Wednesday, January 22, 2014
Michael A. Dorelli & Kimberly L. Cohen, Recent Developments in Indiana Business and Contract Law, 46 Ind. L. Rev. 943 (2013) [we'll be mining this for blog fodder in the weeks to come]
Robert Downey, Edward K. Gross & Stephen T. Whelan, Leases, 68 Bus. Law. 1191 (2013)
Jennifer S. Martin, Sales, 68 Bus. Law. 1173 (2013) [more mining to do here]
And new in books
Most legal casebooks generally focus on the theoretical. Contract Law, however, covers legal and statutory theories as well as civil procedures, and the practice of law in everyday life. Therefore, the casebook gives first-year students valuable skills that they can use throughout their legal careers.
Contract Law is literally two textbooks in one and can be used for a full year of instruction. Therefore, it is ideal for law school courses in contracts. And, to re-emphasize, the text teaches students how to construct plaintiffs’ complaints, and defendants’ answers using common-law and UCC-related theories of recovery and affirmative defenses.
This Exam Pro consists of essay questions actually given by Contracts professors throughout the United States. Every question contains a detailed explanation, along with analytical steps explained in easy-to-understand, basic language, and a step-by-step guide on how to analyze each major issue. Both Professor “model” answers and student “actual” answers are provided to allow students to get a feel for all the issues that could have been discussed on some questions, and what is realistic for a student to actually answer under timed conditions. The Preface includes tips on how to take essay exams. A general “List of Issues” covered on each question is provided, so the student can decide whether or not to use a particular question given the course coverage in the student’s Contracts class. Similarly, an “Index of Issues” is provided so the student can easily find all the questions that deal with a particular substantive issue which allows for repetitive testing on a troublesome issue. Each answer includes cross-references to the applicable sections of the Restatement (Second) Contracts and the Uniform Commercial Code, and citations to the more important cases in Contracts law, allowing the student to easily match the subject matter of the question to his or her outline and class discussion. Cross-references are included in every answer to relevant portions of Sum & Substance: Quick Review of Contracts, allowing for easy reference if more substantive knowledge is either needed or desired.
Tuesday, January 21, 2014
There is a Call for Papers from the Athens Institute for Education and Research (ATINER) that readers of Global K might be interested in. The 11th annual International Conference on Law will be held 14-17 July 2014, in Athens, Greece, and there is usually a number of panels and presentations related to contracts and transactional law. Sponsored by ATINER’s Law Research Unit, this is a distinctly interdisciplinary and international event, with scholars from around the globe and all career levels exchanging views in both formal and informal venues. Panels will be organized around the expressed interests of those submitting abstracts. A post-conference, peer-review process will lead to publication of a volume(s) of final conference papers. The general deadline to submit abstracts for the law conference was 15 December 2013, with acceptance decisions within four weeks of submission. However, if you are interested in presenting, please send me your abstract, and I shall submit it to the organizing committee, of which I am a member.
In the eight years that I have been attending the conferences and events sponsored by ATINER, I have found the programs and the participants to be fascinating and refreshing. The interdisciplinary edge of the conferences and the genuinely cosmopolitan spirit that pervades them has made these a source of intellectual inspiration and friendship among academic colleagues from around the world.
ATINER was established in 1995 as an independent academic association with the mission to become a forum where academics and researchers from all over the world could meet in Athens to exchange ideas on their research and to discuss future developments in their disciplines. Since 1995, ATINER has organized more than 200 international conferences, symposia and events. It has also published approximately 150 books. Academically, ATINER consists of twenty-seven Research Unitsorganized under six Research Divisions. Each Research Unit organizes an annual conference and undertakes various large and small research projects. Academics and researchers are more than welcome to become members and contribute to ATINER's objectives. If you want to become a member, you download the membership form. For more information about ATINER, you can visit the ATINER website or email to email@example.com.
After a night on the town, you decide to hire not a traditional taxi company, but rather a new and similar service provider that uses third-party private drivers operating their individually owned, unmarked cars and smart application payment technology. The app says, “Gratuity is included.” Would you expect the tips you give to go in full to the drivers or for the tips to be shared with the taxi-like company? Probably the former, although tipping tactics and expectations seem to be changing.
The question of whether the drivers in the above situation have a viable claim to the full amount of the tips will soon be resolved in California in O’Connor v. Uber Techs, 2013 BL 338258 (N.D. Cal. Dec. 5, 2013). After determining that no implied-in-fact contract can be said to exist between the drivers and the taxi-like company “Uber,” the court so far determined that Uber and its passengers may have entered into an implied agreement regarding the tips from which the drivers were ultimately intended to benefit as third parties to the contract between Uber and passengers.
In the USA, tipping is widely considered a fair way for service personnel to earn a more decent living than if they had to rely on base salaries. This intersects with the current debate about whether the federal minimum wage should be increased. According to recent CNN TV news, if salaries reflected the productivity levels of United States workers, the minimum salary should be $28/hr. It is currently $7.25.
But what about consumers? Tipping seems to rising more rapidly than both salaries and inflation rates in general. Not long ago (ten years or so), tipping 10% in restaurants was considered the norm, at least in California and parts of the Western USA. Now, food servers, the drivers in the above case and undoubtedly others expect 20%; a 100% increase in ten years or so. Many Los Angeles restaurants have begun to automatically add this 20% gratuity to their guest checks (some still leaving an additional line open for tips…). In comparison, the average inflation rage was 2.5% per year over the past ten years. During the 12-month period ending November 2013, inflation was 1.2%. Of course, salaries may be a more accurate yardstick. According to the Social Security Administration’s Average Wage Index, salaries increased by approximately 33% over the past ten years (approx. 3% from 2011 to 2012).
To be sure, service personnel and other workers deserve a decent income for their efforts in a wealthy, industrialized nation such as the USA. The question is whether the burden of this should be placed on consumers in the form of more or less “hidden” costs such as tax and tips in somewhat uncertain amounts or whether the employers should be expected to more openly list the true bottom-line costs of their services as is the case in other nations. A better route may be to increase the federal minimum salary to the much-discussed (e.g., here) “living wage.” At a minimum, it would seem that all tips given should go to the workers and not be a mere way for companies to award themselves more money.
Assistant Professor of Law
Western State College of Law
Monday, January 20, 2014
In the mid-1990s, the Walt Disney Company hired Michael Ovitz to be its #2 executive. After slightly over a year in the position, Disney's Board of Directors fired Ovitz, having determined that he was an ineffective executive for the company. He received over $100 million in severance pay. After years of litigation, the Delaware courts found that Disney's Board of Directors did not breach its duty of care in approving an excecutive compensation scheme that made Ovitz better off for having been terminated than he would have been had he stayed on the job. The Delaware Supreme Court noted that Disney's corporate governanace was far from optimal and should not pass muster in a post-Enron/WorldCom etc., world. I have written about the case here.
According to this article in The New York Times, Yahoo! was not paying attention. In 2012, Yahoo! hired Henrique de Castro to be its #2 executive. He lasted a little over a year and is now walking away with at least $88 million. The Times quotes Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, who says that such hiring decisions are usually made by the corporation's CEO and that the Board can't tell the CEO whom to hire. However, Professor Elson also notes that Boards have an obligation to "ask hard questions," especially when executive compensation seems "out of whack." Mr. de Castro was the eighth highest paid executive in the region, earning more than Yahoo!'s CEO.
I suppose it is usually true that a Board cannot tell a CEO whom to hire, but the Board and its Compensation Committee do set executive pay. And nobody at that level can be hired without Board approval. In order to lure an executive of de Castro's experience, a corporation must offer "downside protection." That is, a business person of de Castro's experience is not going to leave a secure, well-compensated position without a guarantee that he will be well-compensated at the new position, even if the relationship sours. However, as the Times points out, de Castro's record at Google was mixed. He had been demoted and then promoted again, which suggests his position was not that secure. In any case, his compensation seems to have been well in excess of what was necessary to protect his potential downside.
Board capture apparently is still a major problem in U.S. public companies, and the Times suggests that the problem is especially bad in Silicon Valley. The real problem is that executive pay remains absurdly, stratospherically high in this country. No pay package should be structured to guarantee millions in dollars of severance even in cases of abject failure.
Friday, January 17, 2014
The main character of James Joyce's short story, "A Mother" (beginning on p, 103 of the link), is a naturally pale woman with an unbending manner who made few friends at school. She became Mrs. Kearney out of spite, Joyce tells us, when her friends began to loosen their tongues regarding her impending spinsterhood. Hoppy Holohan had been attempting for nearly a month to arrange a series of concerts for the Eire Abu Society, but he had no success until he came across Mrs. Kearney, who then "arranged everything."
She did so because she desired that her daughter, Kathleen, perform as accompanist at the Society's concerts. Once Mr. Holohan approached her, Mrs. Kearney "entered heart and soul into the details of the enterprise, advised and dissuaded: and finally a contract was drawn up by which Kathleen was to receive eight guineas for her services as accompanist at the four grand concerts."
The relationship sours as soon as the concerts begin. Wednesday's concert is poorly attended. Thursday's concert is better attended, but the audience "behaved indecorously, as if the concert were an informal dress rehearsal." Moreover, as Mrs. Kearney noted, and Mr. Holohan conceded, "the artistes" were not good. But the real conflict arose over a decision by the "Cometty" of the Society to reduce the number of concerts from four to three. Mrs. Kearney attempted to protest to Mr. Holohan that any such decision did not alter the contract, and her daughter would be paid for all four concerts.
We none of us can help our natures, and Mrs. Kearney's frosty and haughty disposition, coupled with Mr. Holohan's well-intentioned ineptitude combine to form the equivalent of Chekhov's gun introduced in Act I which must be fired in Act III. When Mrs. Kearney threatens that her daughter be paid in advance or she will not perform in the final contract, Mr. Holohan attempts to disclaim all authority and refers her to the elusive Mr. Fitzpatrick.
One Mr. O 'Madden Burke was to write a notice of the concert for The Freeman. Joyce describes him as "a suave, elderly man who balanced his imposing body, when at rest, upon a large silk umbrella. His magniloquent western name was the moral umbrella upon which he balanced the fine problem of his finances. He was widely respected." After a few rounds of haggling over Ms. Kearney's pay, Mr. O 'Madden Burke declared that "Ms. Kathleen Kearney's musical career was ended in Dublin."
There are dangers in insisting that contractual promises are irrevocable.
Wednesday, January 15, 2014
Bridge: It hasn't been a good week for New Jersey governor Chris Christie who is embroiled in a scandal ("bridgegate") after one of his aides arranged to close lanes to the George Washington bridge, causing traffic in Fort Lee, a town where a democratic mayor did not support Christie's re-election.
Tunnel: Over in Washington, Seattle may see traffic delays of its own. The State Department of Transportation has declared that the Highway 99 tunnel team in “material breach of contract” because of different barriers than lane closings -- barriers to participation by small, minority-owned contracting firms. The Seattle Times reports:
The DOT threatens sanctions unless Seattle Tunnel Partners (STP) makes rapid improvement and the team leaders participate in meetings with DOT. Disadvantaged Business Enterprises (DBEs) led by minorities and women are supposed to receive 8 percent of the work, but as of last fall, by some measurements the rate was less than 2 percent, according to a scathing federal civil-rights review. The tunnel contractors are led by the U.S. arm of Spanish-based Dragados, and by California-based Tutor-Perini.
Lynn Peterson, the DOT secretary, released a letter Monday that recognizes efforts by STP to improve, but demands more.
What sanctions will mean is not yet clear. The DOT could exert leverage by reducing or delaying progress payments that STP periodically receives for tunnel work. Peterson mentions that as one option in her letter, which follows a state review by attorney Richard Mitchell.
STP has the leverage of already having a tunnel machine in the ground, and already collecting more than $700 million to date. The most extreme outcome, to switch prime contractors, could easily run up tens or hundreds of millions of dollars, and cause delays. Peterson writes that she would prefer collaboration to litigation. An excerpt:
Among other ideas, the state now recommends breaking contracts into smaller pieces so minority and women-led firms have a better chance to compete.
The federal investigation was prompted by a complaint by Elton Mason, owner of Washington State Trucking in Kirkland, who tried unsuccessfully to bid on a contract to transport excavated dirt. STP awarded the prime trucking contract to a larger company, Grady Excavating of Mukilteo, which DOT later disqualified from its DBE status. The KING 5 Investigators have aired several stories aboutfailures in the minority contracting programs for Highway 99 and other projects. Although Initiative 200 forbids quotas in minority hiring, the tunnel job is one-third federally funded, and therefore subject to hiring goals under federal affirmative-action rules.
Mason vented his exasperation Monday at what looks to him like another round of process. Mason said he’s had two meetings recently with state DOT and STP, but not a job offer. All it should take is for Peterson to make a phone call and demand that Mason and other minority contractors be hired immediately, he said.
Christie could only hope for a Seattle tunnel scandal to eclipse his coverage in the news cycle. Not likely.
As The New York Times reports, the Minnesota orchestra has ended "one of the most contentious labor battles in the classical music world." The musicians agreed to a new contract, with smaller pay cuts than management had previously proposed, ending a fourteen-month lock-out. Concerts are due to resume in Minneapolis's newly-renovated Orchestra Hall (pictured) in February.
The musicians accepted a fifteen percent pay cut, having successfully fought off a proposed 30% pay cut, and management has promised pay increases in the coming years so that by year three musicians will only be about ten percent below were they were in 2012. Musicians also must share a larger burden of their health insurance costs.
Some of these musicians might consider a change of careers. Stagehands seem to do pretty well.
Tuesday, January 14, 2014
$350,000. That’s the value an anonymous American big game hunter is willing to pay to shoot one of the world’s last 5,000 black rhinoceroses. 1,700 of these live in Namibia, which recently auctioned off a permit to kill an old bull through the Dallas Safari Club.
Contracts are meant to assign market values to various items and services in order to facilitate commercial exchanges of these. But does this make sense with critically endangered species?
Namibia and the Safari Club tout the sustainability of the sale claiming that the bull is an “old, geriatric male that is no longer contributing to the herd.” All $350,000 will allegedly go to conservation measures. That is, of course, unless some of the funds disappear to corruptness, not unheard of in the USA and perhaps not in Namibia either. Although the male may no longer be contributing to his herd, he does contribute to the enjoyment of, just as one example, people potentially able to see him and his likes on safari trips as well as to a much greater number of people around the world who simply enjoy the rich diversity of nature as it still is even if unable to personally see the animals.
Conservationists thus decry the sale, claiming that it is “perverse” to kill even one of a species that is so rapidly becoming extinct. The argument has been made that critically endangered species should not be valued more dead than alive. If humans cull the aging, natural predators will have to go one step “down the ladder” for the next one; a healthier one. Who are we to continually mess with nature in these ways? Counterarguments are made that poachers are the real problem, not a “single sale.” And so it goes.
At bottom, the irony in killing such an animal to “increase” the population is, indeed, great. This particular contract was not.
Monday, January 13, 2014
Over the past year, there has been an explosion of interest – and a frenzied up-swing in trading – in bitcoins. Writing in The New York Times in late December 2013, in an article called Into the Bitcoin Mines, Nathaniel Popper noted that “The scarcity — along with a speculative mania that has grown up around digital money — has made each new Bitcoin worth as much as $1,100 in recent weeks.” From a socio-economic perspective, this offers an unusual opportunity to observe the emergence and development of an entirely new, and so far unregulated, kind of market. Scholars like Wallace C. Turbeville interested in the law and policy of financial services regulation are now presented with an important opportunity to test assumptions we often blithely make about the ways in which regulation interacts with business and commercial activity.
Policymakers may confront a moment of truth – to regulate or not to regulate, and when, and how. Earlier this month, National Taxpayer Advocate Nina Olson argued that the IRS should give taxpayers clear rules on how it will handle transactions involving bitcoin and other digital currencies accepted as payment by vendors. The Senate Homeland Security and Governmental Affairs Committee held hearings on bitcoins and other “cryptocurrencies” several weeks ago, and may have a report on the situation early next year after further consideration, but Committee Chair Sen. Thomas Carper (D-Del.) seems to be taking a “wait and see” attitude. Meanwhile, the People’s Republic of China has already banned banks from using bitcoins as a currency, while U.S. regulators have not addressed the use of virtual currencies, even as an increasing number of vendors – including Overstock.com – have announced that they will accept them in payment for transactions.
One basic problem is the difficulty in determining what is involved in bitcoin creation and trading. Unfortunately, we are as yet at the mercy of metaphors. For example, within the first six paragraphs of his NYT piece, Popper refers to bitcoins as “virtual currency,” “invisible money,” “a speculative investment,” “online currency,” and “a largely speculative commodity.” In point of fact, bitcoins are book-entry tokens awarded for successfully solving highly complex algorithms generated by an open-source program, The program is disseminated by a mysterious, anonymous sponsor or group known only as Satoshi Nakamoto – the digital world’s version of Keyser Söze.
Determination of the proper legal characterization of bitcoins is essential if we are to choose appropriate transactional and regulatory approaches. For example, if bitcoins really are a “virtual currency” – a meaningless phrase, a glib metaphor – then fiscal supervision by the Federal Reserve might be the most appropriate approach to regulating bitcoin activity. Further, if they are in any significant sense “currency,” then treatment under the U.S. securities regulation framework would be problematic, since “currency” is excluded from the statutory definition of “security” in section 3(a)(10) of the Securities Exchange Act. Similarly, if bitcoins are viewed as some sort of currency, they would then likely be an “excluded commodity” under section 1a(19)(i) of the Commodity Exchange Act. On the other hand, if bitcoins are viewed as derivatives of currency or futures contracts in currency, then they may be subject to securities regulation, or possibly commodities regulation, depending upon the basic characteristics and rights of the financial product itself. The exact delimitation between treatment as a security and treatment as a commodity is currently the subject of study and proposed rulemakings by the SEC and the CFTC.
Recent news reports have noted that bitcoins are beginning to be accepted by more and more vendors as a form of payment. If in fact it becomes a commonplace that bitcoins operate as a payment mechanism, then we must deal with the possibility that they should be subject to transactional rules of the UCC and the procedures of payment clearance centers. It is at this point that the contractual aspects of bitcoins become critical features of our analysis.
Conceivably, we might go further and argue that bitcoins are functionally a type of note – relatively short-term promises to pay the holder – in which case, they would be subject to UCC article 3, exempt or excluded from securities registration requirements, but possibly still subject to securities antifraud rules. This is an attractive alternative, since it would give us some definite transactional rules to work with, plus antifraud protection against market manipulation – if we could figure out what “manipulation” should mean in the strange new world of cryptocurrencies.
Long-time readers may notice that we now have by-lines. This is a product of our editor finally getting around to providing our contributing editors with their own individualized log-ins. So, no more hunting around at the bottom of posts for an abbreviated by-line.
The New York Times reported last week on what it called The Consumer Financial Protection Bureau's (CFPB) next "crusades." That would not be my preferred term, but yes, the regulatory agenda is ambitious.
As the story recounts, The CFPB has already fined major companies, including American Express, GE Captial Retail Bank and Ocwen Financial for misleading business practices. Last Friday, it issued new regulations for the mortgage industry.
The CFPB's agenda in the coming year includes the following areas:
- Arbitration (see our earlier blog post on the CFPB's preliminary report);
- Bank overdraft fees;
- Student loans;
- Debt collection;
- Credit report disputes; and
- Prepaid cards
It is an ambitious agenda. Let's see if it will have much of an impact on consumer financial protection.
Thursday, January 9, 2014
Only one article this week:
But also a new book:
Contract Law and Contract Practice: Bridging the Gap Between Legal Reasoning and Commercial Expectation
By Catherine Mitchell
An oft-repeated assertion within contract law scholarship and cases is that a good contract law (or a good commercial contract law) will meet the needs and expectations of commercial contractors. Despite the prevalence of this statement, relatively little attention has been paid to why this should be the aim of contract law, how these 'commercial expectations' are identified and given substance, and what precise legal techniques might be adopted by courts to support the practices and expectations of business people. This book explores these neglected issues within contract law. It examines the idea of commercial expectation, identifying what expectations commercial contractors may have about the law and their business relationships (using empirical studies of contracting behaviour), and assesses the extent to which current contract law reflects these expectations. It considers whether supporting commercial expectations is a justifiable aim of the law according to three well-established theoretical approaches to contractual obligations: rights-based explanations, efficiency-based (or economic) explanations and the relational contract critique of the classical law. It explores the specific challenges presented to contract law by modern commercial relationships and the ways in which the general rules of contract law could be designed and applied in order to meet these challenges. Ultimately the book seeks to move contract law beyond a simple dichotomy between contextualist and formalist legal reasoning, to a more nuanced and responsive legal approach to the regulation of commercial agreements.
Catherine Mitchell is a Reader in Law at the University of Hull.
December 2013 308pp Hbk 9781849461214 RSP: £50 / €65
Discount Price: £40 / €52
Hart Publishing is delighted to offer you 20% discount.
Order Online in the US
If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please mention ref: ‘CONTRACTSPROFBLOG’ in the special instructions field. Please note that the discount will not be shown on your order but will be applied when your order is processed.
Order Online in the UK, EU and ROW
If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please type the reference ‘CONTRACTSPROFBLOG’ in the voucher code field and click ‘apply’.
UK, EU and ROW website: http://www.hartpub.co.uk/BookDetails.aspx?ISBN=9781849461214
If you have any questions please contact Hart Publishing
Hart Publishing Ltd, 16C Worcester Place, Oxford, OX1 2JW
Telephone Number: 01865 517 530 Fax Number: 01865 510 710
Wednesday, January 8, 2014
As noted here on the TaxProf Blog, the mother of all LPBN Blogs, the Law Professor Blogs Network enjoyed a record-setting 2013, with traffic up 87.5% over 2012 as total network page views topped 18 million. Eighteen of the network's blogs are among the 50 most popular blogs edited by law professors. Four network blogs were named to the ABA Blawg 100 ("the 100 best Web sites by lawyers, for lawyers, as chosen by the editors of the ABA Journal"), and one network blog was named to the ABA Blawg 100 Hall of Fame.
- Appellate Advocacy Blog, edited by David R. Cleveland (Valparaiso), Kendall D. Isaac (Appalachian), Tonya Kowalski (Washburn) & Todd Bruno (Charleston)
- Business Law Prof Blog, edited by C. Steven Bradford (Nebraska), Joshua P. Fershee (West Virginia), Marcia L. Narine (St. Thomas), Stefan J. Padfield (Akron) & Anne Tucker (Georgia State)
- Civil Rights Law & Policy Blog, edited by Andrew M. Ironside
- Education Law Prof Blog, edited by Derek Black (South Carolina), LaJuana Davis (Cumberland) & Areto Imoukhuede (Nova)
- Elder Law Prof Blog, edited by Kim Dayton (William Mitchell), Rebecca C. Morgan (Stetson) & Katherine C. Pearson (Penn State)
- Gender and the Law Prof Blog, edited by by John Kang (St. Thomas) & Tracy A. Thomas (Akron)
- Law Deans on Legal Education Blog, edited by I. Richard Gershon (Mississippi), Paul E. McGreal (Dayton) & Cynthia L. Fountaine (Southern Illinois)
- Marijuana Law, Policy & Reform, edited by Douglas A. Berman (Ohio State)
- Securities Law Prof Blog, edited by Eric C. Chaffee (Toledo)
Tuesday, January 7, 2014
We have perviously posted examples of government contracting difficulties relating to technology contracts and websites. Saturday's New York Times featured this op-ed by Georgetown Law Professor David A. Super (pictured), which chronicles technology contracting problems that have disproportionately affected the poor.
Some recent technology contracts gone wrong that did not make the headlines:
- 66,000 Georgia food stamp recipients and about half that many Medicaid recipients had their benefits terminated for failing to respond to renewal notices that, through a contractor's error, had never been sent;
- A Massachusetts contractor deactivated food stamp cards because new ones had been sent without seeking any confirmation that the new ones had been received; and
- A contractor's errors made food stamps unavailable to people in 17 states.
Properly supervised contractors can use technology to improve the delivery of government services. But attention, oversight and willingness to act decisively to remedy fiascoes seem to depend on the wealth and clout of those who are affected. As Obamacare regains its footing, that lesson shouldn’t be forgotten.
Monday, January 6, 2014
As reported here in The New York Times, Boeing's machinists union has agreed to a new eight-year labor contract in which the union sacrificed some benefits in order to guarantee that Boeings 777X aircraft will be built at is Washington State plant. The union local's leaders opposed the new contract, but the national union urged them to hold a vote, and 51% of those participating voted to accept the contract.
According to the Times, Washington state was the logical choice for the construction of Chicago-based Boeing's 777X. However, the company sought tax breaks and a new union contract before agreeing to use its existing infrastructure on the new project. The state legislature quickly approved tax breaks that will be good through 2040 and save the company an estimated $9 billion, but when the machinists originally rejected the new contract offer, Boeing began shopping around for a new location for its plant.
Sunday, January 5, 2014
The recent discussion of the December 2013 decision by the Ninth Circuit in In re Wal-Mart Wage & calls to mind the contrast in attitudes between international and domestic practice. Mention “arbitration” among international practitioners and profs, and you are likely to get a bit of a swoon from most – arbitration, properly structured, rescues us from the risks and uncertainties of unfamiliar legal systems and provides a comfort level in terms of predictability of process if not outcome. Mention "arbitration" in domestic circles, particularly with respect to consumer protection issues, and you encounter a growing skepticism if not outright hostility about the imposition of arbitration as an exclusive contract remedy.
There are delicate ironies in these contrasting attitudes. Many would say that the contrast – to the extent it actually exists – simply reflects the difference between complex disputes at the “wholesale” level, between commercial actors with more or less equal bargaining power, and consumer disputes in which arbitration is imposed by the dominant party on the “retail” party. However, In re Wal-Mart itself undermines that neat dichotomy, since it involves parties with, presumably, more or less equal bargaining power. In any event, there is certainly nothing in principle or in text that suggests a wholesale-retail split in the approach to deciding arbitration challenges. (Consider, for example, the Supremes’ 2011 AT & T Mobility LLC v. Concepcion, upholding an arbitration provision in a class-action consumer suit, and the Ninth Circuit’s own 2003 en banc decision in Kyocera Corp. v. Prudential–Bache Trade Servs., Inc., upholding arbitration in what was ostensibly a “wholesale” transaction between commercial parties.) It is nevertheless clear that there is a growing conception – or preconception – that arbitration clauses may be hostile to, or at least incompatible with, consumer interests.
This conception does have textual support in the 2010 enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1414(a) of the Act added a provision to the Truth in Lending Act, 15 U.S.C. § 1639c(e)(1), that prohibits the inclusion in any home mortgage or home equity loan of “terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.” However, as with so many of the provisions of the Dodd-Frank Act, § 1639c contained a special delayed effective date, namely, the date on which final regulations implementing the prohibition took effect, or a date 18 months after the transfer of authority to the new Consumer Financial Protection Bureau, whichever is earlier. Nevertheless, in the November 2013 case State ex rel. Ocwen Loan Servicing, LLC v. Webster, the Supreme Court of Appeal of West Virginia found that the delayed effective date “only applies to those portions of Title XIV that require administrative regulations to be implemented.” Accordingly, the effective date of this prohibition was the general effective date of the act, July 22, 2010. Good for us, not so good for the consumer plaintiffs suing the mortgage servicer, since their mortgage agreement containing an arbitration clause was entered into several years prior to the enactment of the Dodd-Frank Act. The West Virginia court refused to apply the Dodd-Frank Act retroactively, and proceeded to decide that it was compelled to enforce the arbitration clause in light of the mandate of the Federal Arbitration Act, which generally favors the application and enforcement of such clauses, despite the plaintiffs’ claims that the arbitration clause was procedurally and substantively unconscionable. Ocwen Loan Servicing is worth a careful read, particularly in light of its consideration of the interplay among emerging statutory policy with respect to consumer protection, general federal policy in favor of arbitration, and the contract doctrine of unconscionability.