ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, September 28, 2016

Remember, Fraudulent Inducement Requires Particularity

A recent case out of the District of Utah, HealthBanc International v. Synergy Worldwide, Case No. 2:16-cv-00135-JNP-PMW, reminds us all of this rule. Well, it definitely reminded the parties and now I'm blogging about it and reminding all of you!

This case revolves around "a recipe for a powder comprised of various grasses and other components." Apparently you can combine this powder with water to make a nutritional supplement. HealthBanc entered into a contract with Synergy whereby Synergy would distribute the powder and pay HealthBanc royalties for every bottle of powder it sold. After almost a decade of doing business together, the relationship between the two parties soured. HealthBanc sued first, and then Synergy counterclaimed, alleging that HealthBanc had led Synergy to believe that it owned intellectual property rights in the recipe for the power, which apparently turned out to be untrue. HealthBanc then moved to dismiss this fraudulent inducement claim based on lack of particularity in Synergy's pleadings. The court here grants the motion. 

Synergy's complaint just generally alleged that HealthBanc had made misrepresentations. Those general allegations are not enough for a fraudulent inducement claim. Synergy identified nothing about the misrepresentations: When did they happen? Where did they happen? Were they written? Oral? Who made them? Without any of this information, the court finds this cause of action can't survive. 

The contract between the parties did contain a clause where HealthBanc

represents and warrants that it is the sole and exclusive owner of the entire rights, title and interest, including without limitation all patent, trademark, copyright and other intellectual property rights,

and another clause where HealthBanc "represents and warrants" that it has exclusive rights to the recipe that it can provide to Synergy. But those clauses don't raise a valid fraudulent inducement claim. Synergy made no allegations about the drafting of those clauses, nor did it allege that those clauses caused it to falsely believe that HealthBanc owned IP rights in the recipe and that that false belief prompted Synergy to sign the contract. 

Likewise, Synergy failed to allege any particular way that it was harmed by the alleged misrepresentations. 

Therefore, on basically every single element Synergy made very general claims that failed to meet the particularity standards. The court does dismiss without prejudice, though, giving Synergy the opportunity to try to fix the deficiencies. Stay tuned!

*Note the first: Synergy Worldwide sounds vaguely like what a company would be called in a Marvel movie so I actually looked the company up to see what it does. It seems to be a company specializing in nutritional supplements: "Your source for ProArgi-9 Plus, the highest quality l-arginine supplement on the market, as well as Mistica acai supplement, Core Greens, and more."

*Note the second: I also looked up "greens formula," which is what the court here refers to the recipe as. Wikipedia just wants to tell me about mathematical theorems, which then sent me down the Wikipedia rabbit hole to learn about George Green, a self-taught mathematical genius who received only one year of formal schooling as a child and to this day no one really knows where or how he learned the form of calculus that his theorems advanced. 

September 28, 2016 in Commentary, Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, September 26, 2016

Lack of Formal Executed Contract Haunts Promissory Estoppel Analysis

This recent case out of the Western District of Pennsylvania, Landan v. Wal-Mart Real Estate Business Trust, 2:12cv926 (behind paywall), is sort of a try-try-again case, although the "try again" part has as negative an outcome for the plaintiffs as the "try" part did. The plaintiffs' breach of contract claim had already failed here because the court found there was no oral agreement between the parties and the parties' signed letter of intent indicated that the parties did not wish to be bound until a final formal contract was executed (as never happened).

In the face of the failure of their breach of contract claim, the plaintiffs turn here to promissory estoppel. But the lack of a final formal contract haunts the promissory estoppel analysis, too. The court finds the plaintiffs were unable to explain what promises had been made to them and characterizes the plaintiffs' stance as "unclear, inconsistent, constantly shifting, and ultimately unavailing." Given the confusion about the statements at issue, the court concludes that any reliance on such vague statements on the plaintiffs' part was unreasonable. A lot of the courts' characterization of the statements and the reasonableness, though, seem to revolve around the fact that the parties never reached a final formal contract: It would be hard for the plaintiffs to allege definite promises, the court says, because the parties were negotiating and hadn't entered into a formal deal yet; maybe Wal-Mart did make some statements but, the court says, in the context of the ongoing negotiations it would have been unreasonable for the plaintiffs to rely on those statements. 

Granted, there seem to definitely be issues with the plaintiffs' promissory estoppel claim here. The court points out that the plaintiffs themselves behaved sometimes as if they did not understand Wal-Mart to be making any promises to them, apparently negotiating with other parties over the same piece of land because of their skepticism about the Wal-Mart deal going through. And there was the letter of intent between the parties that did seem to make it less reasonable that the plaintiffs would rely on indefinite negotiating statements that hadn't been reduced to writing the way others of the statements had been. But it also seems like, once the court decided that the letter of intent wasn't binding because it contemplated a subsequent agreement, the plaintiffs' promissory estoppel claim was likewise doomed. Without a formal executed agreement, there was nothing for the plaintiffs to do to save their claim. 

September 26, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, September 21, 2016

Your Apartment May Have a Leak, But You Still Have to Prove Damages

We are just about to start discussing damages in my Contracts class, so this recent case out of the District Court for the District of Columbia, Parham v. Cih Properties, Inc., Case No. 14-cv-1613 (GMH) (behind paywall), caught my eye. And then I realized that, wait a second, these are the same parties from one of my very first cases I ever blogged! Small world! They're still fighting with each other!

And the plaintiff is still looking for a real win, because even though she wins here, she only wins nominal damages of $1.00. 

The plaintiff alleged that water leaked into her apartment and damaged a number of items, including a mink coat, a cape with mink tassels, five designer bags, a leather trench coat, two suede suits, snakeskin boots, a box of ivory china, and various other clothes, accessories, and glassware. The court agreed with the plaintiff that the leak had occurred and found that the defendant landlord had breached the warranty of habitability. However, the court found that the plaintiff had failed to provide the court with any reasonable basis on which to base a damages award. The court noted that the plaintiff asserted the loss of a number of unique, designer items that required some sort of expert testimony (not provided) to settle the value. The court further noted that, even for the non-unique items, the plaintiff's testimony as to their value was the only piece of evidence she provided. She had no receipts, appraisals, or even surveys of prices of comparable items, and the court found her personal estimates unpersuasive because she was "an easily confused witness" whose estimated values of the items (if she provided them) were inconsistent and sometimes appeared to be "conjur[ed] out of thin air." Even plaintiff's counsel said in court, "I don't think we really proved damages."

The court agreed with this assessment, finding that the plaintiff provided no reasonable basis for the court to determine damages. The court did,  however, agree that she was entitled to nominal damages, given that the landlord had breached the warranty, and so awarded her $1.00. 

September 21, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, September 19, 2016

Political Ads, Free Speech, and Tortious Interference with Contracts

An interesting recent case out of Texas, Deuell v. Texas Right to Life Committee, Inc., No. 01-15-00617-CV (behind paywall), deals with political advertisements, cease-and-desist letters, First Amendment free speech rights, and yes, contract. 

In the case, Deuell was a candidate for state senate. Texas Right to Life Committee (TRLC) ran some radio ads stating, among other things, "Bob Deuell sponsored a bill to give even more power to . . .  hospital panels over life and death for our ailing family members. Bob Deuell turned his back on life and on disabled patients." Deuell's lawyers sent cease-and-desist letters to the radio stations stating that the ads were defamatory and "respectfully demand[ing]" that the radio stations cease airing the ads. The radio stations, upon receipt of the letters, contacted TRLC and told it they were suspending the ads. TRLC then produced a new advertisement that the radio stations found acceptable to air, and also contracted "for additional airtime to compensate for the lost advertising time." TRLC then sued Deuell for tortious interference with contract and sought recovery of the amount it expended to produce the new ad and buy more airtime. Deuell moved to dismiss, arguing that the Texas Citizens Participation Act (TCPA) protected his cease-and-desist letter as free speech and that TRLC's allegations were not sufficient to overcome this. 

The court disagreed and denied the motion to dismiss. The court found that TRLC had adequately alleged the existence of contracts with the radio stations and that the cease and desist letters were "clear and specific evidence" (the relevant standard under the TCPA) that Deuell had intentionally and willfully interfered with these contracts that proximately caused TRLC to suffer the damages it alleged. The TCPA and Deuell's free speech rights therefore did not operate to prohibit TRLC's cause of action. 

Deuell did attempt to argue other things, including that TRLC's ads were illegal under the Texas Election Code, rendering TRLC's contracts with the radio stations to run the ads illegal contracts that could not result in tortious interference, as "a defendant cannot be held liable for tortiously interfering with an illegal contract." The court concluded, however, that there was no basis for declaring the contract illegal because the section of the Texas Election Code at issue had actually been declared unconstitutional.

There was a dissent in this case that would have held that Deuell's cease-and-desist letter implicated free speech rights under the TCPA and that TRLC did not provide the "clear and specific evidence" that would permit its case to survive in the face of those free speech implications. 

September 19, 2016 in Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, September 14, 2016

The Great Nut Caper

 Blanched pistachios

I'm cheating a little because, while this case has a breach of contract claim in it, it doesn't really have anything interesting to say about contract law, mostly because the claim fails because the complaint didn't identify any contract, any terms to the contract, or any facts about the formation of the contract. 

But this case out of the Northern District of New York, Golub Corp. v. Sandell Transp., Inc., 1:15-CV-0848 (LEK/CFH) (behind paywall), has an amazing set of facts relayed by the judge in a playful way, and sometimes you just want to read about a good pistachio heist, you know? 

Because yes, that's what happened in this case. Golub in New York ordered some pistachios from Wonderful in California. Sandell was arranged to ship the pistachios. Sandell sought to subcontract out the job by posting on an industry job board and hiring a company called GM EXPRESS. In the court's words: 

But appearances can be deceiving, and it turns out that "GM EXPRESS" was not actually GM EXPRESS. Unknown to Sandell, the identity of GM EXPRESS had been stolen by criminals who were set on pilfering Golub's pistachio shipment. . . . In this shell game of trucking companies, the pistachio thieves provided Sandell with stolen yet still valid bona fides, including insurance information, tractor and trailer license plate numbers, and a driver's license number (which Sandell claims was valid despite its conspicuously sequential numbering of B7890123). . . . Through this scheme, Sandell and Wonderful would become the thieves' unwitting insiders, happily loading the nuts directly onto the getaway vehicle.

As I said, the breach of contract claim doesn't amount to much in this case, but I enjoyed reading this opinion nonetheless and felt I had to pass it on, so you too can now ponder the disappearing truck of pistachios whose fate remains unknown. 

September 14, 2016 in Commentary, Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, September 12, 2016

Ordering Subject to Seller's Terms and Conditions Makes You Subject to Seller's Terms and Conditions (Even If You Claim You Never Saw Them)

 

Blueberries in market, close-up.jpg
By atul666 from Portland, USA - blueberries, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=4112199

A recent case out of Michigan, Naturipe Foods, LLC v. Siegel Egg. Co., No. 327172, affirmed a high six-figure jury verdict against Siegel Egg Co. in the case of an alleged breach of contract over blueberries. Naturipe sent Siegel an offer to sell Siegel blueberries. Siegel specified in writing on the received offer that the blueberries in question were to be Grade A. Siegel than signed the offer. Underneath the line provide for Siegel's signature (where Siegel in fact signed) was the pre-printed phrase, "Subject to Seller's Terms and Conditions." Naturipe sent Siegel two shipments of the blueberries ordered. The blueberries, according to Siegel, were not Grade A. Siegel therefore never paid for the blueberries it received nor did it ever order the rest of the blueberries that were supposed to be shipped under the contract. So Naturipe sued and won over $700,000 in damages, costs, and fees after a jury trial. 

On appeal here, Siegel's main argument centered around the trial court's decision that Naturipe's terms and conditions did indeed apply to the contract. The terms and conditions at issue specified that Siegel's only remedies for breach of the contract were replacement of the blueberries in question or a credit of the price paid for those blueberries. Furthermore, Siegel was required under the terms and conditions to provide Naturipe with thirty days' notice of any breach of contract. Siegel failed to provide notice and sought cancellation of the entire contract as its remedy, in violation of these terms and conditions. 

However, Siegel argued, Naturipe's terms and conditions should not have been considered part of the contract between the parties binding on Siegel because, according to Seigel, it was never given a copy of the terms and conditions, nor were they ever explained to Siegel. But, the court said, it was Siegel's duty to ask for an explanation and obtain a copy of the terms and conditions, because they were referenced in the offer Siegel signed. Therefore, Siegel was on notice that there were other contractual obligations in play and Siegel should have asked what those were. The court noted that Siegel had annotated the offer to require Grade A blueberries, and so was plainly capable of crossing out the "Subject to Seller's Terms and Conditions" phrase if it had so desired. Because it failed to, the court found that it was clear and unambiguous that the parties intended their contract to be subject to those terms and conditions. 

I'm sure Siegel probably never gave a second thought, either at the time it was ordering or the time it received the shipments, to Naturipe's terms and conditions. That said, this case stands as a lesson that it's probably always a good policy to call someone up when you're dissatisfied with the product they have provided you. You don't necessarily have to know the law to give people an opportunity to cure; sometimes it seems like it could, in most circumstances, be the most efficient first option. 

September 12, 2016 in Commentary, Food and Drink, Recent Cases, True Contracts | Permalink | Comments (1)

Wednesday, September 7, 2016

Ambiguous Insurance Policy Blocks Insurer's Summary Judgment Motion

I really like this Eastern District of Pennsylvania case, Ionata v. Allstate Insurance Company, Civil Action No. 15-6561, because I think it illustrates really nicely the contractual ambiguity at issue and the consequences of that ambiguity. I might use it as an example in class. 

Ionata and her then-husband bought the property at issue together and it was insured with a standard Allstate Homeowner's Policy, which Ionata kept current through the relevant time period. In 2011, Ionata and her husband divorced. Ionata continued to use the house as her mailing address and also continued to keep her stuff there but seems to have slept on a nightly basis somewhere else. In 2014, Ionata had allowed a close family friend to live in the house. During this time period, the house was destroyed by a fire. 

The policy covered a "Dwelling," defined as a building "where you reside."Allstate argued that residence required "physical occupation" of the house by the policyholder. Therefore, it argued, the house was no longer covered by the homeowner's policy because Ionata was no longer "residing" in it. 

The court noted that Allstate's argument made perfect sense in isolation, but it was inconsistent with other clauses within the policy. So, for instance, the policy contained a clause that permitted the house to "be vacant or unoccupied." As the court succinctly put it, "Logically, it is difficult to reconcile Allstate's position that the policyholder must be living on the premises with a clause that provides the Property may be vacant or unoccupied for any length of time." 

Nor was this the only clause that raised the ambiguity. There was another clause that explicitly permitted the occasional renting of the entire property for residential purposes. If a policyholder was allowed to rent the entire property to others, then the policyholder couldn't simultaneously be required to live in the property herself. 

The court therefore denied Allstate's motion for summary judgment, calling out "the artificial and often arcane structure and language of insurance policies" in making the decision. 

September 7, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, September 5, 2016

One-Year Nationwide Non-Compete Found Reasonable in Organic Product Market

I always think it's interesting to see how courts judge the reasonableness of non-competition provisions. In this recent case out of the Eastern District of New York, Grillea v. United Natural Foods, Inc., 16-CV-3505 (SJF)(SIL) (behind paywall), a judge declined to preliminarily enjoin the employer from enforcing the former employee's non-compete and blocking him from accepting his new position, finding that the former employee had not shown a likelihood of success that the non-compete wasn't enforceable. 

The plaintiff and former employee was one of the top executives at the defendant, United Natural Foods. He had signed a non-competition agreement that prohibited him from working anywhere in the United States for one year for any of United's direct competitors. After a few years, United terminated the plaintiff's employment. There was a lot of negotiation about when the termination would take place, which stock options were going to vest, which benefits would keep accruing, how the plaintiff would be categorized, etc., but for purposes of this blog entry, eventually the termination became effective and the plaintiff left United's employ. 

Plaintiff received a job offer from a division of another company called Threshold. Plaintiff spoke to people at United about the job offer. They expressed concern that it would violate his non-compete. Plaintiff said he disagreed because he would be dealing with manufacturing, which was not what his responsibilities had been at United. Plaintiff put people at United down as references and Threshold called and spoke to them. They claimed they informed Threshold they thought what plaintiff was doing was a conflict of interest. 

This dispute followed, with plaintiff seeking a preliminary injunction that United not enforce the non-compete so that plaintiff can accept his new position. The court, however, denied plaintiff's motion. The court found that the one-year time period of the non-compete was reasonable and also that the fact that it had no geographic limitation was reasonable because United is a nationwide company (the geographic limitation thing was important to plaintiff's argument because he was switching coasts for the new job). 

What I found most interesting about this case was that the judge emphasized several times that United had stated that the non-compete only prevented plaintiff from working for twenty-nine companies (of which Threshold was one). That was clearly a detail that was compelling to the court. 

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

Wednesday, August 31, 2016

Ownership of Steve Harvey's Comedy Tapes Is Ambiguous

Ambiguous contracts can be a nightmare to untangle, especially twenty years later. A recent case out of the Northern District of Texas, Cooper v. Harvey, Civil Action No. 3:14-CV-4152-B (behind paywall), illustrates just that. 

Steve Harvey, currently the host of "Family Feud," has been sued by Joseph Cooper over Harvey's attempts to curtail Cooper's use of performances Cooper taped at Harvey's comedy club in 1993. Cooper claims Harvey gave him permission to film the performances, paid Cooper to film them, and gave Cooper ownership of the videotapes and the right to use and display them. Since that time, Harvey and Cooper have had multiple disputes over the footage, most recently over Cooper's posting of some of it to YouTube. 

Harvey disputes Cooper's claim. He says that he paid Cooper to tape the performances so that Harvey could use them "as study material," and that he never granted Cooper ownership or any rights in the videotapes. Harvey alleges that Cooper uses the video footage as a type of blackmail, essentially, knowing that Harvey might find the material on the videotape embarrassing to have made public. 

This case isn't just he-said/he-said, in that there does appear to be an actual written contract between the parties, even if there is some debate whether or not Harvey ever signed it. At any rate, seeking summary judgment, Harvey argues that the written contract is ambiguous and that the court can therefore hear parol evidence as to whether the parties intended for Harvey to bargain away all of his rights to the work in question. Cooper, for his part, argues that the contract is unambiguous and that, according to its terms, bargaining away all of his rights is exactly what Harvey did. 

The court agreed with Harvey that the contract is ambiguous in whether Cooper or the Comedy House was intended to own the videos under the contract. But, turning to the parol evidence, the court found that nothing Harvey had put forth shed any light on Cooper's intent in entering into the contract. Harvey provided an affidavit that he did not intend the contract to convey his ownership rights but that didn't resolve what the parties' intent was when they signed the contract in 1993. Therefore, the court denied summary judgment on the breach of contract claim. 

Which seems like, in the end, this written contract is going to come down to he-said/he-said. 

August 31, 2016 in Celebrity Contracts, Commentary, Film Clips, Recent Cases, Television, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, August 29, 2016

If You Contract for a $2 Million Watch, You Probably Want the Original Dial

A recent case out of the District of Arizona, Cavan v. Maron, No. CV-15-02586-PHX-PGR (behind paywall), concerns a deal for rare Patek Philippe watches. The plaintiff agreed to purchase two watches for almost $4 million, providing a down payment of almost $3 million. The defendant did not deliver the watches and, in fact, allegedly sold them to someone else, so the plaintiff demanded his down payment back. A watch broker negotiated between the two parties and they decided that, instead, the defendant would sell the plaintiff another rare Patek Philippe watch that was worth more than $2 million. 

The defendant gave the plaintiff the promised watch, and a few years later, when the plaintiff was considering selling the watch, he brought it to an auction house for valuation. The auction house raised questions that the watch's dial had been replaced. A "world renowned watch expert" agreed and pronounced the new dial "inferior," meaning that the watch was now worth significantly less than it would have been with its original dial. 

This lawsuit resulted. The defendant argued that the agreement between the parties never expressly required that the watch had to be sold with its original dial. The court doesn't let the defendant off on that technicality, though. The court notes that it was plausible that the parties intended, when they negotiated to buy and sell a watch worth more than $2 million, that the watch would have all of its original parts, and that a disclosure to the contrary might have been necessary. 

This decision was just surviving a motion to dismiss. Stay tuned for more exciting developments in the luxury watch contract world. 

August 29, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Sunday, August 21, 2016

Does “Similar Quality” Reflect a $17,100 Reduction in Car Resale Value?

Plaintiff William Baldwin’s almost new Toyota Tundra pickup truck was badly damaged when, while parked, the cars of two other men slammed into it. This decreased the car’s future resale value by more than $17,100. Mr. Baldwin filed suit against his insurance company, AAA, among others. He wanted either the pre-accident value of the car or a sum which would allow him to repair the pickup truck to its original pre-accident condition. He contended that the truck did not match such condition with respect to safety, reliability, mechanics, cosmetics, and performance. Unknown

The interpretation of an insurance contract is, in California, a matter of law. This insurance policy provided that AAA “may pay the loss in money or repair.” Further, under the Limits of Liability, that AAA’s coverage responsibility for car damage would “not exceed the lesser of those two options,” namely paying “the actual cash value of the damaged property or the amount necessary to repair the property … with similar kind and quality.” (My emphasis).

The court found that the insurance policy “ambiguously gave the insurer the right to elect to repair the insured’s vehicle to a “similar condition if repair costs would be less than the actual cash value of the vehicle.”

In other words, the court supported AAA’s reading that a car with a realistic loss in value of $17,000 was in a “similar condition” to its almost-new value. You can see why this lawsuit came about. On the other hand, the car was repaired and was fully functional. Should insurance companies then additionally have to pay out a sum that would correspond to an arguably hypothetical resale value (the owner may never sell the car at the relevant moment in time)? Arguably, that would drive up insurance prices too much. Note too that this case is from California where cars are almost members of one’s family…

The case is Baldwin v. AAA Northern California, et al., 1 Cal.App.5th 545 (Cal. Ct. App. 2016).

August 21, 2016 in Recent Cases, Travel, True Contracts | Permalink | Comments (0)

Wednesday, August 10, 2016

Here's a Case Finding Unconscionability

This recent case out of the Bankruptcy Court for the Northern District of California, Ow v. Oropeza, Case No. 15-41959 CN (behind paywall), has a nice example of unconscionability. Well, not that unconscionabilty can be called "nice." But I know my students are always attracted to the doctrine of unconscionability as an argument but it can be difficult to find good examples of it being successful. Here, however, is one.

The relationship between Ow and the defendants in this case begins with a house that Ow had owned that was damaged by fire and became uninhabitable. Ow began living with friends or in motel rooms, eventually defaulted on the note on the house, and later declared bankruptcy.

Ow did not have the money to fix the house or to catch up on the payments he owed on the house. Enter a man named Freeman who proposed that he would pay the $24,000 owed to the bank on the house and keep the payments current until Ow could sell the house. In exchange, Freeman would receive $105,000, to be paid out of the proceeds of selling the house. Freeman ended up paying almost $39,000 on the house, until the sale that Freeman had helped facilitate fell through. At that point, Freeman stopped paying on the house.

The court examined the arrangement between Ow and the defendants and found it to be unconscionable. Freeman's expectation to receive $105,000 only a few months after investing at most $39,000 in the house amounted to an interest rate in excess of 250%. This interest rate wasn't justified by the low risk of Freeman's behavior, because Freeman approached Ow with prospective buyers already in hand and so knew the house should be sold quickly.

Procedurally, Ow was homeless when he was approached by Freeman, and he was desperate to save the house, where he had grown up. He had tried to restructure the loan with the bank but was unsuccessful. Ow, the court found, had no other options.

I feel like I've grown used to many courts being reluctant to find that people had no options. Here's an example of a situation otherwise.

August 10, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (1)

Thursday, August 4, 2016

Service Fees Are Annoying...But Not Bad Faith

A recent case out of the District of Connecticut, Singer v. Priceline Group, Inc., No. 15-cv-1090 (VAB), tackles an issue familiar to all who travel: service fees. The plaintiff, on behalf of a class, sued Priceline over the fact that service fees were added on to the price that he bid to pay for a hotel room. We've all been beset by service fees tacked onto the prices quoted for various travel-related items, from hotel rooms to flights, and to be honest I feel like I, to some extent, have just grown used to and resigned to them. The court seems to feel the same way about them here. The service fees weren't a breach of contract, since Priceline's Terms of Use explicitly stated that service fees might be charged above the quoted price, nor were they a breach of the covenant of good faith and fair dealing because, again, Priceline was upfront about the fact that Singer might owe more money in service fees from the hotel. Priceline never made any representation that it wouldn't provide Singer with quotes that might require further service fees and so did not act in bad faith when it did so in a way that the court found was open and reasonable.

I might wish that more places would just tell me the end price without the extra fees, but, for now, I think the widespread acceptance of these fees in the course of transactions indicates they're here to stay for the time being.

August 4, 2016 in Commentary, E-commerce, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (3)

Tuesday, August 2, 2016

Covenants Not to Compete: Be Careful Not to Get Greedy

One of the things I caution my students about is the danger of being greedy in a covenant not to compete. If you are in a jurisdiction that enforces such covenants, you still must be aware that courts frequently subject them to close examination. It might be true that in many cases, the employee subject to the over-restrictive covenant might simply accept it without challenging it, but a recent case out of the Fourth Circuit, RLM Communications, Inc. v. Tuschen, No. 14-2351 (you can listen to the case's oral argument here), serves as a reminder that a court can knock a covenant not to compete out of a contract and leave no protection at all in its place.

Tuschen was an employee of RLM who had the following non-compete in her employment contract:

While I, the Employee, am employed by Employer, and for 1 years/months afterward, I will not directly or indirectly participate in a business that is similar to a business now or later operated by Employer in the same geographical area. This includes participating in my own business or as a co-owner, director, officer, consultant, independent contractor, employee, or agent of another business.

Tuschen eventually resigned from RLM and went to work for a competitor, eScience, and RLM alleged that Tuschen had thereby breached her non-compete.

The Fourth Circuit, however, found that the non-compete was overbroad and therefore unenforceable. First it noted that it prohibited direct and indirect participation, which the court found inherently problematic, because it theoretically prevented Tuschen from, say, acting as eScience's realtor, landscaper, or caterer. Nor was the only problem with the covenant its use of the word "indirectly," which RLM argued could just be struck from the clause, leaving the rest of the clause enforceable and in place. The breadth of prohibition on Tuschen's actions, including to businesses that might be operated by RLM in the future, wasn't justified by RLM's business concerns. The non-compete's focus on the identity of the new employer, rather than on Tuschen's behavior in the new employment, was misplaced: RLM should have been more concerned about the risk that Tuschen would use secret RLM knowledge detrimentally, rather than concerned about who she was working for (directly or indirectly).

An interesting case, with some interesting things to say about non-competes (and also trade secret misappropriation). When you read the case, it becomes clear that the court thought Tuschen was in many ways a good employee for RLM who was not engaging in sketchy behavior. In fact, in the court's characterization, one of the things RLM complains about was that Tuschen took steps to make the transition within RLM for her replacement easier and more streamlined without seeking permission first. This whole case stands as a warning not to be overly aggressive with enforcement in situations where a court will find it inappropriate.  

August 2, 2016 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (2)

Monday, August 1, 2016

Parties May Still Rescind from Contracts Based on Obvious Unilateral Mistakes

The Court of Appeals for the Eleventh Circuit just reconfirmed the traditional rule that when one of the parties to a contract has, without gross fault or laches on his or her part, made a mistake, the mistake was known, or ought to have been known, to the opposite party, and the mistake can be relieved against without injustice, a unilateral mistake may be a ground for rescinding a contract, or for refusing to enforce its specific performance.

In the case, two private persons bid a higher and higher amount to purchase a home via a short sale (first $371,000, then $412,000, then $444,000. After that, the hopeful buyer bid a disputed amount that would, at any rate, have resulted in a much lower net payout to the bank than any of the above total prices would have.).

Finding for the bank, the panel noted that the buyers “will not suffer an injustice under Georgia law because they will only be deprived of what Georgia law does not allow them to have—in [one person’s] case the opportunity to take advantage of another's obvious unilateral mistake; in [the other person’s] case the opportunity to retain mortgaged property after he defaulted on the underlying loan. The breach of contract claims fail.”

Property is considered unique, but not so unique as to overcome an apparent failure to be on the up-and-up in the bargaining process. It did seem like the buyers here were indeed trying to see if the bank would simply not notice its own mistake, which it in fact only did two years later, for some reason.

August 1, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, July 27, 2016

Forum Selection Clauses in Moving Contracts

 Moving Mess

As anyone who's ever moved knows full well, it's a fraught process. Finding good movers can be challenging, and untangling the relationships between the parties involved in your move even more challenging: which company is storing, which company is packing, which company is renting the truck being used, which company owns the truck being used, which company employs the movers, etc. I've had moves go poorly enough that I've left a couple of scathing "beware!" reviews in places, but I've never gone to court, and so I never really thought through fully the challenges in litigating issues that might arise during a move.

A recent case out of Ohio, Nieman v. Moving Insurance, LLC, Appeal No. C-150666, made me finally consider them. Not a lot of details are given about what happened during the Niemans' move to prompt them to sue, but what we do learn is that they are suing about a move from Chicago to Cincinnati. The Niemans have sued multiple companies, probably because of how many companies get involved in a major interstate move like this. For instance, it seems to me that they're suing a moving company, a trucking company, and an insurance company (again, details aren't really given in the case). The Niemans signed contracts, of course, with each of these entities. Each of the contracts had a forum selection clause. One contract required that suit be brought in New Jersey. The other contracts required that suit be brought in Florida. The court here found that the Niemans were bound by the forum selection clauses. Therefore, rather than bringing suit in their current state and the place where the move concluded, the Niemans have to bring two suits, one in New Jersey, one in Florida.

I've blogged a lot about arbitration clauses, but I haven't blogged much about forum selection clauses. The court is dismissive here of the Niemans' arguments, which it characterizes as a matter of inconvenience rather than injustice. But surely there's a point where something becomes so inconvenient that it's no longer worthwhile, from a cost efficiency perspective, to pursue it, and in that case isn't some kind of injustice being wrought? I'm not saying necessarily that the Niemans deserve some kind of recovery from the moving companies. However, I could see how, if it was me, faced with a ruling that I had to bring two separate cases, procuring lawyers, etc., in states that aren't even in my time zone, I might decide it wasn't worth the effort and just drop it.  And I don't think this is laziness on my part; I think this is practicality regarding the best use of my time and money at that point. Which, of course, means this definitely depends on the amount of damages I believed that I was owed, and therefore underlines that enforcing a forum selection clause in these circumstances means that there is some amount of liability that, as a practical matter, will almost never be assessed, even if it should be, because the costs of procuring that assessment are too high.

This is, naturally, an ongoing problem in the court system in general. Maybe because I am in the process of coordinating yet another move, this one really stood out to me today!

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

Monday, July 25, 2016

Non-Competes: An Internet Show Is Not a Radio Show

A recent case out of the Eastern District of Michigan, Burke v. Cumulus Media, Inc., Case No. 16-cv-11220 (behind paywall), has some interesting things to say about the impact of the Internet on non-competes you may be drafting.

In the case, the plaintiffs had a radio show on a Michigan radio station owned by Cumulus. Cumulus terminated the plaintiffs, and they sued alleging age discrimination. In response, Cumulus counterclaimed alleging that the plaintiffs were violating their non-compete clause because they were hosting an Internet-based radio show together.

Unfortunately for Cumulus, though, the non-compete prohibited the plaintiffs from doing various things related to "radio stations." It said nothing about any other medium, including the Internet. Because the plaintiffs had shifted their show to an Internet stream, it was not covered by the non-compete.

If you're drafting non-competes in this context, keep this ruling in mind. Of course, I have no idea if a non-compete that included the Internet would have been considered enforceable or if it would have restricted the plaintiffs' ability to earn a livelihood too much.

Another interesting facet of this case is that only one of the plaintiffs' non-competes was at issue here. The other non-compete by its terms was only enforceable if Cumulus paid the plaintiff for the period of time he was prohibited from competing. Cumulus chose not to pay that plaintiff and so did not (and could not) seek to enforce his non-compete. Whenever I talk to my students about covenants not to compete, we talk about how easily they can be broadly drafted to possibly intimidate less legally knowledgeable employees, and one of the things we bring up is that making them have some cost to the employer could help judge the seriousness of the necessity of the covenant. Here, it apparently wasn't worth it for Cumulus to pay to keep one of the plaintiffs from competing.

July 25, 2016 in Commentary, Recent Cases, True Contracts, Web/Tech | Permalink

Wednesday, July 20, 2016

More Adventures in Leasing: Persistent Apartment Flooding Edition

Here is a good case for illustrating equitable estoppel in a way that students, frequently renters, will probably appreciate: Pinnacle Properties Development Group, LLC v. Daily, Court of Appeals Case No. 10A01-1512-SC-2275, out of Indiana.

You may recognize Pinnacle's name. I previously blogged about them here. I stated in that blog entry that the case seemed straightforward and not worth the money to appeal, but apparently they have a habit of appealing relatively small (here, $752.37) judgments against them.

In this case, Daily was a tenant at a Pinnacle property. About eight months after moving into his apartment, Daily's apartment flooded. He reported the flooding using Pinnacle's emergency telephone number, which Pinnacle told its tenants to use in such circumstances. When no one answered the emergency number, he left a message and then dealt with the flooding himself, borrowing a wet/dry vacuum and removing thirty gallons of water from his unit. 

In the month of July, the apartment flooded three more times. The first two times, Daily again called the Pinnacle emergency number. He was told that someone would be sent out to his apartment, but no one ever came. Daily continued to deal with the flooding himself, removing another fifty-two gallons of water using the borrowed wet/dry vacuum.

The third time in July that the apartment flooded, Daily went personally to the Pinnacle office, rather than calling the number. Pinnacle submitted a work order into the system but still no one came out to Daily's apartment. Daily bought himself his own wet/dry vacuum and continued to remove gallons of water from his apartment. A week later, he filed a complaint against Pinnacle and was awarded his rent for the month of July, the cost of the wet/dry vacuum he purchased, and some costs and interest. (The amount he was awarded was considerably less than the three-thousand-plus dollars he was originally seeking.)

Pinnacle's main argument on appeal was that the lease required Daily to give Pinnacle written notice of the flooding, which he never did. The court wasn't sure written notice was required under the lease but it stated that, even if that was true, Pinnacle was equitably estopped from asserting the written notice requirement because it was undisputed that Pinnacle had actual notice of Daily's flooding issue. It would be unjust under these circumstances to force Daily to pay rent for an apartment that was partially uninhabitable, where Pinnacle knew that Daily was suffering this problem and provided Daily with false assurances that it would deal with the problem, on which Daily relied, justifiably, to his detriment. As the court says, "We can hardly imagine a more appropriate application of the equitable estoppel doctrine." The court affirmed the award of the July rent, plus the cost of the wet/dry vacuum as a consequential damage.

July 20, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, July 18, 2016

Contracts Law and the Case of the Super Bowl Jewelry Heists

 

Brillanten.jpg
By Mario Sarto - Self-photographed, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=1015397

Here's a case with some interesting facts: Jacobsen Diamond Center, LLC v. ADT Security Services, Inc., Docket No. A-1578-14T1, out of New Jersey.

The plaintiff in the case is a jeweler, who suffered two consecutive thefts on Super Bowl weekends in 2010 and 2011. The first Super Bowl theft involved cutting through the wall that bordered a retail store next door and removing a safe positioned against the wall. Because the thieves cut through the wall, they didn't set off the ADT alarm system linked to the jeweler's doors.  

After this robbery, the jeweler then moved its safes to the middle of the store, away from the walls. The second Super Bowl theft (perhaps by the same people, emboldened by their previous success?) involved the disabling of the ADT security system in place.

The Super Bowl thieves have never been apprehended, and the jeweler did not have any insurance on the stolen jewels, so the jeweler has sued ADT and a number of other companies that were involved with the jeweler's security systems, alleging various misrepresentations about the security, fraud, negligence, and breaches of contract. The jeweler lost on all of its claims, either by summary judgment or by jury verdict, and the jeweler now appeals.

Of special interest to this contracts law blog is the ruling on the limitation of liability clause in ADT's contract with the jeweler. This was a standard form contract used by ADT that limited its liability to $1,000 (far below the alleged worth of the stolen jewels). These limitations of liability clauses are enforceable and reasonable; the policy behind this stance is supposed to encourage the purchaser of the security system to maintain insurance coverage of its valuables, as it is the purchaser in the best position to know what the value is of the things it is seeking to protect. The court found that the jeweler knew it should have had insurance and it was not ADT's fault that the jeweler failed to obtain such insurance; therefore, ADT should not be held responsible for the jeweler's failure.

July 18, 2016 in Recent Cases, True Contracts, Web/Tech | Permalink

Friday, July 15, 2016

Failure to Comply with Internal Investigations Can Be Cause for Termination

At least where the internal investigation concerns actions you took within the scope of your employment that are exposing your employer to possible criminal liability.

This recent case out of the Second Circuit, Gilman v. Marsh & McLennan Cos., Docket No. 15-0603-cv(L), is the latest chapter in a long saga. The plaintiffs were employees of Marsh & McLennan who were executives being investigated for criminal charges by then-New York Attorney General Eliot Spitzer. The employees were eventually indicted and convicted of some of the charges but the convictions were thrown out because of "newly discovered contradictory evidence."

As you might have anticipated, this chain of events led to a number of lawsuits by the accused employees, including this one against former employer Marsh & McLennan, who had terminated the employees after they refused to submit to internal interviews about the allegations in Spitzer's criminal investigation.

The employees had brought claims for abuse of process against Marsh & McLennan but those had been dismissed. The employees were no more successful with their breach of contract claims against Marsh & McLennan. The court found that the employees' employment contracts with Marsh & McLennan were governed by Delaware law, which finds proper cause for termination where the employee refuses a direct and reasonable order by the employer. In this case, the court found that Marsh & McLennan's order that the employees sit for internal interviews to discuss allegations that implicated criminal liability for Marsh & McLennan and regarded the employees' actions during the scope of their employment was a reasonable request. Marsh & McLennan needed to take such measures to protect itself, and, indeed, had a duty to its shareholders to investigate any potential criminal conduct that could have harmed the company. In fact, the court terms Marsh & McLennan's behavior here as "unassailable, even routine." The employees were personally free to refuse to be interviewed, but, in so doing, they provided Marsh & McLennan with proper cause for termination under their employment contracts.

July 15, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)