ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, April 9, 2016

Shipping War (the package kind, not the fanfiction kind)

UPS

How far does a franchisor have to go to help out a franchisee? That was the question asked in a recent case out of the Southern District of New York, The UPS Store, Inc. v. Hagan, 14cv1210 (behind paywall). This particular dispute between UPS and its franchisees the Hagans attracted a fair amount of online attention when it first erupted back in 2014. Now, UPS has been granted partial summary judgment on the contractual disagreements. 

UPS and the Hagans entered into a variety of contract carrier agreements, franchise agreements, and promissory notes in connection with the Hagans' operation of eleven UPS franchises in the New York City area. The relationships between the parties eventually broke down, and accusations were flung back and forth between them. This federal lawsuit included trademark and trade secret allegations, in addition to breach of contract claims, and the Hagans counterclaimed alleging violations of New York's deceptive trade practices act.

With regard to the breach of contract claims, the Hagans conceded that they failed to perform under the contracts, but alleged that their breach was excused by impossibility, impracticability, or UPS's own breach of the implied covenant of good faith and fair dealing. The court, however, granted summary judgment to UPS, finding that the Hagans had impermissibly breached the contracts.

The Hagans' main allegations revolved around UPS's failure to police other franchisees, to allow the Hagans to bundle customer invoices, to provide the Hagans with better computer technology, and to negotiate with private investors who were funding the Hagans' businesses in order to soothe them about the businesses' profitability. But UPS was not required to do any of those things under the terms of the contract. Because they were not "basic assumptions" of the contract, the impractiability and impossibility defenses failed, and the alleged breach of the covenant of good faith and fair dealing was likewise doomed. The Hagans' arguments essentially boiled down to a desire for UPS to take "affirmative action" to save the Hagans' businesses as they began to fail. The Hagans termed this a "duty to cooperate" that was included in the covenant of good faith and fair dealing. But the court, applying California law, rejected this idea. Again, there was nothing in the contracts that required UPS to take the affirmative steps the Hagans desired, and the court declined to impose obligations on UPS beyond those agreed to under the contract. 

The franchise agreement between the parties contained a liquidated damages clause dictating that damages should be the amount of royalties paid to UPS the previous year multiplied by the number of years (not to exceed two) left in the contract term. The Hagans argued that this was an unreasonable estimate of UPS's damages because UPS would recoup the lost royalties from the Hagans' franchises through either issuing new franchises or increased business to the remaining UPS franchises in the area (which the Hagans showed were all less than half a mile from the Hagans' locations, this being New York City). The court, however, found that, although maybe the Hagans might be right, that didn't mean that the clause had been unreasonable at the time of execution of the contract, which was the relevant test. Therefore, the liquidated damages clause was enforceable.  

April 9, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Friday, April 8, 2016

Weekly Top Ten SSRN Contracts Downloads (April 8, 2016)

Top-10-gold-logo

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 386 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 175 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
3 156 The Abolition of Dysfunctional Contracts in Bankruptcy Reorganizations
Jay Lawrence Westbrook and Kelsi M Stayart
University of Texas at Austin School of Law and University of Texas at Austin, School of Law, Student 2015
4 121 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
5 117 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
6 110 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
7 106 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
8 101 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
9 93 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
10 86 Realizing Rationality: An Empirical Assessment of International Commercial Mediation
S.I. Strong
University of Missouri School of Law

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 386 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 174 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
3 121 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 110 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
5 106 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
6 101 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
7 81 The Rules of the Game and the Morality of Efficient Breach
Gregory Klass
Georgetown University Law Center
8 73 Revisiting the Penalty Rule
John Eldridge
University of Adelaide, School of Law, Students
9 72 Smart Contracts: A Preliminary Evaluation
Maria Letizia Perugini and Paolo Dal Checco
University of Bologna - Research Center of History of Law, Philosophy and Sociology of Law, and Computer Science and Law (CIRSFID) and University of Turin - Interfaculty School of Strategic Science SUISS
10 70 The Future of Pre-Contractual Information Duties: From Behavioural Insights to Big Data
Christoph Busch
University of Osnabrück - European Legal Studies Institute

April 8, 2016 in Recent Scholarship | Permalink | Comments (0)

Thursday, April 7, 2016

Cosby Files Breach Of Contract Lawsuit Against Rape Accuser

Bill Cosby has filed a lawsuit against a woman who settled a civil sexual abuse case against him for allegedly breaching a confidentiality clause in the settlement. That confidentiality clause allegedly barred the woman from voluntarily discussing the case with law enforcement agencies. She has cooperated with police after the criminal case against Cosby was opened. Cosby wants the settlement money paid by him repaid.

Just as you think this case could not sink any lower….

April 7, 2016 in Celebrity Contracts | Permalink | Comments (0)

Wednesday, April 6, 2016

Marijuana Growing Facility Insurance Policies

Cannabis sativa01.jpg
By Rotational - Own work, Public Domain, https://commons.wikimedia.org/w/index.php?curid=3455706

Here's an area of law where we're going to need a lot more guidance over the coming years, I suspect: how exactly does the wording of specific insurance policies apply to (now legal in some places under some circumstances) marijuana growing facilities? 

A recent case out of the District of Colorado, The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, Civil Action No. 13-cv-03452-MSK-NYW, deals with that question. In that case, Green Earth, a marijuana growing facility, alleged that a wildfire sent so much smoke and ash into Green Earth's ventilation system that it ended up damaging the marijuana plants inside. Green Earth therefore made a claim under its insurance policy with Atain for this damage. 

This case contains an interesting discussion of how exactly marijuana plants are grown. The important takeaway is that Green Earth was making claims both for Green Earth's growing marijuana plants and for buds and flowers that had been harvested and were being prepared for sale. Green Earth argued that both the growing plants and the harvested buds and flowers were covered under the insurance policy's definition of "Stock." Atain maintained, however, that "Stock" did not apply to the growing plants, only to the buds and flowers that had already been harvested. 

The insurance policy defined "stock" as "merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping." Everyone agreed that the harvested buds and flowers qualified as "stock" so the debate centered entirely around whether the growing plants also qualified as "stock." There was no prior discussion between the parties as to this issue, so the court ended up relying heavily on dictionary definitions, especially of the term "raw materials." The court ended up concluding that this wasn't appropriate for summary judgment, because the court could see the definition as including growing plants or not. 

However, the court then turned its attention to another part of the insurance policy that specifically excluded "growing crops." Green Earth argued that its growing marijuana plants weren't "growing crops" because crops are grown outside, not in indoor facilities. But, once again looking at dictionaries, the court concluded that the exact location was not important to the definition of "crop." "Crops" referred to things growing out of soil and did not differentiate between outdoor soil and indoor soil. Therefore, even if the growing marijuana plants could be "raw material" under the definition of "stock," they were specifically excluded from coverage as a "growing crop." And, indeed, in correspondence proposing the policy, Atain wrote that it would not cover "growing...plants," supporting the court's more expansive reading of "crops" as just being a type of plant, whether inside or outside. 

Interestingly, Atain then tried to argue that, even though the harvested buds and flowers were technically "stock," they weren't covered because they were "contraband" and public policy was against insuring such forbidden goods. The court noted that the attitude of the federal government toward the legality of marijuana is "nuanced (and perhaps even erratic)" and focused on the fact that it was undisputed that Atain knew Green Earth was growing marijuana and agreed to insure it, so it wasn't fair to allow Atain to back out of that now. 

April 6, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, April 5, 2016

Hurricane Sandy and Art

Hurricane Sandy's flooding of the Red Hook section of Brooklyn damaged are in the Christie's warehouse located there, and provoked a rash of subrogation cases against Christie's, including AXA Art Insurance Corp. v. Christie's Fine Art Storage Services, Inc., 652862/13

All of the cases revolved around the same core set of facts: As Hurricane Sandy was approaching, the Mayor of New York warned that Red Hook was likely to be flooded, and eventually ordered its evacuation. Christie's sent an e-mail to its clients stating it would "take extra precautions" in the face of "significant inclement weather," and that "may include" making sure the generators were working, providing extra security, and raising all of the artwork up off the floor. Allegedly Christie's did none of these things. Shortly after Sandy went through, Christie's sent another e-mail assuring its clients that the artwork was safe, but a few days later Christie's corrected itself, contacting some of its client to inform them that flooding had damaged some of the artwork. 

Some insurance companies had to pay out millions of dollars in the wake of this news, and this insurance companies sought to collect the money from Christie's. AXA brought a typical case, that resulted in a typical failure, based on the fact that Christie's storage agreement contained a waiver of subrogation: Christie's clients were "responsible for arranging insurance cover" for the artwork stored at Christie's and "agree[d] to notify [the] insurance carrier/company of this agreement and arrange for them to waive any rights of subrogation against [Christie's] . . . with respect to any loss of or damage to the [artwork] while it remains in [Christie's] care, custody and control." 

The court held that this subrogation waiver acted to bar AXA's claims for gross negligence, negligent misrepresentation, breach of bailment, and breach of contract. AXA tried to argue that this was in violation of U.C.C. Section 7-204, but the court disagreed: The U.C.C. prevented Christie's from exempting itself from all liability, but this subrogation waiver, according to the court, merely allocated the risk of liability to the insurance companies. AXA also argued that Christie's breached the storage agreement in its actions (apparently no artwork was supposed to be stored on the ground floor, which had been represented to the clients as being used for "intake" before the artwork was move to more secure storage), but the court said those breaches didn't affect the enforceability of the subrogation waiver. 

Well, the appellate court has spoken, and claims like AXA's now live to be litigated another day. In the similar case XL Specialty Insurance Company v. Christie's Fine Art Storage Services, Inc., the appellate court held that the subrogation waiver did violate Article 7 of the U.C.C. and attempt to exempt Christie's from all liability, the lower court's characterization otherwise notwithstanding. Therefore, the fight will now shift to whether Christie's actions were reasonable. 

April 5, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Unconscionable “Out-of-Network” Medical Service Charges

I recently blogged here about the healthcare insurance problem of patients not knowing ahead of time for what they will ultimately be charged and by whom. California is now introducing a bill (“AB 533”) seeking to prevent the problem of patients being unexpectedly charged out-of-network charges at in-network facilities when the facility subcontracts with doctors that are (allegedly) out-of-network.

The practice is widespread, at least in California. Nearly 25% of Californians who had hospital visits since 2013 have been very unpleasantly surprised with unexpectedly high bills after the fact for “out of network” services. This even after inquiring about the contractual coverage ahead of time and ensuring – or attempting to – that their providers were in network. Th

I personally had the same experience once as described in my recent blog. I also recently encountered a similar problem in South Dakota when, after asking about billing prices from an emergency room, was assured of one relatively modest price, only to be billed roughly ten times that amount a couple of months later for various unrecognizable items on the bill that the service provider, to add insult to injury, subsequently did not want to even discuss with me. (Yes, that is right: sick and in the emergency room, I was leery of hospital pricing and asked, only to still not get correct information.)

The onus of information-sharing should be on doctors and other medical provider. They should tell their patients if they are not in network, patients shouldn’t have to jump through an almost endless row of hoops just to find out their ultimate contractual obligations. Doctors will know immediately once you swipe your health insurance card, whereas patients have no way of knowing, as these stories show. Making matters even worse: what are patients supposed to do when they often don’t even see all the involved doctors ahead of time? Wake up during anesthesia and ask, “Oh, by the way, are you in network”? This practice is unconscionable and must stop. It is arguably an ethical obligation as well.

Because some hospitals, for instance, only accept employer-provided plans and not individual ones, some patients will always be out of network, thus allowing doctors to bill full charge. “This is a market failure. It allows doctors to exploit the monopoly that they have.”

Although it seems ridiculous, patients may, for now, have to turn the tables on the providers and scrutinize as many providers and facilities as they get in touch with 1) what the prices charged to the patients will be, and 2) if the providers are truly, actually, really in network (!).

Contractually, would patients win if they informed providers that they will only pay for in-network providers and only up to a certain amount? What else can a reasonable patient do in situations of such blatant greed and ignorance as these stories depict? Comment below!

April 5, 2016 in Commentary, Current Affairs, In the News, Legislation | Permalink | Comments (2)

Monday, April 4, 2016

Universities, Graduate Students, Patents, and Policies

 

Harvard college - science center.jpg
CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=39855 (Harvard Science Center)

It's a very common thing, to be provided with a "policy" as opposed to a "contract." A recent case out of the District of Massachusetts, Charest v. President and Fellows of Harvard College, Civil Action No. 13-11556-DPW, addresses that exact issue, and concludes, as you might expect, that what you call something isn't as important as how you behave. 

Dr. Mark Charest was a chemistry graduate student at Harvard University. While he was there, he and his supervisor (also a defendant in this lawsuit) and other scientists developed a "novel and valuable method for creating synthetic tetracyclines," important for commercial antibiotics. Universities have lots of valuable things being created by their employees and students, so it's not surprising that Harvard had a policy in place for this sort of situation. Harvard had Dr. Charest, as a student, sign the Harvard University Participation Agreement, which contained a clause that Dr. Charest "ha[d] read and [] under[stood] and agree[d] to be bound by the terms of the 'Statement of Policy in Regard to Inventions, Patents, and Copyrights,'" referred to in this case as the IP Policy. A lot of things happen from that point on, but the important thing to know for purposes of this blog entry is that Dr. Charest maintained that Harvard had breached the IP Policy. Harvard, in response, maintained (among other things) that the IP Policy was not a contract. 

Other than being called a "policy," you might think this an odd argument for Harvard to try to make, considering that having Dr. Charest sign an agreement to be bound by the IP Policy sounds pretty contract-y. A 1988 Massachusetts Supreme Judicial Court decision, Jackson v. Action for Boston Community Development, had held that an employer's personnel manual was not a contract, and so Harvard relied heavily on that precedent, trying to cast its IP Policy as similar to the personnel manual in that case. 

Jackson established a number of factors for its decision, and, while some of those factors did weigh in favor of Harvard, others weighed in favor of Dr. Charest. For instance, Harvard maintained the ability to unilaterally modify the IP Policy and there were no negotiations between Harvard and Dr. Charest over the IP Policy, two factors Jackson said support a conclusion that the IP Policy does not impose contractual obligations. However, Harvard called special attention to the IP Policy and Dr. Charest's agreement to it, required Dr. Charest's signature acknowledging the IP Policy, and the IP Policy spoke in mandatory terms rather than suggestive terms, all of which made it seem more like a binding contract. 

In the end, the court found that, as the Jackson precedent has developed, the really important thing is whether Dr. Charest understood himself to have to agree to the terms of the IP Policy in order to continue as a student researcher at Harvard, and that Harvard was likewise agreeing to be bound. The court concludes that yes, this was true. The IP Policy sounded as if it was being very clear about Harvard's obligations, because of its unambiguous language. Harvard itself consistently referenced the IP Policy as governing its actions when questioned by Dr. Charest and when communicating with its students. Therefore, Harvard could not pretend now that it had not been behaving as if it was bound by the terms of the IP Policy. 

(Nevertheless, the court went on to dismiss most--but not all--of Dr. Charest's claims. The facts are too complicated to get into in the scope of this blog entry, but if you're interested in the relationship between research universities and their graduate students, it's an interesting read.)

April 4, 2016 in Commentary, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, April 1, 2016

Airlines and Terminal Change Information

Are airlines contractually bound to inform their passengers of a possible terminal change between the time of printout of one’s boarding tickets and the flight departure under the duty of good faith? No, found a district court judge for the District of Columbia. The case is Naqvi v. Saudi Arabian Airlines, 14-cv-01314.

What’s more, airlines are also not under any contractual good faith duty to give passengers water in the terminal or to ensure that terminal restrooms are sanitary.

The case was brought by a passenger who went to the terminal listed on his boarding passes that he had printed out the night before his early-morning flight. However, when he got to that terminal, he learned that his flight departed from another terminal five miles away (in Jeddah, Saudi Arabia). He rushed there by cab, but because of construction, was dropped off several hundred feet away, thus having to walk that distance with his luggage. The passenger made it to the boarding area lounge fifteen minutes before boarding started. As he had diabetes, he asked for a glass of water so that he could take his medication. He was told that no water was available, and instead went to the apparently very unhygienic bathrooms in the terminal. During the flight, he fel Unknownl sick because of the, for him, unusual level of physical activity. He subsequently sued in the United States (of course).

The court found that airlines have no obligation to provide notification of terminal changes, transportation or baggage handling between terminals in the event of a change, water or clean terminal bathrooms. Thus, since no contractual duties lay, the airline also had not breached any good faith violations thereof. Would it now, however, be a good idea for the airlines to do so anyway, via a text message or otherwise? It would seem so… and how hard would it really be for an airline to give their own passenger a glass of water since the boarding had not even started yet?

Better double-check those departure gates and terminals accurately in the future.

April 1, 2016 in Travel, True Contracts | Permalink | Comments (1)

Thursday, March 31, 2016

Weekly Top Ten SSRN Contracts Downloads (March 31, 2016)

Top Ten Logo 1

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 371 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 368 Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
3 246 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
4 169 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
5 152 The Abolition of Dysfunctional Contracts in Bankruptcy Reorganizations
Jay Lawrence Westbrook and Kelsi M Stayart
University of Texas at Austin School of Law and University of Texas at Austin, School of Law, Student 2015
6 110 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
7 105 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
8 89 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
9 88 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
10 88 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 371 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 368 Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
3 246 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
4 168 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
5 105 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
6 94 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
7 89 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
8 88 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
9 88 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
10 79 The Rules of the Game and the Morality of Efficient Breach
Gregory Klass
Georgetown University Law Center

March 31, 2016 in Recent Scholarship | Permalink | Comments (0)

Wednesday, March 30, 2016

Seventh Circuit Rejects Arbitration Clause in "Scrollable Window" Internet Contract

Have you ever been frustrated with seeming endless and practically unreadable scroll-down window that accompany many internet contracts? Or maybe you don't even think about them enough to be frustrated. The dozens of pages of scroll text typically end with a checkbox stating, "I have read and understood the foregoing agreement." All but the most unusually focused among users will check the box without having read the verbose digital boilerplate, and both sides surely recognize the untruth of the "read and understood" certification.

Seal_appellate_court_seventhA court has recently refused to enforce an arbitration provision because it was buried at the bottom of the lengthy scroll able window. And the decision came from not just any court, but from the United States Court of Appeals for the Seventh Circuit--known for present purposes as the founder of the ProCD and Hill v. Gateway 2000 line of shrinkwrap arbitration-clause cases.

Over at the National Law Review, attorney Eric G. Pearson describes the facts of  in Sgouros v. TransUnion Corp., No. 15-1371 (7th Cir. March 25, 2016), an opinion by Chief Judge Diane Wood applying Illinois law:

Sgouros purchased a “credit score” package from TransUnion, and he later brought suit, alleging that TransUnion had provided him with a number that was erroneously high and thus useless to him in his negotiations with a car dealer. TransUnion filed a motion to compel arbitration, which the district court denied.

The crux of the dispute concerned the webpage for “Step 2” in Sgouros’s purchase, which asked him for an account username and password and for his credit-card information. See slip op. at 4. Below these fields were two bubbles to answer whether a user’s home address was the same as the user’s billing address (“yes” or “no”), and below that was a scrollable window in which only the first two-and-a-half lines of a “Service Agreement” were visible. Had he read to page 8 of the 10-page agreement, Sgouros would have found the arbitration clause. Below the scrollable window was a hyperlink to a printable version of the agreement and a bold-faced paragraph memorializing an “authorization” to obtain credit information. Rounding out the bottom of the page was a button labeled “I Accept & Continue to Step 3.”

Judge Wood's opinion itself begins, for those of us who admire persuasive storytelling, with an excellent example of framing the story around the ultimate result:

Hoping to learn about his creditworthiness, Gary Sgouros purchased a "credit score" package from the defendant, TransUnion. Armed with the number TransUnion gave him, he went to a car dealership and tried to use it to negotiate a favorable loan. It turned out, however, that the score he had bought was useless: it was 100 points higher than the score pulled by the dealership.Believing that he had been duped into paying money for a worthless number, Sgouros filed this lawsuit against TransUnion. In it, he asserts that the defendant violated various state and federal consumer protection laws. Rather than responding on the merits, however, TransUnion countered with a motion to compel arbitration. It asserted that the website through which Sgouros purchased his product included (if one searched long enough) an agreement to arbitrate all disputes relating to the deal.

Transunion_logoIn what will surely be a much-used and much-cited analysis of the scroll-box layout, the Seventh Circuit described the assent-oriented defects of the Transunion website. As Pearson summarizes it:

  • The arbitration clause was not visible in the window.
  • The site did not call the user’s attention to the arbitration provision in any other way.
  • The site did not require the user to scroll to the bottom of the window or to first click on the scroll box.
  • It was not clear that the purchase “was subject to any terms and conditions of sale.”
  • The term “Service Agreement” said nothing “about what the agreement regulated.”
  • The hyperlinked version of the agreement was labeled only “Printable Version”—not “Terms of Use” or “Purchase” or even “Service Agreement.”
  • The bold-faced paragraph was merely an authorization, and the button labeled “I Accept” actually misled the consumer to thinking that this was an acceptance of only the authorization’s terms. “No reasonable person would think that hidden within that disclosure was also the message that the same click constituted acceptance of the Service Agreement.”

All in all, an interesting turn of events from an important court on issues of clickwrap terms and arbitration.

March 30, 2016 in E-commerce, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (2)

Monday, March 28, 2016

Assent in Healthcare Contracts

Here, Stacey Lantagne reports on a very sad story of what can happen if health care customers fail to follow accurate procedure and, at bottom, dot all the I’s and cross all the T’s when contracting for health care services.

For me, this speaks to the broader issue of whether or not patients can truly be said to have given consent to all the procedures and professionals rendering services to patients. I think this is often not the case. As you know, Nancy Kim is an expert on this area in the electronic contracting context. She kindly alerted me to this story in the health care field.  (Thanks for that.) The article describes the practice of “drive-by doctoring” whereby one doctor calls in another to render assistance although the need for this may be highly questionable. The NY Times article describes an instance in which one patient had meticulously researched his health care insurance coverage, yet got billed $117,000 by a doctor he did not know, had never met, and had not asked for. That doctor had apparently shown up during surgery to “help.”

Of course, this is a method for doctors to make end runs around price controls. Other methods are increasing the number of things allegedly or actually performed for patients. Other questionable practices include the use of doctors or facilities that all of a sudden turn out to be “out of network” and thus cost patients much more money than if “in network.” I personally had that experience a few years ago. I had to have minor surgery and checked my coverage meticulously. The doctor to perform the surgery was in network and everything was fine. She asked me to report to a certain building suite the morning of the surgery. All went well. That is, until I got the bill claiming that I had had the procedure performed by an “out of network” provider. This was because… the building in which the procedure was done by this same doctor was another one than the one where I had been examined! When I protested enough, the health care company agreed to “settle” in an amount favorable to me.

In these cases, patients typically have very little choice and bargaining power. In the emergency context, what are they going to do? There is obviously no time to shop around. You don’t even know what procedures, doctors, etc., will be involved. The health care providers have all the information and all the power in those situations. However, in my opinion, that far from gives them a carte blanche to bill almost whatever they want to, as appears to be the case, increase their incomes in times when insurance companies and society in general is trying to curb spiraling health care costs.

In the non-emergency context, how much of a burden is it really realistic and fair to put on patients who are trying to find out the best price possible for a certain procedure, only to be blind-sighted afterwards? That, in my opinion, far exceeds fair contracting procedure and veers into fraudulent conduct. Certainly, such strategies go far beyond the regular contractual duty to perform in good faith.

Of course, part of this is what health care insurance is for. But even with good health care insurance, patients often end up with large out-of-pocket expenses as well. The frauds in this context are well known too: most health care providers blatantly offer two pricing scheme: one (higher) if they have to bill insurance companies, and a much lower price if they know up front to bill as a “cash price.”

We have a long ways to come in this area still, sadly.

March 28, 2016 in Commentary, Current Affairs, Miscellaneous, Science, True Contracts | Permalink | Comments (1)

Sunday, March 27, 2016

Wording That Assignment Clause Correctly

One of the areas of contract law where the mere language alone frequently trips my students up is the area of assignment and delegation, largely because neither courts nor contracts are always exactly precise in what they mean in this area. It remains one of the areas that, say, a large insurance company can find it got the wording wrong, as happened in a recent case out of Florida, Bioscience West v. Gulfstream Property and Casualty Insurance, Case No. 2D14-3946

A homeowner had bought a insurance policy from Gulfstream. The policy prohibited assignment "of this policy" without Gulfstream's written consent. The homeowner's house suffered water damage and she hired Bioscience to fix the damage. She assigned "any and all insurance rights, benefits, and proceeds pertaining to services provided by BIOSCIENCE WEST INC. under the above referenced policy to BIOSCIENCE WEST, INC." When Gulfstream subsequently denied the homeowner's insurance claim, Bioscience sued as the assignee of the homeowner's right to recover the insurance policy's benefit. Gulfstream responded by stating that the policy could not be assigned with Gulfstream's consent, which had never been given. The distract court agreed, found the homeowner's assignment to be improper, and entered summary judgment in Gulfstream's favor. 

The appellate court disagreed. The appellate court said that the phrase "assignment of this policy" plainly referred to the entire policy. What the homeowner assigned, however, was something less than the entire policy, i.e., just a portion of the benefits. Therefore, under the "unambiguous" wording of the policy, the homeowner's actions were permissible without Gulfstream's consent; Gulfstream's consent was only required if she tried to assign the entire policy. 

And, in fact, the court found this was consistent with the loss-payment portion of the policy, which provided that Gulfstream would pay the homeowner "unless some other person . . . is legally entitled to receive payment." The court said that proved that Gulfstream understood that the homeowner would be able to assign benefits under the policy. (Although arguably all this proved was that Gulfstream understood that the homeowner would be able to assign benefits under the policy with Gulfstream's consent.) At any rate, there was ample precedent in Florida's case law supporting the proposition that policyholders can assign post-loss claims without the consent of the insurer. 

March 27, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Saturday, March 26, 2016

Things We Should Talk About When We Talk About Health Care

I just find this case so tragic and frustrating that I had to share with others, because that's just how I am, I like to spread those emotions around. But I think it's important, as we continue to debate how we do health care and health insurance in this country, to really think about the outcomes of these questions. And I have a nephew who was born premature and had to spend a little time in the NICU. My nephew is now a happy, energetic, clever five-year-old who we are very grateful for (even though we don't understand how five years have managed to pass, surely that's incorrect and he was just born yesterday, no?), but this case made me think of him and remember those first few scary days when you have a baby who you can't bring home with you. And how unforgiving bureaucracy can be in the face of your mere human emotions. 

Kurma v. Starmark, Inc., No. 12-11810-DPW, a recent case out of the District of Massachusetts, introduces us to the Kurmas. Their son was born about two months premature and was immediately hospitalized after birth and remained in the intensive care unit for over two months. His hospital bills totaled more than $667,000. It seems as if it was a happy ending for the baby boy and that he eventually went home with his parents, because the case doesn't tell us otherwise, so that at least seems like good news for the Kurmas. 

The bad news was that they failed to comply perfectly with all of the formalities of their health insurance policy, and for this reason the court found it had no choice but to find that the baby boy was not covered by his father's health insurance plan and therefore the Kurmas are responsible for the $667,000 hospital bill. 

Mr. Kurma had been employed by First Tek since 2006. First Tek enrolled in the Bluesoft Group Health Benefit Plan on July 1, 2010. Mr. Kurma and his family joined in the plan as soon as it became available. His wife at the time was already pregnant, and her pregnancy care was covered under the plan. Their son was born on October 7, 2010, three months after they joined the Bluesoft plan. 

What makes this case so tragic to me is that it wasn't as if Mr. Kurma did nothing to inform his health insurance that his baby son had been born. He did, in fact. He called his health insurance's claims processor on October 14, 2010, to inform him that his son had been born the previous week. Everybody agreed that this was timely notice to the health insurance company of the baby's birth. A week later, on October 21, Mr. Kurma received a letter from an affiliate of his health insurance company referring to "Baby Boy" and requesting medical information to determine the necessity of the baby's ongoing treatment. 

Mr. Kurma had several more conversations with his health insurance company during the month of October. The parties disputed what was said in those conversations, although they agreed that Mr. Kurma wished to add his newborn son to the health insurance plan. There was disagreement as to whether or not Mr. Kurma was told that he needed to provide his HR department at work with written notice of his son's birth in order to add him to the policy. At any rate, on November 8, 2010 (more than 30 days after the baby's birth, which was the time limit Mr. Kurma had under the policy), the health insurance company sent Mr. Kurma a "Certificate of Group Coverage" that "is evidence of your coverage under this plan." The new baby was listed as the individual to whom the coverage applied and the "Date coverage began" was given as October 7, 2010, the date of the baby's birth. To be honest, I would at that point, if I were Mr. Kurma, probably have considered the baby to have been covered, as that piece of paper would have seemed self-evident to me as "evidence of...coverage." However, this piece of paper contained a trick: It claimed the "Date coverage ended" as October 6, 2010, the date before the baby's birth. According to the health insurance company, this should have been a red flag to Mr. Kurma, as that was the health insurance company's way of indicating that it had refused coverage on the baby. I'm not entirely sure why the way to do this wouldn't have been to send a letter saying "We are not covering the baby," rather than sending some weird time-travel-y message like this. It would be a good policy for all of us to just say what we mean in communications like this, don't you think? This paper, far from raising any red flag that Mr. Kurma needed to do anything further, seemed to reassure Mr. Kurma that he had done everything he needed to do. 

And, even more confusingly, not even the insurance company itself, internally, seemed to know whether or not it thought the baby was covered. On November 4, an employee noted that the baby was automatically covered for the first month of his life and then needed to be formally added to the policy. A second note on November 5 corrected that to explain that the baby needed to be immediately enrolled in order to be covered. But it seems to me that if not even the health insurance company's own employees can figure out whether or not the baby was covered, it seems ridiculous to assume that a harried new father, with a baby in intensive care and a five-year-old at home to worry about, was supposed to be able to figure it out. 

On November 29, 2010, Mr. Kurma had a conversation with his health insurance company in which he stated that he had added his new son to the plan. That night he e-mailed HR at First Tek to ask them to add the baby to the plan. That e-mail was the first written contact Mr. Kurma had had with HR. It came, as you can see, more than 30 days after the baby's birth. Which was a violation of the policy, which provided, "You notify Us and the Claims Processor of the birth . . . within 30 days," with "Us" defined as Mr. Kurma's employer, First Tek. Mr. Kurma had only informed the claims processor within 30 days. 

In December 2010, Mr. Kurma was told for the first time that the health insurance company was denying coverage for his new baby. Confused, Mr. Kurma inquired as to why and was told it was his failure to return the written enrollment forms to his HR department within 30 days of the baby's birth. Mr. Kurma called his health insurance company to complain; they were unmoved. 

Mr. Kurma's employer, however, was moved by Mr. Kurma's situation. To be honest, it seems as if First Tek knew all along that Mr. Kurma's son had been born and was in intensive care, which makes sense to me, as it is the kind of thing that employers tend to know, if you're taking time off and such. First Tek's CEO actually contacted the health insurance company on behalf of Mr. Kurma, asking for leniency: "[Mr. Kurma] has a prematurely born child who is still in hospital and in deep sorrow and was not in a right frame of mind. Is there anything you can do to make the carrier make an exception?" The carrier--who nobody disputed was well aware of the baby's existence and Mr. Kurma's desire to add him to the plan--refused to make such an exception, insisting that it could not because First Tek (the company requesting leniency) had not been properly notified. Note that that was the only basis for the health insurance company's denial, as stated in the letter it sent Mr. Kurma: "The plan required that Mr. Kurma notify [the insurance company] AND his employer, within 30 days after the infant's date of birth. [The insurance company] received notification within the required time frame, but First Tek did not." No matter, apparently, that First Tek itself requested that its notice requirement be waived and at any right apparently believed itself to have been properly notified. 

Now the insurance plan in this case contained language that added further confusion to what was going on here: It gave First Tek "full, exclusive and discretionary authority to determine all questions arising in connection with this Contract including its interpretation." Under this clause, one might think that, if First Tek considered itself to have been validly notified, then it was. Not so fast, though. The insurance plan also contained language that the insurance company "has full, discretionary and final authority for construing the terms of the plan and for making final determinations as to appeals of benefit claim determinations . . . ." So whose interpretation, First Tek's or the insurance company's, should win here, when they both have some sort of "full" and "discretionary authority"?

The court concluded that this language meant that First Tek had authority over contract interpretation, but the insurance company had authority over claim determinations under the contract. Therefore, First Tek was correct in its assertion that the baby was enrolled, because that lay within First Tek's discretion. However, First Tek could not contradict the insurance company's determination, even accepting that the baby was enrolled, that the benefits were denied. I admit I'm so confused by this determination, I read this paragraph of the decision over several times, and I'm fighting a cold myself at the moment (and worrying about what health insurance coverage I'm going to mess up should I need to see a doctor over this illness!), so if I'm reading this wrong, please let me know, but this seems contradictory. What's the point of giving First Tek "ultimate" authority over who's enrolled under the policy if the health insurance company has "ultimate" authority to ignore First Tek's "ultimate" authority and deny benefits because it doesn't think people are enrolled? The court seems to think that this is a system that makes sense, but it mostly seems to me that it's just a fancy way of obscuring the fact that First Tek really had no authority here. Which might be fine as just a straightforward matter, but this is anything but straightforward: The contract manages to strip First Tek of authority by saying the opposite, much like the weird denial of coverage the insurance company sent that actually read that it was "evidence . . . of coverage." This is like being Alice in Looking-Glass Land, frankly. 

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At any rate, as you could probably tell was coming, Mr. Kurma loses this case. What's interesting is that he presents no claim that he ever informed First Tek in any way of the birth of his son within the relevant 30-day period. I find this difficult to believe, personally, and I don't know how there couldn't have been something he could have used to argue that he gave First Tek some notice, especially given the evidence that even First Tek's CEO tried to get coverage for the baby. But the court says there was no dispute that there had been no notice "of any kind," not even oral, and so Mr. Kurma failed under the terms of the policy. 

Mr. Kurma argued that First Tek clearly wished the baby to be enrolled and tried to intercede with the insurance company on Mr. Kurma's behalf. The court's reaction to this is unimpressed: the plan says what the plan says, and First Tek's desire not to follow the plan doesn't mean anything. (Of course, presumably First Tek didn't have a whole lot of opportunity to negotiate the terms of the plan in the first place.) Mr. Kurma also tries to argue estoppel, which fails because, again, the words of the plan were clear, and Mr. Kurma failed to follow them, so he can't argue estoppel. Likewise, there was no duty on the insurance company's part to explain to Mr. Kurma what steps he had to take to insure his son, and there was no bad faith on the insurance company's part in failing to do so. 

So, the end result is that the Kurma family is now over $667,000 in debt, as a result of having sought to save their son's life. This case just kills me. I know what the plan said, but I am a trained lawyer who found the words being said to Mr. Kurma confusing; I am bewildered by how it could be reasonable to expect Mr. Kurma to wade through all of this during what was doubtless the most stressful and emotionally exhausting time of his life. Think of how challenging you find it to deal with bureaucracy under ideal circumstances; imagine having to do it while your tiny infant son is fighting for his life in intensive care. And having to do it under circumstances where you're given dense pages of legalese, no assistance to walk through that legalese, and documents that say one thing while meaning the opposite. 

I know that insurance companies have a lot to deal with, too. And I know this insurance company didn't want to pay $667,000 in medical bills. I know this insurance company wanted to make sure it makes people jump through a few hoops first to make sure they really deserve the health care. But I just find this outcome in this case tragically absurd in a way that makes me despair for how we're dealing with health care in this country: Nobody disputed that the health insurance company was well aware Mr. Kurma's wife was pregnant and would presumably soon be having a child; nobody disputed that the health insurance company was well aware Mr. Kurma's son had been born and was hospitalized; nobody disputed that the health insurance company indicated to Mr. Kurma that it was evaluating the necessity of his son's medical treatment; nobody disputed that the health insurance company even sent "evidence of . . . coverage" to Mr. Kurma. And still the health insurance company didn't have to cover the baby, because of one missed hoop that the company it pertained to sought to waive entirely. 

Maybe your view is that Mr. Kurma should have been more on top of things. But I just think this seems like an incredibly harsh case. 

*********************************************************************************************************

Peter Gulia, an adjunct professor at Temple University Beasley School of Law, sent me this as a follow-up and I add it to the text here with his permission because I think it's a valuable contribution. 

Your great essay on Kurma v. Starmark, Inc. paints a striking story.  But let me give you a way to reconsider what happened.

The health plan is a “self-funded” health plan that is not health insurance.  The employer pays the claims from the employer’s assets.  (The employer likely has a stop-loss insurance contract that pays the employer, not the plan or any participant, if claims exceed specified measures.)

Starmark is not an insurer; it provides services to the employer, which also is the health plan’s sponsor, administrator, and named fiduciary.

In any moment during Mr. Kurma’s difficulties, the employer, acting as the plan’s administrator, could have instructed the processor to treat Kurma’s newborn as regularly enrolled.  Doing so would make the employer responsible to pay the mother’s and newborn’s medical expenses.

(Even if the employer asked:  “Is there anything [the processor] can do to make the carrier make an exception?”, this likely referred to trying to persuade the stop-loss insurer to provide more coverage than its contract promised.)

If one analyzes this case under the common law of contracts, one might classify it as a duty-to-read case.  The reported facts suggest the participant did not read the plan, and also did not read, at least not carefully, its summary plan description.

That Mr. Kurma suffered a loss because he didn’t sufficiently understand his employee-benefit plan’s conditions is harsh.  But it’s not because Starmark failed to perform its service agreement.  And it’s not because Starmark sought to avoid an expense it never would bear.

March 26, 2016 in Commentary, Legislation, Recent Cases, True Contracts | Permalink | Comments (1)

Thursday, March 24, 2016

Weekly Top Ten SSRN Contracts Downloads (March 24, 2016)

Top-10

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 364 Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
2 356 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
3 217 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
4 157 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
5 139 The Abolition of Dysfunctional Contracts in Bankruptcy Reorganizations
Jay Lawrence Westbrook and Kelsi M Stayart
University of Texas at Austin School of Law and University of Texas at Austin, School of Law, Student 2015
6 105 Trusting Big Data Research
Neil M. Richards and Woodrow Hartzog
Washington University in Saint Louis - School of Law and Samford University - Cumberland School of Law
7 102 Contract Meta-Interpretation
Shawn J. Bayern
Florida State University - College of Law
8 96 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
9 84 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
10 80 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)

 

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 364 Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
2 356 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
3 217 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
4 157 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
5 102 Contract Meta-Interpretation
Shawn J. Bayern
Florida State University - College of Law
6 94 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
7 84 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
8 80 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
9 76 The Rules of the Game and the Morality of Efficient Breach
Gregory Klass
Georgetown University Law Center
10 76 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School

March 24, 2016 in Recent Scholarship | Permalink | Comments (0)

Couponing is Cool Again

Clipping coupons and bringing them to retail stores is passé, but online “couponing” is considered cool by consumers. 23% of consumers report that they use more coupons now than earlier because technology makes it easier to find and use them.  51% of the consumers who do use coupons say that they use them more than they did five years ago. Part of this may be a reflection of declining personal incomes, and part may be because the recession has demonstrated the value of savings to many people.

Former CEO of J.C. Penney Ron Johnson was famously ousted when he decided to eliminate the chain’s coupons and no less than 590 annual sale events (yes, almost twice per day!). JCP has now settled a lawsuit that alleged that the company falsely inflated its prices (showing “regular” and “original” prices that had never been in effect) in order to be able to have such sales. http://www.usatoday.com/story/money/2015/11/11/jcpenney-settles-lawsuit/75567958/

Where does a reasonable store draw the line between these two ends of the spectrum? With the truth, of course, and letting the chips fall where they may in a fiercely competitive marketplace. Needless to say, that is tough to do with shareholder expectations of endless growth and earnings. One thought might be for retailers to offer more items for sale that are actually appealing, unique and well fitting (when it comes to clothes) rather than the same boring outfits everyone else offers. Just a thought in times when vendors such as the Gap and Banana Republic, for example, are suffering from immense “product acceptance challenges” (read: boring stuff no one wants to buy).

March 24, 2016 in E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (1)

Sunday, March 20, 2016

Browsewrap Unenforceable and Motion to Compel Arbitration Denied

A recent California appellate court case, Long v. Provide Commerce, Inc., found that a browsewrap agreement containing an arbitration clause failed to provide notice sufficient for assent. The case is likely to be significant in shaping wrap contract doctrine because it is the first California appellate court decision which addresses “what sort of website design elements would be necessary or sufficient to deem a browsewrap agreement valid in the absence of actual notice.”


The plaintiff, Brett Long, purchased a floral arrangement on the ProFlowers.com website. The arrangement he purchased was advertised as a "completed assembly product" but he alleged that it was delivered as a "do-it yourself kit" which required assembly. He filed a class action lawsuit on behalf of California consumers. Provide, the owner and operator of the ProFlowers.com website, moved to compel arbitration pursuant to its Terms of Use which contained an arbitration clause.


The Terms of Use were accessible via a hyperlink titled TERMS OF USE at the bottom of each webpage. The hyperlink was in light green typeface on a lime green background along with other hyperlinks in the same format. In order to complete his order, Long had to input information and click through buttons which were displayed in a white box against the website’s lime green background. At the bottom of the box was the following notice, “Your order is safe and secure.” Below the white box was a dark green bar with a hyperlink stating SITE FEEDBACK in light green typeface. Below the dark green bar, at the bottom of each “checkout flow” page were two hyperlinks, PRIVACY POLICY and TERMS OF USE in the same light green typeface as the website’s lime green background.


After placing the order, Provide sent Long an email order confirmation. The email contained a dark green bar with several hyperlinks to product offerings such as “Birthday” or “Anniversary.” Next, the email displayed a light green bar thanking the customer for his order and followed by order summary details and other related information. Following the order details were two banner advertisements and a notification regarding account management services with accompanying hyperlinks. Following that, another dark green bar stated “Our Family of Brands” and listed logos for Proflowers and 5 other companies. Next, the email contained customer service information in small grey typeset and then, in the same grey typeset, two hyperlinks titled “Privacy Policy” and “Terms”.


The California appellate court found that the Terms of Use hyperlinks were not sufficiently conspicuous to put a “reasonably prudent Internet consumer” on inquiry notice and that the Plaintiff did not manifest his unambiguous assent to be bound. The court noted that just because the Terms of Use hyperlinks were visible without scrolling was insufficient to establish an enforceable browsewrap. It referred to the “bright line rule” set forth in Nguyen v. Barnes & Noble Inc.: “(W)here a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on- without more – is insufficient to give rise to constructive notice.” The court also noted that “to establish the enforceability of a browsewrap agreement, a textual notice should be required” to show continued use constitutes assent. In other words, a conspicuous hyperlink alone does not constitute reasonable notice.


This case is another in a line of cases coming out of California and the Ninth Circuit which is making a long overdue correction to contract law doctrine  -- doctrine which veered dangerously off course with ProCD and its ilk. As I’ve previously noted, the law in this area is still working itself out, and my guess is that other jurisdictions will start reevaluating the meaning of “assent” when it comes to wrap contracts  (and start following the Ninth Circuit’s more reasonable understanding of reasonableness).

(Disclosure and fun fact: I am the recipient of a chair funded from a class action settlement involving ProFlowers).

March 20, 2016 in E-commerce, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Saturday, March 19, 2016

When Minutes Really Matter

 2010-07-20 Black windup alarm clock face

Every time I teach the mailbox rule, I'm amazed by how different the world was not so long ago. Imagine having to wait days to receive documents, instead of seconds via e-mail. When I was practicing, if documents didn't come through to me instantaneously, I found myself going through my spam, annoyed at the delay and the time I was losing in not having the documents in hand immediately. I think all the time that the practice of law must have been very different. 

A recent case out of the District of Maryland, CMFG Life Insurance Co. v. Schell, Case No. GJH-13-3032, made me think again about how important timing can be. In that case, a delay in sending a document that amounted to only a couple of hours contributed to a sizable financial loss.

Sandra Lee had an annuity with CMFG that listed as its beneficiaries her husband William Schell and her three children. On December 14, 2012, between 11 and 11:30 am, Schell delivered a Change of Beneficiary form to the office of Lee's financial advisor, Nelson Turner. The form, signed by Schell as attorney-in-fact for Lee pursuant to a power of attorney that had been executed by Lee on December 6, named Schell as the sole beneficiary of the annuity, removing Lee's three children. Turner faxed the form to CMFG; the fax transmission stated CMFG received it at 2:01 pm.

At 1:10 pm, in between the time of Schell leaving the form with Turner and the time of CMFG receiving the faxed form, Lee died. Therefore, CMFG rejected the beneficiary change because it had not received the form prior to Lee's death, as required by the contract. Schell objected to CMFG's payment of the benefits to Lee's children, arguing that he was the only beneficiary of the annuity, and this lawsuit resulted. 

Section 4.2 of the annuity stated that the beneficiary could be changed "by written request any time while the annuitant is alive." Both parties agreed that this language was clear that any beneficiary change had to take place while Lee was alive. But Schell said that the contract said the beneficiary change would be effective on the date signed, and he signed it while Lee was alive. The court, however, noted that this reading of the contract ignored the "by written request" language. The annuity actually contained a definition of "written request" that said it was a "written notice . . . received in our home office." The court noted that, although Schell might have signed the beneficiary form while Lee was still alive, it was not received by CMFG, as required by the contract, until after Lee had died. Therefore, it was not effective under the terms of the contract requiring it to be received while Lee was alive. 

You might be thinking that, if not for Turner's delay in faxing the form, Schell would have been tens of thousands of dollars richer at this moment. However, the court went on to rule that the change of beneficiary form would not have been effective in any event because Schell could not breach his fiduciary duty to Lee and use his power of attorney to achieve his own personal gain. 

At any rate, though, if you do have a properly executed change of beneficiary form for an annuity, it is in your best interest not to delay sending it in and making it effective. 

March 19, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (2)

Friday, March 18, 2016

Professor Bruckner's Article on Crowdwork

Thank you to Matthew Bruckner for posting the following comment on my post on crowdwork: "Thanks for the interesting discussion of crowd-working issues. If folks are interested, in a recent article I discussed using crowdworkers to supplement lawyer's work in bankruptcy cases. Article here."

 

March 18, 2016 in Commentary | Permalink

Algotrithmic Contracts by Lauren Henry Scholz (Updated Post)

Lauren_Henry_Scholz (Yale)Recently, I posted about an article-in-progress Lauren Henry Scholz, currently Resident Fellow and Knight Law and Media Scholar at the Information Society Project at Yale Law School. The article is now available on SSRN here. 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. Here is her updated abstract accompanying the article:

Algorithmic contracts are contracts in which one or more parties use an algorithm as a negotiator to choose which terms to offer or accept, or as a gap-filler, allowing the parties to explicitly agree to the results of an algorithm as part of a contract. Such agreements are already an important part of today’s economy. Areas where algorithmic contracts are already common are high speed trading of financial products and dynamic pricing in consumer goods and services. 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.

This article provides a taxonomy of algorithmic contracts. This task is required because different types of algorithmic contracts present different challenges to contract law. While many algorithmic contracts are readily handled by standard contract doctrine, some require additional interpretive work. Algorithms can be employed in contract formation as either mere tools or artificial agents. This distinction is based on the predictability and complexity of the decision-making tasks assigned to the algorithm. Artificial agents themselves can be clear box, when inner components or logic are decipherable by humans, or black box, where the logic of the algorithm is functionally opaque. While courts and policy makers should be mindful of the specific characteristics of algorithmic contracts in their interpretation and enforcement, traditional contract law provides adequate tools to address most algorithmic contracts.

The algorithmic contracts that present the most significant problems for current contract law are those that involve black box algorithmic agents choosing contractual terms on behalf of one or more parties. The classical interpretation of contract doctrine, which justifies contract as an expression of human will, finds that these 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 presumptive exclusion of black box algorithmic contracts from contract law.

SmartcontractsHowever, even some black box contracts may be enforceable. This Article proposes a model for determining whether such agreements may be enforced. The approach evaluates the fit between the black box algorithm’s actions and the objectively manifested intent of the party using it to determine whether a contract can be implied. This approach draws inspiration from and contributes to the literature on artificial agents and implied-in-fact contract doctrine. Where a contract cannot be implied, restitution law and tort law allow justice to be done as between the parties. This offers a predictable approach to the enforcement of black box 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. The American Law Institute and other groups that seek to promote best practices in state private law should update 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. You can view this article and Lauren Scholz’s other scholarship here.

March 18, 2016 in Recent Scholarship | Permalink | Comments (0)

Thursday, March 17, 2016

Weekly Top Ten SSRN Contracts Downloads (March 17, 2016)

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Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 347 Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
2 199 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
3 149 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
4 135 Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts
Lisa Bernstein
University of Chicago - Law School
5 98 Contract Meta-Interpretation
Shawn J. Bayern
Florida State University - College of Law
6 95 Trusting Big Data Research
Neil M. Richards and Woodrow Hartzog
Washington University in Saint Louis - School of Law and Samford University - Cumberland School of Law
7 91 The Abolition of Dysfunctional Contracts in Bankruptcy Reorganizations
Jay Lawrence Westbrook and Kelsi M Stayart
University of Texas at Austin School of Law and University of Texas at Austin, School of Law, Student 2015
8 88 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
9 76 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
10 73 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School

 

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 347 Contract Law and Ukraine's $3 Billion Debt to Russia
Mark C. Weidemaier
University of North Carolina (UNC) at Chapel Hill - School of Law
2 199 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
3 149 From Promise to Form: How Contracting Online Changes Consumers
David A. Hoffman
Temple University - James E. Beasley School of Law
4 135 Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts
Lisa Bernstein
University of Chicago - Law School
5 98 Contract Meta-Interpretation
Shawn J. Bayern
Florida State University - College of Law
6 93 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
7 88 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
8 76 The New EU Proposal for Harmonised Rules for the Online Sales of Tangible Goods (COM (2015) 635): Conformity, Lack of Conformity and Remedies
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
9 73 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
10 70 The Rules of the Game and the Morality of Efficient Breach
Gregory Klass
Georgetown University Law Center

March 17, 2016 in Recent Scholarship | Permalink