ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, December 6, 2017

Emails can be enforceable, even if a contemplated contract is never signed

A recent case out of the Southern District of New York, Nusbaum v. E-Lo Sportswear LLC, 17-cv-3646 (KBF) (behind paywall), granted summary judgment based on a chain of emails between an employer and employee. The emails were discussing a severance provision, and the last email in the chain read in relevant part, "I am agreeing to the below . . . . I will sign when I get back." The parties never executed any further document. 

The court nevertheless found an enforceable contract between them. Although it was true that the emails seemed to contemplate a final agreement, it was also true that both parties regarded the negotiations as concluded and the agreement reached at the time of the final email. The employee than spent nineteen months performing under this perceived agreement. It was clear from the emails that the parties had reached agreement on the material term, and the matter was not so complex that it needed to be reduced to a formal writing. Indeed, the employer admitted it usually did not reduce employment agreements to a formal writing. Therefore, the emails demonstrated that the parties had reached agreement and they were enforceable. 

December 6, 2017 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, December 4, 2017

As long as an idea is new to you, New York court finds it can serve as consideration

If you're looking for fact patterns involving consideration, a recent case out of the Northern District of New York, West v. eBay, Inc., 1:17-cv-285 (MAD/CFH) (behind paywall), has one for you. 

The following allegations appeared in the complaint: West worked as a consultant for eBay. As a consultant, West told eBay about a business plan he had which represented a "unique business model" for virtual marketplaces. West said he was cautious about sharing his business plan, and eBay promised to keep the business plan confidential. West then sent the business plan to eBay. eBay subsequently promised to compensate West if it used the business plan. eBay then developed a mobile app that West alleged used the business plan. eBay, however, stated that the app was "independently conceived" by other eBay employees. This lawsuit followed, and eBay moved to dismiss West's complaint. 

One of eBay's asserted grounds for dismissal was a lack of adequate consideration for the contract alleged in West's complaint. eBay claimed that the business plan was not "novel" and so had no value and could not serve as consideration. The court noted that under New York law, a not-novel idea can be adequate consideration if it was novel to the party to whom it was being disclosed. This requires a fact-specific inquiry. At the motion to dismiss stage, West had asserted enough facts that the business plan was idea was novel to eBay, meaning that it could serve as adequate consideration for the contract. 

There were other causes of action and arguments involved that I'm not going to get into here, but the complaint also contained promissory estoppel and unjust enrichment claims that also survived the motion to dismiss, if you're interested. 

December 4, 2017 in E-commerce, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, December 1, 2017

Casual, young, fun Mexican restaurants have to be allowed to play music!

Montana brings us an anticipatory breach case about a Mexican restaurant, Bridger Del Sol, Inc. v. VincentView, LLC, DA 17-0186

Bridger Del Sol ("BDS") leased some property from VincentView for the purpose of operating a "casual, young, fun Mexican restaurant." I appreciate these adjectives. BDS's Mexican restaurant sounds like a place I'd want to be friends with. 

BDS opened its casual, young, fun restaurant but the upstairs tenants turned out to not be so keen on their hip new downstairs neighbor, complaining about noise and cooking smells. VincentView then sent BDS a Notice of Default and stated that it would take over the premises prior to the expiration of the lease unless BDS stopped playing music and emitting cooking odors. 

The court characterized that as an anticipatory breach on VincentView's part. As the court noted, "Restaurants commonly play music and must cook. Thus, VincentView's new rules were not reasonable or fair to BDS." This was therefore a breach of VincentView's duty of good faith and fair dealing and VincentView would have been unjustified in retaking the premises as it threatened unequivocally to do. 

December 1, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Thursday, November 30, 2017

Here's an Example of an Illegal Contract

I always struggle to think of examples of illegal contracts other than contracts to kill people, which makes for a dramatic class discussion but I fear might cause the students to write off illegal contracts as a subject better suited for Breaking Bad or something. So I was delighted to come across this recent case out of Michigan, M-D Investments Land Management, LLC v. 5 Lakes Adjusting, LLC, No. 336394 (behind paywall), dealing with an illegal contract. 

While the contract is found illegal in this case, the facts are not glamorous. The plaintiff hired the defendant to adjust its fire insurance claim and signed a contract for the services. Later, the plaintiff filed this action seeking a declaration that the contract between the parties was illegal as against public policy, and therefore voidable at the plaintiff's option. The issue was that the contract had not been approved by the Department of Insurance and Financial Services ("DIFS") as required by Michigan statute. 

The trial court found the contract in violation of the statute and thus voidable, and this appellate court agreed. The statute required the adjuster to seek approval from DIFS of its contract, and the defendant's failure to do so, no matter the reason, made the contract at least voidable at the plaintiff's option (which the plaintiff had chosen to exercise), if not void altogether. 

The defendant argued that it has since obtained DIFS approval of its contract. However, it was undisputed that it did not have this approval for the entire time the contract with the plaintiff was in effect. Thus, the contract could not be saved by after-the-fact approval.  

November 30, 2017 in Commentary, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, November 29, 2017

If You Really Want a Meeting, Don't Be Casual About It - Propose a Time!

As a recent case out of Utah, Desert Mountain Gold LLC v. Amnor Energy Corp., No. 20160654-CA, reminds us, if your contract tells you what to do, you'd better do it. 

In the case, the two parties had entered into a contract regarding mining claims. Desert Mountain allegedly breached the contract, which Desert Mountain disputed. Under the terms of the contract, in the event of a disputed breach such as this, the parties were required to "hold one informal meeting" before resorting to legal proceedings. Amnor sent Desert Mountain a communication stating that it was "willing to meet to discuss" the dispute. When Desert Mountain never took them up on the offer to meet, Amnor argued that it was justified in treating the contract as breached. 

The court disagreed, because the court found that Amnor's statement was merely "casual[]." That was not enough to fulfill the requirement of holding an informal meeting. It should proposed a time to meet. Further, Amnor did not argue that Desert Mountain was in breach until fourteen months later, when Desert Mountain accused Amnor of being in breach for missing a royalty payment. The court said that violated the contract's "demand that it promptly seek legal action in the event that an informal meeting proved to be unsuccessful." 

I quoted that in full because I think it's an interesting finding. The relevant clause as excerpted by the court states that, if the informal meeting is unsuccessful, the dispute "shall be resolved in a legal proceeding." The only place "promptness" seems to show up as a requirement is when the court reads it in. It's unclear what timeline the court would have viewed as prompt, given the contract doesn't provide for one, except that this one wasn't it. 

The lesson from this case seems to be that if your contract calls for an informal meeting, you'd better not be casual about asking for it. Your informal meeting demands a little more proactive effort on your part. After all, we all know when people vaguely say "We should get together soon," no plans ever materialize!

November 29, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, November 15, 2017

Closing date of the essence results in liquidated damages

I love when I reach the end of the semester teaching contracts because everything is still extra-fresh in my mind and every case starts to read like an exam hypo to me. This recent case out of New York, GB Properties NYC LLC v. Bonatti, 503564/2017, discusses time is of the essence issues in the context of a real estate contract. 

The parties entered into the contract on July 28, 2016, and while no date was set for closing in the contract, the contract stated it should take place within 60 days of the contract's execution or on some other mutually agreeable date. Sixty days after execution of the contract, the plaintiff had not provided the necessary information to close. Defendants' counsel informed plaintiff's counsel that the closing would be scheduled for December 6 and that the date was "of the essence." Plaintiff's counsel requested an extension, which was agreed to and set for December 28, but time was still deemed to be of the essence in the extension document. 

On December 28, the defendants appeared for the closing but the plaintiff never appeared. Two days later plaintiff's counsel requested an extension to January 12. The defendants agreed only if the plaintiff timely provided additional money to be held in escrow; otherwise they would consider the parties' contract to be concluded for violation of the time is of the essence condition and they would keep the money already in escrow (as had been provided in the contract by way of liquidated damages). The plaintiff did not provide extra money. On January 27 the defendants entered into a contract to sell the property to someone else. This lawsuit resulted, with the plaintiff seeking specific performance of the contract. 

The defendants maintained that both parties agreed that the December 28 date was of the essence and the plaintiff was not ready to fulfill its contractual obligations on that date. Therefore, the plaintiff breached the contract and the defendants were entitled to declare the contract terminated and maintain the down payment as liquidated damages. The plaintiff, however, alleged that the failure to close was the defendants' fault because the defendants had not provided clean title by the closing date and so the defendants were not ready to close on December 28.  

The court found that the defendants were ready to close on December 28 and that the extension negotiated between the parties unequivocally made the December 28 date of the essence. The plaintiff's failure to appear on that date was a breach of contract. The plaintiff itself admitted that it did not have the money for the closing on that date. Therefore, the plaintiff was in breach and the defendants were entitled to retain the down payment pursuant to the liquidated damages provision in the contract. 

November 15, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Monday, November 13, 2017

Red Lobster's employee arbitration clause found enforceable

A recent case out of the District of New Mexico, Laurich v. Red Lobster Restaurants, LLC, No. CIV 17-0150 JB/KRS (behind paywall but you can read an article written about the complaint here), enforced an arbitration agreement between Red Lobster and a former employee, Laurich. Laurich was working at a Red Lobster when the restaurant chain was sold to the current corporate entity, the defendant in this case. When the defendant bought the restaurant chain, Laurich was informed during a shift that she had to look over an employment agreement. She asked for a paper copy but was told there were none and it was only available on the computer. She was also told that she had to sign the electronic document or she would be taken off the work schedule. So Laurich signed the document and went back to work. Unsurprisingly, the document contained an arbitration provision.

Laurich alleged that a fellow employee at Red Lobster eventually began harassing her on the basis of her race and sex, escalating to physical assault. She complained to her supervisors and eventually requested that the other employee not be there while she was there. She then learned that Red Lobster had terminated her employment. Laurich then filed this complaint and Red Lobster moved to compel arbitration under the agreement. 

Laurich argued that the arbitration agreement was both illusory and unconscionable. The court found that it was not illusory: Laurich agreed to arbitrate and Red Lobster agreed to continue employing Laurich. That was sufficient consideration on both sides. It wasn't as if Laurich was already working for this corporate entity when she was asked to sign the agreement "out of the blue." Rather, she was presented the agreement as soon as Red Lobster became her employee. 

Nor was the agreement unconscionable. The agreement was only half-a-page long and it was similar to one Laurich had been working under before. And the threat to be taken off the work schedule was only a temporary threat, not a threat of termination. So there was no procedural unconscionability, nor was the arbitration agreement substantively unconscionable. Both sides were bound by the clause, and Laurich was excused from paying arbitration fees. 

Therefore, the court enforced the arbitration agreement. 

November 13, 2017 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, November 10, 2017

Accord and satisfaction requires good faith dispute

When I teach accord and satisfaction, I always remind my students, "Don't forget, for this to work, there has to be a good faith dispute!" A recent case out of Illinois, Piney Ridge Properties, LLC v. Ellington-Snipes, Appeal No. 3-16-0764, carries the same reminder. The defendant took out a mortgage of almost $26,000. Although his monthly payment was over $600, he paid only $354 a month, which he did for a little over a year, and then stopped paying altogether. The mortgage company filed a foreclosure action and asserted that the defendant owed around $10,000 on the mortgage. The defendant by letter to the mortgage company's counsel agreed that that was the amount he owed. However, about a year later, while the foreclosure action was still in progress, the defendant sent the mortgage company a check for $354 on which he wrote "Acceptance of this check constitute [sic] payment in full of account." The mortgage company cashed the check. The defendant then filed a motion to dismiss the foreclosure action, arguing that his check constituted an accord and satisfaction on the mortgage debt. 

The parties agreed that the check had a conspicuous statement that it was to fully satisfy the mortgage debt, and they agreed that the mortgage company cashed the check. However, the court noted that an accord and satisfaction can only be successful if there is a bona fide good faith dispute about the debt. The defendant had already admitted that he owed around $10,000; he was not disputing the amount. The court, in fact, concluded that it was likely that the defendant's action was done "in hopes of deceitfully escaping his larger mortgage debt." There being no good faith dispute between the parties, an accord and satisfaction did not occur here. 

November 10, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Sunday, November 5, 2017

St. Vincent de Paul trademark battle falters on breach of contract and promissory estoppel, but unjust enrichment survives

I think there is sometimes an impression out there that implied-in-fact contracts can be used to save all situations where formal contracts weren't executed, but that is definitely not the case. Implied-in-fact contracts still require some allegation of contractual intent between the parties. A recent case out of the Western District of Wisconsin, National Council of the U.S. Society of St. Vincent de Paul, Inc. v. St. Vincent de Paul Community Center of Portage County, Inc., 16-cv-423-bbc, reiterates this. (Actually, this case dates from late May, but just crossed my inbox now. No idea why, but I'll blog it for you anyway!)

The case is a trademark dispute over several trademarks owned by the plaintiff. The plaintiff sued the defendant for trademark infringement and the defendant asserted a number of counterclaims, including breach of contract. The defendant's breach of contract claim was based on a "contract implied in fact" because the plaintiff allegedly knew (either constructively or actually) about the defendant's use of the marks and the course of dealing between the parties created an implied contract regarding this use. But the complaint failed to show any intention to contract between the parties. Rather, its allegations illustrated that the parties coexisted but that they did so independent of each other. 

Even if there was an implied-in-fact contract, though, it would be terminable at will, meaning that the plaintiff could terminate it when it objected to the arrangement. The court refused to infer that any implied-in-fact contract waived the plaintiff's trademark rights against defendant in perpetuity, considering that there was so little evidence of any contractual intent in the first place. 

The defendant next asserted promissory estoppel but there was no allegation the plaintiff had ever made any promise that the defendant could rely on. The defendant's unjust enrichment claim, however, was allowed to proceed. The defendant had alleged that the plaintiff would benefit unjustly from the goodwill the defendant had built up in the community and that was enough to survive the motion to dismiss. 

November 5, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Saturday, November 4, 2017

Al Hirschfeld's art galleries didn't have the right to reproduce giclees

A recent case out of the Southern District of New York, Al Hirschfeld Foundation v. The Margo Feiden Galleries Ltd., 16 Civ. 4135 (PAE) (the decision is behind a paywall, but you can read a news account of it here), is another contract interpretation case, this one involving a contract between the late cartoonist Al Hirschfeld and the art galleries that represented him. There are many things at issue in the case, among them the galleries' sale of giclees, "high-quality photostatic reproductions of existing works." The Foundation argued that the Galleries did not have the right under the contract to sell these giclees. The Galleries of course argued that they did. 

The contract language at issue was a clause giving the Galleries the ability to reproduce works "in connection with [the Galleries'] promotion, advertising and marketing in furtherance of [the Galleries'] rights under this . . . Agreement." But the court found that this was a limited carve-out that did not extend to giclees. The reproductions done under this clause were meant to further the rights of the Galleries, not to be freestanding rights, which the giclees were. There was no indication that the parties intended the Galleries' ability to reproduce works to be extended to include the giclees

There were lots of other issues in this case. I've just confined myself to this one in the interest of space. 

November 4, 2017 in Celebrity Contracts, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Thursday, November 2, 2017

Shenanigans with a fake ruby at an auction

This recent case out of Nevada, Edy v. McManus Auctions, No. 70737 (behind paywall), caught my eye because it has facts that sound like a hypo. Basically, Edy attended a McManus auction. Prior to the auction, he examined what was purported to be a ruby pendant with a certificate estimating its value as $127,500. At the auction, Edy won the pendant with a bid of $15,842. However, when he brought the pendant to be appraised, he learned it was not a ruby and was only valued at $8,675. 

Edy sued for breach of contract, unjust enrichment, and fraudulent misrepresentation, inter alia. However, his fraudulent misrepresentation claim was struck after he failed to submit a timely damages calculation pursuant to a court order. On an incomplete appellate record, the court found that the district court did not abuse its discretion in striking these claims. That left a contract claim without any allegations of misrepresentation, and the court found that the contract entered into at the auction was valid and binding. So Edy lost. 

However, a concurrence in this case talked more about the misrepresentation allegations. The concurrence agreed that the district court's striking of the allegations was not an abuse of discretion, but the concurrence went on to analyze those allegations as if they have been permitted. McManus, at trial, admitted that the pendant was shown before the auction with a certificate claiming it was a ruby worth $127,500, just as Edy had claimed. McManus also testified that it knew there was a reserve price of $10,000, meaning that was the minimum acceptable bid, which was obviously far lower than the estimated value. Nevertheless, McManus did not independently verify the pendant nor did it disclose to the bidders that it might not be genuine or that it had such a low reserve price nor did it allow the bidders to get independent appraisals before the auction. Representations of value, the concurrence noted, are usually tricky bases for fraud, but here the pendant was unequivocally presented as a genuine ruby worth $127,500. The concurrence thought that was sufficient to constitute representations on behalf of McManus, had those allegations not been struck. But, without an adequate appellate record, the concurrence agreed that the district court's decision could not be reversed. 

This case is a little tragic to me. I'm not sure what happened at the district court level, but it seems like the concurrence thinks the auction company was behaving questionably here. The concurrence stands as a warning to the auction company to be cautious about its practices in the future. 

November 2, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, November 1, 2017

Court finds terms are not ambiguous when their dictionary definitions are consistent with the contract

We just finished talking about contractual ambiguity in my contracts class, so I was happy to see this recent case out of the Fourth Circuit, SAS Institute, Inc. v. World Programming Ltd. ("WPL"), No. 16-1808 No: 16-1857 (behind paywall), discussing that very issue in the context of a software license agreement. This is actually part of a much larger case with important copyright implications for computer software code, but, given the subject matter of this blog, I'm focusing on the contract claims. You can read the opinion of the Court of Justice of the European Union on the copyright questions here

Among other things, the parties were fighting over the interpretation of a few of the contractual terms between them. However, the court reminded us that mere disputes over the meaning of a contract does not automatically mean that language is ambiguous. In fact, the court found here based on ordinary dictionary definitions that none of the terms were ambiguous. 

First, the parties were fighting over a prohibition on reverse engineering. The court looked to dictionary definitions of "reverse engineering" to arrive at a definition that also made sense in the context of the contract. WPL tried to introduce extrinsic evidence on the meaning of the term but the court found there was no reason to turn to extrinsic evidence since the term was not ambiguous. 

The parties were next fighting over the meaning of the license being for "non-production purposes only." The court construed this to have its "ordinary meaning" as forbidding "the creation or manufacture of commercial goods." WPL argued that the phrase had a technical meaning in the software industry, but the court did not find that the parties had intended to use this technical meaning. The dictionary definitions supported the court's construction of the phrase as unambiguous. 

November 1, 2017 in Current Affairs, Famous Cases, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Tuesday, October 31, 2017

Arbitration clause declared unconscionable because of its one-sidedness and limited discovery

A recent case out of California, Diaz v. Hutchinson Aerospace & Industry, Inc., B271563, has a nice, organized unconscionability analysis that leads to finding an arbitration clause unenforceable. 

The case concerns an employment agreement signed by Diaz with his employer Hutchinson. The employment contract was indisputably an adhesion contract, because it was distributed pre-printed to employees with no opportunity to negotiate. That does carry some degree of procedural unconscionability but the court characterized it as minimal, since it was not accompanied by any other elements of surprise or sharp dealing. Given the low degree of procedural unconscionability, the court required a high degree of substantive unconscionability. 

Unfortunately for Hutchinson, that high degree of substantive unconscionability was met. First, the arbitration provision was one-sided: only claims against the employer were required to go to arbitration, not claims against the employee. Second, the arbitration provision limited discovery in such a way as to make it impossible for the employees to vindicate their rights. 

Because this high degree of substantive unconscionability combined with the procedural unconscionability rendered the arbitration clause unenforceable, the court was justified in finding the entire agreement "permeated by an unlawful purpose" and refusing to enforce it. 

October 31, 2017 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, October 16, 2017

Take That! Outstanding Contractual Balance, Not Just Profits, Due in Case of Asserted Commercial Impracticability

In Hemlock Semiconductor Operations, LLC v. Solarworld Industries Sachsen GmbH, 867 F.3d 692 (Sixth Cir. 2017), Hemlock contracted to provide Sachsen in Germany set quantities of polysilicon at fixed prices between 2006 and 2019. The market price at the time was well above the price agreed upon between these parties, but plummeted several years later when the Chinese government began subsidizing its national production of polysilicon.

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When Sachsen refused to pay the original contractual amount for 2012, Hemlock brought suit for breach of contract. Sachsen defended itself claiming that the Chinese government (1) illegally subsidized its national production of polysilicon and dumped massive quantities of the product onto the market, causing the price of polysilicon to fall; and (2) committed acts of “criminal industrial espionage” against Sachsen's U.S.-based sister company, SWIA. As a result of these illegal actions, the price of polysilicon plummeted, rendering Sachsen's performance impracticable and frustrating the purpose of entering into the contracts with Hemlock.

Hemlock demanded the entire outstanding balance due to Hemlock from 2012 through 2019 – close to $600 million – plus post-judgment interest. Sachsen argued that this would be an unenforceable penalty rather than permissible liquidated damages under the contract. At the most, Sachsen argued, it should pay only for Hemlock’s lost profits since Hemlock did not have to actually produce polysilicon for Sachsen after the breach. This would have saved approximately $200 million for Sachsen.

Both the district and appellate courts found that since even drastic changes in the market are not sufficient to trigger the impracticability defense, Sachsen could not here either, even given the alleged Chinese interference. This, said the district court, was irrelevant because the alleged illegal actions of the Chinese government had “simply caused a market shift in pricing, making it unprofitable for Sachsen to perform as promised.” The appellate court cited to a case where even a $2m a day loss causing a company to go out of business did not warrant the defense. Both courts referred to the standard “floodgates” arguments and not blaming third parties for one’s own contractual misfortunes.

OK, but so what about the lost profit argument? Although such cost savings might factor into an ordinary breach-of-contract claim, the courts concluded that considering cost savings was inappropriate in the context of the particular take-or-pay provision in place between these parties. Hemlock, in other words, was entitled to full payment under the contract even if Sachsen refused delivery of the polysilicon. “Under these circumstances, Hemlock would have had no need to produce the polysilicon, but would still be entitled to be paid in full. The court persuasively reasoned that the [contract] therefore contemplated situations in which Hemlock's cost savings would be irrelevant to the amount of payment that Hemlock was due.” Unknown

That argument seems terribly circular to me. Hemlock was entitled to the full contractual amount because Hemlock was entitled to the full contractual amount? Uhm, even if it did not have to do anything and thus did in fact enjoy huge cost savings? I find that erroneous, nonsensical, and actually rather vindictive on the part of the U.S. court system over a foreign entity.

The appellate court also found that “restricting Hemlock's recovery to lost profits without accounting for the fact that Sachsen saved (and Hemlock lost) approximately $509.1 million earlier in the contract term would be inequitable. In light of the fact that Sachsen benefited substantially in the earlier years of the LTAs, the liquidated-damages award is not ‘unconscionable or excessive.’” That does not make sense to me either. The parties took the contractual risks that they did. Granted, Sachsen then breached. But greed then seemed to come into play, for profits were the only thing Hemlock would have gotten out of the situation had there not been a breach. Hemlock was placed in a vastly better situation here than what liquidated damages normally allow for, precisely because they cannot be punitive. They seemed to have been here as they were a simple, yet extreme formula: if breach, pay the rest of the contract no matter what. When the contractually stipulated liquidated amount grossly exceeds actual damages, courts of law usually construe such provision as an unenforceable penalty. Not in this case, not even for a windfall of $200 million.

The case is Hemlock Semiconductor Operations, LLC v. SolarWorld Indus. Sachsen GmbH, 867 F.3d 692, 707 (6th Cir. 2017), reh'g denied (Sept. 19, 2017)

October 16, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (1)

Monday, October 9, 2017

Want specific performance? Be ready to prove you can afford it

I am gearing up to teach specific performance soon, so this recent case out of New York, Grunbaum v. Nicole Brittany, Ltd., 2015-10155, caught my eye. The relevant facts of the dispute are fairly simple and straightforward: The parties had a contract regarding property and the closing didn't happen. The plaintiff sued for specific performance. The defendant moved to dismiss the complaint and the plaintiff cross-moved for summary judgment on the complaint. But the plaintiff failed to establish that he was actually able to buy the property in question. He submitted no evidence as to his financial condition, and to receive specific performance that plaintiff had to show "that he was ready, willing, and able to purchase the subject property."  Therefore, even though the defendant's motion to dismiss was denied, the court also denied the plaintiff's motion for summary judgment. 

October 9, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, October 4, 2017

A slip-and-fall in a cruise ship bathroom, a forum selection clause, a defective filing, an untimely filing...and equitable tolling

A recent case out of the Southern District of Florida, Jordan v. Celebrity Cruises, Inc., Case No. 1:17-cv-20773-WILLIAMS/TORRES (behind paywall), concerned a plaintiff, Jordan, who was allegedly injured when she slipped and fell in the bathroom of her cabin. She attempted to sue the defendant, Celebrity Cruises, in Florida state court. However, her ticket contract with Celebrity Cruises required that any causes of action be filed in the Southern District of Florida. Jordan did eventually file in the Southern District of Florida but it was after the statute of limitations had run. 

The main issue in the case revolved around whether the statute of limitations could be equitably tolled, since she had filed in state court prior to the statute of limitations running. Jordan argued that she did not have her ticket contract, nor was she aware that it required suit in the Southern District of Florida--a not-at-all implausible argument on her part, considering that few of us read those terms and conditions or really register them. She claimed that the first time she realized she had a ticket contract with Celebrity Cruises was when Celebrity Cruises attached the ticket contract to its motion to dismiss her state court complaint, and that the case was refiled in the proper contractual forum shortly thereafter. 

The court found that equitable tolling could apply. Jordan was diligent in pursuing her cause of action, and Celebrity Cruises did not suffer any adverse consequences, since Jordan had provided timely notice of her injury to Celebrity Cruises. The court did not think Jordan was negligent in her failure to file in the proper forum. Celebrity Cruises seemed to argue that Jordan should have found the ticket contract online to learn where the proper forum to file would be, but there was no evidence in the record showing that the ticket contract was so easy to locate online that Jordan's failure to do so was negligent. Therefore, Jordan's timely filing in the wrong forum entitled her to equitable tolling, considering her diligence in all other respects. 

October 4, 2017 in Commentary, Recent Cases, Travel, True Contracts | Permalink | Comments (0)

Fraud and Bad Faith No Excuse for Liability in Related Contract

The Eight Circuit Court of Appeals has held that conduct tending to show fraud and bad faith in relation to one contract is not an excuse for not performing in a closely related contract.

Dr. Halterman signed a recruitment agreement, an employment contract, and a promissory note in the amount of $50,000 as a “signing advance” – a loan - for his upcoming work as a doctor with the Johnson Regional Medical Center (“JRMC”). The recruitment agreement stipulated that the monthly payments on the signing advance would be forgiven so long as Dr. Halterman’s employment at JRMC “continued.” It did not. Five months into his employment, Dr. Halterman quit, citing to, i.a., JRMC’s fraudulent misrepresentations in negotiating his call-coverage obligations and bad faith in that respect. Dr. Halterman had also suffered a shoulder injury that both parties at one point agreed would result in him not being able to do all the work for JRMC that the parties had originally agreed upon.

JRMC claimed repayment of $37,894 still owed by Dr. Halterman when he resigned without, in the hospital’s opinion, a “legal defense.” Dr. Halterman sought to excuse himself from having to repay the remainder of the loan.

The appellate court agreed with JRMC that Dr. Halterman’s obligations to pay the remaining debt were not excused by his allegations (or eventual proof) of fraud or breach of the duty of good faith in the employment contract. An executory contract procured by fraud is not binding on the party against whom the fraud has been perpetrated. Here, Dr. Halterman sought not to perform under the employment contract, but the court found that the loan agreement was an entirely separate contract that thus still had to be performed.

This situation could have been avoided with more legally apt language, of course. Such language could have included express conditions stating that the loan was not to be repaid under a set of circumstances covering, for example, fraud. However, I find it troublesome that the legal effects of three contracts that clearly were meant to relate to and arguably depend on each other were separated decisively as the court did here. In fact, the parties disagreed on whether the three executed documents should be considered separately or as one single contract. The court analyzed the employment contract as separate from the recruitment agreement and note, which were treated as one. That may or may not make sense. Granted, it may make sense that sophisticated parties such as these could simply, if they had intended one single legally binding contract to arise, have worded their documents accordingly. On the other hand, it does not make much common sense to find that a “recruitment” contract is entirely different from an “employment” contract; the two are clearly connected. If fraud has arisen, is not the result of the above that the party acting fraudulently – the hospital, allegedly – can if not outright recover from a fraud, then at least avoid losses from it? Although I do agree with the outcome here, it seems like it to me that some troublesome aspects of this finding remain, namely that an employer apparently got away with broken employment promises fairly scot-free. That’s not fair.

The case is Johnson Regional Medical Center v. Dr. Robert Halterman, 867 F.3d 1013 (Eighth Cir. Ct. of App. 2017).

October 4, 2017 in Current Affairs, Labor Contracts, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, October 2, 2017

Reminder that silence generally doesn't constitute acceptance

The allegations of this recent case out of the Northern District of California, Consumer Opinion LLC v. Frankfort News Corp., Case No. 16-cv-05100-BLF (behind paywall), are fascinating. Basically, Consumer Opinion owned a consumer review website and alleged that Defendants provided "reputation management" services by which Defendants copied the contents of Consumer Opinion's website, back-dated these contents so that it would look like Defendants' site pre-dated the Consumer Opinion website posting, and then asserted that the Consumer Opinion website was infringing their copyright. Such, at least, were the allegations in the complaint. (You can read the complaint here. You can also read the order on Consumer Opinion's TRO motion here and the order on Consumer Opinion's motion for early discovery here.)

The parties had discussed settlement, and in the current motion Consumer Opinion moved to enforce a settlement agreement between it and Defendant Profit Marketing, Inc. The problem? They never reached any such agreement. First Consumer Opinion tried to argue that Profit Marketing agreed to settle for $50,000 but Profit Marketing's lawyer's last communication on the matter read, "Well I can't agree without my clients consent but that sounds fine to me. I'll get their approval when I talk to them today." As I've been teaching my students as we walk through offer and acceptance, this statement betrayed a lack of authority to enter into a present commitment ("I can't agree without my client's consent."). 

Consumer Opinion then tried to argue that Profit Marketing agreed to settle for $35,000. However, its proof of this was a general e-mail whereby one of Profit Marketing's other attorneys expressed openness to pursuing settlement, followed by several replies by Consumer Opinion that were never responded to. Eventually, in the face of the continuing silence from Profit Marketing's attorney, Consumer Opinion asserted that if it got no response by 5 pm, it would move to enforce the settlement agreement. It got no response, and this motion followed. 

The court refused to read Profit Marketing's attorney's silence as acceptance of Consumer Opinion's settlement offer. Rather, Profit Marketing's lack of response indicated that it never accepted the offer, and so there was no binding settlement agreement between the parties. 

October 2, 2017 in Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, September 29, 2017

"You can stay here until we come to an agreement!" Watch out for what happens if you never reach an agreement!

One of the thorniest issues I find to teach students is when an agreement is enforceable vs. when it is merely an agreement to agree. A recent case out of Wisconsin, Adrikos Real Estate Holding LLC v. Murphy, Appeal No. 2016AP1313, addresses this very issue. The document in question read,

The seller, Murphy, shall retain the right to occupy the Property for a period of 15 days following the closing date of the agreement . . . . Thereafter, the seller, Murphy, shall retain the right to occupy the Property until such date that parties reach an agreement for the purchase and sale . . . .

The parties never reached an agreement for the purchase and sale. Instead, Adrikos sought to evict Murphy. Murphy, however, argued that the contract gave him the right to stay on the property until they reached agreement for the purchase and sale--which they hadn't. 

The lower court found the agreement to be unenforceable as merely an agreement to agree. This court disagreed. The agreement explicitly granted Murphy the right to occupy the property until a purchase and sale agreement was reached. This didn't render the contract an agreement to agree; rather, it made a future agreement a "triggering condition" of the presently enforceable first agreement. 

Having found the agreement enforceable, the court then considered if, because it didn't have a particular end date, it was terminable at will and Adrikos could evict Murphy at any time. The court found that the agreement did have an end date, though: the agreement for the purchase and sale. The court found, though, that, depending on the circumstances, this could convert the contract into a perpetual lease, which was disfavored under Wisconsin law, and if so, the court should read in a reasonable duration for the occupancy right. It remanded for further determination on this question. 

September 29, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, September 27, 2017

Super Bowl commercial pitch copyright claim survives, but not the contract ones

A recent case out of the Southern District of New York, Betty, Inc. v. Pepsico, Inc., No. 16-CV-4215 (KMK) (behind paywall), tackles a fairly common issue: Often people make pitches based on ideas they have. Ideas aren't copyrightable, so often the only protection people have is contract-based. But, also often, they don't actually have a written contract, so they have to rely on an implied-in-fact contract theory. However, as this case reiterates, an implied-in-fact contract is more than just a conclusory allegation that "oh, we had an agreement that they'd pay me something for my pitch." 

The case in question involves an advertising agency, Betty, who pitched a commercial to Pepsi for use in the Super Bowl. Pepsi invited Betty to participate in a telephone pitch meeting, during which Pepsi provided the "general outline of what it envisioned for the Super Bowl commercial," followed by a more formal face-to-face presentation. At the presentation, Betty presented eight different ideas and provided Pepsi with a USB drive with some concepts contained on it. Pepsi allegedly reacted favorably and asked for more details about some of the concepts. 

About a month later, Pepsi informed Betty that it had decided to go in another direction with the commercial. However, when Betty saw the commercial during the Super Bowl, it thought it was substantially similar to one of the concepts it had pitched to Pepsi. The decision itself is behind a paywall but the lawsuit's filing was reported in some outlets.

This lawsuit followed, alleging copyright claims as well as a variety of contract-based claims. The breach of contract claim faltered, though. In the complaint, it consisted of just three paragraphs of conclusory allegations that didn't appear to rise to the level of an agreement. In the most generous reading, it sounded like an "agreement to agree" that can't be enforced. The complaint contained absolutely no terms of the contract. The fact that the contract was an implied-in-fact contract didn't excuse the plaintiff from having to allege facts sufficient to allow the court to draw an inference that the parties had entered into a contract based on their conduct and the surrounding facts and circumstances. That didn't happen here. Therefore, the court dismissed the breach of contract claims.  

The copyright infringement claim, though, survived, and the court granted leave to amend on the breach of contract claim, so the plaintiff does live to fight another day. 

(This post has been edited to correct a typo in the previous version. Pepsi provided the "general outline" over the phone, not Betty.)

September 27, 2017 in Current Affairs, In the News, Recent Cases, Sports, Television, True Contracts | Permalink | Comments (2)