ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

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)

Monday, July 11, 2016

Big Legal Issues Surrounding "The Little Couple"

Little Couple

Source: tvguide.com

The circumstances surrounding this lawsuit, LMNO Cable Group, Inc. v. Discovery Communications LLC, Case No. 2:16-cv-4543 (behind paywall), in the Central District of California, could be a television show in its own right.

LMNO, a producer of a number of reality television shows (most importantly for this case "The Little Couple"), allegedly found itself the victim of embezzlement by its accountant, who then later, according to the complaint, threatened to destroy LMNO's professional relationships unless LMNO kept quiet about the alleged embezzler and gave him $800,000. LMNO apparently refused to comply with this request, instead reporting the alleged embezzler to the authorities.

In the meantime, however, the accountant had evidently been in contact with Discovery Communications, whose station broadcasts "The Little Couple." LMNO alleges in this lawsuit that Discovery used the accountant's help to try to drive LMNO out of business by stealing "The Little Couple" from LMNO.

The alleged stealing of "The Little Couple" involved the alleged breach of a number of contracts between LMNO and Discovery about "The Little Couple." As usual with entertainment contracts, they're complicated, consisting of many amendments, and there's an implied contract angle as well. And, predictably, there are copyright and trademark implications, too.

According to the complaint, Discovery directly employs the actors in "The Little Couple," but the contract has a clause preventing Discovery from using these actors to produce shows without LMNO. Allegedly, that is exactly what Discovery is now attempting to do. Specifically, Discovery and LMNO had discussed making a special episode of "The Little Couple" set in Scotland and England. LMNO alleges that Discovery went ahead and filmed the episode without LMNO's involvement, in violation of an additional implied contract between them with regard to that particular episode. In addition, LMNO is alleging that Discovery's actions have breached the covenant of good faith and fair dealing and interfered with LMNO's abilities to obtain all of its benefits under the contracts.

It will be interesting to see how this all plays out. If you'd like to read more about the case, I found articles here and here.

July 11, 2016 in Current Affairs, Recent Cases, Television, True Contracts | Permalink | Comments (0)

Saturday, July 9, 2016

Arbitration Clauses: Gogo Internet Edition

The rise of Wi-Fi on airplanes means that you never have to be without the internet if you don't want to be...which also means that you never have to be without terms of use! A recent case out of the Eastern District of New York, Salameno v. Gogo Inc., 16-CV-0487 (behind paywall), reinforces that those terms of use are binding on you, and, as could probably be predicted, leads to the enforcement of an arbitration provision contained in them.

In this case, the plaintiffs had purchased Gogo's in-flight Internet access multiple times. They claimed that the Internet access didn't work as advertised, with allegations that it was incredibly slow, crashed frequently, or sometimes didn't work at all. (Anecdotally, I have heard people around me on flights complain about this, although I don't know if Gogo was at issue there or if in-flight Wi-Fi is simply fraught with complications.) Despite these alleged ongoing issues, the plaintiffs kept buying Gogo's Wi-Fi, perhaps in eternal hope that it would someday work properly? At any rate, this all culminated in plaintiffs' lawsuit here.

A judge recently found that the plaintiffs are bound by the arbitration clause in Gogo's Terms of Use. All of the plaintiffs used Gogo's Internet access multiple times, and each time they had to indicate that they agreed to the Terms of Use. This wasn't just a one-time thing, which maybe would have made the court more sympathetic, but multiple times of clicking "Agree" without looking at the Terms of Use. And, the court said, those who seek Internet access in the air are experienced Internet users who should be expected to know how to read the Terms of Use contained in the hyperlink.

How to click on a hyperlink, yes, most Internet users know how to do; whether or not the average Internet user necessarily understands all of the legalese found at that hyperlink is another question entirely, of course, but not one addressed in this case. Possibly because the court assumes that all laypersons understand the difference between litigation and arbitration, although in my experience I am not entirely sure that's true. At any rate, the court here held this arbitration clause to be binding.

July 9, 2016 in Commentary, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (2)

Tuesday, July 5, 2016

Donald Trump and the Covenant of Good Faith and Fair Dealing

Everyone else is talking about Donald Trump, so I guess why shouldn't we hop in, right?

This recent New Yorker Talk of the Town piece introduced me to an ongoing contract dispute involving Trump that I hadn't been paying attention to, even though now I see it's been widely reported by various news outlets, including food blogs, because it involves restaurants. So if you don't normally like to read political stuff but you consider yourself a foodie, this blog entry is also for you!

It turns out that Trump is embroiled in breach of contract lawsuits with a couple of famous chefs who pulled out of commitments to put restaurants into one of Trump's new developments. According to the reports, the impetus for pulling out of the business deal was Trump's anti-immigrant rhetoric during his presidential campaign. Jose Andres, himself an immigrant, was not too happy about Trump's statements. As seems to be the case with Trump, his business concerns don't necessarily track his political rhetoric when the bottom line is at issue. Faced with an immigrant refusing him rather than the other way around, Trump sued Andres for breach of contract. Andres counter-sued, alleging that Trump's many derogatory remarks about Hispanics rendered Andres's proposed Spanish restaurant "extraordinarily risky."

The chefs sought partial summary judgment, which a court recently denied, finding that material facts were still in dispute.

The crux of this lawsuit revolves around the covenant of good faith and fair dealing: Did Trump breach that covenant when he made his remarks, which would make him the one in breach of contract? Or were Trump's remarks not a breach of the covenant, either because they're not relevant to the contract or because they did not harm the prospects for success of Andres's restaurant? I don't know if the parties will continue to litigate this question but I'm curious what the result would be. In the current climate where rhetoric is frequently extremely inflammatory, could there be contract implications to such statements? How far, policy-wise, do we want the covenant of good faith and fair dealing to extend?

The case is Trump Old Post Office LLC v. Topo Atrio LLC, 2015 CA 006624 B (behind paywall), in District of Columbia Superior Court. 

July 5, 2016 in Celebrity Contracts, Commentary, Current Affairs, Food and Drink, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Thursday, June 30, 2016

Judge Easterbrook’s Interpretation of “Reimburse”

In Walker v. Trailer Transit, Judge Easterbrook finds that in addition to “recover costs,” the word “reimburse” could just as easily mean to broadly “compensate” (at a profit) or “pay” even given a seemingly contradictory context. Unknown

In the case, one thousand truck drivers filed a class action lawsuit against their “gig” employer, Trailer Transit. The drivers contracted to earn 71% of Trailer Transit’s contracts with its end clients. Trailer Transit owned the trucks; the drivers drove them. Among other things, the contract between the drivers and Trailer Transit stated that

[t]he parties mutually agree that [Trailer Transit] shall pay to [Driver] … a sum equal to seventy one percent (71%) of the gross revenues derived from use of the equipment leased herein (less any insurance related surcharge and all items intended to reimburse [Trailer Transit] for special services, such as permits, escort service and other special administrative costs including, but not limited to, Item 889).

The drivers (perhaps inartfully) claimed that Trailer Transit cheated them out of earnings by labeling income “special services” whereby Trailer Transit could claim it was simply getting “reimbursed” and thus deduct certain amounts from the equation before compensating its drivers. Trailer Transit claimed that the drivers were only entitled to 71% of whatever was listed as the “gross charges” for the driving services, end of story.

Images-2

How would you interpret the provision in question?

The most obvious and reasonable reading of the contract seems to me to be as follows: If, for example, Trailer Transit enters into a contract with an end client for $1,000 plus $100 for also arranging for special services in the form of, for example, an escort vehicle (e.g. a “Wide Load” car), its drivers would earn $710, Trailer transit $290 in profits ($1,000 – 71% to the drivers), but bill the end client $1,100.

But what if, hypothetically speaking, the company was to seek to maximize its profits out of the total sum of $1,100 to be billed to the end client? It could then, for example, label $600 as “special services” to be “reimbursed” to it, thus reducing the amount to be paid to the drivers to $355 (71% of ($1,100-600)). That would increase its profits from the above $290 to $645 (($500-355) plus $500 (with the escort service at $100). Do you think that the contract was meant to be interpreted that way? Judge Easterbook (yes, of “bubble wrap fame”) does. Among other things, he found that

[d]rivers are entitled to 71% of the gross charge for “use of the equipment” (that is, the Drivers’ rigs), but the contract does not provide for a share of Trailer Transit’s net profit on any other part of the bill. It would be possible to write such a contract, but the parties didn’t … [T]he Drivers do not invoke any principle of [] law that turns “71% of gross on X and nothing on Y” into “71% of gross on X plus 71% of net on Y.” Images-1

Judge Easterbook also makes the unpersuasive and, in my opionion, ill-thought out example that if

Trailer Transit paid someone $1,000 to accompany an over-wide shipment and display a “WIDE LOAD” banner, and billed the shipper $1,250, then the Driver would be entitled to $887.50 for that escort service—and Trailer Transit would lose $637.50 ($1,250 less $1,000 less $887.50 equals $637.50).

This is unpersuasive as Trailer Transit would presumably not be as large and profitable as it is if it were so incompetent as to systematically incur the losses that Judge Easterbrook concocts here. Further, in his example, if the charge of $1,000 truly was for a cost of that amount, Trailer Transit would, per its own contract and intent, get to deduct that cost in full first. Nothing in the case indicates otherwise.

The meaning seems to hinge on two things: the meaning of “reimburse” and whether or not this was an example of the company taking opportunistic advantage of its contractual commitments, which the drivers had, for some reason, not argued (Easterbrook recognizes that such an argument might have changed the outcome of the case – note to our students: always consider that). As regards the meaning of “reimburse, Judge Easterbook argues

True enough, one standard meaning of “reimburse” is to recover costs. Someone who submits a voucher for expenses incurred on a business trip seeks reimbursement of actual outlays rather than a profit. But this is not the only possible meaning of “reimburse.” The word also is used to mean “compensate” or “pay.” If the contract had said “reimburse the expense of special services,” that would limit the word’s meaning to recovery of actual costs. But those italicized words aren’t in the contract.

No, but that intent seems to be clear here. Contracts are usually interpreted in accordance with both the plain meaning of the contract and the intent of the parties (not after-the-fact intent of one party).

What do you think the word “reimburse” means here? The word is defined by various sources as follows (my emphasis):

Black’s Law Dictionary:

  1. Repayment
  2. Indemnification

Merriam-Webster:

  1. to pay someone an amount of money equal to an amount that person has spent;
  2. to pay someone back;
  3. to make restoration or payment of an equivalent to an amount that person has spent

Dictionary.com:

  1. to make repayment to for expense or loss incurred;
  2. to pay back; refund; repay.

Vocabulary.com

  1. pay someone back for some expense incurred;
  2. reimburse or compensate (someone) as for a loss

Third Circuit Court of Appeals:

"To pay back, to make restoration, to repay that expended; to indemnify, or make whole." United States v. Konrad, 730 F.3d 343, 353 ( 3d Cir. 2013).

To me, all these sources indicate that the word means what we probably all think it means: money back for an outlay. But apparently, that is not the case in the Seventh Circuit.

June 30, 2016 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, June 29, 2016

If You Sign a Lease, You Should Get a Habitable Apartment

This seems like it should be obvious but a recent case out of Indiana, Pinnacle Properties Development Group, LLC v. Gales, Court of Appeals Case No. 10A01-1512-SC-2271, was still being fought at the appellate court phase.

Gales rented an apartment from Pinnacle. She was told that she could not view the apartment until the day of her move-in. On the date of the move-in, Gales signed the lease and was then shown the apartment. At that point, Gales realized that the apartment had a shattered sliding door, a toilet that flooded and soaked the carpet, and no electricity (and apparently could not be made to get electricity because the meter had been removed). Gales told the leasing agent that the apartment was unacceptable and, as there was no other apartment of that floor plan available and as there was going to be a delay of at least several days before the apartment could be inhabited, she wanted the lease canceled and her money back.

Pinnacle's main argument was that Gales signed the lease, it was binding, and so Gales shouldn't be let out of it. The court, however, disagreed. Gales signed the lease, it found, with the understanding that she would received a habitable apartment. Since she didn't receive that habitable apartment, the lease was unenforceable, and she was entitled to her money back.

This seems like it should be a straightforward case. I can't imagine why it would be worth the money to continue fighting this.

June 29, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (3)

Monday, June 27, 2016

A Text Message Is a Writing, Too (Albeit with More Emojis)

As technology continues to evolve, so does the law, and a recent case out of Massachusetts, St. John's Holdings, LLC v. Two Electronics, LLC, MISC 16-000090, proves it. Addressing what the court termed a "novel" question in the Commonwealth of Massachusetts, the court concluded that the text messages at issue in the case constituted writings for statutes of frauds purposes.

I have often thought that we communicate much more in writing these days than people did, say, twenty years ago. I know that it is now much more common for me to text the people I want to speak with than actually call them to speak orally. It will be interesting to see how the statute of frauds continues to develop.

(Thanks to Ben Cooper for sending this case my way!)

 

June 27, 2016 in Commentary, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, June 23, 2016

A Modern-day “Hamer v. Sidway-”like Case with an International Twist

Looking for an interesting new case on the statute of frauds, breach of contract, promissory estoppel, and constructive trust by a son against his father? Here’s one for you:

It is California. The year is 1994. Father Sardul allegedly promises son Paul that if he if he “stayed in school, was a good son, continued to work on the [family] ranches, and married an Indian girl, i.e., a Sikh girl, Sardul and [mother] Jitendra would take care of him financially.” Images

According to the court, this happened next: “In 1996, Sardul and Jitendra were looking for a wife for Paul. The family traveled to India for this purpose. While in India they conducted numerous interviews of the parents of potential brides. In the Sikh culture, the boy’s parents take responsibility for finding a suitable wife. If both sets of parents think a match looks promising, the boy and girl spend some time alone together. Thereafter, if the boy and girl are interested, the match will be pursued. Paul’s family and Rajneet’s family first met on February 21, 1996 and Paul and Rajneet were married on March 16, 1996.”

The couple lived in one of the family’s ranch houses without ever paying rent, never making a mortgage, and with father Sardul making certain other payments for the young couple. Paul did, however, work on the family grape ranches until 1999. At that time, he got a full-time job for other employers.

In 2002, grape growers in California encountered hard times financially. Sardul tells Paul that he (Sardul) needed to sell the ranch on which Paul and his wife lived as they risked otherwise being foreclosed on both on the ranch in question as well as others. One of the family’s properties had a “little bit of equity” on it. Paul and his wife sign a deed for that property. The couple later stated that the father had promised “to give them” the ranch on which they previously lived when “things got better financially.” The father never did so, but instead offered the couple a 99-year lease on the property in 2012. Paul subsequently filed suit, claiming breach of three separate contracts: 1) To be a good son and stay in school, work on the ranches, and marry an Indian girl, 2) to take care of his father, and 3) the transfer of the above-mentioned ranch.

The court concluded that it did not matter how many contracts were alleged because it was questionable whether “any contract was formed at any time.” The alleged promises to “be a good son and stay in school” were vague, the promise “to continue to work on the ranches” was unsupported by the evidence, and the “marry an Indian girl” term was illegal as a restraint on marriage. The alleged oral promise to transfer a ranch violated the statute of frauds. Images-1

Paul and his wife also argued equitable estoppel and that, accordingly, the contract was not barred by the statute of frauds. The appellate court upheld the trial court’s finding that neither Paul nor his wife Rajneet detrimentally relied on the alleged contract to transfer the ranch to them or suffered unconscionable injury. The court concluded that Paul did not forbear all other employment opportunities to work on the ranches. Rather, Paul began working full time for other employers in 1999 and was permitted to live rent free on the Elkhorn Ranch until 2012. The court noted that in 2012, Paul and wife Rajneet were able to purchase a $650,000 house and had saved enough money to make a $200,000 down payment. Unknown

But wait!! What about the wife? Did she not have any arguments? You bet: Rajneet appeared to claim unconscionable injury or detrimental reliance based on marrying Paul and moving to the United States in part because of Sardul's promise that they would be given a ranch. The court concluded that Rajneet did not prove her claims noting that Rajneet was still married to Paul, they both were employed with good jobs, and they were able to purchase a home after living rent free for many years.

Finally, Paul and Rajneet claimed that they partially performed when they bought the one ranch from the father in reliance on Sardul's promise to transfer another to them in exchange. Part performance of an oral agreement for the transfer of an interest in real property may, under certain circumstances, except the agreement from the statute of frauds. (Sutton v. Warner (1993) 12 Cal.App.4th 415, 422.) However, the trial court found that no Sardul’s testimony that no such promise was ever made to be credible. The appellate court supported this as issues of credibility are for the trial courts to decide.

Talk about a family relationship gone sour, and then only over money. What a shame!

June 23, 2016 in Recent Cases, True Contracts | Permalink | Comments (2)

Wednesday, June 22, 2016

The Contractual Side of Going for the Gold

The Olympics are almost here, and as we all know, they're big business: lots of television ratings, lots of advertising, lots of endorsements.

Today the District of Oregon is hearing an argument on a preliminary injunction in a contract case with Olympic implications (or an Olympic case with contract implications), Nike USA, Inc. v. Berian, Docket No. 3:16-cv-00743 (behind paywall).

The dispute, which has been widely reported online, is based on Nike's endorsement contract with Boris Berian, a track and field competitor with Olympic hopes. The contract, according to the complaint, gave Nike the right to match any offers made to Berian during a particular period of time. During that time, Berian received an endorsement offer from New Balance. Nike claims in its complaint to have matched the offer, and that Berian breached his contract with Nike when he refused to continue his relationship with Nike.

Berian kept racing. And kept winning. While wearing New Balance gear. So Nike, to keep Berian from furthering his relationship with Nike's competitor New Balance, sued him, serving him with the lawsuit during a big track meet.

Nike's allegations have been countered by Berian, who claims that New Balance's offer to him did not contain a number of restrictions that Nike's offer did contain. However, Nike has countered that by arguing that Berian did not make that clear to Nike and that Nike would have dropped its restrictions if necessary. (Nike seems to have just assumed there had to be restrictions and that any statement otherwise couldn't possibly be true.)

Endorsements are big money, of course. The Nike and New Balance offers are $125,000 for the year. While he's embroiled in the legal dispute, Berian's agent asked for donations to Berian's legal fund.

The judge has already approved a TRO in the case, prohibiting Berian from racing with any equipment other than Nike's. The hearing for the preliminary injunction is today.

June 22, 2016 in Games, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Is that Starbucks Grande Really Grande?..

Here’s a case that shows you that size really does matter… in contract law at least. Of-course-size-matters-just-ask-that-poor-ex-planet-pluto-e3505

In Strumlauf et al. v. Starbucks Corp., No. 16-01306, a federal district court judge based in San Francisco just ruled that a class action lawsuit against Starbucks.The complaint alleges breach of express and implied warranties, unjust enrichment, negligent misrepresentation, fraud and violations of California's Consumer Legal Remedies Act, the California Unfair Competition Law, and the California False Advertising Law.

The company allegedly overcharged its customers by “systematically serving lattes that are 25% too small” in order to save milk. Baristas were allegedly required to use pitchers for heating milk with etched “fill to” lines that are too low. Further, they were told to leave ¼ inch of free space in drink cups. Said U.S. District Judge Thelton Henderson: "This is not a case where the alleged deception is simply implausible as a matter of law. The court finds it probable that a significant portion of the latte-consuming public could believe that a 'Grande' contains 16 ounces of fluid." Starbucks’ cups for “tall,” “grande,” and “venti” lattes are designed to hold exactly 12, 16 and 20 ounces.

Starbucks so far counters that “if a customer is not satisfied with how a beverage is prepared, we will gladly remake it.”  Right, but how many customers would really complain that their drink is .25 inch (6 mm) too small?... And does it really matter? Much of what one pays for with a Starbucks drinks is, arguably, the knowledge of what the retail outlets offer, the ambience, convenience, “free” wifi, etc. Having said that, I am certainly not one to promote consumer fraud and recognize that little by little, the alleged milk-saving scheme could, of course, bring even more money into the coffers of already highly profitable Starbucks.

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June 22, 2016 in Current Affairs, Famous Cases, Food and Drink, In the News, Recent Cases, True Contracts | Permalink | Comments (2)

Wednesday, June 15, 2016

Using Your Insurance Policy's Appraisal Process? You May Still Have Tort Claims Left

I've seen a few cases now come across with people trying to sue their insurance companies after using the appraisal process in their policies to resolve a dispute, so I thought I'd blog about one of them. This one is Clark v. Pekin Insurance Co., Case No. 3:15CV2272 (behind paywall), out of the Northern District of Ohio. 

The fact patterns for all these cases is basically the same: Plaintiff makes a claim under an insurance policy. The insurance policy pays less than the plaintiff desires. Plaintiff utilizes the appraisal process found in the insurance policy, in which each side chooses an appraiser and, if they can't agree, an independent umpire then makes a finding. Plaintiff wins the appraisal process and the insurance company promptly pays plaintiff the extra money owed. 

However, plaintiff is not pleased--probably because of having had to go through a whole song-and-dance to get the money--and sues anyway. That's what happened in this case. 

Breach of contract claims are tricky after the appraisal process has been invoked. Most insurance policies prohibit the insured from recovering damages beyond that awarded through the appraisal process, as the policy did here. Because Clark received what the umpire stated she was entitled to, exactly as required under the policy, the court found there was no breach of the contract.

However, the appraisal process doesn't bar tort claims, and Clark was still alleging that the insurance company had acted in bad faith toward her insurance claim. However, the court found that the insurance company had behaved in a timely fashion and that disagreement over the amount to be paid didn't constitute bad faith on its own, and there was no other evidence on the question, so Clark lost that claim as well. So the appraisal process might still leave you with tort claims, but they would be challenging to establish, I think. 

June 15, 2016 in Recent Cases, True Contracts | Permalink