free admission) to show their appreciation to anyone who had a tattoo. In other words, the band members weren't bargaining for fans to get a tattoo, and they weren't bargaining for them to show up to the venue with a tattoo - rather, motivated by affective reasons, they made a donative promise to let in their most loyal fans, the ones with tattoos, for free.
Friday, January 31, 2014
I like to remind my 1Ls Contracts students that a contract is private law between two parties, but it doesn't override public law. This story is last week's news, but I thought I'd blog about it anyway because it provides a pretty good example of this point. In 2009, William Marotta responded to a Craigslist ad posted by two women for a sperm donor. All three parties agreed - and signed an agreement to the effect - that Marotta waived his parental rights and responsibilities. The Kansas Department for Children and Families sought to have Marotta declared the father and responsible for payments of $6,000 that the state had already paid and for future child support.
Unfortunately for Marotta, a Kansas state statute requires a physician to perform the artificial insemination procedure. The Shawnee County District Court Judge Mary Mattivi ruled that because the parties "failed to conform to the statutory requirements of the Kansas Parentage Act in not enlisting a licensed physician...the parties' self-designation of (Marotta) as a sperm donor is insufficient to relieve (Marotta) of parental rights and responsibilities."
Note that the couple was not seeking to invalidate the contract - it was the Kansas state agency.
It's unclear whether the parties will appeal.
Wednesday, January 22, 2014
Warren Buffett and Quicken Loans have teamed up to help make teaching about unilateral contracts and interpretation so much more interesting. The offer? One billion dollars to anyone who fills out a perfect 2014 NCAA tournament bracket.
Say what? Is this serious? Or is it like that Pepsi commercial - you know the one.
Although at first, this might sound like a joke, once you learn the odds are, by one estimate, one in 9.2 quintillion, you --a reasonable person -- would realize this offer was serious.
All you have to do is fill out a perfect bracket. (Now might be the time for me to mention that I once won my law firm's pool one year. Strange but true).
But wait - there's more. The Business Insider reports that Quicken, which is actually running the contest, will award $100,000 to 20 of the most accurate but not perfect brackets "submitted by qualified entrants in the contest to use toward buying, refinancing or remodeling a home." The company will also donate $1million to Detroit and Cleveland non-profit organizations.
Get ready for March Madness....
Wednesday, January 8, 2014
Monday, December 9, 2013
By James Sinclair in McSweeneys, titled "Alright, Fine, I'll Add a Disclaimer to My Emails." Here's a taste:
The purpose of this disclaimer, in theory, is to protect the sender from whatever liability may result from the sender’s own failure to communicate clearly or properly send an email, even though the sender, having obtained a formal legal education, is well aware that a generic email disclaimer, even one written with that ominous language of which lawyers are so fond, is unlikely to be enforced against a party lacking a sophisticated understanding of the legal principles surrounding said disclaimer, and that in the case of a party who does understand the legal principles surrounding said disclaimer, the disclaimer merely restates what said party already knows. This disclaimer is a catch-22.
For a little Monday humour, check out the full disclaimer here.
[Meredith R. Miller]
Monday, December 2, 2013
Over at the Huffington Post, Sam Fiorella takes note of the egregious terms in Facebook Messenger's Mobile App Terms of Service. These terms include allowing the app to record audio, take pictures and video and make phone calls without your confirmation or intervention. It also allows the app to read your phone call log and your personal profile information. Of course, an app that can do all that is also vulnerable to malicious viruses which can share that information without your knowledge. But, of course, this is allowed only with your "consent."
Sunday, November 24, 2013
I want to thank all the experts who participated in last week's symposium on WRAP CONTRACTS: FOUNDATIONS AND RAMIFICATIONS . They raised a variety of issues and their insights were thoughtful, varied and very much appreciated. I also want to thank Jeremy Telman for organizing the symposium and inviting the participants.
Today, I’d like to respond to the posts by Michael Rustad, Eric Zacks and Theresa Amato. Eric Zacks emphasizes the effect that form has on users, namely that the form discourages users from reviewing terms. Zack notes that contract form may be used to appeal to the adjudicator rather than simply to elicit desired conduct from the user and that forms that elicit express assent - such as “click” agreements - help the drafter by aiding “counterfactual analysis surrounding the ‘explicit assent’” issue. In other words, drafters may use contract forms to manipulate adjudicator’s decisionmaking and not necessarily to get users to act a certain way. (This is a topic with which Zachs is familiar, having just written a terrific article on the different ways that drafters use form and wording to manipulate adjudicators’ cognitive biases).
Both Michael Rustad and Theresa Amato focus, not on form, but on the substance of wrap contracts – the rights deleting terms that contract form hides so well. Amato comes up with an alternative term to wrap contracts – online asbestos – to highlight the not-immediately-visible damage caused by these terms. As a consumer advocate and an expert on how to get messages to the general public, Amato understands the need to overcome the inertia of the masses by communicating the harms in a way that can drown out the siren call of the corporate marketing masters. So yes, a stronger term may be required to jolt consumers out of their complacency although the real challenge will be getting heard and beating the marketing masters at their own game.
Michael Rustad notes that my doctrinal solutions fall short of resolving the problem of predispute mandatory arbitration and anti-class action waivers. He’s right, of course, although I think reconceptualizing unconscionability in the way I propose (by presuming unconscionability with certain terms unless alternative terms exist or the legislature expressly permits the term) would reduce the prevalence of undesirable terms including mandatory arbitration and class-action waivers. Rustad, who has considerable expertise on this subject, mentions that many European countries are further along than we are in dealing with unfair terms. Many of those jurisdictions, however, also have legislation which limits class actions, tort suits or damages awards. In addition, they don’t have the same culture of litigation that we do in this country. Wrap contracts have their legitimate uses, such as deterring opportunistic consumer behavior and enabling companies to assess and limit business risks. In order to succeed, any proposal barring contract terms or the enforceability of wrap contracts must also consider those legitimate uses.
I believe there is a place for wrap contracts and boilerplate generally but their legitimate uses are currently outweighed by illegitimate abuses of powers. Wrap contract doctrine has moved too far away from the primary objective of contract law – to enforce the reasonable expectations of the parties-- and my solutions were an attempt to move the train back on track. My focus was on doctrinal solutions but the problems raised by wrap contracts are complex and my solutions do not foreclose or reject legislative ones. I’m a contracts prof, so my focus naturally will be on contract law solutions (if you have a hammer, everything looks like a nail, I guess). Doctrinal responses have the advantage of flexibility and may be better adapted to dynamic environments than legislation which can be quickly outdated when it comes to technology or business practices borne in a global marketplace.
Admittedly, when it comes to wrap contracts, doctrinal flexibility hasn’t really worked in favor of consumers, but that only makes it more important to keep trying to sway judicial opinion. I know there are those who question whether judges read legal scholarship, but I know that there are many judges (and clerks) who do. The case law in this area has spiraled out of control so that it makes no sense to the average “reasonable person” and has opened the door to the use of wrap contracts that exploit consumer vulnerabilities.
My book was not intended as a clarion call to rid the world of all wrap contracts; rather, it was intended to point out how much damage wrap contracts have done, how much more they can do, and to provide suggestions on how to rein them in and use them in a socially beneficial manner.
I’m grateful to have had the opportunity to hear the insightful comments of last week’s highly respected line-up of experts and to share my thoughts with blog readers.
Thursday, November 21, 2013
It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog. Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology. Moringiello’s knowledge in this area of law is both wide and deep and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts. The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps. Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink. Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them. Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract. I think that’s true and it’s that ubiquity which diminishes their signaling effects. Because we are all clicking constantly, we fail to realize the significance of doing so. It’s not the act alone that should matter, but the awareness of what the act means. I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement agreed to in the past week alone. I wouldn’t have made such a bold statement eight years ago.
Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech. With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.” In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably. Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness. For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses. (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).
Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn. I made a similar point in this article. I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability. (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company). On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties. Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image. But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it. And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like. A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself. Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract. What’s troubling about the lawsuit, however, is that (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii) the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising. To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason? Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims. The law firm claims that arbitration would cost it from $4,000-$5,000.
I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way.
Wednesday, November 20, 2013
I’m thrilled to have the opportunity this week to engage with an outstanding line-up of scholars on the topic of wrap contracts. In today’s post, I will respond to posts by Ryan Calo and Miriam Cherry.
Miriam Cherry observes that wrap contracts raise much of the same issues raised by contracts of adhesion and my book canvasses those similarities. But they also raise different issues, primarily because their digital form makes it easier for companies to abuse and for consumers to ignore and also because courts don’t adequately recognize how form affects the behavior of both parties. The difference in form leads to a difference of degree so that it’s virtually impossible (pun intended) to engage in any online activity without agreeing to the terms of an unreadable wrap contract. My proposals aim to respond to the ways in which form affects perception to get us closer to the underlying objective of contract law – to fulfill the reasonable expectations of the parties. The form of wrap contracts raises issues that are unique to them and consequently, call for different solutions - solutions that respond to the problem of form.
Ryan Calo focuses on the role of technological design in contract formation and enforcement which is not surprising given his extensive expertise and research in this area regarding effective notice. The way that technological design of contracts affects parties’ behavior is underappreciated in the literature on contracts of adhesion. Calo observes that the potential for mischief through the use of standard terms is even worse than the examples I give in my book (this is a great relief since I am often accused of exaggerating the dangers of wrap contracts). As Calo notes here and elsewhere, the digital contracting environment has made it easier for companies to understand the consumer and so manipulate the consumer’s perceptions and behavior. I agree and would like to respond to his wish that I had addressed the argument made by Scott Peppet and others (who I’ll call “digital solutionists”) who claim that this very environment might aid the consumer and that increased digitalization could ameliorate the limits of freedom of contract. I agree with the first part, but disagree with the second. Greater access to information and the digital landscape may, in many cases, aid consumers who can research products, announce their “likes” and dislikes, and tweet their dissatisfaction to attract the customer service departments of large companies. This shouldn’t, however, influence the discussion regarding freedom of contract. There is a distinction to be made between the product or service that is the subject of the contract and the terms of the contract itself. The former is salient to consumers and they will often research that information before they act. For a variety of reasons, including cognitive biases but also tricky design employed by companies, the latter is not. Anyway, comparing terms does no good if the terms are all the same – it’s the old fiction about “shopping for terms” reincarnated in digital form.
Even assuming that the current state of affairs changes and there is awareness and competition for contract terms, the consumer is already inundated with too much information online. Are we really going to impose a requirement or an expectation that they read through online reviews or download an app simply in order to understand the contract terms? Even if the reviews exist (which they may not for some products or companies) and even if they are accurate (which they may not be), they add a layer of complexity to consumer transactions which may hamper effective decision-making and aggravate cognitive biases. How much research is a consumer expected to do simply to be able to buy a product, bank or communicate online? And is that something we want as a society – wouldn’t this negatively impact productivity, increase transaction costs for the consumer, and muck up the wheels of commerce (and isn’t this why we tolerate standard form contracts in the first place, to improve productivity, reduce transaction costs and grease the wheels of commerce)?
Drafting companies have all the power in the digital contracting environment – they have the bargaining power of old school drafters of adhesive contracts but they also have the power to present the terms in a multitude of ways. They decide whether and how to attract user attention. They determine whether to use clickwraps, browsewraps, multi-wraps, graphics or sounds. They exercise that power in a way that meets very minimal legal requirements of notice. The onus is on the consumer to ferret out terms, chase down hyperlinks, understand dense legalese and reconcile conflicting language. Are we going to require even more of consumers, expecting them to “go beyond” the contract by reading online contract reviews and downloading the “compare contracts” app (assuming one exists)? Maybe digitalization or augmented reality will make it easier for consumers to compare terms --but it will likely make it more complicated especially when those terms are constantly changing thanks to modification at will provisions. Doesn’t it make more sense to require the company to draft the terms so they are easy to find and understand? There’s more to say about the digital solutionist view but I will leave that for another forum. For now, my response is that the digital solutionist view is actually part of the problem, rather than the solution because it, like wrap contract doctrine, demands nothing from drafting companies and creates more work for consumers, exacerbating the lopsided balance of burdens that currently exists.
Monday, November 18, 2013
I'm enjoying the posts from Ryan Calo and Miriam Cherry about my book, Wrap Contracts: Foundations and Ramifications and plan to post a response later this week. A common question I get (after, Are these things really legal?) is What harm can these contracts cause anyway? Well, one woman claims that a company can use them to ruin your credit. The woman, Jen Palmer, ordered some trinkets from KlearGear.com but she claims that she never received them and canceled the payment. After she allegedly failed to reach someone at the company, she wrote a negative review of KlearGear.com on a consumer reporting website stating that they have "horrible" customer service. KlearGear allegedly emailed her, claiming that her negative review ran afoul of a non-disparagement clause in their online terms of sale. She says that they told her to remove the post or face a $3500 fine. Ms. Palmer was unable to get the post removed and alleges that KlearGear.com reported her to a credit bureau! She claims that she is now fighting the negative mark on her credit report which is preventing her from getting loans for a new car and house repairs.
I don't think the terms of sale are enforceable against Ms. Palmer but that's almost beside the point. Contracts are used in a variety of ways - one of those ways is to deter problems. Not many consumers are willing to fight to test the enforceabilty of a contract in court.
But I have a question: Why would a credit agency ding someone's record simply because they received a call from an online retailer about someone who wasn't even a customer breaching the terms of sale? I checked KlearGear's website and couldn't find the non-disparagement clause in their terms of sale- they might have removed it after the negative publicity or it might not be in another agreement that doesn't appear until a customer places an order. There's got to be more to this story...or else we've just entered a new era of abuse by wrap contracts.
Wednesday, November 13, 2013
Starbucks lost an arbitration fight with Kraft Foods and is being fined nearly $2.8 billion. Yes, you read that right - that's billion with a B. At the center of a dispute was a 1998 contract that required Kraft to distribute and market Starbucks brand coffee to U.S. retailers. The agreement was supposed to terminate in 2014 but Starbucks didn't want to wait that long. It complained that Kraft wasn't doing a good job promoting its coffee and offered Kraft $750 million to terminate the contract. Kraft rejected but Starbucks ended it in 2011 anyway (and entered into a deal with Green Mountain Coffee Roasters) which led Kraft to commence arbitration proceedings.
Another reminder to think carefully about those long durations in contracts - you can never predict how things will go and it's a good idea to really think about those termination provisions.
In a situation that underscores the importance of thinking twice about very long term contracts, the NBA wants to end a contract which requires it to pay two brothers a percentage of its broadcast revenues. Back in 1976, the Silna brothers owned an ABA franchise, the Spirits of St. Louis. When the ABA merged with the NBA, the Silnas agreed to this bargain - they would dissolve their team in exchange for 1/7 of the television revenues for the four ABA teams that were merged. The four teams were the Indiana Pacers, the San Antonio Spurs, the Brooklyn Nets and the Denver Nuggets.
Sure, back in 1976, the Silnas might have looked silly for giving up a huge buyout for something that seemed pretty worthless (the NBA wasn't even televised prime time) but now the deal is being called "the greatest sports deal of all time."
Not kidding about that "all time" either - the Silvas reportedly received $19 million under the contract last season and the contract term is "in perpetuity." Fat chance the NBA will be able to scream foul on the basis of lack of mutuality...
Thursday, October 31, 2013
According to this scary report from National Public Radio, children are not entirely rational. Well, perhaps we should not overstate the conclusions one can draw based on the relevant research. Children are only boundedly rational when it comes to Halloween candy.
A psychologist at Dartmouth College discovered that children were happier when they got a candy bar than they were when they got a candy bar and a piece of gum. This research calls into question our earlier assumption that more is better.
And it turns out that, according ot the same NPR report, Halloween candy is not the only realm in which people's responses to experiences can defy our expectations. It turns out that, while colonoscopies are bad, colonoscopies in which a tube is left inserted in the patient for a while, causing additional discomfort, are . . . (if you guessed worse, you're getting colder), at least according to a survey of patients on what they thought of the experience.
The trick (or treat) is to save the best (or the least bad) for last. If y0u are handing out candy tonight, and you don't want to get your house egged back into the stone ages, give the children some prunes, and then as they reach for their mace, offer a candy bar. They will leave happy and nominate you for a Nobel Prize. Similarly, if you are going to perform an invasive procedure on someone, make sure you have something less bad with which to follow it up.
Wednesday, October 16, 2013
Just when you start to lose faith in the judiciary, a couple of cases come along that suggest that some judges are willing to exercise common sense. I blogged about Judge Koh’s opinion regarding consent in a case involving Google and email scanning in a previous post. Today, I want to talk about a case that was even more delightful because it bucked the wave of arbitration clause cases ruling against consumers. In Clark v. Renaissance West, LLC, the Superior Court of Maricopa County found an arbitration clause substantively unconscionable and therefore unenforceable -- and the Court of Appeals affirmed!
The plaintiff was John H. Clark, an eighty-eight year old man who was admitted into a nursing facility owned by Renaissance West. After checking in, he signed an arbitration agreement which required him to arbitrate all disputes with Renaissance West. After he was discharged, he filed a complained alleging that while he was at the nursing facility, he had been neglected and consequently, suffered a severe pressure ulcer that required medical treatment and long term case. Renaissance West moved to dismiss and compel arbitration. The trial court held an evidentiary hearing at which Clark’s expert witness testified that it would cost Clark approximately $22,800 in arbitrator’s fees to arbitrate the case. The trial court ruled that based upon Clark’s limited income (he was retired and living on a fixed income), the arbitration agreement was substantively unconscionable. The Court of Appeals agreed.
There were several noteworthy aspects to this case. First, the trial court found that the arbitration agreement was not procedurally unconscionable. The Agreement was a separate document from other paperwork signed at the time of admission, it was conspicuous and in bold font and large print. It was also not offered on a take-it-or-leave-it basis and it could have been rescinded within thirty days of signature. But, as Maxwell v. Fidelity held, you don’t need both procedural and substantive unconscionability in Arizona. Substantive unconscionability will do.
The Court of Appeals noted that an arbitration agreement “may be substantively unconscionable if the fees and costs to arbitrate are so excessive as to ‘deny a potential litigant the opportunity to vindicate his or her rights.’” The question of whether arbitration is prohibitively expensive depends “on the unique circumstances of each case” and courts consider the following factors.
The first is “the party seeking to invalidate the arbitration agreement must present evidence concerning the cost to arbitrate.” This evidence “cannot be speculative,” and must be based upon “specific facts showing with reasonable certainty the likely costs of arbitration.” The court found that the expert testimony was adequate to establish the estimate cost of $22,800 in arbitrators’ fees alone.
The second factor is that a party must make a “specific individualized showing as to why he or she would be financially unable to bear the costs of arbitration” based upon his or her specific income/assets. Here, the plaintiff testified that he was retired, living on a fixed income, and did not have any financial resources such as savings or stocks. His total monthly income of $4,630, consisted of social security benefits, a pension and veteran’s assistance payments. The court deferred to the trial court’s finding that in light of these facts, arbitration would be cost-prohibitive.
The third factor is “whether the arbitration agreement or the applicable arbitration rules references in the arbitration agreement permit a party to waive or reduce the costs of arbitration based on financial hardship.” In this case, the arbitration agreement did not provide for a reduction or waiver of fees based upon financial hardship. Strike three.
Based upon an analysis of the three above factors, the court concluded that there was reasonable evidence to support the trial court’s finding that plaintiff would be unable to afford to arbitrate his claims. Consequently, the arbitration agreement “effectively precludes Plaintiff from obtaining redress for any of his claims, and is therefore substantively unconscionable and unenforceable.”