ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, October 12, 2018

If you're looking for a statute of frauds "cannot be performed within a year" case

I just gave a midterm in my contracts class, which is always so useful to crystallize the places where the students are having consistent understanding issues. For me this year, one of the tricky parts seems to be the statute of frauds, so it was nice to see this recent case out of the Eastern District of Wisconsin, Northern Group, Inc. v. Tech 4 Kids Inc., Case No. 17-C-1367 (behind paywall), that deals with a fairly straightforward statute of frauds issue. 

In the case, Northern Group alleged that the parties had an oral agreement for commissions for sales and brought causes of action related to the breach of this agreement. Tech 4 Kids argued that the claims should be dismissed, in part because the oral agreement should have been in writing under the statute of frauds. However, as the court noted, the statute of frauds does not require a contract to be in writing unless it cannot be performed within a year. While it was true that the sales agreements required to be formed to result in commissions under the contract could sometimes taje years to finalize, Northern Group could conceivably have arranged some sales agreements within a year. Moreover, the agreement was terminable at will by either party, so either party could have decided within a year not to continue with the arrangement. Therefore, the oral agreement was capable of being performed within one year and so was not void under the statute of frauds. 

October 12, 2018 in Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, October 8, 2018

A little less Sixteen Candles, a little more duty to inspect (or not)

When you've been stuck in an airport for hours, boarded the plane, un-boarded the plane, and have several more hours of airport waiting time in front of you, you're allowed to randomly make a Fall Out Boy reference if your Fall Out Boy playlist is what's getting you through the delay. 

As far as the case goes: a recent case out of New Jersey, Gross v. Fotinos Enterprises, Docket No. A-2058-17T4, involved a dispute over a landlord's duty to inspect, which the court decided did not exist. The landlord rented to a pancake house restaurant (I have a habit of blogging about pancake houses, I happen to like pancakes) who used a cinder block to prop open an exterior door. The plaintiff was a restaurant employee who tripped over the cinder block and sued for injuries she sustained. 

The lease stated that the tenant should not obstruct the entrances, and the parties agreed that the lease imposed liability on the tenant for all charges associated with the property. The plaintiff argued, though, that the landlord had a duty to ensure the tenant's compliance with all terms of the lease.

The court disagreed. The lease explicitly delegated responsibility for maintenance of the premises to the tenant, and the landlord was not aware that the tenant was using the cinder block to prop open the door. The landlord therefore owed no duty to inspect the premises or enforce compliance with the lease. 

October 8, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Duty of Good Faith, Tortious Interference, and Statutes of Limitation

A new Seventh Circuit Court of Appeals case demonstrates the importance of filing suit in a timely manner in order to retain one’s contractual rights.  It also shows just how nasty contractual parties may act towards each other in violation of the duty of good faith and fair dealing. Unknown

JTE distributed products in Chicago for Bimbo Foods Bakeries Distribution Company (“Bimbo”) for over a decade.  The contract had no duration, but stipulated that it could be terminated in cases of non-curable breaches by one of the parties.  Bimbo sought to force JTE to forfeit its contractual rights so that Bimbo could start working with a new distributor that would accept a smaller slice of the pie: 18% instead of 20%.  But because JTE had performed the contract as required, Bimbo

"began fabricating curable breaches in the spring of 2008 as part of a scheme to force JTE out as its distributor. Bimbo Foods employees filed false reports of poor customer service and out-of-stock products at stores in JTE’s distribution area. Even more egregiously, Bimbo employees would sometimes remove JTE-delivered products from grocery store shelves, photograph the empty shelves as “proof” of a breach, and then return the products to their initial location. On one occasion, in 2008, a distributor caught a Bimbo Foods manager in the act of fabricating a photograph and reported him. Bimbo assured JTE that this misconduct would never happen again. Nevertheless, unbeknownst to JTE, Bimbo Foods continued these scurrilous tactics … When JTE refused to sell its distribution rights in January 2011, Bimbo Foods breached the distribution agreement and unilaterally terminated JTE’s agreement, citing the fabricated breaches as cause. Several months later ... Bimbo Foods forced JTE to sell its rights to new distributors."

JTE filed suit in 2017.  Under the Illinois law, the statute of limitations for breaches of common law contracts is ten years whereas under the UCC, it is four years.  The question thus became whether the parties had entered a contract for sale of goods. They had.  Said the court: “Under the primary-purpose test, the distribution agreement between JTE and Bimbo Foods easily qualifies as a contract for the sale of goods. We have previously pointed out that ‘virtually every jurisdiction that has addressed this issue’ has concluded that dealership and distributorship agreements are predominantly for the sale of goods.”  The suit was thus untimely filed. Unknown-1

JTE’s additional claim for tortious interference with contract fared no better as a five-year statute of limitation governed that.  The court did, however, comment on the merits of the alleged tort.  It found that “a party cannot tortiously interfere with its own contract, nor can it tortiously interfere with any business expectancies created by that contract. As the Illinois courts have noted, ‘[t]o allow such claims to be litigated would invite tort law to absorb contract law.’”  Thus, because JTE was one of the parties to the suit, it could not assert that claim even thought it was Bimbo, not JTE, that had acted in a highly unwarranted manner.

None of the parties asserted the duty of good faith and fair dealing under UCC §1-304 which states that “[e]very contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.”  “Good faith” is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”  UCC § 1-201. 

What Bimbo allegedly did clearly did not meet this standard. However, because the four-year statute of limitations had run, JTE could still not have asserted that argument. The moral of this story is for your clients to monitor the contractual performance by the other party closely and, if anything seems awry, bring this up and resolve the issue as soon as possible.

The case is Heiman v. Bimbo Foods Bakeries Distribution Co., 902 F.3d 714 (7th Cir. 2018).

October 8, 2018 in Miscellaneous, Recent Cases, True Contracts | Permalink

Monday, October 1, 2018

How to draft a forum selection clause

A recent decision out of the District of Oregon, Summit Foods, Inc. v. Viking Packaging Technologies, Inc., Case No. 3:18-cv-1470-SI, debated whether a forum selection clause was mandatory or permissive, and so provides some lessons if you're trying to draft one of these. 

The defendant was arguing that the forum selection clause was mandatory, but the court found that was reading the clause "through rose-colored glasses." The clause said that "[t]he courts of Sheboygan County Wisconsin will have jurisdiction." The court, however, noted that the clause was silent as to whether any other jurisdiction might also have jurisdiction. There was no language indicating that Sheboygan County would have exclusive jurisdiction. A mandatory forum selection one is one that contains such language of exclusivity. The forum selection clause in this case was therefore held to be permissive. 

October 1, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Friday, September 28, 2018

Uber fails to establish an accord and satisfaction on a motion to dismiss

If you're looking for a recent accord and satisfaction case, look no further! I've got one for you out of the Northern District of California, TSI USA LLC v. Uber Technologies, Inc., Case No. 17-cv-03536-HSG (behind paywall). In the case, Uber and TSI had a contract that Uber terminated. TSI received a termination notice and a check for a little over $200,000. TSI responded to Uber with outstanding invoices Uber owed payment on, amounting to more than $1.4 million. TSI eventually sued Uber for, inter alia, breach of contract, and Uber moved to dismiss the claim, arguing that that TSI's cashing of the $200,000 check operated as an accord and satisfaction, prohibiting TSI's breach of contract claim. 

The court disagreed. Accord and satisfaction requires that the check be presented in good faith and with a conspicuous statement that it is meant to satisfy the entire debt. Construing the facts in the light most favorable to TSI, Uber could not establish that its check of $200,000 met "reasonable commercial standards of fair dealing," given that TSI alleged Uber owed over $1.4 million. In addition, while the termination notice stated "by executing below you acknowledge and agree that such payment constitutes full and final payment," it was followed by a line for signature labeled "Chief Executive Officer." TSI asserted that it thought the signature of the CEO was required for the payment to constitute full and final payment, not that the cashing of the check by itself. The court agreed with TSI that the language was not so "explicit and unequivocal as a matter of law so as to preclude TSI from asserting its breach of contract claim." Therefore, the breach of contract claim survived. 

September 28, 2018 in Law Schools, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (1)

Wednesday, September 26, 2018

Deciding insubordination isn't the same as judging spiritual leadership

I just blogged about the ministerial exception of the First Amendment, and now here's another case discussing it! This recent case out of California, Sumner v. Simpson University, C077302, was a dispute over Sumner's dismissal for insubordination. Sumner sued for breach of her employment contract. Simpson argued that the ministerial exception of the First Amendment protected its contractual decision from judicial examination. The court agreed that Simpson was a religious group and also found that Sumner was a ministerial employee even though she wasn't technically titled a minister. Her job duties at the university required her to have a doctorate in ministry or a related field and included promoting the university through preaching appearances. 

However, the court still permitted Sumner's breach of contract claim to go forward, based on the fact that the ministerial exception should not bar all contract actions involving a religious group and its ministerial employees. Rather, it should only operate to bar those causes of action that would require the court to decide religious matters. Sumner was purportedly terminated for insubordination, which was defined by the faculty handbook incorporated into Sumner's contract. The alleged insubordination involved Sumner's violation of the university's written protocol. Sumner, however, alleged that she was never provided with the written protocol and so her conduct could not be found to be insubordinate. Resolving this dispute would not require "wad[ing] into doctrinal waters," because Sumner's religious qualifications weren't at issue and the dispute didn't concern Simpson's religious autonomy. 

September 26, 2018 in Labor Contracts, Recent Cases, Religion, True Contracts | Permalink | Comments (0)

Saturday, September 22, 2018

Sometimes you've just got to shrug and live with the precedent you've got

There comes a time in every teaching semester (usually very early on...) where you have to coax your students to be comfortable with courts contradicting each other. You have to teach them to distinguish the cases, to make sense of it, but sometimes I feel like the answer to the contradictions is "the parties didn't argue that point and it just got missed and now we just have to deal."

I was thinking about this as I read a recent case out of the Third Circuit, Cook v. General Nutrition Corp., No. 17-3216 (behind paywall), which affirmed a failed lawsuit against GNC for, among other things, breach of contract. The appellants made several arguments for why their claims should not have been dismissed, one of them that GNC's termination of the contract was a breach. But the Third Circuit noted that termination was permitted by the contract: "[The contract] expressly permit[ted] GNC to unilaterally modify or cancel the agreement at any time, with or without notice."

That was the line that gave me pause, because I only recently taught Harris v. Blockbuster, which holds a contractual provision illusory precisely because it permitted Blockbuster to unilaterally change the contract at any time without even having to provide any notice. Other courts have definitely agreed with Harris, and  while it's been distinguished I didn't really see any courts disagreeing with the conclusion. Third Circuit courts do seem to apply the illusory promise doctrine, so it doesn't seem like they've just decided to do without this doctrine in the Third Circuit. 

It does seem like Harris can be read as only applying in the context of agreements to arbitrate and not all agreements (although there was apparently an arbitration clause in the GNC contract). Unfortunately, this is just me guessing as to how you can distinguish Harris, because there is zero discussion of illusory promises in the Third Circuit's very brief opinion. The court asserts that the contract gave GNC this right, and that while it might be "unfortunate," it was permissible and therefore not a breach. 

September 22, 2018 in Commentary, Famous Cases, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Thursday, September 20, 2018

A Showdown Involving the NFL, the AP, and Professional Photographers

Above the Law has a write-up of a case involving charges of copyright infringement against the NFL for using photographs without permission, but the case has a very strong contract angle, as the allegations involve the scope and validity of the license that the AP granted to the NFL for the photos. The Second Circuit has a contract-interpretation-focused analysis that permits the photographers' lawsuit to go forward (the district court had dismissed the complaint). You can read the full decision here.

September 20, 2018 in Current Affairs, In the News, Recent Cases, Sports, True Contracts | Permalink | Comments (0)

Wednesday, September 12, 2018

Court refuses to judge what adequate spiritual leadership looks like

A recent case out of the Third Circuit, Lee v. Sixth Mount Zion Baptist Church of Pittsburgh, No. 17-3086, applies the ministerial exception of the First Amendment and refuses to entangle the court in a breach of contract dispute between a pastor and his former church. The parties had entered into a contract providing that Lee would serve as the Church's pastor for a twenty-year term. The contract provided for termination if its terms were breached. The Church terminated Lee's employment and alleged that he had failed to provide adequate spiritual leadership, as he was required to do by the terms of the contract. Lee disputed this, but the court refused to get involved, citing the ministerial exception. Courts aren't supposed to get entangled in "religious governance and doctrine," and asking the court to judge the quality of Lee's spiritual leadership under the contract would be just such an entanglement. 

 

You can listen to the oral arguments here. Some press coverage of the district court's decision can be found here

September 12, 2018 in Current Affairs, In the News, Labor Contracts, Recent Cases, Religion, True Contracts | Permalink | Comments (0)

Monday, September 10, 2018

Here's one for the "house renovations gone wrong" file

If you're turning to teaching damages in your semester, here's a recent case out of Florida for you, Forbes v. Prime General Contractors, Inc., Case No. 2D17-353. This is one of those cases where the homeowners and the contractor had a contract where the homeowners would pay periodically, as milestones for the work were reached. After completion of the scheduled demolition, though, the contractor told the homeowners that the cost to complete the project had almost doubled. The homeowners refused to pay the extra money, insisting on enforcement of the cost in the contract. The contractor walked off the job at that point. The home, having been in the demolition stage of the project, was uninhabitable. The homeowners rented another house and looked in vain for another contractor to finish the job. Finally, they bought a new house and let the old house go into foreclosure. They also sued the contractor for breach of contract. 

The homeowners won their beach of contract case, but the lower court only awarded them their cost of renting the alternative house as damages, stating that the homeowners had failed to prove any other damages and also had failed to mitigate damages. The appellate court disagreed. The appellate court permitted the homeowners to treat the breach of contract as total and found that they should be awarded damages to place them in the position they would have been in had they never signed the contract. This could include reimbursement of the amount they had paid the contractor and the equity they lost in their home when they had to let it lapse into foreclosure, as well as the rent they had paid. 

The appellate court also found that the homeowners had taken reasonable steps to mitigate damages. They rented while they searched for someone to finish the renovations. When that search failed, they bought a new house rather than continuing to make rent payments. Even if they hadn't bought the new house, they would not have been able to afford continuing to pay rent and the mortgage on the uninhabitable house, so whether they were renting or owning that house would have lapsed into foreclosure either way. The appellate court found that there was nothing else the homeowners could have done to avoid further damages. 

September 10, 2018 in Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Thursday, September 6, 2018

UCC statute of limitations dooms claim

Here at the beginning of the semester, I've just been going over determining whether the UCC or common law applies to contract claims, and here's a recent case out of the Seventh Circuit, Heiman v. Bimbo Foods Bakeries Distribution Co., No. 17-3366, that illustrates why that question can be important. 

The case involves some pretty eyebrow-raising allegations, as, according to the complaint, the defendant began "fabricating" breaches of the contract between the parties, so that it could terminate the contract based on these allegedly faked breaches. Pretty dramatic stuff, but the case falls apart on a statute of limitations issue. The UCC statute of limitations is four years; the relevant common law statute of limitations was ten years. All parties agreed that the cause of action accrued in 2011, so the statute of limitations would have already run if the UCC applied; not so if the common law statute of limitations was applied. 

The court looked at the primary purpose of the agreement. The agreement at issue was a distribution agreement, and the court noted that jurisdictions overwhelmingly interpret distributorship agreements to be about the sale of goods. While the agreement certainly also covered "a significant amount of services," those serves were all "incidental to the larger purpose of the contract, which [was] to sell goods to consumers." Therefore, the contract was governed by the UCC and barred as untimely. 

There was also a tortious interference claim that likewise failed because the complaint admitted that the plaintiff was aware of the possibility of its tortious interference claim in 2011, and so therefore this claim was also untimely under the relevant statute of limitations. The court also added that a party cannot tortiously interfere with its own contract, so the claim failed on the merits as well. 

September 6, 2018 in Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (2)

Tuesday, September 4, 2018

Reminder that punitive damagers are not typically available for breach of contract claims

I don't blog a lot about contracts damages, but a recent opinion out of New York, St. Stephen Community A.M.E. Church v. 2131 8th Avenue LLC, 650558/11, had a discussion of the damages which it would allow the plaintiff to try to prove at trial. Specifically, the defendant was complaining about the plaintiff's seeking of lost income and punitive damages. The court found that the lost income damages would be permitted to survive to give the plaintiff an opportunity to prove them at trial with sufficient certainty. The plaintiff claimed that its board members would be able to testify at trial about the loss of revenue it suffered, and so the court did not think these were too speculative not to allow such testimony.

The plaintiff's punitive damages claim was a different story, however. The plaintiff argued that punitive damages were appropriate because a breach of fiduciary duty was at stake, but the court found that that was so only when the breach was "an outrageous public wrong," and there was nothing in this case that involved the "moral culpability" the court needed to award punitive damages. Likewise, punitive damages are normally recoverable from a breach of contract action only when there is a public right at issue or when an independent tort justifies such an award. Neither was relevant here, and so the court precluded the plaintiff from recovering punitive damages in connection with its breach of contract claims. 

September 4, 2018 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, August 29, 2018

Court finds HomeAway gives sufficient notice of its terms and conditions online

A recent case out of the Western District of Texas, May v. Expedia, Inc., No. A-16-CV-1211-RP (behind paywall), examines the enforceability of HomeAway.com's online contract. HomeAway is a website that offers vacation rental properties. Property owners can buy one-year subscriptions to HomeAway to list their properties for rent on the website. May was a property owner who had purchased successive annual subscriptions to HomeAway, and who now sues based on several breach of contract and fraud allegations, together with related state claims. HomeAway moved to compel arbitration, pointing to its terms and conditions. Specifically, in July 2016 HomeAway amended its Terms and Conditions to include a mandatory arbitration clause. May allegedly agreed to this clause when he renewed his HomeAway subscription in September 2016, and again when he booked his property through the website in October 2016. 

May argued that he did not agree to the terms and conditions when he renewed his annual subscription because he changed the name on the account to his wife's name in an effort to avoid being bound by the new terms, but the court found that had no effect on the effectiveness of the terms and conditions and that May bound himself when he renewed his subscription, regardless of changing the name on the account. May was trying to take advantage of the benefits of the subscription without binding himself to the terms, and the court found that to be inequitable. 

The court  already found May to be bound but for the sake of completeness also analyzed May's argument that he was not bound when the property was booked because he did not receive sufficient notice of the terms and conditions, which gives us further precedent on how to make an enforceable online contract. The HomeAway site required the clicking of a "continue" button, and wrote above the button that the user was agreeing to the terms and conditions if they clicked the button, with a hyperlink to the terms and conditions. The court found this to be sufficient notice of the terms and conditions. 

August 29, 2018 in E-commerce, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, August 27, 2018

Ninth Circuit courts continue to not love arbitration clauses as much as the Supreme Court does

Revitch received an automated advertising call from DirecTV to his cell phone, and sued alleging violations of the Telephone Consumer Protection Act. Revitch was a wireless customer of AT&T, so DirecTV moved to compel arbitration under its sibling corporation's wireless service contract with Revitch. This recent case out of the Northern District of California, Revitch v. DirecTV, LLC, No. 18-cv-01127-JCS, denied the motion, finding that the arbitration clause did not cover claims with DirecTV completely unrelated to the wireless services provided under the AT&T contract. 

It was true that the arbitration provision covered affiliates, and it was also true that DirecTV was an affiliate of AT&T, having become sibling companies a few years after Revitch entered into the contract with AT&T. But the court characterized the establishment of this relationship as a "completely fortuitous fact." The court noted that the intention for wording the clause broadly and including affiliates was typically to cover situations regarding assignments or successors. Nothing of the sort had happened here. No benefits under the contract had been assigned to DirecTV, nor had DirecTV undertaken any obligations under the contract. The calls Revitch was complaining about had nothing at all to do with the wireless service covered by the contract. So the precedent DirecTV tried to rely on was all distinguishable in the view of the court: "The Court concludes that Adams and Andermann, at most, support the conclusion that an entity may become an affiliate subject to the arbitration contract after the time of contracting where that relationship arises from an assignment of the underlying agreement or a related entity becomes a successor to the original contracting entity. That is not the case here."

The court interpreted the arbitration clause of the contract according to ordinary rules of contract interpretation that required the avoidance of absurd results and also that contracts be construed against the drafter. DirecTV argued that the presumption in favor of arbitration established by the Federal Arbitration Act meant that arbitration clauses should trump such rules of contractual interpretation, but the court disagreed. The court stated that, according to Ninth Circuit precedent, the FAA requires arbitration agreements to be placed on equal footing with other contracts. Allowing the suspension of ordinary contract rules of interpretation when arbitration agreements were involved would be placing arbitration agreements on favored footing; on equal footing, the same rules ought to apply to arbitration agreements as apply to all other contracts. Arbitration, the court emphasized, "is a matter of consent." 

This is an interesting case. Due to the consolidation of most of our forms of communication under massive umbrella corporations, a relationship with one subsidiary can be used to assert a relationship with all companies under the same corporate umbrella, as DirecTV tried to do here. This court's view feels rooted in a common-sense understanding that the arbitration agreement Revitch entered into when he decided to sign up for AT&T wireless service shouldn't also cover completely unrelated television services provided by a company that hadn't been affiliated with AT&T when Revitch entered into the contract. Only a few months ago, though, the Supreme Court reversed the Ninth Circuit for refusing to enforce an arbitration clause, re-affirming the trump-card nature of the Federal Arbitration Act over many other public policies. This case seems like another display of Ninth Circuit courts' skeptical views toward arbitration clauses -- which the Supreme Court has just reminded the Ninth Circuit it doesn't share. 

August 27, 2018 in Commentary, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, August 22, 2018

Another health insurance case where getting proper care pushes you into debt

We have blogged several times before about the confusing and often tragic state of health care and health insurance in this country. Now we have another case out of the Eighth Circuit to add to the tally, Ferrell v. Air EVAC EMS, Inc., No. 17-2554. 

Ferrell went to an emergency room with chest pain. Emergency room staff arranged for an air ambulance operated by AIR EVAC to transport him to another hospital. Ferrell's health insurance only covered a thousand dollars of this helicopter flight, so Ferrell was billed over $29,000. Ferrell then sued on behalf of a class of those similarly situated, alleging that there was no enforceable contract with the air-ambulance provider because he was not informed of the price of the helicopter flight before taking it. The problem, though, is that the federal Airline Deregulation Act (the "ADA") comes into play here, as this is about air travel. The ADA, among other things, prohibits states from regulating the cost of air transportation. 

Ferrell argued that the ADA should not apply to air-ambulance services, which are unique from other forms of air transportation. But the plain language of the ADA is broad enough to include air-ambulance services, so the court refused to exclude them from the preemption. Because Ferrell was bringing a class action, this doomed all of his claims. 

The court did find that Air EVAC could potentially bring a breach of contract claim if Ferrell refuses to pay, and that Ferrell could then assert there was no enforceable contract in defense. In that case, Air EVAC could then possibly rely on equity to recover the value of the services provided, and then the court would be able to determine that value without ADA preemption. 

Which is a pretty complicated analysis and decision. Surely this is not the most efficient way we can think of to handle health care in this country. But I suppose there is something poetic about having to lump in health care with the air transportation industry: They often are both perplexing in their treatment of their customers.  

August 22, 2018 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, August 20, 2018

California warranty case against Google illustrates the work the covenant of good faith and fair dealing does for consumers

A recent case out of the Northern District of California, Weeks v. Google LLC, Case No. 18-cv-00801 NC (behind paywall), involves Google's Pixel phones, which the plaintiffs allege are defective. The phones were covered by a warranty that permitted Google to either repair, refund, or replace the phones, at its discretion. When the plaintiffs complained about the defective phones, Google offered to replace the phones, but the plaintiffs weren't happy with that result: Their allegations are that their defective phones would just be getting replaced with more defective phones, until the point when the warranty expired. 

The court agreed with Google that, under the terms of the warranty, Google had every right to do exactly that: "The Court understands plaintiffs' outrage at Google's being able to replace a defective Pixel with another defective Pixel for 365 days straight. . . . It beggars reason and would appear to make hash of the spirit of the warranty. But the warranty provided a remedy, and as far as the Court can tell, Google abided by its remedy. . . . The question of whether it was valid under the express warranty to replace a defective Pixel with another defective Pixel must be answered in the affirmative based on a plain reading of the Limited Warranty."

However, all was not lost for the plaintiffs, because the court then turned to allegations that Google had breached the covenant of good faith and fair dealing, a claim which the court allowed to survive Google's motion to dismiss.  The court found that, while Google's conduct might not have been in violation of the terms of the contract, its conduct was not "expressly permitted" under the contract, nor did it meet "reasonable expectations" as to what its behavior would be. Therefore, the covenant of good faith and fair dealing acted as a backstop here against the dismissal of the breach of warranty claims. 

(The court also allowed fraudulent concealment and California consumer protection law claims to survive.)

August 20, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, August 3, 2018

Watch out for relevant statutes when entering into contracts (but also, read your own contract language)

A recent case out of the Eastern District of Virginia, K12 Insight LLC v. Johnston County Board of Education, Civil Action No. 1:17-cv-1397, is a cautionary tale for being aware of how statutes can affect contracts. But, also, it could have been decided just on the contractual language alone. 

In the case, the Board of Education signed an Order Form with K12 Insight that provided for an annual fee for three one-year terms. After signature, the school district realized that it could not afford the final two years of the subscription to K12's software and so attempted to terminate the subscription. K12 sued for breach of contract, alleging that the school district was obligated to maintain its subscription for the full three years. 

The court declared the Order Form contract to be void. First, there was a statute that required a pre-audit certification to be affixed to the Order Form in order to ensure that there would be funding for the school district's contract. This contract lacked the pre-audit certification (which maybe explains why there wasn't funding). The court found that the contract was also outside the scope of the superintendent's authority. 

But, finally, even if the contract had been properly made, the Board was permitted under the contract's own terms to terminate it if it didn't have sufficient funds. That was exactly what happened here, so the termination was proper. 

August 3, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, July 26, 2018

Waiver as a shield, not a sword

It's the time of year when I start thinking about the fact that I should be thinking about my fall classes, and right on cue, here's a case out of the Seventh Circuit, Knopick v. Jayco, Inc., No. 17-2285, that's thoughtful about how waiver works and the policy underlying it. (You can listen to the oral argument here.)

The waiver portion of the case (there was also a jurisdictional issue) involved a warranty that stated it did not apply to RVs purchased by LLCs. The RV in question was purchased by an LLC. Therefore, under the unambiguous language of the warranty, the RV was not covered. However, Knopick argued that Jayco waived this exclusionary language of the warranty when it voluntarily performed some repairs to the RV as if the warranty applied. The warranty, though, had an additional clause stating that such "good will" repairs would not alter the exclusionary language of the warranty. 

Even without that language, the court was skeptical that waiver could be used to achieve what Knopick wanted here. The court noted that waiver is ordinarily used as a "shield" to excuse non-performance. It's used so that a party cannot be "lulled" into a belief that its compliance is sufficient to fulfill a contractual obligation only to be surprised by a lawsuit for inadequate compliance later. Knopick, the court said, was trying to use waiver as a "sword." Rather than protecting himself, he wished to use it to compel performance by Jayco. The court, wary of expanding waiver because of how greatly it would damage the predictability of contracts, stated that it was unwilling to use the doctrine of waiver to compel Jayco, as such an action would have the effect of discouraging parties from "good faith" actions such as that undertaken by Jayco for fear of opening themselves up to expanded liability. 

h/t to Timothy Murray of Murray, Hogue & Lannis for passing this one along!

 

July 26, 2018 in Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Friday, July 20, 2018

Court finds a no-media clause contrary to public policy

A recent case out of the Southern District of New York, Garcia v. Good for Life by 81, Inc., 17-CV-07228 (BCM) (behind paywall), is an examination of a settlement agreement implicating the Fair Labor Standards Act ("FLSA"). It's interesting for the language it's willing to approve vs. the language it says should not be contained in the agreement. 

First, the court expresses concern about the contract's releases being overly broad and rewrites them, concerned that the language as written would have attempted to bar claims by a "second cousin once removed." Upon revision, the court is comfortable with the releases, but the court declares unenforceable the no-assistance and no-media provisions. The court finds it a violation of the FLSA to bar the plaintiff from assisting other individuals who might have a claim against the employer. The court also states that the effective "partial confidentiality clause" preventing the plaintiff from contacting the media is "contrary to well-established public policy." I found this last ruling especially interesting in our age of widepsread NDAs, which I've blogged about a bunch. I agree that such a clause would "prevent the spread of information" in a way that would be harmful to other wronged victims trying to vindicate their rights; we should keep talking about that when it comes to NDAs. 

July 20, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, July 18, 2018

Termination for any reason at all means that you can terminate for, well, any reason at all

A recent decision out of Ohio, Whitt v. The Vindicator Printing Company, Case No. 15 MA 0168, discusses the limits of the implied covenant of good faith and fair dealing. In the case, the contract contained a provision permitting termination of the contract for "malfeasance . . . , or at the will of either party for any reason or no reason" upon thirty days written notice. Vindicator terminated the contract with Whitt after an altercation between Whitt and a temp employee working for Vindicator. Whitt sued for, among other things, breach of contract, complaining that Vindictor had wrongfully terminated the contract only seven months into its three-year term. Whitt alleged that Vindictor violated the implied covenant of good faith and fair dealing because it terminated the contract after Whitt was a victim of criminal assault at the hands of Vindicator's employee. 

The court noted, though, that the requirement of good faith should not give a court the ability to second-guess decisions made within the context of the contract. The termination provision of the contract did not require just cause, which was what Whitt was trying to read in. Rather, the contract permitted Vindicator to terminate it for no reason whatsoever, so the exact circumstances of the termination did not matter. 

I think many people assume that contracts provide a level of reliability and predictability that doesn't exist if those contracts permit termination for any reason, or for no reason. I think Whitt assumed that this contract would stay in effect unless he did something terrible, but that's not how the termination clause was worded. 

(h/t to D. C. Toedt for the free link!)

July 18, 2018 in Commentary, Recent Cases, True Contracts | Permalink | Comments (2)