ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, June 18, 2018

A warning against trying to "nebulously" slip in language that would change an agreement's meaning

A recent case out of the District of Arizona, Colocation America Corporation v. Mitel Networks Corporation, No. CV-17-00421-PHX-NVW (behind paywall), is, in its own words, "a poster child for the rule of Section 201(2) of the Restatement." 

The dispute was over whether or not an agreement between the parties to transfer a domain name also involved the transfer of IP addresses. The section at issue was ambiguously worded: "Mitel hereby agrees to quit claim . . . the goodwill of the business connected with and symbolized by [the] Domain Name and the associated IPv4 134.22.0.0/16 and any associated trade dress . . . ." Mitel claimed this required it to quit claim the goodwill of the business associated with the IP addresses. Colocation contended Mitel was required to quit claim the goodwill AND the IP addresses AND the trade dress. 

The court found that the wording was ambiguous but that the rest of the contract supported Mitel's interpretation, since the contract did not mention the IP addresses anywhere else. At every other point the contract discussed the transfer only of the domain name. There were no clauses about the transfer of the IP addresses other than that one mention in the clause quoted. 

Furthermore, the court found that Mitel had no reason to know Colocation thought it was acquiring the IP addresses. By contrast, though, Colocation did have reason to know that Mitel thought the agreement was not about the IP addresses. In fact, evidence showed that Colocation "intentionally misled" Mitel by pretending to wish to buy only the domain name and keeping all discussions domain-name focused, while "nebulously" slipping the IP addresses into the contract. The IP addresses were worth far more than the amount the parties agreed on for transferring the domain name, and the court found that this was further proof Colocation knew that Mitel only intended to transfer the domain name, not the IP addresses. 

As the court summarized,

"Colocation's objective from the outset was to acquire the IPv4 addresses. But it purported to negotiate only for a domain name without ever leveling with Mitel Networks. Colocation not only had 'reason to know' Mitel Networks attached a 'different meaning' to their agreement, it created and promoted that different meaning on the part of Mitel Networks. Thus, the Domain Name Assignment Agreement must be interpreted in accordance with the meaning attached by Mitel Networks, that is, as an agreement to assign a domain name and goodwill and not as an agreement to transfer IPv4 addresses."

June 18, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (1)

Wednesday, June 13, 2018

Arbitration clause enforceability seems like a pretty safe bet these days

There is very little you can bet on in life but it seems like the continued prevalence of arbitration clauses is one of them. We just had a Supreme Court ruling confirming that, and a recent case out of Nebraska, Heineman v. The Evangelical Lutheran Good Samaritan Society, No. S-17-983, continues in the same vein. 

In the case, a nursing home resident sued the facility for injuries he sustained while living there. The nursing home facility sought to arbitrate the dispute under the arbitration clause Heineman agreed to before being admitted as a resident of the facility. The lower court refused to enforce the arbitration clause based on lack of mutuality of obligation as well as finding it contrary to public policy. The appellate court, however, disagreed. 

First, Heineman's argument on mutality of obligation concerned allegations that the nursing home facility had filed lawsuits against its residents without pursuing arbitration first. Heineman therefore argued that the nursing home's conduct indicated that only Heineman was bound by the arbitration clause. However, Heineman's argument depended on the court taking judicial notice of those lawsuits, considering that, as drafted, the arbitration clause did bind the nursing home. For some reason, though, this was apparently not an argument Heineman made at the lower court level, because the appellate court refused to take judicial notice of the lawsuits because they had not been presented to the trial court.

As far as the public policy concern went, the lower court had relied on a federal regulation prohibiting arbitration clauses as a requirement for admission to long-term care facilities. However, that regulation was passed almost two years after Heineman signed his arbitration clause, and at any rate has been enjoined from application by a federal court. Because there was no other legislation expressing a public policy against arbitration in the context of nursing-home facilities, the court found the arbitration clause was enforceable.

June 13, 2018 in Commentary, Current Affairs, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, June 12, 2018

The Meaning of “Iced Tea”

Here’s a nice little case that lends itself well to classroom use.

The Robertson family owned Duck Commander, Inc. (“DC”), a hunting supplies company that eventually morphed into an iced tea maker after Si Robertson ("Uncle Si") became known for the its members’ affinity for ice tea on a reality TV show about duck hunting.  This was broadcast on the A&E network. Uncle-Si-Iced-Tea_0

In late 2013, DC contracted with Chinook USA, LLC (“Chinook”), a ready-to-drink beverage company, to produce and market the Robertson family’s ice teas in cooperation with the Robertsons.  A fairly elaborate contract is drawn up.  This spells out the corporations’ mutual obligations in relation to “iced tea,” “ready-to-drink [RTD] teas,” and “RTD beverages.”  This includes an integration clause purporting to make the agreement the “entire understanding between the parties.”

A few months later, in the summer of 2014, sales of iced tea apparently did not go as well as the parties had hoped and planned for.  The Robertson family thus branched out into energy drinks and vitamin water.  DC contracted with another marketer of those products.  Chinooks sued DC for breach of contract, among other things claiming that the contractual terms “iced tea,” “ready-to-drink teas,” and “RTD beverages” also encompassed vitamin water and energy drinks and that DC should thus also have dealt with Chinook in relation to those products.

The contract was held to be ambiguous.  Parol evidence was brought in showing that during the contract negotiations, iced tea accounted for about 95% of the focus of the negotiations with coffee products for the other 5%.  No mention had been made of energy drinks or similar products.  After contract execution, a Chinook negotiator sent Chinook an email stating “[T]hank you for taking the time to ask for a confirmation of Chinook USA’s rights as our exclusive licensee of tea ….  This email confirms the same.”

Oops, it’s difficult to claim afterthe fact that when you yourself – a seasoned company with professional negotiators – get a deal for “tea,” you really intended something more than that.  The appellate court thus also affirmed the district court’s judgment against Chinook on its breach of contract claims (see Chinook USA, L.L.C. v. Duck Commander, Incorporated, 2018 WL 1357986).  https://law.justia.com/cases/federal/appellate-courts/ca5/17-30596/17-30596-2018-03-15.html

This case lends itself well to students issue-spotting issues such as contract interpretation, ambiguity, the PER, etc., but could also be used to discuss bargaining powers, party sophistication, and the smartness of, if nothing else, sending confirmatory memos… only they should, of course, be drafted such that they truly represent the parties’ intent.  If that was the case in this matter, was Chinook simply regretting not getting a broader agreement at a point when sales of the originally intended product was already known to falter?  This appears to be the case here.

June 12, 2018 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 11, 2018

Saving illusory promises with implied covenants of good faith and fair dealing

If you teach Lady Duff-Gordon, as I teach Lady Duff-Gordon, you know that it's a fun case that lets you talk about a frankly pretty incredible life. But it's also an older case, so here's a more recent case out of New York using the implied covenant of good faith and fair dealing to potentially save an allegedly illusory promise, Ely v. Phase One Networks, Inc., 2667/2017 (behind paywall). 

The plaintiff is a composer. The defendant is a company that produces music albums. The parties entered into recording and co-publishing agreements. The plaintiff sought a declaratory judgment that the contracts are unenforceable because they are illusory and unconscionable and moved for summary judgment. The court found that factual disputes existed as to both the unconscionability and illusory allegations. The analysis on unconscionability was very brief, but the court did provide a slightly deeper analysis on the illusory promise front. Although the recording contract provided that the recordings were "subject to the defendant's approval in its sole judgment," the court noted that the covenant of good faith and fair dealing "implicit in all contracts" meant that "the defendant could not unreasonably withhold approval." 

June 11, 2018 in Commentary, Famous Cases, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, June 6, 2018

A good cause termination clause operates to save oral agreement from statute of frauds writing requirement

Here's another helpful teaching case, this time for the statute of frauds section. Out of Delaware, World Class Wholesale, LLC v. Star Industries, Inc., C.A. No. N17C-05-093 MMJ, discusses the "one year" statute of frauds category. The parties entered into an oral agreement "in which WCW agreed to be the exclusive distributor of Star's products in Delaware for an indefinite period of time." Star contended that the oral agreement violated the statute of frauds and should have been in writing. 

The court disagreed. WCW had alleged that the oral agreement contained a "'good cause' termination clause." This meant that either party could have terminated the agreement with good cause at any time, including within a year. Therefore, under Delaware law, there was a possibility this oral agreement could have been permissibly terminated and therefore performed within one year, and therefore the statute of frauds did not block enforcement of it. 

June 6, 2018 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 4, 2018

Why you should take that integration clause seriously

Here's a parol evidence case if you're looking for a recent example for teaching purposes. It's out of the Northern District of Illinois, Eclipse Gaming Systems, LLC v. Antonucci, 17 C 196

The case concerned licensing agreements for source code for casino gaming software. The court found that the written agreement was facially unambiguous and complete and contained an integration clause. Nonetheless, the counter-plaintiffs argued that evidence of a contemporaneous oral agreement should be permitted. But the court refused, finding that Illinois law, which governed the contract, required the parties to put any contemporaneous oral agreements into the four corners of their unambiguous integrated contract if they wished them to be enforced. The counter-plaintiffs argued that they should be allowed to present their parol evidence to show the contract was in fact ambiguous, but the Illinois Supreme Court had rejected that approach where the contract contained an explicit integration clause, as was the case here. 

Counter-plaintiffs claimed that their parol evidence would establish that no contract was ever formed between the parties but the court found that such evidence would contradict the terms of the contract, which contained explicit terms regarding its effectiveness, and parol evidence was inadmissible to "contradict the clear written provisions of an integrated contract." The written licensing agreement, the court found, was not equivalent to a letter of intent that provided some question on the parties' intent to be bound, but instead was clear on the parties' intent to be bound. 

Counter-plaintiffs tried to turn to promissory estoppel but the court noted that promissory estoppel should be used to rescue promises that didn't rise to the level of an enforceable contract. The counter-plaintiffs were instead trying to use the doctrine to vary the terms of their written contract. 

There were other allegations and analyses, including pertaining to mutual mistake and unconscionability, but these also failed. 

June 4, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, June 1, 2018

Why do employers sue employees who leave to work for companies that don't compete against them?

A recent case out of the Eastern District of Pennsylvania, Catalyst Outdoor Advertising, LLC v. Douglas, Civil Action No. 18-1470, declined to enforce a non-compete against the defendant Douglas, who had gone to work for an outdoor advertising firm that covered Manhattan and the Bronx. Catalyst, meanwhile, worked out of the Philadelphia area. The non-compete in question had no geographic limitations, which the court took issue with, noting it "covers the entire world." Catalyst asked the court to define reasonable geographic limits for the non-compete but the court declined to do so, stating, "[D]efining the boundaries is not our job." Additionally, because Catalyst operated in Southeastern Pennsylvania (with one billboard along the New Jersey Turnpike) and Douglas's new employer operated only within New York City, the court found that the two companies were not in competition with each other. 

The court also found that Douglas had no confidential information belonging to Catalyst and that there was no evidence the information she knew from working at Catalyst would be beneficial in the entirely new territory of New York City. Therefore, the court concluded there was no likelihood of irreparable harm. 

This is one of those cases that, from a pragmatic standpoint, makes little sense to me. Why would Catalyst pursue a court case against an employee going to work for a company not in its geographic area? The court's irreparable harm analysis seems right to me, that the employee here didn't have any specialized knowledge that could hurt Catalyst, given it didn't compete against the new employer. So, in that case, why is this case worth the money spent by Catalyst to bring it? Even if Catalyst had been successful, what was Catalyst's concrete gain? Is it just that companies don't want any employees to leave ever? Given the breadth of the non-compete in the first place, Catalyst might just be overprotective. Or is there some fact about this case left out of the opinion that makes it make more sense? Is Catalyst contemplating expansion down the road into New York City and is worried this employee might somehow make their plans less successful? This case is in the preliminary injunction stage, so maybe there is information that could arise later that would make it look more likely that Catalyst would succeed on the merits. It seems like Catalyst would have presented that information to the court at this point, though. 

June 1, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 30, 2018

Professor's retaliation claims mostly survive motion to dismiss

A professor at Columbia sued the university, alleging various contract-based claims. In a recent decision, Joshi v. The Trustees of Columbia University in the City of New York, 17-cv-4112 (JGK), the Southern District of New York permitted the claims to survive the university's motion to dismiss. 

The university argued that various employment policies did not constitute binding contracts between the parties. However, the court disagreed. The university had in place a Reservation of Rights that stated the employment handbook should not be treated as a contract. But there were factual disputes as to whether this Reservation of Rights applied to the other employment policies at issue, which did not seem to be found in the employment handbook. The parties disputed how clearly the Reservation of Rights was incorporated into the policies, and whether the Reservation of Rights was conspicuous. Therefore, the court allowed the breach of contract claim to survive the motion to dismiss (it also found that there were factual disputes about whether the university's actions were a breach of the policy). 

The court also allowed the plaintiff's claim of breach of the covenant of good faith and fair dealing to survive, because it was about different conduct than the breach of contract claim (regarding the university's failure to investigate and stop the retaliation at issue, rather than the retaliation itself). 

And the plaintiff's promissory estoppel claim also survived. The university argued that promissory estoppel claims do not apply to employment relationships, but the court disagreed and refused to dismiss the claim based on that alone, stating that the plaintiff was not seeking reinstatement of employment. The plaintiff's allegations, taken in the light most favorable to them, adequately pleaded promissory estoppel, so the court allowed the claim to survive. 

The court did, however, dismiss the plaintiff's claim for fraud in the inducement, finding that the plaintiff had not adequately pleaded that the university acted with an intent to deceive. 

May 30, 2018 in Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (1)

Tuesday, May 29, 2018

When Hugs and Signatures Lead to Binding Contracts Despite Disputes over Terms

The Supreme Court of Delaware just issued a contracts law case suitable for teaching purposes in relation to several different issues including contract formation, the parol evidence rule and forum selection clauses.  It also raises some puzzling questions regarding the Court’s own analyses and conclusions.

The Court first analyzes whether three investment and tech companies displayed sufficient overt manifestation of assent – not subjective intent - to be bound by any contract at all. Referring to Professor Williston, the Court found this to be the case when a signature is present because it “naturally indicates assent, at least in the absence of an invalidating cause such as fraud, duress, mutual mistake, or unconscionability....”  Because both parties here signed the contract and hugged each other after doing so (!), there was an objective manifestation of assent. Unknown

The Court then stated that “a contract must contain all material terms in order to be enforceable … Until it is reasonable to conclude, in light of all of the[ ] surrounding circumstances, that all of the points that the parties themselves regard as essential have been expressly or (through prior practice or commercial custom) implicitly resolved, the parties have not finished their negotiations and have not formed a contract.” Common sense, found the Court, “suggests that parties to a sophisticated commercial agreement …  would not intend to be bound by an agreement that does not addressall terms that they considered material and essential to that agreement.”  Consequently,“all essential or material terms must be agreed upon before a court can find that the parties intended to be bound by it and, thus, enforce an agreement as a binding contract.”  In the case, the precise consideration under the contract was highly material to the parties.  One of the documents addressed the consideration to be exchanged, although not in a concise manner.  The recordregarding other terms was also “woefully undeveloped.”  Some key terms were missing.  Others were contested by the parties.

Nonetheless, the Court somewhat strangely did not find this to be a major problem.  The real dispute was, per the Court, whether the terms relating to that consideration were sufficiently definite.  The majority found this to be the case under the Restatement (Second) of Contracts § 33(2). Said the Court: “A contract is sufficiently definite and certain to be enforceable if the court can—based upon the agreement's terms and applying proper rules of construction and principles of equity—ascertain what the parties have agreed to do.  Indeed, as Corbin has stated, “[i]f the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result, even though this requires a choice among conflicting meanings and the filling of some gaps that the parties have left.”  Because the agreement's recitals summarized that technology company owner was to contribute to the holding company all his rights in certain intellectual property and technology company securities in exchange for units in holding company, technology company owner warranted that he could deliver all securities as promised, and agreement provided for situation of employees making successful claims for technology company securities, the Court found the consideration to be sufficiently definite.  Fair enough, but what about several terms either having been omitted or “differing in reality from the parties’ statements”?  The Court relied on parol evidence to resolve these issues.  Unknown-1

The Court remanded for the lower court to make explicit findings as to whether or not the parties agreed to be bound.

The dissenting justices raise some good questions.  Among other things, they identify valid issues regarding the missing material terms, whether the parties even agreed on the contract at all given its short-lived nature, and whether it was a waste of judicial and party resources to remand the case when the Supreme Court found it to be sufficiently specific.  Most importantly and for good reason, the dissenters focus on the contract formation issue that the majority did away with for, it seems, the somewhat simplistic reasons that the parties had signed the documents and hugged each other.  If our students concluded their analyses of contract formation on this ground, we would probably also point out the problem in so doing.

Of course, the parties may also consider reaching a solution amongst themselves at this point.  Said Justice Strine:  One hopes that before the parties engage in remand proceedings of great expense, they exhale and consider a sensible solution so that they can move on, with [one party] receiving fair compensation for his investments, but without harming themselves or others by continuing a bitter battle over whether they should be declared to have had a brief, loveless marriage, only to then commence immediate divorce proceedings.

The case is Eagle Force Holdings, LLC and EF Investments, LLC v. Stanley V. Campbell, C.A. No. 10803-VCMR.  H/t to Professor Chiappinelli for bringing this case to my attention, and congratulations to Professor Stark for being cited to by the Delaware Supreme Court.

May 29, 2018 in Contract Profs, Recent Cases | Permalink | Comments (0)

Thursday, May 24, 2018

In which we are cited as evidence in a case

The life of a blogger can sometimes feel like toiling sometimes in relative obscurity. And then there's the moment when you get cited as evidence in a case!

A recent decision out of the District of Columbia in Mawakana v. Board of Trustees of the University of the District of Columbia, 14-cv-02069-ABJ, referenced ContractsProf Blog. The case was a tenure dispute between the plaintiff professor and the defendant university. The plaintiff alleged he was denied tenure because of racial discrimination. The defendant moved for summary judgment, which was granted. 

Part of the plaintiff's evidence was a number of favorable comments on his scholarship, including "honorable mention from ContractsProf Blog." The court cites to the plaintiff's opposition, which is sealed, so I can't see exactly what was stated about the entry. I found the school's write-up of it, but the link the school provides to the blog entry doesn't work for me (maybe my computer is just being fickle and you'll have better luck). 

Despite the favorable comments, including the ContractsProf Blog entry, the court noted that there were also less favorable comments about the plaintiff's scholarship (the court actually noted in a footnote that one of the reviewers did not give the ContractsProf Blog honorable mention "any weight"). The court also found that the favorable comments did not mean that the plaintiff's denial of tenure must have been based on racial discrimination. The court eventually concluded, after much analysis (a great deal of it redacted), that the plaintiff wished for the court "to weigh in on the merits of the University's academic judgments in a manner that is contrary to the legal principles governing these disputes." 

The court also found the plaintiff's contract claims to be time-barred, but, even if not time-barred, not supported by evidence. 

(This is not, btw, the first time we blogged about this case.)

h/t to Prof. Eric Goldman at Santa Clara for sending this case to our attention!

 

May 24, 2018 in Contract Profs, Labor Contracts, Law Schools, Recent Cases, True Contracts, Weblogs | Permalink | Comments (0)

Tuesday, May 22, 2018

Update: In Which Arbitration Reigns Supreme (Supreme Court Kind-Of Pun Intended)

I just blogged about the Ninth Circuit case of Morris v. Ernst & Young, and the Supreme Court has now come out with its decision, reversing the Ninth Circuit (shorter analysis here). Where the Ninth Circuit found that arbitration clauses prohibiting concerted actions by employees violated the National Labor Relations Act, the Supreme Court found that permitting concerted actions by employees where arbitration clauses existed would violate the Federal Arbitration Act. Justice Ginsburg wrote a long dissent; the majority opinion was written by Justice Gorsuch. The trend out of the Supreme Court has been that arbitration trumps every other policy. The Federal Arbitration Act is like the royal flush of statutes.

In a world where contracts with arbitration clauses govern almost every imaginable transaction, courts are forced into interesting decisions to press against the primacy of arbitration. So, for instance, on the same day the Supreme Court handed down its decision, the Western District of Pennsylvania declined to enforce an arbitration provision in Jones v. Samsung Electronics America, Case No. 2:17-cv-00571-MAP (behind paywall). Jones sought to bring a class action against Samsung based on alleged defects in its S3 cell phones. Samsung sought to arbitrate, citing the contract allegedly contained in the instruction booklet included with the phone. But the court disagreed that the arbitration clause was enforceable. It found that the clause was "tucked away" in a section entitled "Manufacturer's Warranty" contained in a 64-page booklet. The court agreed that the clause might possibly have been more inconspicuous, but found that

the degree of prominence of the Arbitration Agreement here seems calibrated with dual goals: on the one hand, just enough to persuade a court to smother potential litigation; on the other hand, not enough to make it likely that a consumer will actually notice the Agreement and perhaps hesitate to buy. It is one thing to hold consumers to agreements they have not read; it is another to hold them to agreements that, perhaps by design, they will probably never know about.

The court's decision here makes some sense, but it seems rooted in a somewhat fictional hypothetical. I don't know but I feel like Samsung could sell its phones with an instruction booklet with "ARBITRATION CLAUSE" in big, bold, red letters with exclamation points on the front of it, and I'm not sure it would in fact cause most consumers to "hesitate to buy," especially not if the majority of other cell phones contain similar arbitration clauses (the major cell phone carriers do).

But the bigger fiction at issue here is the idea that we're all "voluntarily" entering into these contracts. I mean, we are, to the extent that it's "voluntary" to have a cell phone in today's world. The answer to that question is: It is, to some extent, but not to the extent that we're willing to forego one entirely based on the mere possibility we might want to sue someday and can't. We all take risks, and maybe the court's view is this a risk that doesn't pay off for the consumer, oh, well, but it seems like the consumer has almost no power to take any other kind of risk. (This is, of course, not limited to cell phone contracts. So the real question is: is it "voluntary" to be a consumer in our capitalist society?) Likewise, is it "voluntary" to accept a job that require arbitrations, if you need a job to survive and jobs without arbitration clauses might be tough to come by?

There are statutory ways to shift the supremacy of arbitration, of course, as the Supreme Court's decision acknowledges. And at one point the FCC was contemplating doing something about the type of arbitration clause the court looked at in Jones. Maybe add it to your list of things to contact your representatives about, if you so desire.  

May 22, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, May 16, 2018

The interplay between arbitration clauses in employment contracts and labor laws

A recent case out of the Southern District of California, Davis v. Red Eye Jack's Sports Bar, Inc., Case No.: 3-17-cv-01111-BEN-JMA (behind paywall), found an arbitration clause in an employment contract unenforceable because it contained a concerted action waiver. Such a waiver violates labor law policy protecting employees' right to concerted legal claims. The court found that the waiver rendered the entire arbitration agreement unenforceable. 

However, the Supreme Court has granted review in the Ninth Circuit case of Morris v. Ernst & Young, LLP, whose precedent this court followed in its ruling. Therefore, the court stayed the action pending the Supreme Court's decision in Morris, as a reversal of Morris would dictate a different outcome to this case. 

 

May 16, 2018 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, May 14, 2018

Secondary-market ticket brokers, "derivative works," and preliminary injunctions

In a copyright-ish case falling under the contract umbrella, Broker Genius, Inc. v. Volpone, 17-cv-8627 (SHS), a recent case out of the Southern District of New York, is a contract case where the likelihood of irreparable harm leads to the court granting a preliminary injunction. 

The case involves software used by secondary-market ticket brokers. Broker Genius owns a particular application, and those who use the application agree to terms of use that prohibited them from creating and distributing "derivative works" of the application. 

The court found that the defendants in this case agreed to be bound by the terms of use: They were required to expressly consent to the terms, which were readily viewable by hyperlink, in order to use the website. The defendants might not have had any memory of clicking their assent, but Broker Genius's evidence was sufficient to establish that the parties had entered into a contract. 

The parties agreed that the "derivative work" clause in the terms of use was not a noncompetition clause. Broker Genius's customers were allowed to compete against Broker Genius; they just couldn't develop a "derivative" software application. The parties agreed to use the dictionary definition of "derive" to interpret the contract: "something that originates from something else." 

The court concluded this meant that the products would be similar and that the similarities in the second product would be traceable to the first. The court found the defendants' software to be "extraordinarily similar" to Broker Genius's software, and those similarities were traceable to Broker Genius, due to the defendants' access to Broker Genius's software and the fact that the defendants' creation of their software happened "immediately" after accessing Broker Genius's software. The court acknowledged that some of the similarities predated Broker Genius's software, or were "logical or obvious," and that defendants had prior knowledge and experience in the industry. However, the weight of the evidence led to a finding that Broker Genius was likely to succeed on its breach of contract claim. 

The court also found that defendants' derivative product was causing Broker Genius to suffer a loss of reputation and good will, which could not be compensated with monetary damages. Therefore, the court issued a preliminary injunction. 

May 14, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, May 9, 2018

Just to reiterate, fraudulent inducement claims go to arbitration, too

A recent case out of the Eastern District of Missouri, Schoemehl v. Unwin, No. 4:18-cv-00031-JAR, underlines the fact that arbitration is favored in this country, including to decide claims of fraudulent inducement to enter into the contract in the first place. The plaintiff tried to argue that he would not have agreed to the arbitration clause were it not for the alleged fraud committed by the defendant. However, the court noted that the Federal Arbitration Act requires fraud in the inducement of a contract to be submitted to arbitration. Fraud in the inducement of the arbitration clause specifically would be a different question, but the plaintiff was not alleging that. The fraud in plaintiff's allegations went to the substance of the entire contract, and there was nothing about the validity of the arbitration clause itself as separate from the rest of the contract. Therefore, the court stayed the action pending arbitration. 

May 9, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Monday, May 7, 2018

When gyms are hazardous to your health

It's been a while since I blogged about release of liability clauses in the context of gyms. In case you were missing them, here's a recent one, again out of Pennsylvania, Vinson v. Fitness & Sports Clubs, LLC, No. 2875 EDA 2016

Vinson was a member of an L.A. Fitness gym. While using the gym, she tripped and fell on a wet floor mat and suffered injuries. She sued L.A. Fitness for negligence. L.A. Fitness pointed to its clause in its membership agreement releasing it from liability for, inter alia, "accidental injuries." The trial court granted L.A. Fitness's motion for summary judgment on the basis of this clause, and Vinson appealed, arguing that the clause was invalid as against public policy because her claims involved the maintenance of gym facilities, which was "a vital matter of public health and safety." L.A. Fitness argued that the membership agreement was merely a contract between two private parties and did not implicate public policy. 

The court sided with L.A. Fitness. The court noted that, in other cases, courts had upheld the identical clause in L.A. Fitness's membership agreement. There were no factual differences in Vinson's case that set it apart from these other cases. Vinson joined the gym voluntarily and went to the gym voluntarily. She chose to subject herself to the provisions of the membership agreement. Public policy did not point against its enforcement. 

May 7, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 2, 2018

Minor's disaffirmance of a contract frees them from the arbitration provision, too

I never spend a lot of time on minors and contracts, because I teach a one-semester Contracts course and it just has to keep moving, but this is an interesting case delving into the issue in much more detail than I can get around to, recently out of the Northern District of California, T.K. v. Adobe Systems Inc., Case No. 17-CV-04595-LHK (behind paywall). 

T.K. was a minor who was given a license to access Adobe's Creative Cloud Platform. In order to access the platform, T.K. agreed to the terms of service. The license auto-renewed after a year, and T.K. contacted Adobe to disaffirm renewal of the license. Adobe eventually (although apparently not immediately) refunded T.K.'s money for the renewal, but T.K. sued alleging injury because she was deprived for some time of use of the funds auto-debited by Adobe. T.K. alleged that Adobe initially refused to allow T.K. to disaffirm the auto-renewal, in contravention of law. (T.K. also alleged that Adobe's terms of service implied that users still had to pay even after cancellation, also in contravention of law. I'm not going to focus on that, but the allegation did survive the motion to dismiss.)

Adobe argued that T.K. was relying on the choice of law provision in the disaffirmed contract and so should also be held to the arbitration provision of that contract, because minors cannot cherry-pick which portions of a contract they disaffirm. The court, however, said that T.K. was not cherry-picking. Rather, T.K. had disaffirmed the entire contract. The reference to the choice of law provision was only to buttress her independent choice of California law to resolve the dispute between the parties. Therefore, T.K. was not bound by the arbitration provision. 

The opinion discusses lots more causes of action, if you're curious. 

 

 

May 2, 2018 in E-commerce, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (2)

Friday, April 27, 2018

Fun with renewal options, and waivers, and counteroffers!

A recent case out of the District of New Mexico, Bar J Sand & Gravel, Inc. v. Fisher Sand & Gravel Co., No. Civ. 15-228 SCY/KK (behind paywall), offers up a waiver fact pattern. The parties had a contract with a renewal option that stated that written notice of intent to exercise the renewal option had to be received within 120 days of the initial contract expiring. Fisher indisputably provided the written notice after the 120-day deadline. Fisher, no longer wanting to be in a contract with Bar J due to disputes over terms, argued that this meant its written notice was ineffective but Bar J argued that it had waived the 120-day requirement. 

The court agreed. Bar J and Fisher had discussions about the written notice and Bar J indicated to Fisher multiple times that it should send the written notice over even though it was 'technically" late. If Bar J had intended to enforce the 120-day requirement, it would not have asked Fisher to prepare and submit the late notice. Therefore, this operated as a waiver of the 120-day requirement, which Bar J was permitted to do.

However, the court found that the written notice Fisher sent was not in fact an exercise of the renewal option but rather, based on its language, some sort of counteroffer in which Fisher was requesting to renegotiate some terms. The parties did in fact discuss modification of their contractual terms and never reached an agreement on them (hence Fisher's stance in this case). Therefore, the court did not find that Fisher could be held to have renewed the agreement. 

April 27, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Saturday, April 21, 2018

In which we all learn a little bit about the business behind horse-drawn carriages in Nashville

A recent case out of Tennessee, Sugar Creek Carriages v. Hat Creek Carriages, No. M2017-00963-COA-R3-CV, lets us peek behind the scenes at the competition between horse-drawn carriage operators in Nashville, Tennessee. (You can listen to the oral argument here.) The defendant hired one of plaintiff's carriage operators, and the plaintiff sued based on the non-competition agreement that the employee had entered into. 

However, the court refused to enforce the non-competition agreement. The plaintiff's argument boiled down to training that it had provided to the employee, but the court warned the plaintiff that it couldn't protect itself against the employee's using general skills and knowledge learned on the job. There were no allegations of the employee having any confidential information and no allegations that any customers associated the employee with the plaintiff's business. And, in fact, the training that the plaintiff gave to the employee it actually made available to the public at large, encouraging them to use the training to go forth and start their own horse-drawn carriage businesses. So, having offered the training to others with explicit encouragement of competition, the court refused to allow the plaintiff to impose a non-competition restriction on the employee based on the same exact training. 

April 21, 2018 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, April 18, 2018

Assumption of risk stymies builder's impossibility argument

A recent case out of the District of Maryland, Green v. Jenkins Services, LLC, Case No. PWG-16-2572 (behind paywall), has something to say about impossibility and assumption of risk. In the case, Green hired Jenkins to demolish their fire-destroyed house and build them a new one. However, after demolition, Jenkins found that the land was unsuitable for an on-site sewage system, and therefore could not acquire the necessary permits for construction. As a result, Jenkins did not build the new house, and Green sued for breach of contract. 

Jenkins argued that it was excused from performance by impossibility, because it was not its fault that the land failed the tests the state required for building. But Green argued that Jenkins assumed the risk, since Jenkins had promised in the contract to obtain all the required permits. 

The court agreed with Green. Jenkins promised in the contract to obtain the proper permits, and Jenkins knew at the time it made this promise what the government regulations surrounding those permits were. Therefore, Jenkins assumed the risk that it might not be able to obtain the proper permits. If Jenkins had wanted to be excused from performance if the government refused to issue the permits, it should have provided so in the contract. Its failure to do meant it was in breach of contract. 

April 18, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, April 17, 2018

"Similar in concept" IHOP diner follow-up!

Thanks to Andy Feldstein of Huntington Technology Finance, who sent me an email after reading yesterday's IHOP post. Reading the opinion left me confused, but Andy points out that a visit to the Gunther Toody's website sheds a lot of light on the matter. Andy wrote that to the extent "similar in concept" has meaning, it's pretty clear IHOP and Gunther Toody's are two diners with extremely dissimilar concepts. Agreed. This was very helpful in clearing things up! 

April 17, 2018 in Commentary, Food and Drink, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)