Monday, November 3, 2014
As reported on JDSupra here, the Florida District Court of Appeal for the Fourth District, sitting en banc, held that while an insurer’s liability for coverage and the extent of damages must be determined before a bad faith claim becomes ripe, the insured need not also show that the insurer is liable for breach of contract before proceeding on the bad faith claim.
We have also learned from JD Supra of Piedmont Office Realty Trust v. XL Specialty Ins. Co., 2014 U.S. App. LEXIS 20141 (11th Cir. Oct. 21, 2014), in which the United States Court of Appeals for the Eleventh Circuit, elected to certify to the Supreme Court of Georgia the question of whether an insured’s payment obligations under a judicially approved settlement agreement qualify as amounts that the insured is “legally obligated to pay,” and if so, whether the insured’s failure to have obtained the insurer’s consent to settle resulted in a forfeiture of coverage.
According this this report on Yahoo! Sports, Oklahoma State is suing the former Offensive Coordinator of its football team, Joe Wickline (who now is a coach for the University of Texas), and Wickline has countersued. According to the report, Wickline's contract with Oklahoma State require that he pay the balance of his contract ($593,478) if he left for another position and was not his new team's play-caller. Wickline claims that he is calling plays at Texas. What a bizarre thing to put in a contract. It's a reserve non-compete! In effect, Oklahoma State is saying that it would pay Wickline to call plays for a rival.
According to this report from the Courthouse New Service, Ted Marchibroda Jr., the son of NFL Football coach Ted Marchibroda, filed a $1 million malpractice lawsuit against Sullivan, Workman & Dee and trial lawyer Charles Cummings , alleging breach of contract, professional negligence and breach of fiduciary duty. In a 2011 lawsuit, Marchibroda accused sports agent Marvin Demoff of breaching an agreement to share the proceeds of NFL contracts for linebacker Chad Greenway. He claims that he is also owed money for recruiting center Alex Mack.
And continuing our sports report, Golf.com notes that golfer Rory McIlroy is taking a break from the "sport" to pursue his legal claims against his former management company, Horizon Sports Management. McIlroy claims that Horizon took advantage of his youth to extract an unconscionable 20% fee for McIlroy's off-the-course income. Horizon is claiming $3 million in breach-of-contract damages.
In a simpler companion case to the Sharpe v. AmeriPlan Corp. case about which we blogged earlier today, the Eighth Circuit affirmed the District Court's denial of a motion to compel arbitration in Quam Construction Co., Inc. v. City of Redfield. As reported here on Law.com, the case was relatively easy, since the contract at issue contained permissive language: "the parties may submit the controversy or claim to arbtiration." Given such language, the Eighth Circuit agreed with the Distrcit Court that arbitration could not be compelled.
Fifth Circuit Finds Arbitration Clause Trumped By Dispute Resolution Mechanisms in Parties' Prior Agreements
The Fifth Circuit's opinion in Sharpe v. AmeriPlan Corp. begins with a wise observation on the state of the law of arbitration. "As the use of arbitration clauses grows, so too do the legal arguments surrounding their validity and enforceability." The plaintiffs in the case raised all of the traditional objections to arbitration clause, labeling it: not supported by consideration, illusory, unconscionable, not broad enough to cover the dispute in the case, and waived. The Fifth Circuit rejected all of these arguments and nonetheless found for plaintiffs on the ground that the arbitration agreement could not be harmonized with dispute resolutions found in earlier agreements among the parties still in effect.
The plaintiffs were "independent business owners" (IBOs) who earned their income from AmeriPlan by selling health plans and recruiting additional IBOs. Upon recruiting the requisite number of IBOs, they earned the statue of Sales Directors, who can earn an income stream (down lines) from the commissions of the IBOs they had recruited. All named plaintiffs were Sales Directors when AmeriPlan terminated them without cause in 2011. In doing so, it also deprived plaintiffs of their down lines. Plaintiffs sued, alleging that they had been promised lifetime vested residual income.
The parties relationships were governed by three agreements. Three of the four named plaintiffs entered into Sales Director agreements with AmeriPlan that provided for mediation followed by litigation in the case of a dispute. After a jury returned a $5.5 million verdict against AmeriPlan in favor of a Sales Director, AmeriPlan added an arbitration clause to its Policy Manual. Plainitffs accepted this revision either by clicking an "I agree" icon on AmeriPlan's website or because AmeriPlan sent them notice of the change in the form of a revised Policy Manual that contained the new arbitration clause on page 22.
Plaintiffs sued in California. AmeriPlan had the case tranferred to federal court and then changed the venue to Texas. It then moved to compel arbitration. The District Court granted the motion while deleting two provisions that it found unconscionable. Plaintiffs appealed to the Fifth Circuit. The Fifth Circuit reversed as to three of the four plaintiffs.
The Court noted that an amendment to an agreement would ordinarily effectively supersede a prior, related agreement. Here, however, the Plaintiffs' Sales Director agreements provided they could only be amended through a written agreement executed by all parties. As that did not occur, here, the three plaintiffs whose agreements reserved a right to litigation retained that right. The survival of the original agreements was especially clear in that AmeriPlan had relied on language in those agreements in order to transfer the case from California to Texas. AmeriPlan conceded as much but claimed that the agreements could be harmonized. But the Fifth Circuit found that the detailed two-tiered plan in three of the plaintiffs' Sales Director agreements clearly required mediation followed by litigation in Texas. That structure could not be reconciled with the revised Policy Manual's arbitration clause. The Court was especially secure in its reading of three of the plaintiffs' Sales Director agreements because the fourth plaintiff had entered into an earlier version fo the agreement which lacked such details. The Court held that the addition of the detailed language manifested AmeriPlan's clear commitment to its two-tiered approach of mediation followed by litigation of disputes governed by the Sales Director agreements.
The Fifth Circuit reversed and remanded with respect to three of the plaintiffs. The fourth will have to arbitrate her claims. The Court acknoweldged that the result might seem arbitrary, but it was in fact simply a product of the Court's effort to give effect to the differing terms of the parties' agreements.
Friday, October 31, 2014
As I noted about a month ago the problem for the 2015 International Commercial Artbitration Moot is wonderful for those who like crossword puzzles, solving problems, reading mysteries, or doing detective work. There are facts, deadends, and read herrings galore. No one goes for a big sleep as far as I can tell but there is the dreaded issue of "fundamental breach." In fact, that appears to be the centerpiece of the problem. Just to make it a little twisty, the fundamental breach is by the buyer whose letter of credit may not conform to the contract. Since even that would be too simple, there is a second letter of credit that may or may not conform but which came after the first arguably non comforming one. There are phone calls, emails, letters, accusations, and even an emergency arbitration that, maybe, should not have occurred at all.
At my school 32 students are now writing briefs for the claimants side of the case and preparing for their oral arguments next week. There is something here even for profs not involved in the Moot. Just reading the problem will spark all kinds of ideas for exam questions suitable for the basic contracts course.
A few weeks ago, we blogged here about how some businesses may pay customers to remove negative reviews from sites such as TripAdvisor.
The blog raised the question of just how reliable online reviews are given this practice and, potentially, the business itself (or friends/family) posting numerous positive reviews, thus making for an entirely fake overall review.
Here’s a twist on that: Yelp will actually remove posts without notifying either the reviewed business or the review poster if the latter has not posted enough other reviews on Yelp. Of course, Yelp decides just how many other reviews are “enough.”
This happened recently to my husband, who is an extremely busy IT professional, but who nevertheless got such a good experience from a small local business that he took the time to post a for him rare review of the business with pictures of the product we had bought. A few days later, the business owner contacted him to ask why he had taken the review down again. He had not, but Yelp had for the above reason.
Of course, Yelp probably wants to avoid the occasional rage posting or an overly rosy review. However, the above practice seems unethical and unreasonable. Review sites will by nature have both good and bad reviews. Yelp has chosen to believe that if a person only posts one thing, it must by definition by unreliable as being too far on either end of the spectrum. However, the truth of the matter is that a lot of busy professionals do not have the time for or interest in posting a large amount of reviews. That, of course, does not make an occasional review unreliable, perhaps quite the opposite: if you don’t post a lot of views, the ones you do must reflect truly good or bad experiences.
Not only does Yelp waste reviewer’s time like this, but it does not even explain this policy on its guidelines section of its website.
A healthy dose of skepticism towards review websites seems warranted, which probably does not surprise too many of us.
Wednesday, October 29, 2014
Andrea J. Boyack, Common Interest Community Covenants and the Freedom of Contract Myth. 22 J.L. & Pol'y 767 (2014)
Jan De Bruyne, Liability of Classification Societies: Cases, Challenges and Future Perspectives, 45 J. Mar. L. & Com. 181 (2014)
Nancy S. Kim, Boilerplate and Consent, 17 Green Bag 293 (2014)
Jocelyn E. H. Limmer, China's New "Common Law": Using China's Guiding Cases to Understand How to Do Business in the People's Republic of China, 21 Willamette J. Int'l L. & Disp. Resol. 96 (2013)
Mark R. Matthews, A Doomed Proposal for Uniform Commercial Code Section 2-207: That Official Comment Would Have Led to Confusion, Not Clarity, 44 Cumb. L. Rev. 223 (2013-2014)
Tuesday, October 28, 2014
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In The Otoe-Missouria Tribe of Indians v. N.Y. State, Dep't of Financial Services, the Second Circuit upheld the District Court's denial for a preliminary injunction sought by two Native American tribes and related entities (collectively the Tribes) engaged in high-interest, short-term loans offered over the Internet. The interest rates on the loans exceeded state caps, and so the Department of Financial Services (the Department) sought to bar them. The Tribes sought a preliminary injunction, claiming that the bar violated the Indian Commerce Clause of the U.S. Constitution.
The Tribes' claims turned on whether the loans took place on their sovereign territory or in New York State. The Second Circuit observed that, although the loans were initiated on the Tribes' territories, they flowed across New York State. When the Department shut down the Tribes' loan operations, it had devastating effects on the tribal economies, and so the Tribes sued to enjoin the bar on their loans.
On review of the denial of the motion for preliminary injunction, the Second Circuit found no clear error. It concluded that, while the Tribes may ultimately prevail, the record is at this point too murky, and thus the Tribes could not establish their likely success on the merits.
Monday, October 27, 2014
According to his complaint, Abraham Inetianbor borrowed $2600 from Western Sky Financial, LLC in January 2011. Over the next twelve months, he paid $3252 to the servicer of the loan, CashCall, Inc. (CashCall). Believing that he had paid off the loan, Mr. Inetianbor then refused further payments. According to the complaint, CashCall responded by reporting a default to credit agencies, harming Mr. Inetianbor's credit rating. He sued, alleging defamation and usury, as well as a violation of the federal Fair Credit Reporting Act.
CashCall moved to compel arbitration pursuant to a clause in the loan agreement that called for "Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative . . . .” The District Court initially granted the motion, but it proved impossible for the parties to arbitrate since the Sioux Tribe "does not authorize arbitration." Eventually, the District Court denied the motion to compel CashCall appealed.
Before the 11th Circuit, Inetianbor v. CashCall, Inc., CashCall argued that; 1) the failure of the arbitral forum should not void the arbitration agreement even if the forum selection is integral to the agreement; 2) even if that were the rule, it only applies when the forum clause is "integral" to the agreement, and this forum clause was not "integral"; and 3) the District Court erred in finding the aribral forum unavailable. The Court rejected all three arguments.
First, under Circuit rules, the panel could not reverse a rule adopted by a previous panel. Such a reversal could only occur by the entire Court sitting en banc. Thus the panel was bound to hold to the Circuit's rule that arbitral agreements cannot be enforced where the forum fails and the forum clause is integral to the agreement. Second, after a lengthy discussion, the Court concluded that the forum clause at issue in this case was integral. Finally, the Court agreed with the District Court that the Tribe's involvement was essential and that arbitration involving the Tribe was unavailable.
Judge Restani, United States Court of International Trade Judge, sitting by designation, concurred. She agreed with the majority's conclusion that the arbitration agreement was unenforceable, but she would have struck it as unconscionable.
Friday, October 24, 2014
Today, October 24, 2014, is a banner day for contracts law because today is the date for two major conferences honoring two giants in the field.
First UC Hastings is hosting a Symposium to Honor Professor Chuck Knapp's 50th Year of Law Teaching. Here is the schedule for that.
8:45 – 9:00 Introduction & Welcome
9:00-10:30 Panel I -- The State of Contract Law
Professor Jay Feinman, Rutgers University - Camden
Professor William Woodward, Santa Clara University
Professor Danielle Kie Hart, Southwestern Law School
Moderator – Professor Harry G. Prince, UC Hastings College of Law
10:45-12:15 Panel II -- The Role of Casebooks in the Future of Contract Law
Professor Deborah Post, Touro Law Center
Professor Carol Chomsky, University of Minnesota
Professor Thomas Joo, UC Davis
Moderator – Professor Nathan M. Crystal, University of South Carolina
12:15-1:15 Lunch: Marvin Anderson Lecture – Professor Keith Rowley, UNLV
1:30-3:00 Panel III -- The Politics of Contract Law
Professor Peter Linzer, University of Houston
Professor Judith Maute, University of Oklahoma
Professor Emily M. S. Houh, University of Cincinnati
Moderator – Professor Jeffrey Lefstin, UC Hastings College of Law
3: 15-4:45 Panel IV -- The Future of Unconscionability as a Limit on Contract Enforcement
Professor David Horton, UC Davis
Professor Hazel Glenn Beh, University of Hawaii
Moderator – Professor William S. Dodge, UC Hastings College of Law
4:45-5:00 Concluding Remarks
In addition, the Temple Law Review is hosting a symposium in honor of Bill Whitford:
And here is the schedule for that:
9:00 - 9:30 Introductory Remarks9:30 - 10:45The Bankruptcy Research Database - Its Development and Impact
- Douglas Baird: The Transformation of Large Corporate Reorganizations 1979-2014 Seen Through the Lens of the BRD
- Bob Lawless: What Legal Empiricists Do Best
- Lynn LoPucki: Measuring Bankruptcy Success
- David Skeel: Rediscovering Corporate Governance in Bankruptcy: The LoPucki and Whitford Studies
11:00 - 12:15 The Lifecycle of Consumer Transactions: Consumer Contracting, Protection, and Bankruptcy
- Melissa Jacoby: Superdelegation
- Ethan Leib: Contra Proferentem and the Role of the Jury in Contract Interpretation
- Angela Littwin: Why Process Consumer Complaints? Then and Now
- Katherine Porter: The Ideal of Rough Justice: Consumer Protection as Business, and Business in Consumer Protection
12:30 - 1:45Lunch Break
- Brief video-presentation from a special guest
- Talk: Bob Hillman: Precedent in Contract Cases and The Importance(?) of the Whole Story; Response by Bill Whitford
2:00 - 3:15 Mixed Methods: Comparative Law, Comparative Methods
- Stewart Macaulay: Bill Whitford: A New Legal Realist Seeking to Understand Law Outside the Law School's Doors
- Iain Ramsay: US Exceptionalism and the Comparative Study of Consumer Bankruptcy
- Jay Westbrook: The Application of the Model Law on Cross-Border Insolvency in the United States, Canada, and the United Kingdom
- Jean Braucher: Examination as a Method of Consumer Protection
3:30 - 4:00 Free for All: What Don't You Know That You Should Know?
Yesterday's New York Times included a "The Upshot" column by Jeremy B. Merrill. The print version was entitled Online, It's Easy To Lose Your Right to Sue [by the way, why can't the Times be consistent in its capitaliziation of "to"?], but the online version's title tells us how easy, One-Third of Top Websites Restrict Customers' Right to Sue. The usual way they restrict the right is through arbitration provisions and class-action waivers. They do so through various wrap mechanisms so that consumers are bound when they click "I agree" to terms they likely have not read and perhaps have not even glanced at.
Some websites attempt to bind consumers by stating somewhere on their websites that consumers are bound to the website's and the company's terms simply by using the company's website or its products (I'm looking at you, General Mills). The only thing surprising about this, given the Supreme Court's warm embrace of binding arbitration and class action waivers, is that two-thirds of websites still do not avail themselves of this mechanism for avoiding adverse publicity and legal accountability.
As I was reading this article, it started to sound very familiar -- a lot like reading this blog. And just as I was beginning to wonder why the Times was not ' quoting our own Nancy Kim, the article did just that:
When courts decide whether a website’s terms can be enforced, they look for two things, Ms. Kim said: First, whether the user had notice of the site’s rules; and second, whether the user signaled his or her agreement to those rules. Courts have ruled that simply continuing to use the site signals agreement. When browsewrap agreements have been thrown out, as in the Zappos case, courts have said that the site’s link to the terms wasn’t displayed prominently enough to assume visitors had noticed it.
Congratulations to Nancy on such prominent notice of her scholarship!
And congratulations to the Times for paying attention!
Tuesday, October 21, 2014
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Monday, October 20, 2014
Class action lawsuits can be a great way for consumers to obtain much necessary leverage against potentially overreaching corporations in ways that would have been impossible without this legal vehicle. But they can also resemble mere litigiousness based on claims that, to laypeople at least, might simply seem silly. Decide for yourself where on this spectrum the recent settlement between Red Bull and a class of consumers falls. The background is as follows:
The energy drink Red Bull contains so much sugar and caffeine that it can probably help keep many a sleepy law professor and law student alert enough to get an immediate and urgent job done. I admit that I have personally enjoyed the drink a few times in the past, but cannot even drink an entire can without my heart simply beating too fast (so I don’t).
Red Bull’s marketing efforts promised consumers a “boost, “wings,” and “improved concentration and reaction speeds.” One consumer alleges in the class action suit that he “had been drinking the product since 2002, but had seen no improvement in his athletic performance.”
It strikes me as being a bad idea to pin one’s hopes on a mere energy drink to improve one’s athletic performance. These types of energy drinks seem to be geared much more towards a temporary sugar high than anything else. At any rate, if the drink doesn’t help, why continue drinking it for another 12 years?
Nonetheless, a group of plaintiffs filed claim asserting breach of express warranty, unjust enrichment, and violations of various states’ consumer protection statutes. The consumers claim that Red Bull’s deceptive conduct and practices mean makes the company’s advertising and marketing more than just “puffery,” but instead deceptive and fraudulent and thus actionable. The company of course denies this, but has chosen to settle the lawsuit “to avoid the cost and distraction of litigation.”
To me, this case seems to be more along the lines of Leonard v. Pepsico than a more viable claim. Having said that, I am of course not in favor of any type of false and misleading corporate claims for mere profit reasons, but a healthy dose of skepticism by consumers is also warranted.
Friday, October 17, 2014
The Alliance for Justice has released a documentary on forced arbitration called Lost in the Fine Print. It's very well-done, highly watchable (meaning your students will stay awake and off Facebook during a viewing), and educational. I recently screened the film during a special session for my Contracts and Advanced Contracts students. It's only about 20 or so minutes and afterward, we had a lively discussion about the pros and cons of arbitration. We discussed the different purposes of arbitration and the pros and cons of arbitration where the parties are both businesses and where one party is a business and the other a consumer. Many of the students had not heard about arbitration and didn't know what it was. Many of those who did know about arbitration didn't know about mandatory arbitration or how the process worked. Several were concerned about the due process aspects. They understood the benefits of arbitration for businesses, but also the problems created by lack of transparency in the process. I thought it was a very nice way to kick start a lively discussion about unconscionability, public policy concerns, economics and the effect of legislation on contract law/case law.
I think it's important for law students to know what arbitration is and it doesn't fit in easily into a typical contracts or civil procedure class so I'm afraid it often goes untaught. The website also has pointers and ideas on how to organize a screening and discussion questions.
Tuesday, October 14, 2014
Jimmy John's, a sandwich chain that frankly I had never heard of but which has over 2,000 franchise locations, apparently makes its employees sign pretty extensive confidentiality and non-compete agreements , as reported by Bob Sullivan and this Huffington Post article. It's not clear to me what trade secrets are involved in making sandwiches, although I am a big fan of more transparency when it comes to what goes in my food and how it's made. As Bob Sullivan points out, in this economy, employment-related agreements for most employees are typically adhesion contracts. Making workers sign non-competes to get a job makes it much harder for them to get their next job. In this case, the employee is prohibited from working for two years at any place that makes 10% of its revenue from any sandwich-type product (broadly defined to include wraps and pitas) that is within 3 miles of any Jimmy Johns location. Given that there are 2,000 such locations, it could make it difficult for some food industry workers to find other jobs.
|1||198||Rolling Back the Repo Safe Harbors
Edward R. Morrison, Mark J. Roe and Christopher S. Sontchi
Columbia Law School, Harvard Law School and United States Bankruptcy Courts, District of Delaware
|2||162||Featuring People in Ads (2014 Edition)
Eric Goldman and Rebecca Tushnet
Santa Clara University - School of Law and Georgetown University Law Center
|3||127||Contract as Empowerment Part II: Harmonizing the Case Law
Robin Bradley Kar
University of Illinois College of Law
|4||85||Three Models of Promissory Estoppel
Melbourne Law School
|5||84||Unbundling Efficient Breach
Maria Bigoni, Stefania Bortolotti, Francesco Parisi and Ariel Porat
University of Bologna - Department of Economics, University of Bologna - Department of Economics, University of Minnesota - Law School and Tel Aviv University
|6||84||Say the Magic Word: A Rhetorical Analysis of Contract Drafting Choices
Lori D. Johnson
University of Nevada, Las Vegas, William S. Boyd School of Law
|7||73||Contract Law and Regulation
University of Trento - Faculty of Law
|8||66||Performance-Based Consumer Law
Lauren E. Willis
Loyola Law School Los Angeles
|9||62||Does a Promise Transfer a Right?
University of Reading
|10||62||Good Faith: A Puzzle for the Commercial Lawyer
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Monday, October 13, 2014
We have posted previously about business entities that try to go after customers that give them negative reviews here and here. It seems, based on our limited experience, that threatening to sue customers for writing negative reviews is not a great business model.
Fortunately, there is a market solution. As reported in this weekend's column in The New York Times's "The Ethicist," businesses that recieve negative online reviews can just contact the reviewers and pay them to take down the review. According to the account in The Times, the author of a TripAdvisor review of a hotel entitled it "An Overpriced Dung Heap," but then accepted a 50% discount in return for removing the review. He should have bargained down to "Dung Heap," since the hotel probably was still a dung heap but perhaps was no longer overpriced.
The reviewer asked The Ethicist who was most unethical: himself, the hotel or TripAdvisor for hosting a system so easily corrupted. We don't get paid to weigh in on ethical matters. Actually, we don't get paid at all. But we do have opinions to vent, so here are some.
As The Ethicist acknowledged, what the hotel owner did was not illegal. An economist might reduce the question to one of efficiency. If the hotel owner thinks her money is well spent making bad publicity go away, rather than actually improving the quality of her hotel, that is a choice she can make as a business owner. The market may prove her wrong. The lack of negative reviews on TripAdvisor may not help if in fact one is greeted by a kickline of cockroaches and bedbugs when entering the guest rooms. The Ethicist dodges the stickier problem that TripAdvisor may contain only positive reviews of The Dung Heap Inn because the owners and their supporters flood the site with fake reviews. One would think that TripAdvisor's value would be correlated to its accuracy, but it is hard to see what measure TripAdvisor could take to insure that posts on its site are the real deal.
Friday, October 10, 2014
This is the fourth in a four-part post by Robin Kar that serves as a sort of coda to our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure.
Part I, The Proverbial “Egg,” can be found here.
Part II, Breaking Out of the Shell, can be found here.
Part III, What Is This Emerging New Life? can be found here.
Part IV: Discarding the Last Remnants of the Old Shell
When reading More Than You Wanted to Know together with the reactions in the virtual symposium, I have been struck by two facts. First, we clearly know much more about how mandatory disclosure regimes work than ever before. Details aside, a consensus is emerging that these regimes do not always help consumers make better decisions. Second, despite this increase in knowledge and emerging consensus over the problem, there is even more uncertainty and even less consensus over how consumer protection should be reformed in light of these facts.
i. Diagnosing the Problem
How can more clarity about the empirical facts lead to less clarity about what the law should be? I believe that part of the reason is simple: many of the current debates over these issues are still insufficiently attentive to the rigorous types of argumentation needed to address the purely normative aspects of these questions. To be more specific, the third premise of the classical law and economics movement (see Part I) has not yet been replaced by rigorously developed lines of argumentation from the appropriate cognate fields—as has happened with the first two premises.
In saying this, I do not mean to suggest that rigorous argumentation on these topics is lacking. I mean to highlight a sociological fact about the current legal academy. I believe that the right lines of argument have not yet been sufficiently absorbed by contract law scholars who work in and around the law and economics paradigm. Because of the predominance and recent expansions of this paradigm within the study of contract law, this third premise is increasingly assumed or tacitly accepted by many other contract law scholars. This includes many scholars who do work predominantly in law and psychology or engage in straightforward empirical legal research.
In More Than You Wanted to Know, Ben-Shahar and Schneider are, for example, apparently willing to accept that the primary purpose of consumer protection law is to help consumers make better decisions. This is why they recommend better advice instead of more disclosure. But interestingly enough, almost all of the people who have responded critically in this symposium appear to accept—either explicitly or tacitly—either the same normative proposition or the alternative view that consumer protection laws should be set up to promote social welfare more generally. (The most notable exception is Aditi Bagchi’s response—though Steven Burton’s plea that the authors spend more time thinking about obligation may represent a similar thought.)
Hence, there is a normative assumption running through many of the current debates. The assumption is that consumer protection laws should be shaped to promote either better subjective choice or human welfare more generally. But is this normative premise true? And before we even get to that question: how might we determine whether it is true?
After the jump, I will pursue these questions. I will suggest that we cannot get clearer about the appropriate shape of consumer protection law, however, until we ask the right normative questions. And I will suggest that we are not yet doing that in major areas of contract law studies.
Thursday, October 9, 2014
This is the third in a four-part post by Robin Kar that serves as a sort of coda to our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure.
Part I, The Proverbial “Egg,” can be found here.
Part II, Breaking Out of the Shell, can be found here.
Part III: What IsThis Emerging New Life?
In Part II, I described how More Than You Wanted to Know seeks to answer psychological and empirical questions relevant to consumer protection law based not on ungrounded psychological premises or the kind of abstract theoretical reasoning that is typically associated with the classical law and economics paradigm but rather on actual psychological and empirical research. I suggested that these methodological moves explain the power of the book to take us much closer to the truth about use and sufficiency of mandatory disclosure regimes to cure a host of problems in consumer contracting.
As someone interested in methodology and the sociology of knowledge production in the legal academy, I find developments like these incredibly interesting. I am fascinated by the fact that they are often viewed as developments internal to the law and economics movement—even though they essentially dispense with some of its early guiding premises and draw on methodologies from other cognate fields.
The movement to replace classical economic assumptions about human decision-making with psychological facts is, for example, sometimes called “behavioral economics”. But what is really happening is that classical economic assumptions about human psychology are being replaced with direct psychological research into the relevant facts. Similarly, the move to replace economic modeling with rigorous empirical research is sometimes called “econometrics”. But what is really happening—at least within the legal academy—is that fewer law and economics scholars are making predictions about legal rules based merely on theoretical modeling and more are engaging in genuine empirical research. When they do this, they typically use statistical and other methods developed in the social sciences more generally—and not methods specific to the field of economics.
In my view, one of the greatest virtues of some parts of the law and economics movement is that it has been willing to revise many of its early premises and adopt methodologies from other fields when necessary to make its scholarship better track the truth. This willingness is also one of its greatest sources of continuing strength. Because of this willingness, the field has essentially been able to absorb a broad range of criticisms, while continuing to broaden in influence and produce scholarship that better tracks the truth. More Than What You Wanted to Know is a wonderful example of this development—at least when it come to curing distortions caused by the first two premises of the classical law and economics paradigm. (For a description of these 3 premises, see here.)
Still, as far as I know, there is not yet any name for the move to replace ungrounded economic assumptions about how to assess normative arguments (i.e., premise 3 from Part I) with rigorous thought developed by experts in the appropriate cognate fields. These are the fields of moral, legal and political philosophy, along with the field of meta-ethics. Corresponding to this fact, there is not yet as robust an acknowledgment of the need for this move within many influential contract law circles.
When I say I believe significant new life may be emerging in the study of contract law, I am nevertheless referring to the possibility that all three of the classical law and economics premises be replaced with rigorous lines of evidence and argumentation drawn from the correct cognate fields. I am referring to a highly interdisciplinary research program that draws on (1) our best contemporary psychological findings into decision-making and how humans operate with legal rules when asking psychological questions relevant to contract law, (2) rigorous empirical research into the consequences of different legal rules when adopted by groups with real human psychologies, and (3) philosophically well-grounded argumentation and debate over the normative propositions that are most relevant to contract law.
I am describing a hope, not an expectation—because it is we, as a field, who will decide whether this new life fully emerges.
For a range of historically contingent reasons, the classical law and economics movement may just end up serving as the early vehicle (or the proverbial “egg”) for this transition within the legal academy. I believe that would be an incredibly good thing for the study of contract law because it would essentially allow the legal academy to adapt a ready-made set of social and academic networks that are already studying this subject matter intensively and in highly influential manners. But this would also require a much greater appreciation by scholars who work within this paradigm of the need for more rigorous philosophical input on normative questions.
The result would, moreover, not just be an expanded sub-field of law and economics. It would be better described as a fully informed search for the truth. The proverbial “egg” will have given birth to something much, much better.
But we are not yet there yet. There is still too large a disconnect between moral and political philosophers and economists within the legal academy. Hence, a great deal of highly influential work on contract law still risks producing distortion. In Part IV, I will show how this problem still affects many discussions of consumer protection law. I will also make a plea that we work together to breath the right new life into contract law studies going forward.
This is the second in a four-part post by Robin Kar that serves as a sort of coda to our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure.
Part I, The Proverbial “Egg,” can be found here.
Part II: Breaking Out of the Shell
As we all know, the law and economics movement has proven a formidable force within the legal academy, especially in relation to subjects like contract law. As recently as 2012, even Charles Fried, the author of Contract as Promise, was forced to acknowledge that “the economic analysis of law may today be the dominant intellectual approach to legal institutions generally and contract law in particular.”
Because of Omri Ben-Shahar’s training and intellectual ties, many will view More Than What You Wanted to Know as a work that is partly internal to the law and economics movement. This affiliation should help the book because it will allow the book to speak credibly to a wide range of influential contract law scholars who currently share this affiliation. The book ultimately challenges one of the early dogmas of the classical law and economics paradigm, as described in my prior post, but—because of the book’s intellectual affiliations—the book can pose this challenge in an especially effective manner.
It should nevertheless be noted that the central insights in the book arise not from anything specific to the field of law and economics but rather from rejection of the field’s first two classical premises. With respect to human psychology (see premise 1 in Part I), Ben-Shahar and Schneider do not simply assume that consumers make more rational decisions whenever more facts are disclosed to them. Instead, they canvass a wealth of psychological evidence to the contrary. This evidence shows that consumers are especially likely to make poorer decisions as their choices become more complex and unfamiliar and when those terms are dictated by sophisticated contracting parties.
When determining the likely consequences of legal rules (see premise 2 in Part I), the authors similarly avoid abstract economic modeling and turn instead to direct empirical data. They draw this empirical data from a broad range of sources, and the facts suggest that mandatory disclosure regimes have increasingly begun to harm consumers in many contexts.
One reason for this is dynamic. Over time, mandatory disclosure regimes tend to lend increasing complexity and unfamiliarity to even the most banal of transactions. In one particularly poignant example, the authors describe the $.99 purchase of an iTunes song—which was accompanied by 32 feet of complex and often incomprehensible boilerplate (when printed out in a tiny font, as illustrated on the left). One of the underappreciated consequences of mandatory disclosure regimes is that they have increasingly begun to flummox consumers in even the simplest of transactions.
In highlighting facts like these, More Than You Wanted to Know takes us much closer to the truth about mandatory disclosure regimes than classical law and economics methodologies can. Speaking from a purely methodological perspective, it is able to do this because it is willing to abandon the first two premises of the classical paradigm and replace them with something better. It seeks to answer psychological and empirical questions relevant to consumer protection law based not on ungrounded premises but rather on actual psychological and empirical research.
This is an example of the emerging new life that I see in contract law studies. It is a better life because it is more likely to track the truth.
In my next post, I will nevertheless reflect more deeply on this new life. I will ask whether we have gone far enough as a field to make it really come to life. Have we—in other words—gone far enough yet to ensure that our collective research best tracks the truth?
Wednesday, October 8, 2014