Sunday, March 13, 2016
Video recordings of most of the proceedings at KCON XI are available courtesy of our friends at St. Mary's University School of Law, and we are pleased to highlight and share those with you here. This set comes from the presentation on Friday, February 26, 2016, of the conference's Lifetime Achievement Award to Professor Peter Linzer of the University of Houston Law Center. In keeping with the theme of honoring Professor Linzer, the presentation is paired with a panel that he moderated on Saturday, February 27, 2016 on the Consumer Financial Protection Bureau. You can view each video by clicking on the link following the applicable description.
Lifetime Achievement Award Ceremony Honoring Peter Linzer (held at the Plaza Club)
- Moderator: Peter Linzer, University of Houston
- Richard Frankel, Drexel University
- Ramona Lampley, St. Mary’s University School of Law
- Jean Sternlight, University of Nevada, Las Vegas
- Watch the panel video
Saturday, March 12, 2016
Video recordings of most of the proceedings at KCON XI are available courtesy of our friends at St. Mary's University School of Law, and we are pleased to highlight and share those with you here. This set comes from the third concurrent sessions held on Friday, February 26, 2016. You can view each video by clicking on the link following the applicable list of speakers.
- Moderator: Daniel Barnhizer, Michigan State University College of Law
- Mark Edwin Burge, Texas A&M University, Contract Law in Emerging Payment Systems
- Catherine Christopher, Texas Tech University, Virtual Currency
- Angela Walch, St. Mary’s University School of Law, Blockchains as Infrastructure
- Watch the panel video
- Moderator: Danielle Hart, Southwestern Law School
- Nadelle Grossman, Marquette University, Transactional Contracts and Textbook Simulation Discussion
- Russell Korobkin, UCLA School of Law, Bargaining with the CEO: The Case for “Negotiate First, Choose Second”
- Jane Winn, University of Washington, Framework Contracts and the New Managerial Revolution
- Watch the panel video
Friday, March 11, 2016
I bet we'd have a lot fewer people fighting arbitration clauses if arbitration = tweeting J.K. Rowling.
As reported around the Internet, a student and her high school science teacher entered into a contract concerning whether Rowling would write another Harry Potter book. The contract called for the loser to declare the victor "Mighty" (a much more charming form of consideration than payment of a sum of money).
The article (from last month) reports that there were two possible Harry Potter pieces of creativity to be contended with. One is the prequel movie Fantastic Beasts and Where to Find Them. Rowling wrote the original textbook (which already existed at the time the contract was entered into and so isn't part of the dispute) and also wrote the screenplay for the movie, which could have been in dispute. However, the article points out that Rowling wrote the screenplay to the movie, and the contract concerns a Harry Potter "novel." Even if you wish to make an argument that screenplays should have been included in the definition of the contractual term "novel," it seems like Fantastic Beasts would fail because it does not "feature the character Harry Potter as part of the main plotline," as required by the contract. (At least, so I assume from what I know about the movie so far.)
The other piece of Harry Potter creativity being debated under the contract, and the one for which Rowling was called in to arbitrate, concerned Harry Potter and the Cursed Child, a play focusing on Harry as an adult and his relationship with his children, especially his son Albus. Cursed Child raised issues: It was a play but it is being billed as "the eighth story," the script will be published in text form, and the website claims it's "based on an original story by J.K. Rowling, Jack Thorne and John Tiffany." It does seem as if, considering this is a "play," even its published script would not be considered a "novel" under the contact. However, the student who was a party to the contract sought further clarification from Rowling.
Using the convenient method of Twitter, the student explained her contract to Rowling and asked for a decision on whether Cursed Child would fulfill the terms of the contract. Rowling responded, confirming that Cursed Child is a play and also noting that, while she had contributed to the story, Jack Thorne was the "writer" of the play.
The student was pleased that her clear contractual terms meant that she was still the victor, but also noted that the term of the contract had not yet run. Since the publication of the article and the arbitration of the Cursed Child dispute, J.K. Rowling has announced a new set of stories to be collected under the title History of Magic in North America. So far, these stories also seem not to fulfill the terms of the contract, as they seem more like "extra books" rather than "an entirely new book," and they do not seem to feature Harry Potter at all. However, Rowling seems to be dancing right around the edges of this contract's terms.
If a recording artist enters into a personal services agreement with a record company that, among other things, contains a promise that the artist will “look solely to [a corporate version of the music band] for the payment of my fees and/or royalties … and will not assert any claim in this regard against [the record company],” has the artist then waived his/her right to sue under the contract if the band’s corporated version does not do so? Probably not, according to the Ninth Circuit Court of Appeals. At least this is a factual inquiry that cannot be resolved on a 12(b)(6) motion. The case is Dale Bozzio v. EMI Group Limited, et al.
In the 1980s, Dale Bozzio was the frontwoman of the band Missing Persons. The band incorporated as “Missing Persons, Inc.,” as is normal in the entertainment industry, so that any contracts with entertainment companies would be signed by one legal entity and not all the individual band members. The corporation, however, was suspended under California law. Bozzio recently sued Capital Records for royalties that she believed were still owed to her notwithstanding the suspension issue. Capitol Records argued that Bozzio waived any right to sue Capitol – including the right to sue as a third-party beneficiary – by signing the “look solely to” artist declaration mentioned above. This in spite of other contract clauses stating, for example, that if the band corporation should case to exist, the individual artists would assume the corporation’s contractual obligations. The contract also stated that Capitol Records had agreed to “pay Artist all royalties and advances required to be paid….” Bozzio argued that the “look solely to” clause was intended to prohibit an artist from asserting a claim against Capital Records only in cases of a dispute among individual band members over the internal allocation and distribution of royalties that have already been paid for by the record label.”
The court found that nothing in the record foreclosed this latter argument and that the issue should be resolved by a trier of facts. Under California law, third-party beneficiaries to a contract “made expressly for the benefit of a third party, may be enforced by him[/her] at any time before the parties thereto rescinded it.” This quite clearly seems to cover Bozzio’s case. The argument that artists should look to their own companies for royalty payments from the entertainment companies with which they have “signed” is not only highly circular, it also flies in the face of logic. This again goes to show the craftiness of litigating attorneys and their client’s willingness to try almost anything to win a case whether warranted or not.
Video recordings of most of the proceedings at KCON XI are available courtesy of our friends at St. Mary's University School of Law, and we are pleased to highlight and share those with you here. This set comes from the second concurrent sessions held on Friday, February 26, 2016. You can view each video by clicking on the link following the applicable list of speakers.
Innovations in Teaching and Mentoring
- Moderator: Robert D. Brain, Loyola Law School Los Angeles
- Keith A. Rowley, UNLV William S. Boyd School of Law
- Frank G. Snyder, Texas A&M University
- Ben Templin, Thomas Jefferson School of Law, The New Pedagogy: Here’s the ball. Let’s play catch
- Watch the panel video
Contract Law in an Administrative and Regulatory Context
- Moderator: James W. Fox Jr., Stetson University College of Law
- Hazel Beh, University of Hawai’i, Insurance as the AntiContract
- David Friedman, Willamette University College of Law, Refining Advertising Regulation
- Peter Marchetti, Texas Southern University, Thurgood Marshall School of Law, Bankruptcy “Clawback” Provisions: Congress Needs to Amend Section 546
- Chris French, Penn State Law, The Illusion of Insurance Contracts
- Watch the panel video
Thursday, March 10, 2016
Video recordings of most of the proceedings at KCON XI are available courtesy of our friends at St. Mary's University School of Law, and we are pleased to highlight and share those with you here. This set comes from the first concurrent sessions held on Friday, February 26, 2016. You can view each video by clicking on the link following the applicable list of speakers.
Professorial Professions: Creating a Student-centered Contracts Classroom
- Moderator: Hazel Beh, University of Hawai’i
- Charles Calleros, Arizona State University
- Myanna Dellinger, University of South Dakota
- Frank G. Snyder, Texas A&M University
- Adrian J. Walters, Chicago-Kent College of Law
- Deborah Post, Touro Law Center, Politically Conscious Pedagogy
- Watch the panel video
What You Thought You Knew About Remedies in Sales Transactions May Not Be True: Highlights in Article 2 Remedies and Contracting for Limitations
- Moderator: Mark Burge, Texas A&M University
- Sidney DeLong, Seattle University, The Notice of Breach Dilemma: Conflict and Cooperation in Eastern Airlines v. McDonnell Douglas
- Nancy Kim, California Western School of Law, Teaching UCC Remedies from Concept to Clause
- Colin Marks, St. Mary’s University School of Law, On-Line and As Is
- Jennifer Martin, St. Thomas University, Opportunistic Resales and the UCC
- Watch the panel video
The Weekly Top Ten returns after an administrative slippage last week. Thank you for your patience!
|1||548||Simplification of Privacy Disclosures: An Experimental Test
Omri Ben-Shahar and Adam S. Chilton
University of Chicago Law School and University of Chicago - Law School
|2||339||Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
|3||165||Contracting for the ‘Internet of Things’: Looking into the Nest
Guido Noto La Diega and Ian Walden
Buckinghamshire New University, Department of Law and Queen Mary University of London, School of Law
|4||142||From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
|5||132||Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts
University of Chicago - Law School
|6||123||The Nature of Vitiating Factors in Contract Law
University of Oxford – Faculty of Law
Shawn J. Bayern
Florida State University - College of Law
|8||92||Disgorgement of Profits in Canada
Lionel Smith and Jeff Berryman
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law and University of Windsor - Faculty of Law
|9||87||Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG
Gralf-Peter Calliess and Insa Buchmann
University of Bremen - Faculty of Law and Max Planck Institute for European Legal History
|10||72||Contracting Out of Fiduciary Duties
University of Hong Kong - Faculty of Law
Tuesday, March 8, 2016
Outsourcing work to locations where employees earn even less than many in the United States do has already become commonplace. Now comes the corporate idea of “taskifying” work to people eager to obtain some work, even if just in bits and pieces. “Crowdwork,” as it is known, lets companies use online platforms such as Amazon Mechanical Turk or www.fiverr.com to find people willing to do routine tasks such as drafting standardized reports, filing forms, coordinating events and debugging websites, but also much more complex ones such as designing logos, ghostwriting, etc. Many of today’s work tasks can be broken up into bits and farmed out online, and many employers are already doing so. Could this also come to encompass routine lawyerly work? Quite possibly so. Researchers at Oxford Univesity’s Martin Programme estimate that nearly 30% of jobs in the U.S. could be organized in a crowdwork format within just twenty years.
In this context where few regulations or laws yet govern the contracts, workers would no longer be either “employees” or “contractors,” (which has already proved to be troublesome enough for companies such as Uber), but rather “users” or “customers” of the websites that enable, well, workers and companies (“providers”) to find each other. These transactions would not be governed by employment contracts, but by online “user agreements” and “terms of service” that currently resemble software licenses more than employment contracts. There are few, if any, legal obligations towards employees in the current legal landscape that also offers employees very few means for obtaining and enforcing something so basic pay for the work performed.
Employers today require a flexible and eager workforce that is constantly on the ready and that can maybe even work 24 hours a day. Crowdworkers provide just such availability and demand very low salaries because the name of the game seems to be to compete on prices. The problem is that workers, to have a decent life, need the opposite: stability, higher salaries than what is often currently the case, retirement, salary, and medical benefits. Do these come with crowdwork tasks? Sadly, no.
What could go wrong? Consider this case: Mr. Khan, an Indian man living in India, was eager to make some money. He decided to try Amazon’s Mechanical Turk. On good days, he would make $40 in ten hours; more than 100 times what his neighbors made as farmers. He even outsourced some of his own work to a team that he supervised. This must have violated Amazon’s Participation Agreement as all of a sudden, Mr. Khan received the message that his account was closed and “could not be reopened.”Amazingly, Mr. Khan was also notified that “[a]ny funds that were remaining on the account are forfeited, and we will not be able to provide any additional insight or action.” Talk about lopsided contracts! Using a “Contact Us” link, Mr. Khan was eventually able to get through to Amazon, which simply referred him to a contractual clause stating that Amazon had the “right to terminate or suspend any Payment Account … for any reason in our sole discretion.”
With these types of ad-hoc online agreements, people who should arguably at least have been classified contractors if not, as in some current cases, employees. Of course, this only pertains to U.S. law, but it is important to note that not all jobs are “taskified” to foreign workers. Thus, employees risk being “stiffed” twice: once for losing their jobs to cheaper folks willing to be crowdworkers and, if they chose to work under such contracts and don’t do exactly as the “provider” requires in their apparent almost exclusive discretion, not being paid and not having any effective means of enforcing their contracts. An undisputedly troublesome development both in this nation and beyond.
How could at least the issue with medical and other employee benefits be solved? It might via universal payment systems such as those typical in EU nations. There, when employees change jobs, their vacation time, medical and other benefits travel remain in a centrally administered pool (whether government administered or privately so with tough regulations in place), they do not become discontinued with the employment only to have to be restarted under other plans as typical in this country. This system could potentially be transferred to the crowdwork arena. A percentage of each job (sometimes even called “gigs”) could be centra lly administered in a more employee-centric version than the still American employer-centric solutions. Such systems are, of course, largely seen here in the U.S. as “socialist” and thus somehow inherently negative.
As if the employment situation for workers around the world is not already bad enough, add this new development, called “a tsunami of change for anyone whose routine work can be broken into bits and farmed out online.” Our students’ future work tasks may, at least in the beginning of their careers, constitute just such work. This is a worrying development as workers in our industry and in this country in general are not seeing improved working conditions in general. Crowdworking could add to that slippery slope.
Monday, March 7, 2016
As Stacey writes just below this post, much is happening in the arbitration arena currently.
In December, the United States Supreme Court ruled that the 1925 Federal Arbitration Act pre-empts state law. Thus, when parties have executed agreements calling for arbitration rather than court resolutions, the arbiration clause will be upheld. The case was DirectTV, Inc. v. Imburgia, No. 14-462.
In the case, Imburgia’s contract stated that “[i]f ... the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 [the arbitration section] is unenforceable.” http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf
The Supreme Court noted that when DIRECTV drafted the contract, the parties likely believed that the words “law of your state” included California law that then made class-arbitration waivers unenforceable. But the Court’s subsequent holding in AT&T Mobility LLC v. Conception found that the Federal Arbitration Act pre-empts state law on the issue. Thus, parties cannot contractually bind themselves to invalid state law. When they refer to “state law,” this means only valid state law.
These rulings favor businesses, not consumers. This is so particularly so in cases between consumers and banks or credit card companies. A 2007 report found that over four years, arbitrators ruled in favor of the financial institutions in no less than 94% of the cases. Of course, in the typical take-it-or-leave it style contract, consumers have the choice only of agreeing to arbitrate or not getting the desired service.
As for the belief that arbitration saves scarce judicial resources, it is noteworthy that businesses file four times as many lawsuits as individuals. “It is hard to imagine any company giving up its own right to sue another company in a business dispute.” Double standards abound here.
Meanwhile, in early February, Senators Leahy and Franken introduced the Restoring Statutory Rights Act. This would create an exception in the Arbitration Act for disputes involving individuals and small businesses. The only way individuals would enter into arbitration is if they agreed to do so after the dispute has been filed. That’s very different from the current process, which automatically shunts all customer disputes into binding arbitration.
The Consumer Financial Protection Bureau is also considering a ban in mandatory-arbitration provisions in contracts for credit cards and other financial services. The Centers for Medicare and Medicaid Services is looking to do the same in relation to nursing home contracts.
Acts and regulations are highly warranted in this context. We know where the Supreme Court currently stands on the issue. We do not know where it will go with a new justice soon to be appointed, but judicial branch action in this area may not be forthcoming any time soon.
People keep challenging arbitration provisions, and they keep losing. In this instance, a case out of Washington called Marcus & Millichap Real Estate Investment Services of Seattle, Inc. v. Yates, Wood & MacDonald, Inc., No. 73199-8-I.
This time, the parties were both voluntary members of the Commercial Broker's Association (the "CBA"), the bylaws of which contained a clause that CBA members agreed to arbitrate disputes with each other according to the CBA's arbitration procedure. Neither party ever signed any sort of membership agreement to belong to the CBA, which Marcus focused on in its argument that the arbitration provision therefore wasn't enforceable. Marcus argued that, without a signed agreement, there was no evidence that it had manifested assent to the arbitration provision. However, well-established Washington law held that membership in the voluntary organization was evidence enough that Marcus and Yates assented to abide by its bylaws. There was no requirement that there be a signed agreement.
Marcus didn't confine its arguments to just asserting that there should have been a signed agreement, however. Marcus then tried to argue that it wasn't even a member of the CBA, because of the fact that no one had been able to produce a membership agreement signed by Marcus. This was a bad move on its part and lost it a lot of credibility. The court pointed out that Marcus had paid all of the CBA's required fees and dues since 1993 and had in fact on two previous occasions taken advantage of the CBA's arbitration tribunal to resolve disputes, a procedure only available to CBA members. The court also pointed out that, despite testifying that he did not believe Marcus was a member of the CBA, Marcus's regional manager had routinely provided other brokers with Marcus's "CBA Office ID" number.
Marcus was willing to fight hard to keep this dispute out of arbitration, to the point of having to be scolded by the court for "prevaricating." At the point when that is happening, I'm not sure winning the case and staying in front of that judge is what you want!
Friday, March 4, 2016
I am pleased to be able to post the following from guest blogger Creola Johnson of the Ohio State University Moritz College of Law:
“His promises are as worthless as a degree from Trump University,” said Mitt Romney during a speech denouncing Donald Trump’s candidacy for the presidency. This statement has prompted additional inquiries into lawsuits filed against Trump University by New York Attorney General Eric Schneiderman and others. (See Petition from New York v. The Trump Entrepreneur Initiative LLC.)
In a class-action lawsuit, many attendees of Trump University alleged that they paid as much as $35,000 to be personally mentored in learning how to earn millions investing in real estate. Despite numerous attempts by lawyers for the Trump defendants to get these lawsuits to dismiss, courts have given the green light for the lawsuits to continue against the Trump defendants. See, e.g., Makaeff v. Trump Univ., LLC, No. 10-CV-940-IEG (WVG), 2010 WL 3988684 (S.D. Cal. Oct. 12, 2010) (refusing to dismiss claims against the for-profit Trump program on educational malpractice grounds because the court was not convinced “Trump University” was “an educational institution to which this doctrine applies.”). For the most recent decision permitting Mr. Schneiderman’s case to proceed, go to: http://www.courts.state.ny.us/courts/AD1/calendar/appsmots/2016/March/2016_03_01_dec.pdf.
What can we say for sure at this juncture about the lawsuits? First, “Trump University” was not a university. There are numerous educational standards and laws that must be complied with for an institution to legitimately claim to be a university. The question then becomes: did the people running Trump’s real estate program (the Trump Program) make promises that arose to level of being a contract. For example, the consumer-plaintiffs alleged that the Trump Program promised that the instructors and mentors running the program would be “hand-picked by Donald Trump.” However, this promise was allegedly breached because most of the instructors and mentors were unknown to Mr. Trump and that they didn’t actually teach any real estate techniques.
We’ll have to wait for a court or jury’s finding regarding what promises were actually made by Donald Trump and the people running the Trump Program. The good news for the plaintiffs and Mr. Schneidermann is that they do not have to prove the existence of a contract. New York, along with every state, has laws that prohibit businesses from engaging in deceptive and unfair business practices.
Consumers should be leery of any language that appears to promise an educational outcome—e.g., “you will earn a six-figure salary after graduation.” While a state’s attorney general, such as Mr. Schneiderman, has the authority to make businesses stop deceptive practices, the attorney general may not be able to get back the money consumers have lost. If it sounds too good to be true, it probably is! For an in-depth discussion of deceptive degrees, see my article, Degrees of Deception: Are Consumers and Employers Being Duped by Online Universities and Diploma Mills?
President’s Club Professor of Law,
The Ohio State University Moritz College of Law
Wednesday, March 2, 2016
This case out of California, Gilkyson v. Disney Enterprises, Inc., B260103, involves the song "The Bare Necessities," which, as you can see from the above, is readily available on YouTube. The song was written by Terry Gilkyson (this might come up in a trivia competition someday, you never know). His adult children are the plaintiffs in this case.
In the 1960s, Gilkyson wrote several songs for Disney pursuant to a work-for-hire contract under which Disney was deemed the author and owner of the songs and Gilkyson was paid $1,000 per song together with ongoing royalties for certain licensing. The contract specifically excluded royalties for use of the songs in "motion pictures, photoplays, books, merchandising, television, radio and endeavors of the same or similar nature." Disney has paid royalties on the song to Gilkyson and his heirs but Disney has never paid royalties for use of the songs in any audiovisual medium, including DVDs. The Gilkyson heirs disagree with Disney's interpretation of the contract and believe that they are entitled to royalties for use of the songs on VHS tapes and DVDs. Disney argues that the four-year statute of limitations on breach of contract actions bars all of the Gilkysons' claims, because all of the VHS tapes and DVDs complained about were first issued sometime prior to 2007. Therefore, according to Disney, Gilkyson should have brought this claim by 2011, not, as it did, in 2013.
Disney loses this argument, however, based on the continuous accrual doctrine: "[E]ach breach of a recurring obligation is independently actionable." Basically, California law interprets the contract with Disney as being divisible, with each breach of that contract actionable and subject to its own statute of limitation period. Therefore, the court concluded that the Gilkysons could seek recovery of the royalties that were due for a period beginning four years from the filing of their complaint (so, from 2009 onward). According to this court, the California state court jurisprudence on this appears to be clear (although note that, at the trial court level, this case was dismissed without applying the continuous accrual doctrine). Disney pointed to a Central District of California case from 2001 that rejected the plaintiff's continuous accrual doctrine argument, but this California state court noted that it did so without any citation to any California case and that this court disagreed with that case's conclusion.
So it's on to the next step for these parties: fighting over the interpretation of the contract. Or settlement.
Monday, February 29, 2016
Are arbitration provisions binding against exotic dancers? Well, if you're wondering, in this Connecticut case, Horrocks v. Keepers, Inc., CV156054684S (behind a paywall), the answer is yes.
The plaintiffs here filed the lawsuit alleging that they were employees, not independent contractors as the gentleman's club maintained, and as such the club had violated plaintiffs' legal rights as employees, including failing to pay minimum wage. The club moved to stay the proceedings arguing that it had signed an entertainment lease agreement with all of the dancers that required binding arbitration to resolve disputes.
The plaintiffs' main argument was that the entire entertainment lease agreement was void because it had an illegal purpose in seeking to implement the club's violation of labor laws as alleged in the plaintiffs' complaint. Because the entire agreement was void, the argument went, the arbitration clause wasn't enforceable. In the alternative, the plaintiffs argued that the arbitration provision was unconscionable.
On the plaintiffs' first point, the court concluded that the legality of the overall entertainment lease agreement was a matter for the arbitrator to decide. According to Connecticut precedent, the courts' job is only to determine if the arbitration clause is valid; every other issue is left to the arbitrator. Therefore, all of the arguments about the illegality of the entertainment lease agreement were left to the arbitrator, and the court focused its analysis on the alleged unconscionability of the arbitration provision.
We've seen this story before. And, in fact, courts have seemed pretty determined to find arbitration provisions enforceable, even when other parts of the contract were unconscionable (or, as here, where it was questionable whether the contract was enforceable at all). There was actually Connecticut precedent about another set of exotic dancers suing another gentlemen's club with similar allegations, and in that case, D'Antuono v. Service Road Corp, 789 F. Supp. 2d 308 (D. Conn. 2011), the court upheld the arbitration provision against attacks of unconscionability. The court in this case follows the precedent, finding this case indistinguishable from D'Antuono.
The court here allows for the possibility that this arbitration clause was part of an unenforceable adhesion contract presented in bad faith with a knowing illegal purpose, but says that alone isn't enough to deny enforcement of the arbitration clause, because that would only be procedural unconscionability. As far as substantive unconscionability went, the cost and fee shifting provisions provided in the arbitration clause weren't unreasonable, and the class action waiver included in the arbitration provision was also not unconscionable according to precedent: "Requiring the plaintiffs to pursue their claims individually is not an ineffective vindication of their rights."
I admit that I'd never really given a lot of thought to class action waivers, but it does seem odd to assert that class action waivers do not harm the plaintiffs' ability to vindicate their rights. After all, class actions are frequently understood to exist to correct the problem that, sometimes, individual pursuit of claims isn't effective.
At any right, individual pursuit through arbitration is what these plaintiffs are left with.
Saturday, February 27, 2016
While there may be no substitute for being there, we'll do the best that we can. The many excellent KCON XI panels here at St. Mary's University are being recorded, and I hope for us to have a series of posts making available and highlighting those panels in the future.
Stay tuned for content and comment as it becomes available in upcoming days!
Friday, February 26, 2016
Today marks the beginning of the Eleventh International Conference on Contracts, and I'm pleased to be in attendance. KCON XI is being held at St. Mary's University School of Law in San Antonio, Texas, and many of us are staying at the conference hotel, The Menger, which I have now learned is "the oldest continuously operating hotel west of the Mississippi," having been established in 1859. The setting here in the Alamo City seems fitting for what, under any reasonable-person standard, is a gathering of the Most Interesting Profs in the WorldTM, one member of whom is pictured at the left.
Conference highlights are scheduled to include the presentation of a Lifetime Achievement Award to Professor Peter Linzer of the University of Houston Law Center. Professor Linzer is an appropriate recipient of this year's award, having had a distinguished career that includes work with E. Allan Farnsworth on the Restatement (Second) of Contracts and a role as a significant participant in the decade-plus history of this conference.
A difficulty with any event like this one is the inability to attend all of the concurrently scheduled panels. Both concurrent panels kicking things off look excellent, with one being Professorial Professions: Creating a Student-centered Contracts Classroom, which will be moderated by Hazel Beh of the University of Hawai'i, and is set to include Charles Calleros (Arizona State University), our esteemed blog editor Myanna Dellinger (University of South Dakota), my colleague Frank Snyder (Texas A&M University), and Deborah Post (Touro Law Center).
I will be at the other (and equally excellent panel) during that first session, and that panel turns out to be an easy choice for me as I (Mark Burge - Texas A&M University) will be the moderator. The session is titled What You Thought You Knew About Remedies in Sales Transactions May Not Be True: Highlights in Article 2 Remedies and Contracting for Limitations, and the UCC goodness therein will be delivered by Sid DeLong (Seattle University), Nancy Kim (California Western), conference organizer Colin Marks (St. Mary's University), and Jennifer Martin (St. Thomas University - Florida). I look forward to spending the morning with such a wonderful group of colleagues.
If you are attending KCON and have any comments, observations, or non-incriminating photos that you would like to share, drop me an e-mail at the bot-decoded version of the following address: markburge "at" law "dot" tamu "dot" edu.
Thursday, February 25, 2016
Wednesday, February 24, 2016
We've looked at arbitration provisions and unconscionability before. In this recent case out of California, Yeotis v. Warner Pacific Insurance Services Inc., No. B245770, the agreement in question was found to be unconscionable in places, but that didn't doom the arbitration provision contained within it.
There was an element of procedural unconscionability to the contract. The court concluded that the contract was an adhesion contract, because the plaintiff was required to sign it in order to keep her job. There was, therefore, some procedural unconscionability attached to the formation of the contract. Additionally, there was some substantive unconscionability in the contract's provisions that gave the court pause. The wording of the contract required the plaintiff to pay fees in arbitration that she wouldn't have had to pay in a court of law. The defendant tried to argue that that was only the impression given and that the plaintiff would never have had to pay those fees in reality, but the court was concerned that the plaintiff would assume, under the contract's language, that she would be responsible for the fees and therefore might hesitate to pursue her remedy against the employer.
So the court directed the costs provision to be severed from the contract, but it found that the rest of the contract was enforceable. The procedural unconscionability was slight, it thought, and did not permeate the whole contract. The plaintiff's allegation that she had never been provided with the relevant arbitration rules prior to signing the contract was unpersuasive to the court as a more serious procedural unconscionability problem because the court thought she could have found the rules herself very easily and there was no contention otherwise. As for the rest of the arbitration procedures as explained in the contract, the court found that they were not substantively unconscionable and so could be enforced.
Tuesday, February 23, 2016
American Airlines has nonsuited (i.e., dismissed without prejudice to refilling the lawsuit) its declaratory judgment claim against Gogo. American had recently asked a Texas state court to determine whether the provision of the availability of "better service" (or some similar term) in its 2012 contract had been triggered such that American could force Gogo to submit a competitive bid to retain its service.
As discussed in a previous post, American's negotiating leverage arose as much from the publicity surrounding it filing of a lawsuit as it did from the actual contract term. The term was apparently vague enough that Gogo could (and did) take the position that its rights as American's exclusive in-flight service provider had not been called into question by American's request for a new proposal. Upon American's filing of a declaratory judgment lawsuit in Texas state court, however, Gogo's stock price dropped 27 percent.
Today, the word is out that Gogo has changed its position and accepted American's interpretation of the contract. The Fort Worth Star-Telegram reports:
[American Airlines had said] that its contract with Gogo allowed it to renegotiate or terminate its agreement if another company offered a better service. Gogo had disputed that clause in the contract, but Friday agreed to the contract provision and said it would provide a competitive bid within 45 days.
“American is a valued customer of Gogo, and Gogo looks forward to presenting a proposal to install 2Ku, our latest satellite technology, on the aircraft that are the subject of the AA Letter,” Gogo said in a government filing Friday. “We acknowledge the adequacy of the AA Letter and that our receipt of the AA Letter triggered the 45 day deadline under the agreement for submission of our competitive proposal.”
* * *
Once American reviews Gogo’s proposal, if it does not beat out a competitor’s proposal, American can terminate Gogo’s contract with 60 days’ notice.
Shares of Gogo [ticker: GOGO] jumped on the news of the dropped lawsuit, up almost 10 percent....
The swift manner in which this episode had played out emphasizes the extent to which contract doctrine and interpretation it frequently not the principal driver of business relationships. Gogo could have marshalled a team of lawyers and stood on its interpretation of the contract up to final judgment--likely a summary judgment based on a question of law. But what would be the reputational and business cost? Eventually, the marketplace won't allow contract rights to serve as a substitute for proof of the quality of a product.
A challenge I find in teaching future transactional lawyers is to ensure that they do not become enamored with legal rights as being the be-all and end-all of deal making. Law is important, but a business lawyer must employ practical wisdom, as well. That wisdom includes the fact that law itself is only one part of practicing law... and it sometimes isn't even the most important part.
Monday, February 22, 2016
Last weekend I watched, for the first time in my adulthood, "Willy Wonka and the Chocolate Factory." The 1971 version with Gene Wilder. I've never seen the more recent version with Johnny Depp, but, after reacquainting myself with Gene Wilder's Willy Wonka, I ask you why you would ever need another Willy Wonka. Wilder is perfect.
~~SPOILERS FOR THE MOVIE BELOW~~(IF YOU HAVEN'T SEEN IT, GO WATCH IT NOW, IMMEDIATELY. YOU HAVE SO MUCH TIME AND SO LITTLE TO DO. WAIT. STOP. REVERSE THAT.)
Because it was the first time I'd seen it since going to law school, it was also the first time I'd thought about it from the legal perspective. And, weirdly, contract law actually plays a central role in the movie. As soon as the children enter the factory, Wonka has them sign a contract.
Just the children, not their accompanying guardians, which is interesting to me, as I would have had everyone sign it. You'd think Wonka would be just as worried about the adults handing over Everlasting Gob-Stoppers to the competition, but then again, since the whole thing was just an elaborate set-up, I guess he didn't care. The only clause we can really see in the contract is a gigantic release from liability provision. The adult characters are instantly suspicious of the contract. They raise the argument that they need to read it before they sign it (an act which appears to be actually impossible, given the vanishing print at the bottom). Wonka sort of shrugs and says, "Eh, if you don't sign it, you can't come in." It seems to me like there's a good argument that there's procedural unconscionability showing up, given that Wonka's made it impossible to actually read the contract and is dismissive of their desire to know what they're signing before they enter the factory. Of course, the flipside to that is the flipside that almost always comes up when you talk about unconscionability: No one is forcing these people to tour the factory. They can walk out if they like. They don't have to enter the crazy Willy Wonka contract.
The other issue raised by this scene is that the children are all minors, so this contract is voidable.
(This scene also gives you the timeless assessment that contracts are "for suckers.")
The children all sign the contract, of course. (That would make for an interesting movie: Responsible Legal Decisions in Response to Willy Wonka's Craziness. Everyone turns and walks out instead of entering the factory run by the creepy guy no one's seen in years.) (Wonka really should be so much creepier than he is. I'm telling you, Wilder is genius in this role.)
Having signed the contract, they are let loose in the wonders of the factory, where they immediately proceed to get themselves grievously injured one by one, all taken in casual stride by Wonka, perhaps buoyed by his release from liability provision:
The conclusion of the movie, once again, revolves around contract law. Charlie inquires as to the lifetime supply of chocolate he's supposed to receive, and Wonka points out that he's no longer entitled to it because he breached the contract he signed at the beginning. Wonka quotes the contract, and my main reaction to it is to shake my head and say, "All those Latin words! All those hereinbefores!" It's an excellent example of an incomprehensible contract. I propose we start calling all contracts filled to the brim with Latin and hereinbefores "Wonka contracts." And my second reaction is: That's another movie I'd watch: Willy Wonka in Law School.
(Random fact, but the actor playing Charlie apparently did not know that Wilder was going to yell so furiously in that scene. His startled reaction is genuine.)
Don't worry, if you haven't seen the movie, there's a happy ending.
One closing thought on Willy Wonka and contracts. I figure that there are two choices when it comes to Contracts classes: You're either the room of Pure Imagination...
...or you're the tunnel scene...
Sunday, February 21, 2016
Recently, I had the good fortune to interact with Lauren Henry Scholz, currently Resident Fellow and Knight Law and Media Scholar at the Information Society Project at Yale Law School. Scholz’s in-progress article, Algorithmic Contracts, addresses topics that will be of great interest to many readers of this blog. She not only tackles the fiscally important development of technological automation of contracting processes, but she also wades into the significant implications of computer-facilitated formation for traditional contract doctrine. The draft is not yet available on SSRN, but Lauren graciously granted me permission to share her current abstract:
Algorithmic contracts are an important part of today's society. Areas where algorithmic contracts are already common are high speed trading of financial products and dynamic pricing. However, contract law doctrine does not currently have an approach to evaluating and enforcing algorithmic contracts. This Article fills this significant gap in doctrinal law and legal literature.
There are two types of algorithmic contracts. Agent algorithmic contracts are contracts in which one or both parties use an algorithm as an agent to determine terms in a contract, that is, to choose which terms to offer or accept. Term algorithmic contract are contracts in which all parties agree to the results of an algorithm as a contractual term, prior to knowing exactly what the algorithm will yield.
The classical interpretation of contract doctrine, which justifies contract as an expression of human will, finds that some algorithmic contracts are not properly formed at law and thus cannot be enforced in contract. This is because where algorithms serve as quasi-agents to principals in making decisions the principals have not manifested the intent to be bound at the level of specificity that contract law requires. Algorithms are not persons, and so cannot consent beyond the scope of the principal’s manifested objectives, as true agents can. Furthermore, policy considerations of efficiency and fairness in light of technological trends also supports relaxing the contract law’s presumption against considering evidence of intent outside the contract in the interpretation of and provision of remedies for algorithmic contracts.
I propose that approaching algorithmic contracts as implied-in-fact contracts in contract law, supported by restitution law and tort law where a contract cannot be implied in fact, offers a predictable approach to the enforcement of algorithmic contracts at law while promoting efficiency and fairness concerns in a manner traditional contract law cannot.
Common law courts and state legislatures should update their approach to algorithmic contracts accordingly. The American Law Institute and other groups that seek to promote best practices in state private law should update tort, contract, and commercial law statements to expressly address algorithmic contracts. Businesses should strengthen their positions in negotiations as well as in court by clarifying their objectives in using algorithms. Giving businesses the incentive to make their objectives clear will aid in ascribing liability in all areas of law and promote responsible use of algorithms.
Personally, I’m very sympathetic to the suggestion that the computer-enhanced contracts addressed by Scholz are ripe for their own variations on standard interpretive rules. Traditional doctrine did not contemplate and is not necessarily adaptable to the technological possibilities that are now upon us. This looks to be an exciting and relevant topic, so I look forward to seeing the final product. Although Algorithmic Contracts is itself still in development, you can in the meantime view Lauren Scholz’s other scholarship here.