Wednesday, February 18, 2015
According to this story in the LA Times, James and Catherine Emmi are seeking the return of $3 million that they have already donated as part of a $12 million charitable pledge to Chapman University. They are also asking the University to renounce any claim to the remaining $9 million. If the account is accurate, the Emmis seem to be claiming that:
- they never made the $12 million pledge;
- the University took advantage of James Emmi's "confusion in his old age" and preyed on him for the donation (are they alleging mental incapacity or undue influence?);
- the University harassed the couple by inviting them to events, sending them cards and "referring to them as family";
- the University breached its agreement with the Emmis by
- not publicly recognizing them in a 2013 ceremony, and
- not making sufficient progress on "Emmi Hall."
It is not clear how the Emmis account for their having already made a $3 million payment towards the $12 million pledge that they claim they never made.
[H/T Miriam Cherry]
Monday, February 16, 2015
An interesting test for contracts rights of first refusal. As reported here in Indianapolis Business Journal (IBJ.com), an Indianapolis-based media company, Emmis Communications (Emmis) is suing a Los Angeles radio personality Kurt Alexander (known as "Big Boy"). The latter received a generous offer from iHeartMedia, which Emmis claims to have matched. Big Boy is jumping ships nonetheless, so Emmis is suing for breach of contract.
According to this account in the Bangor Daily, a Maine author, Tess Garritsen will get to refile her claims against Warner Bros. for breach of contract in connection with the studio's film, Gravity. A District Court in California dismissed her complaint but has allowed her twenty days to amend and refile. The complaint is based on a $1 million contract Gerritsen signed in 1999 to sell the book’s feature film rights to a company that was eventually purchased by Warner Bros. Gerritsen has admitted that the film "is not based on" her book, but she asserts that the book clearly inspired the film.
According to this story on NJ.com, a Federal District Judge rejected a motion to set aside a $7.3 million jury award in Wendy Starland's suit against record producer Rob Fusari. The payoff was in consideration of Starland's discovery of Stefani Germanotta, aka Lady Gaga (pictured).
Tuesday, February 10, 2015
In Sussex v. U.S. Dist. Ct. for the Dt. of Nevada, Las Vegas, Petitioners filed a writ of mandamus seeking to overturn the District Court's disqualification of an arbitrator for "evident partiality." The underlying arbitration involved several civil actions against Turnberry/MGM Grand Towers, LLC, the developer and seller of a condominium project. Turnberry sought removal of the arbitrator, who had become involved in business ventures, which he characterized as "completely dormant," through which he sought to create a fund as an investment vehicle that would provide capital for litigation. The District Court granted Turnberry's motion to disqualify the arbitrator.
On a writ of mandamus, the Ninth Circuit applies the "clear error" standard. The Ninth Circuit articulated its test for when a District Court may intervene in an arbitration in Aerojet-General Corp. v. Am. Arbitration Ass’n, 478 F.2d 248 (9th Cir. 1973). That test provides that a court should intervene only in "extreme cases." The Ninth Circuit characterized this standard as very close to a blanket rule against court intervention in an ongoing arbitration.
Applying this standard, the Ninth Circuit found that the District Court had clearly erred in disqualifying the arbitrator. The Court stressed that this case, in which it was not established that the arbitrator's modest business venture would prejudice him against either party, was "emphatically not" the sort of extreme case that would warrant court intervention.
The Petition was granted.
Monday, February 2, 2015
In Benz-Elliott v. Barrett Enterp., LP, the Tennessee Supreme Court clarified the method for determining the statute of limitations when a case raises multiple claims. In such cases, the court must determine the gravamen of each claim and the nature of damages sought. In this case, which involved a sale of property, plaintiff alleged breach of contract and sought contractual damages. The Supreme Court reversed the Court of Appeals, which had dismissed plaintiff's claim based on a three-year statute of limitations relating to property claims. The six-year statute of limitations for breach of contracts should apply to plaintiff's claims, which were reinstated.
Eric Macramalla reports in Forbes that a Jets fan attempted to sue Bill Belichick, the New England Patriots and the NFL on behalf of a class of season ticket holders for having secretly recorded and then destroyed videotapes revealing signals given by New York Jets coaches (which players variously interpreted as "fumble," "drop the pass" and "miss your defensive assignment," inter alia). The suit was dismissed because the their seasons' tickets only permitted them to watch the game, which they did. Macramalla predicts similar suits may follow the great under-inflated ball scandal, which, lets face it, is a great distraction from all the other scandals facing the NFL these days.
Monday, January 26, 2015
A group of retirees had worked for the Pleasant Point Polyester Plant. They retired before Petitioner M&G Polymers (M&G) acquired the plant in 2000. At the time of that acquisition, M&G entered into a collective bargaining agreement and a pension agreement with a union that represented retirees. Those agreements created a right to lifetime, contribution-free health care benefits for the retirees, their surviving spouses, and their dependents. However, in 2006, M&G announced that it would begin requiring retirees to contribute to the cost of their health care benefits. Retirees objected that their rights had already vested and could not be withdrawn.
Retirees sued, but M&G claimed that the benefits expired with the termination of the earlier agreements. The Sixth Circuit, relying on a 1983 precedent sided with the retirees, reasoning that retiree health benefits would not likely be subject to future negotiations. Earlier precedent in similar cases had found that, even if the agreements at issue are ambiguous, the parties likely intended for them to apply in perpetuity for workers whose rights had vested and who, as retirees, would no longer be able to engage in collective bargaining. In M&G Polymers USA, LLC v. Tackett, Justice Thomas, writing for the unanimous Court, reversed, finding the Sixth Circuit opinion inconsistent with ordinary principles of contracts law.
In this and prior cases, the Court held, the Sixth Circuit had departed from contracts principles by placing a thumb on the scales in favor of retiree benefits. The Sixth Circuit's "assessment of likely behavior in collective bargaining is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention," the Court found. In addition, the Sixth Circuit approach misapplies the presumption against illusory promises. The Sixth Circuit found that agreements such as the one at issue would be illusory if benefits could be withdrawn from some potential beneficiaries. The Court pointed out that a contract cannot be partly illusory. If it provides benefits some poetntial beneficiaries, that suffices to render the contract non-illusory. Moreover, the Sixth Circuit ignoreed both the traditional contracts presumption that contractual rights usually terminate with the underlying agreement and the presumption against contracts rights that vest for life. The Court remanded the case with instructions that the lower courts should apply ordinary contracts principles
Justices Ginsburg, Breyer, Sotomayor and Kagan concurred. They agreed that ordinary contracts principles should govern the interpretation of the agreements at issue. However, they rejected M&G's contention that the retirees need to show "clear and express" language that their rights had vested. The concurring Justices pointed to provisions that might support the retirees' claims and joined the opinion of the Court in urging the lower courts to review the agreements in light of ordinary contracts principles and without a thumb on the scales in favor of a finding of vested rights.
Sunday, January 25, 2015
An Ohio appellate court upheld a $1.2 million breach of contract judgment against Kent State's men's basketball coach, Geno Ford. The judgment enforced a liquidated damages clause entitling Kent State to damages equal to Ford's annual salary ($300,000) multipled by the number of years remaining on his contract at the point of breach. In Kent State University v. Ford, Coach Ford tried to characterize the liquidated damages clause as a penalty. The court applied Ohio law to determine whether at the time the contract was entered into: 1) damages were uncertain; 2) the damages provided for in the contract were not unconscionable; and 3) the parties intended for damages to follow a breach. The court upheld the trial court's determination that the standard was satisfied in this case. Coach Ford can take consolation in the fact that his salary is short of Jim Harbaugh's by an order of magnitude.
PetaPixel.com reports on a wedding photographer who, after charging a couple $6000 to shoot a wedding album, sought an additional $150 for the album cover. The couple balked, so the photographer is refusing to hand over the photographs and is threatening to charge them an additional $250 "archive fee" if they do not pay up in a month. PetaPixel draws the following lesson from the story:
This all goes to show that as a photographer, you should never rely on verbal agreements when it comes to conditions and charges. Always get everything in writing.
Maybe. The photographer herself has an extremely lengthy blog post about the entire affair in which she claims that everything should have been clear from the written contract. PetaPixel's story makes it seem like an additional charge was added after the contract had been entered into, and if that's the case, the couple might well have balked whether or not the new terms were in writing.
Contracts Prof/Con Law Prof Randy Barnett, writing at the Volokh Conspiracy picked up by the Washington Post, muses interestingly on the applicability of the contractual duty of good faith to the President's duty to faithfully execute the laws in the Constitution's Take Care clause. This helps Barnett reconcile his empathy for the President's refusal to enforce federal drug laws in the face of permissive state laws permitting use of marijuana with his opposition to the President's new initiative on immigration. I've never been persuaded that the contractual analogy is particularly useful in Constitutional interpretation. Suggesting that the contracts doctrine of "good faith" provides a useful gloss on the Take Care clause strikes me as a stretch, but Professor Barnett is always stimulating.
Wednesday, January 14, 2015
Michael A. Dorelli & Jonathan B. Turpin, Recent Developments in Indiana Business and Contract Law, 47 Ind. L. Rev. 985 (2014)
Max N. Helveston, Preemption without Borders: The Modern Conflation of Tort and Contract Liabilities, 48 Ga. L. Rev. 1085 (2014)
Marta Pertegas & Brooke Adele Marshall, Party Autonomy and Its Limits: Convergence through the New Hague Principles on Choice of Law in International Commercial Contracts, 39 Brook. J. Int'l L. 975 (2014)
S.I. Strong, Limits of Procedural Choice of Law, 39 Brook. J. Int'l L. 1027 (2014)
Symeon C. Symeonides, Party Autonomy in International Contracts and the Multiple Ways of Slicing the Apple. 39 Brook. J. Int'l L. 1123 (2014)
Thursday, January 8, 2015
On January 7th, a federal judge struck down a ban on foie gras that had been in effect since 2012. The judge was of the opinion that the federal Poultry Products Inspection Act preempts the California ban. This Act gives the U.S. Department of Agriculture the sole jurisdiction over the “ingredients requirements” of poultry products.
The judge seems to have forgotten about the federal Animal Welfare Act’s requirements for the humane treatment of farm animals as well as states’ ability to ban the sale of the products of animal cruelty. The California Attorney General’s office is reviewing the decision for a possible appeal of the law, which was upheld in previous litigation.
Foie gras is, without a doubt, cruel to animals. To produce the alleged delicacy, geese and ducks are “force-fed a corn mash through a metal tube several times a day so that they gain weight and their livers become 10 times their natural size. Force-feeding sometime injures the esophagus of the bird, which may lead to death. Additionally, the fattened ducks and geese may have difficulty walking, vomit undigested food, and/or suffer in extreme confinement." Do we as consumers still have a right to buy such a product even if it tastes very good? No, according to at least California state law.
How anyone could make themselves eat this product is beyond my comprehension. I confess that I am an animal lover and environmentalist. I do personally believe in those core values. However, I am quite far from an extremist and respect, to a very, very far extent, the opinions of the vast majority of other people. Heck, I am not even a vegetarian (I try to at least buy free-range products). But under notions of both positive law – state and/or federal – and natural law, this is where the buck must stop. There must be limits to what we can do in the name of obtaining a gourmet experience, especially when it comes at such a high price of extreme suffering by our living, sentient creatures. And if consumers cannot draw such lines themselves, courts and legislatures must. In the words of Mahatma Gandhi, “the greatness of a nation and its moral progress can be judged by the way its animals are treated.” More than a dozen countries around the world have outlawed the production of foie gras. In this respect, the United States is not great. This case leaves a bad taste in my mouth and, I hope, in yours as well.
Monday, January 5, 2015
Thanks to the Hattiesburg Patriot, we have a pdf of a decision from the Mississippi Chancery Court striking down a public contract as unconstitutional. In January 2014, the City of Hattiesburg (the City) entered into a $137 million contract with Groundworx, LLC (Groundworx) for a wastewater treatment system. In August, the City terminated the contract due to Groundworx's alleged failure to secure financing for the project. Thomas Blanton intervened, alleging that the contract violates Article VII, Section 183 of Mississippi's constitution, which prohibits the government from lending credit in aid of a private business, and the Due Process clauses of both the Mississippi constitution and the U.S. Constitution's 14th Amendment. The Chancellor held that the contract was tantamont to the City
lending its credit to Groundworx for a public project over which it had no effective control. It thus violated the Section 183 and both due process clauses and was void ab initio.
As if Alex Rodriguez (pictured at right) did not have enough troubles already, the New York Daily News is wishing him a "Happy Sue Year" and reporting that A-Rod's ex-wife's brother is suing A-Rod for breach of a partnership agreement relating to the sale of Miami real estate.
Our Uber-lawsuit coverage continues this week with this story from the St. Louis Post Dispatch. The story reports on a planned class action alleging that Uber breached a contract with consumers by advertising that it shares 20% of fares with drivers as tips when in fact Uber keeps far more than that for itself. The latest development is just a discovery battle that Uber lost. It will have to provide relevant e-mails from Uber's CEO, Travis Kalanick.
Friday, January 2, 2015
A few days ago, I blogged on the recent lawsuit by United Airlines and Orbitz against the developer of Skiplagged. One of the causes of action alleged is breach of contract for encouraging the purchase of a ticket to certain destinations only to get off at an interim point to save money.
The airlines themselves may be breaching their contracts with flyers. For example, when we buy tickets to be flown from point A to point B, that arguably implies being done so without undue delays and, in particular, possibly having to spend the night at your own cost and without your personal belongings in random cities around the world if connections are missed because of flight delays (unless, of course, you choose to spend the night sitting upright in the airport). Needless to say, if you seek to change your ticket, airlines will either charge extreme high fees and the “difference in price” for doing so or outright prohibit this practice. I’ve had to change tickets many times in the past, and it has typically only taken an agent about five minutes to do so. Unconscionabiliy, anyone?
Here’s what happened to me one cold winter night a few years back: On my way to Denmark from St. Croix, the airline was late taking off and got even more delayed when it “had to” make an unplanned “quick landing” for gas, which was cheaper at the interim airport than at the end destination, and… ice cubes for people’s drinks! I wish I was kidding, but I’m not. I missed the once-daily connection out of Atlanta to Copenhagen and had to spend the night in Atlanta in December. As I was living in tropical St. Croix at the time, I had some warm clothes with me on board the airplane to stay warm there, but had packed my winter gear in my suitcase. The airline paid for my hotel, but would, in spite of my desperate pleas, not let me have my suitcase back for the night. Result: I had to travel to and from the hotel, etc., in indoor clothes on what turned out to be an unseasonably cold winter day in Atlanta (yes, I should have brought a warmer jacket on board the plane, but planes to and from the Caribbean are often very small and I always try not to bring too much carry-on items).
Before 1978, U.S. airlines were required under “Rule 240” to offer seats on a competitor’s next flight if that would be the fastest way of getting the traveler to his or her destination. Airlines created after deregulation were never required to follow that rule, but older airlines such as Delta, United and Continental apparently still adhere to the rule. Funny that they never seem to mention that when they delay you significantly. Next time you fly, it may pay to scrutinize your contract of carriage more carefully to ascertain your rights in case of a delay.
It may be time for Congress to reintroduce a Rule 240-type requirement on airlines, especially as these have become extremely good at flying full – even at overcapacity - and thus often do not have extra space for passengers that have missed their flights. Good customer service often seems to have given way to airlines’ “me first” attitude in the name of hearing the highest profits possible by nickel-and-diming most aspects of airline travel on, at least, economy class.
Feeling empathetic towards the airlines? Don’t. Full or nearly full flights in conjunction with declining gas prices have enabled U.S.-based airlines to earn the highest profit margins in decades. One trade group estimates that airline made 6% profit margins in 2014, higher than the highest rates in the 1990s. Of course, the task of businesses is to make as much money as they can. But at least they should live up to their own contracts of carriage and other contracts principles just as they claim passengers and website developers should.
Here’s a hat tip to Professor Miriam Cherry and other contracts professors on a well-known industry list serve for news about this story. All opinion and thoughts above are my own.
Monday, December 29, 2014
On December 18th, the District Court for the District of Minnesota ruled on defendant's motion to dismiss in In re: Target Corporation Customer Data Security Breach Litigation. The case relates to the hacking of 110 million Target customers last December. Plaintiffs allege violations of state consumer protection laws, negligence and breach of contracts, both express and implied, among other things. The court dismissed most claims with prejudice. The breach of an implied contract claim survived, as a jury will have to determine whether plaintiffs can establish the terms of an implied contract. The court dismissed the breach of an express contract claim without prejudice. Plaintiffs will be given an opportunity to specify what federal laws Target allegedly breach through its allegedly inadquate measures for safeguarding its customers' data.
And if you are looking for evidence that airlines really don't care what we think of them, look no further than United's motion to dismiss in Mamakos v. United Airlines, Inc. In the case, plaintiff alleges the following:
- She moved into that seat;
- Stewardesses informed her that she would have to pay a $109 premium for the seat;
- She did not want to pay and so moved back to her original seat;
- United then removed her from the aircraft and, when she resisted had her arrested; and
- United then cancelled her ticket and her return ticket.
United accepts the truth of these allegations for the purposes of its motion but maintains that it still did not breach its contract with plaintiff because of Rule 5(B) of United's Contract of Carriage (incorporated by reference into plaintiff's ticket), which permits United to cancel a reservation if the passenger refuses to pay for the applicable Ticket. Apparently, once plaintiff's behind made contact with a premium seat, she was bound to pay or be forcibly ejected form the aircraft. Sheesh.
Really United? Worth litigating?
Friday, December 26, 2014
In Joca-Roca Real Estate, LLC v. Brennan, the First Circuit affirmed the District Court's denial of plaintiff's motion to compel arbitration after nine months of discovery, which involved 16 depositions and four telephone conferences with the District Court Judge to settle discovery disputes. As the learned court put it, plaintiff provided no explanation for its cunctation. The District Court denied to motion to compel arbitration, holding that plaintiff had waived its right to arbitrate. The First Circuit affirmed.
The First Circuit began its analysis with the standard for a finding of implied waiver by conduct:
In determining whether a conduct-based waiver has occurred, we ask whether there has been an undue delay in the assertion of arbitral rights and whether, if arbitration supplanted litigation, the other party would suffer unfair prejudice.
Although the sage court noted plaintiff's asseveration that the District Court had applied the wrong standard, the perspicacious court considered a salmagundi of factors in determining that the District Court had applied the correct standard in finding prejudice. The sagacious court, for example, noted that plaintiff gave no reason for its inital decision to eschew arbitration and that its motion to compel was not raised in a timeous manner. In fact, the timing suggested that plaintiff had decided to try arbitration because it was facing an impending motion for summary judgment and the sapient court would not "condone the use of an arbitration clause as a parachute when judicial winds blow unfavorably."
The standard for showing prejudice in cases such as this one is not terribly exacting. Defendant had to pay for nine months of discovery. Time is also a valuable commodity, and the transfer into a new forum would have caused additional delay. Delay itself does not constitute prejudice, but here, the erudite court noted, delay was protracted and the litigation-related activities were copious.
Tuesday, December 23, 2014
Really? This is a thing now? The District Court held that a company can bind a consumer to an arbitration provision and class action waiver in a rolling contract of adhesion. Fortunately, the Ninth Circuit didn't buy it, but why is it even a close call?
In November 2011, Erik Knutson bought a Toyota which came with a 90-day subscription to Siriux XM Radio (Sirius). About a month into his trial subscription, Sirius sent Knutson a "welcome kit." That welcome kit included a customer agreement with an arbitration clause and class action waiver. According to the customer agreement, its terms became binding if Knutson did not contract Sirius to cancel his 90-day trial within three business days. Knutson also received unsolicited phone calls from Sirius on his cell phone. He filed a putative class action suit against Sirius for violations of the federal Telephone Consumer Protection Act.
Sirius cited to the arbitration clause and moved to compel arbitration. The District Court granted Sirius's motion to compel. In Knutson v. Sirius XM Radio, Inc. The Ninth Circuit reversed. The opinion is unanimous and careful. The Court explains why Mr. Knutson never assented to any terms and was not bound in any way to Sirius. Knutson never bought anything from Sirius and never knew that he was entering into a contact.
Thursday, December 18, 2014
This case arises out of a fact pattern with which many contracts profs may already be familiar. It's a new twist on Leonard v. PepsiCo., alas with the same result.
James Cheney Mason (Mason) represented defendant Nelson Serrano in a capital murder trial. Mason gave an interview on NBC news in which he pointed out that his client could not have committed murders in Bartow, Florida on the same day that he was on a business trip in Atlanta Georgia. Surveillance cameras from the La Quinta Inn in Atlanta established Serrano's presence at the hotel both before and after the murders. The prosecution claimed that Serrano flew to Orlando, drove to Bartow, committed the murders, drove to Tampa, and flew back to Atlanta in time to show up on the surveillance tapes once again. Serrano was convicted and sentenced to death.
Law student Dustin Kolodziej (Kolodziej) watched Mason's interview with NBC after it was edited for broadcast. In the edited version that Kolodziej saw, Mason seemed to be offering a million dollars to anyone who could get off a plane in Atlanta and make it back to the La Quinta Inn in 28 minutes. Kolodziej took this as a challenge and as a unilateral offer that he could accept by making the trip in 28 minutes or less. Kolodziej recorded himself making the trip and sent the recording to Mason with a demand for payment. Mason refused.
In Kolodziej v. Mason, the Eleventh Circuit upheld the grant of summary judgment to Mason. In the unedited version of Mason's interview, it is clear that his challenge was directed at the prosecution and not erga omnes. Moreover, the Eleventh Circuit found, no reasonable person could construe any statement that Mason made in either the edited or the unedited version of the interview as a serious offer to pay a million dollars to anybody who could travel from the airport to the hotel in 28 minutes. According to the Court, the context in which the words were uttered (an attempt to poke holes in the prosecution's theory) and the hyperbolic nature of the alleged offer, with its familiar overtones of schoolyard braggadocio, were insufficient to establish Mason's willingness to enter into a contract.
The Court distinguished this case from the classics, Lucy v. Zehmer and Carbolic Smoke Ball and other, equally entertaining cases. The Court was no more inclined to entertain Kolodziej's claim than it would be to declare Mason a monkey's uncle, if he had chosen that turn of phrase when attempting to illustrate the implausibility of the prosecution's timeline.
The Court suggested that the entire suit was a result of Kolodziej's inadequate understanding of contracts doctrine (hence the duncecap image above, which by the way, does not represent Kolodziej). The Court paraphrased Pope and suggested that a little legal knowledge is a very dangerous thing indeed. As the Court explained,
Kolodziej may have learned in his contracts class that acceptance by performance results in an immediate, binding contract and that notice may not be necessary, but he apparently did not consider the absolute necessity of first having a specific, definite offer and the basic requirement of mutual assent.
This seems more than a bit unfair. Kolodziej was wrong, but he may have thought it worth the gamble. He lost his case, but he had quite an experience. In any case, Judge Cardozo's remark in Allegheny College about how half-truths are sometimes mistaken for the whole truth seems more apposite.
A classic form of statement identifies consideration with detriment to the promisee sustained by virtue of the promise. Hamer v. Sidway, 124 N. Y. 538, 27 N. E. 256, . . . . So compendious a formula is little more than a half truth. There is need of many a supplementary gloss before the outline can be so filled in as to depict the classic doctrine.
Mistakes of law such as Kolodziej's are common, and learned judges (and even law professors) as well as law students can make them.
Wednesday, December 10, 2014
I read an interesting article the other day about parties to a contract agreeing to a broad arbitration provision and then carving out some issues that would be litigated should a problem arise. As with many others, I am involved in the International Commerical Arbitration Moot and, when I read the article, the issue seemed familiar. That is because this year's problem includes a contract with the following two provisions:
"Art. 20 All disputes arising out of or in connection with the present contract shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with the said Rules. The seat of arbitration shall be Vindobona,
Danubia, and the language of the arbitration will be English. The contract, including this clause,
shall be governed by the law of Danubia.
Art 21: Provisional measures
The courts at the place of business of the party against which provisional measures are sought
shall have exclusive jurisdiction to grant such measures."
As you would expect, one of the parties in the problem asks for interim relief from the ICC while the other says interim measures are for courts only. Very often, if not most of the time, the Moot problem is inspired by an actually case. Some years the students are able to find the case and, while it is never quite exactly on point, it can be helpful.
I could not help but wonder if this issue within this year's problem was inspired by a botched effort to carve interim relief out from the general provision. It would be pretty sloppy to draft something like the above but my hunch is that it has happened.
I am curious to know how other ICAM team coaches have dealt with the issue. In particular, does the word "finally" in Article 20 have any particular signficance?
Wednesday, December 3, 2014
Plaintiffs in Nashimua v. Gentry Homes, Ltd., are a class of persons who believe that the defendant corporation built their homes without adequate high wind protection. Gentry Homes, Ltd. (Gentry) moved to compel arbitration. The arbitration provision at issue provided in relevant part:
The arbitration shall be conducted by Construction Arbitration Services, Inc., or such other reputable arbitration service that PWC shall select, at its sole discretion, at the time the request for arbitration is submitted.
By the time the case was filed, Construction Arbitration Services was no longer available, which left the choice of arbiter in Gentry's sole discreation. The issue before Hawaii's Supreme Court was whether plaintiffs could claim that the provision was fundamentally unfair and therefore unenforceable or if they had to await the selection of an arbiter and then show actual bias.
Following the Sixth Circuit's approach, he Court held that plaintiffs need not wait: "'Actual bias' need not be proven in a pre-arbitration challenge to an arbitrator-selection provision, where . . . the mere fact of one party’s 'exclusive control over the pool of potential arbitrators from which the arbitrator is selected' renders the arbitrator-selection process fundamentally unfair." Applying the fundamental unfairness standard to the provision at issue, the Court found it fundamentally unfair.
The Circuit Court had orderd the parties to confer and agree upon an arbitral forum. If they could not do so, the Circuit Court would select an appropriate arbitral forum. The Supreme Court deemded this solution appropriate.
Tuesday, December 2, 2014
Ilya Shapiro at the Cato Institute posted last week about Century Exploration v. United States, decided by the Federal Circuit on March 14, 2014. Century Exploration (Century) acquired a lease for an oil field in the Gulf of Mexico. It paid $23 million up front, plus $50,000 per year of the lease. Century sought to protect itself against possible changes in applicable laws governing such leases through a contractual provision that no changes in law, other than reulgations created pursuant to the Outer Continental Shelf Lands Act (OCSLA), would affect Century's rights under the lease.
In the wake of the Deepwater Horizon fire, Congress passed the Oil Pollution Act (OPA), which required oil exploration companies to develop worst case scenarios and certify that they have reserves adequate to address such worst cases. Using a methodology required by the Interior Department, Century would have to have $1.8 billion on hand to deal with such a worst case. When Century could not prove that it had such funds, the government sought to cancel the lease. Century brought suit, relying on the contractual provision that protected it against regulatory changes, such as those promulgated pursuant to the OPA. Ilya Shapiro questions whether the directives from the Interior Department even qualify as government regulations, as they were sent via e-mail by "a civil servant in the Interior Department." The government filed for summary judgment, and both the Court of Federal Claims and the Federal Circuit sided with the government.
The Federal Circuit acknowledged that this case involves a lease provision nearly identical to that at issue in Mobil Oil Exploration & Producing Southeast, Inc. v. United States, 530 U.S. 604 (2000). However, in this case, the Federal Circuit found that the new regulations were actually promulgated pursuant to the OCSLA rather than the OPA. As such, they were within the carve-out to the contractual provision protecting Century against regulatory changes. In short, the Federal Circuit found this case distinguishable from Mobil Oil because of the nature of the regulations at issue.
To see in detail why the Cato Institute disgrees with that holding, you can have a look at its amicus brief. Ilya Shapiro provides the following summary:
First, it is vital to the smooth operation of the government and the health of the economy that private entities are confident that the government will honor its contractual promises. Federal spending on contracts has totaled roughly $500 billion annually since 2008—or 15% of the federal budget. If businesses and individuals have no reason to believe that the government will live up to its business obligations, they’ll have no reason to work with it. The Federal Circuit’s decision, which condoned the government’s flagrant breach of its contract with Century, sets a bad example and must be reversed.
Second, and quite simply, words have meaning—in the Constitution, in statutes, and yes, in contracts. A “regulation” is a formal rule adopted and issued by an authorized agency, in accordance with strict procedural protocols. It’s not a casual email. Giving informal government policy documents created by civil servants the full weight of the law is unconstitutional, undemocratic, and unsustainable.
Monday, December 1, 2014
Cyanotech Corporation and Valensa International are competitors. They nonetheless entered into two agreements under which Cyanotech was to sell algae to Valensa so that it could extract from said algae an antioxidant compound. Both agreements were governed by arbitration provisions, except for carve-outs for litigation relating to breaches of confidentiality. Valensa sued Cyanotech for tortious interference and breach of a confidentiality agreement. The suit relates to the two parties' dealings with a third company, Mercola. In short, Valensa was selling antioxidant to Mercola, and when Cyanotech found out, it offered to provide its antioxidant at a lower price. Finding that the dispute fell within the carve-out, the District Court denied Cyantotech's motion to compel arbitration.
In U.S. Neutraceuticals, LLC v. Cyanotech Corp., the Eleventh Circuit reversed. Citing its decision in Terminix Int’l Co. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1332 (11th Cir. 2005), the Eleventh Circuit held that the question of arbitrability must be determined by the arbiter. The District Court determined that the case was not arbitrable under the second of the two contracts between the parties. In so doing, said the Eleventh Circuit, the District Court decided an issue (which contract governs or do both govern) that only the arbiter could decide.
Judge Wilson dissented, agreeing with the District Court that the later agreement clearly governed because the later agreement is the one cited to in the complaint. Although there is a general presumption in favor of arbitration, that presumption does not apply to the qeustion of which agreement governs. Judge Wilson then carefully reviewed the terms of the later agreement and found that the District Court had correctly denied the motion to compel arbitration.
Monday, November 24, 2014
File this under "Nice!" According to this report in the Durham Herald Sun, the parents of a child who has been prohibited from attending his private school, the Mount Zion Christian Academy, are suing the school for breach of contract. The allegations of breach are based on the fact that the child's parents are paying tuition, but their son is forbidden to attend his school.
And what has the child done to earn this suspension? Nothing! His parents were informed that the child would not be permitted to attend school becasue his father had traveled to Nigeria, and the school did not want to risk the spread of ebola. The school took these precautions despite the fact that:
- there is no ebola in Nigeria;
- the father had no contact with anyone with ebola;
- the father was screened at the airport and cleared.
The superintendent of schools failed to appear at a hearing and a judge ordered the school to allow the child to return
According to this story from the Spokane Spokesman Review, an Idaho judge has thrown out as invalid a $60 million contract that the state entered into with Education Networks of America (ENA) and Qwest to provide a broadband network that would link every Idaho high school. The plaintiff in the case, Syringa, had partnered with ENA on one of the two bids on the contract, but when the state awarded the contract to ENA, it cut Syringa out of the allocation of work in the contract. The court found this a violation of state procurement law.
Sandra Troian a physicist at CalTech, has filed a complaint against the school, alleging violations of the California whistleblower protection statute and breach of contract, among other things. Troian alleges that she had reported that the school had been infiltrated by a spy who was sending classified information to the Israeli government. Troian alleges that the school ignored her because it did not want to endanger a large contract with Jet Propulsion Laboratories. She further alleges that the school has retaliated against her for blowing the whistle.
Monday, November 10, 2014
According to this report on the International Business Times website, two children, through their mother, are suing Malaysia Airlines for breach of contract and negligence in connection with their father's death on Flight MH370. Plaintiffs allege that the airline breached a safety agreement that it entered into with their father and the other passengers on the flight.
As reported here in the Bellingham Herald, the Indiana Supreme Court heard arguments on October 30th about the state's contract with IBM to privatize its welfare services. The state was so disappointed with IBM's performance that it cancelled the contract three years into a $1.3 billion, ten-year deal. Friend of the blog, Wendy Netter Epstein (pictured), has written about this case in the Cardozo Law Review.
Sunday's New York Times Magazine has a cover story pondering whether lawyers are going to do to football what they did to tobacco. As an example of what this might look like we have this case filed on October 27, 2014 on behalf of Julius Whittier and a class of plaintiffs who played NCAA football from 1960-2014, never played in the NFL, and have been diagnosed with latent brain injury or disease. Mr. Whittier suffers from early-onset Alzheimer's. The complaint alleges, among other things, breach of contract, based on NCAA documents requiring each member instittuion to look after the physical well-being of student athletes.