Sunday, February 26, 2017
We have blogged about arbitration clauses in contracts lots of times before, including in the Internet context, and including in the diet pill context. Now a recent case out of Florida, Vitacost.com, Inc. v. McCants, No. 4D16-3384, adds to the pile, in the Internet diet pill context. In this case, McCants sued Vitacost, from which he purchased dietary supplements that he alleged seriously damaged his liver. In response, Vitacost sought to compel arbitration based on the arbitration clause in the terms and conditions on its website. In Florida, the enforceability of Vitacost's "browsewrap" terms and conditions was a matter of first impression.
Vitacost claimed that the hyperlink to its terms and conditions was located at the bottom of every page of its website and that that was sufficient to put McCants on notice of them. However, the court noted that the constant positioning of the hyperlink at the bottom of the page required every user to have to scroll to the bottom of the page to notice the terms and conditions. Even upon buying something and "checking out," the hyperlink remained positioned toward the bottom of the page. McCants alleged that he had not seen the terms and conditions, and the court found that the hyperlink's location was not conspicuous enough to put McCants on notice.
Saturday, February 25, 2017
This Is a Case About Trade Secrets But in Other News: Google Has a Project Called "Project Loon" Involving Balloons in Earth's Stratosphere
Here's a case that's out of this world, lolololol, I'm ashamed of myself.
But a recent case out of the Northern District of California, Space Data Corp. v. X, Case No. 16-cv-03260-BLF, deals with weather balloons and a failed negotiation between Space Data and Google regarding becoming partners. Like many corporations who have valuable trade secrets that need to stay protected during negotiations but also need to be revealed so they can be evaluated and discussed, the parties entered into an NDA. This lawsuit resulted from Google's subsequent development of "Project Loon," which involves using high-altitude balloons to provide wireless services, and which Space Data alleges uses information Google gained from Space Data during the failed negotiations.
Space Data's challenge, of course, is that it knows very little about Google's Project Loon, and so all of its allegations regarding trade secret misappropriation and breach of the NDA are vague and conclusory. Space Data was unable to point to any confidential information Google used that violated the NDA, and therefore those counts were dismissed. Space Data tried to argue that it didn't know yet what information Google was using but that it had provided enough information for the court to infer that Google must be using some misappropriated confidential information. The court, however, found there was not enough in the complaint for these causes to survive into discovery.
A guiding tale for anyone writing up a trade secret complaint right now.
Space Data's patent infringement claims against Google still exist. The complaint is available here.
Sunday, February 12, 2017
A recent case out of the Eastern District of Kentucky, Taylor v. University of the Cumberlands, Civil No: 6:16-cv-109-GFVT (behind paywall), has lots of causes of action, including an interesting dispute over whether an agreement between the university and its former President and Chancellor was supported by consideration.
While the decision itself, granting in part and denying in part the university's motion to dismiss, is behind a paywall, the dispute has been reported and described in the press. Dr. Taylor served as the President of the university for 35 years. He alleged that the school had agreed to pay him and his wife almost $400,000 annually after his retirement until they were both dead. The school disputed the validity of that agreement. The Taylors then brought several claims against the university, including breach of contract.
On the motion to dismiss, the main contract argument involved consideration. The university argued that the contract was given in recognition of the Taylors' successful fundraising efforts and service to the school, which had already occurred. This, the university contended, meant it was past consideration and rendered the agreement unenforceable.
The court acknowledged that the agreement discussed the Taylors' past behavior. However, the court also identified five current promises the Taylors made under the agreement: to continue to serve as president until he decided to retire; to accept the role of Chancellor until he decided to retire; to serve as an Ambassador of the university; to serve the university in any capacity requested; and to continue to fundraise for the university. Therefore, there was consideration.
The university then argued that the agreement had no definite end date, which would mean it was terminable at will. However, the court noted that that rule applies to contracts that would otherwise run forever. In such a circumstance, the right to terminate at will can be considered appropriate. In this case, the contract would terminate once both of the Taylors were dead. No one knew when that date would be, but presumably the Taylors will not live forever and therefore the contract will not run forever. Therefore, the contract was not terminable at will, and the Taylors lived to fight another day on their breach of contract claim (although the court noted that there were significant disputes surrounding the execution of the agreement and its proper interpretation).
Sunday, February 5, 2017
The holiday season feels like it happened so long ago, but, if you make yourself think way back to that distant era of our history, you may recall that suddenly spotlights that broadcast dancing snowflakes or other festive decorations onto houses were everywhere.
Now they're in court, too. A case recently removed to the District of New Jersey, Closeout Surplus & Salvage CSS, Inc. v. Sears Outlet, LLC, Docket No. 2:17-cv-00104-KSH-CLW (behind paywall), involves the "Glow Bright" version of these lights. Here's a video of Glow Bright laser light show, to refresh your recollection and also maybe revive a little holiday spirit.
The plaintiff, Closeout, alleged that it had an exclusive right to sell the Glow Bright with tripod and remote and began selling and advertising the product online. The plaintiff alleges that Sears, the defendant, appropriated the plaintiff's advertising and began advertising that it, too, was selling the Glow Bright with tripod and remote. However, the plaintiff alleges that only it had the right, via contract, to sell the Glow Bright with tripod and remote. It appears from the allegations that Sears was only selling the Glow Bright alone but, in appropriating plaintiff's advertisements, it looked to consumers like Sears was selling the Glow Bright with the tripod and remote.
The plaintiff has therefore sued Sears for tortious interference with contractual relationship and/or prospective economic benefits and unfair trade practices and unfair competition. The suit was just removed to federal court at the beginning of January and Sears has not yet answered the complaint, but I'll keep an eye on it to give you the latest updates in holiday decoration law.
Saturday, February 4, 2017
A recent case out of New York, Wilson v. New York State Thruway Authority, 931-16, deals with the collective bargaining agreement between the New York State Thruway Authority and its retirees over whether the Thruway Authority was contractually bound to provide health insurance coverage to the retirees at no cost. The retirees had enjoyed free health insurance until April 1, 2016, when the Thruway Authority required them to start paying six percent of their premiums. The retirees wanted to introduce evidence that the parties understood that the Thruway Authority was going to pay all of their health insurance premiums, pursuant to the collective bargaining agreement.
The problem was that the contract between the parties contained no such obligation and the court found that the contract was unambiguous on its face. All that the contract stated was that the Thruway Authority should provide "retirement benefits" made available by New York statutes the contract went on to enumerate. None of those statutes contained provisions requiring the Thruway Authority to provide health insurance coverage. In fact, health care benefits were governed by different New York statutes, not the ones enumerated, and New York state courts had long pointed out that "retirement benefits" and "health care benefits" were two different things governed by two different statutes under New York law. Given that, the court concluded that "retirement benefits" was an unambiguous term of art that the parties knew the definition of, given their particular citation of New York statutes to define it. The court refused to allow extrinsic evidence in the face of this lack of ambiguity. If the retirees had wished the Thruway Authority to pay for their health insurance premiums, they should have included an express provision saying that in the collective bargaining agreement, as many other collective bargaining agreements construed under New York law had done.
This decision is fairly straightforward as a matter of the law: finding that the term was unambiguous (and indeed basically defined within the document through the statutory citations) and so therefore extrinsic evidence was unnecessary to decide the breach of contract action (the court here concluded that, with no obligation to pay the health insurance premiums, the Thruway Authority had not breached the contract). However, it is a legal dispute that we might see more and more of, as deals with retirees are reevaluated and altered in an age of shrinking budgets.
Friday, January 27, 2017
Here's a case about porn.
I thought all of us could use a brief break from the news, and porn always raises such interesting legal issues. This recent case out of the District of Arizona, AMA Multimedia LLC v. Sagan Limited, No. CV-16-01269-PHX-DGC, deals with the application of a forum selection clause to a copyright infringement case. You can read the complaint from the case here, and a couple of earlier orders from the case here and here. (Thanks to Eric Goldman for passing along the order link!)
The plaintiff, AMA, is a producer of pornographic material who entered into a contract with Porn.com, owned and operated by defendants (nice straightforward--and I would imagine valuable--URL there). Under the contract, AMA granted a license for the use of certain content. AMA became aware that Porn.com was displaying many copyrighted works which AMA had not granted a license to and sued for copyright infringement. The defendants responded that this lawsuit is governed by the contract between them, which has a forum selection clause requiring legal actions "arising out of or relating to" the contract to take place in Barbados.
AMA's main argument was that the forum selection clause didn't apply because this is a case about copyright infringement, not about any issues arising from the contract. However, the court pointed out that the contract was entirely about the proper use of copyrighted works. AMA's copyright infringement case was really a case about the defendants using works in a way that violated the contract between them. The court would necessarily have to interpret the contract to decide if the defendants' behavior was in fact infringing. Therefore, the forum selection clause applied.
AMA next tried to argue that the forum selection clause should be found unenforceable because it would force AMA to litigate in a jurisdiction where discovery would be difficult and costly, and was therefore designed to discourage AMA from bringing suit at all. However, the court found that AMA provided no evidence for its assertions regarding litigation in Barbados being difficult and expensive, and that the mere inconvenience of the jurisdiction was not enough to negate the forum selection clause.
Wednesday, January 25, 2017
There is split authority on the issue of whether courts can appoint a substitute for an arbitral institution that becomes unavailable after the execution of an arbitration agreement. In the Second Circuit, no such substitution is possible.
In the case, Deborah Moss applied for three payday loans through SFS, an online lender. SFS relied on First Premier Bank serving as the “middleman” in order to debit Moss’ account. The loan application documents with SPS included an arbitration clause listing the National Arbitration Forum (“NAF”) as the arbitral institution.
After receiving the three loans, Moss filed a class action suit against First Premier Bank and Bay Cities Bank alleging violations under the RICO Act by “facilitate[ing] high-interest payday loans that have been outlawed in some states.” The banks moved to compel arbitration arguing they were entitled to enforce the terms that Moss agreed to when she applied for the loans. The district court agreed and granted the motion.
Moss then sent a letter to the National Arbitration Forum (“NAF”) indicating her intent to proceed with arbitration. NAF refused the case stating “it was unable to accept Moss’s dispute pursuant to a consent judgment” it had entered into with the Minnesota Attorney General pursuant to which NAF would no longer accept consumer arbitrations such as Moss’s.
Moss then tried to vacate the district court’s motion to compel arbitration, arguing that she could not arbitrate her claims at all since NAF declined her case. The district court granted this motion, finding that the court could not appoint a substitute arbitrator because the parties had specifically designated NAF and because there was no “lapse in time in the naming of the arbitrator or … some other mechanical breakdown in the arbitrator selection process” under Section 5 of the FAA. The banks appealed, seeking to have the appellate court compel Moss to arbitrate before a different arbitrator.
The Second Circuit found that because the parties had designated an “exclusive arbitral forum, the district court cannot circumvent the intent of the parties nor can it appoint a substitute arbitrator.” Therefore, the Second Circuit held that the district court property declined to compel Moss to arbitrate in a “forum to which she did not agree.”
The case is Moss v. First Premier Bank, 15-2513 (2d Cir. 2016).
This is a point I teach in class and I was happy to see it illustrated in a recent case out of Connecticut, Fitzgerald Management, LLC v. Fitzgerald, FBTCV166056848S (behind paywall). In the case, the defendant alleged that her father had promised multiple times to give her title to her residence if she took care of her grandmother and maintained other properties. Unfortunately, this alleged agreement between the defendant and her father was entirely oral and never committed to paper, in contravention of the statute of frauds admonition that contracts regarding real estate be in writing.
Whenever I teach equitable estoppel in connection with the statute of frauds, I note that one of the situations where you see it come up most often is in family situations, where people might not think to enter into formal written contracts or, if they think about it, might be reluctant to insist upon it because it might be perceived as implying a lack of trust. This situation, about an agreement between a father and a daughter, fits that mold. The daughter alleged that, in reliance on her father's promise, she performed substantial improvements on the property at issue. The court found that this reliance on the daughter's part was reasonable. The daughter took care of her grandmother and maintained the requested properties, thus fulfilling her part of the bargain. At this stage of the litigation, the court found that this could entitle the daughter to equitable estoppel preventing the invocation of the statute of frauds against the agreement with her father.
Tuesday, January 24, 2017
A recent case out of the Middle District of Georgia, Great Lakes Insurance SE v. Queen, Case No. 3:15-CV-123 (CDL) (behind paywall), serves as an example of a case where the insured claimed the insurance policy at issue was ambiguous and the court disagreed.
In the case, Queen, the insured, owned a home with several outbuildings. While Queen's home and outbuildings were on an eight-acre parcel of land, Queen answered "no" to the question on the Great Lakes homeowners' insurance policy that asked if the property to be insured was on more than five acres. When one of Queen's outbuildings was destroyed in a fire, he sought to recover under the insurance policy. Great Lakes, however, upon learning that Queen's parcel of land encompassed eight acres, denied coverage, alleging that it would not have issued the policy had Queen not misrepresented the size of the parcel of the land.
Queen argued that he had not made a misrepresentation on the insurance application. He argued that, while the parcel of land he owned totaled eight acres, it had been divided into four tracts, each of which was less than five acres. Queen's home and outbuildings were located on a particular "tract" of the larger parcel that was smaller than five acres, and so Queen had answered "no" to the question.
The court conceded that Queen may have misunderstood the question on the insurance policy, but asserted that the question was nevertheless not ambiguous. The question asked if "the property" to be insured was situated on more than five acres. In this case, Queen provided an address as "the property" to be insured, and the amount of property associated with that address was eight acres, as even Queen conceded. Queen may have subjectively intended only to insure a particular tract of land inside that parcel, and may have had no intention to mislead Great Lakes, but that didn't change the court's conclusion that it was unambiguous--and in fact undisputed--that the property to be insured--the address provided to Great Lakes by Queen--was situated on more than five acres.
Queen next tried to argue that his misrepresentation was not material. Great Lakes submitted an affidavit that it would not have insured the property had it known that it was situated on more than five acres. The court questioned the business justification for this, asserting that the affidavit provided no explanation for how Great Lakes's risk would have increased, given that Queen's house and outbuildings sat on less than five acres. However, Queen provided no evidence rebutting Great Lakes's affidavit. Without any contrary evidence, the court had no choice but to accept Great Lakes's affidavit at face value and conclude that there was no genuine fact dispute on the question of the materiality of Queen's misrepresentation.
In the end, the court found that Great Lakes was entitled to rescind the insurance policy and granted Great Lakes summary judgment. You get the feeling that the court felt badly for Queen but also felt that it could not reach any other conclusion.
Thursday, January 19, 2017
I don't come across a lot of cases revolving around competence, but here's a recent one out of New York, Gray v. Jung, No. 62996 (behind paywall). The case, at the summary judgment stage, revolves around plaintiff's seeking of specific performance on a real estate contract. The court found that the plaintiff met his burden regarding the appropriateness of specific performance as a remedy, but the defendant raised sufficient evidence of lack of competency to defeat the plaintiff's motion. The defendant submitted "a considerable amount of medical records" indicating that he suffered from "brain fog" that prevented him from fully understanding the real estate contract at issue. Plaintiff had his own evidence that the defendant was indeed competent to enter into the contract and that his subsequent regret at entering into the contract shouldn't render it unenforceable. However, the court found that there was a genuine dispute of material fact on the question of the defendant's competence that defeated summary judgment.
Friday, January 13, 2017
Frequently when I teach Contracts I find myself telling the students to just put in the contract exactly what they want it to say, because so often I feel like cases revolve around parties saying, "I know what it said, but I thought that meant something else entirely." Although, often, of course, these might be ex post facto proclamations when a situation turns out to not be exactly what the party thought it was going to be.
A recent case out of Maryland, Norman v. Morgan State University, No. 1926 September Term 2015 (behind paywall), is another illustration of a party claiming that a contract means what a court finds it does not mean. In that case, Norman had sued Morgan State after he was denied tenure there. The parties entered into a settlement agreement under which Norman was permitted to apply for "any non-tenure track position at [Morgan State] for which he was qualified." The current lawsuit is the result of Norman's allegation that Morgan State prevented him from applying for an external research grant that that would have funded a future position at the school for him.
The court, however, found that the contract clearly stated that Norman could apply for "any non-tenure track position." It said nothing about external grants and external grants are not non-tenure track positions. Therefore the settlement agreement did not require Morgan State to permit Norman to seek the external grant. Norman tried to argue that he would not have agreed to the settlement agreement had he known it allowed Morgan State to block applications for external grants, but the court dismissed that argument based on the plain and unambiguous language of the contract.
Wednesday, January 11, 2017
If you're looking for an example of duties unable to be delegated, a recent case out of the Middle District of Florida, Floyd v. City of Sanibel, Case No. 2:15-cv-00795-SPC-CM, has one for you. In the case, the Floyds live in a housing unit owned by the City of Sanibel. The City claimed to have delegated its housing duties to Community Housing & Resources ("CHR"), with whom the Floyds entered into a lease that named CHR as its landlord. However, the City was heavily involved with both funding CHR and making decisions on everyday operations for CHR's properties, undermining the assertion that it wasn't involved with the contract at issue. Even without that involvement, though, Florida law dictates that property owners cannot delegate their duties to provide reasonably safe premises by hiring another entity to operate and maintain the property. Therefore, the court allowed the Floyds' claims against the City to stand, holding the City to the lease as CHR's principal.
Wednesday, January 4, 2017
I started reading this case because the first party's name was "Our Town" and I have fondness for that play...but it turned out to be a really interesting dispute over a non-compete provision that resulted in a preliminary injunction.
The plaintiff in the case out of Pennsylvania, Our Town v. Rousseau, No. 3:16-CV-2484 (behind paywall), operates a community publication called "Our Town." The defendants in the case entered into a contract to franchise the "Our Town" brand in a county in New Jersey. The franchise contract contained a non-compete provision prohibiting the defendants from operating any similar business within fifty miles of the franchise location or other "Our Town" publications for a period of three years.
After a series of political editorials, the defendants decided to terminate the franchise relationship, alleging that "Our Town" was no longer viable in the franchise location and they wished to launch a more "family friendly publication." On the day that defendants notified the plaintiff they were terminating the agreement, the plaintiff learned that the defendants were operating a similar publication called "Home Town" in the franchise location. The plaintiff, alleging that this was a violation of the non-compete, sought a preliminary injunction.
The court granted the injunction. The court found that the plaintiff was likely to succeed on the merits of the case. The parties behaved as if they were bound by the franchise agreement, and the non-compete in the agreement was enforceable. The court found it was supported by valid consideration, that fifty miles has been found to be a reasonable geographic restriction, and that three years have been found to be a reasonable time period. Plus, the court found that the non-compete protected the plaintiff's legitimate business interests and so the plaintiff would be irreparably harmed without the injunction.
The defendants tried to argue that the injunction would harm them because they would be unable to make a living if the non-compete was enforced. The court noted, however, that this harm was of the defendants' own making.
Thursday, December 15, 2016
A recent case out of Arkansas, Baxter v. Wing, No. CV-16-21 (behind paywall), has a nice discussion of the difference between moral obligation and legal obligation. In the case, a man named one of his four stepchildren, Susannah, as the sole beneficiary of his life insurance policy and asked her to share it with her three siblings.
Nobody disputed that it was the deceased man's wish that Susannah share the money with her siblings. The problem, though, was that her obligation to comply with his wishes was merely moral, not legal, and the court could do nothing to force her to comply with it. The deceased man gave Susannah instructions, but he did not make her any promise, nor did Susannah make any promise in exchange. There was no deal along the lines of, "I promise to make you the sole beneficiary if you promise in exchange to share the proceeds with your siblings." The deceased man gave Susannah instructions, which did not rise to the level of an enforceable contract.
Cases like this are valuable when you're teaching consideration but they always make me sad, because consideration cases so frequently seem to be about families feuding on a level so rancorous that they turn to the court system. Tough cases to get through.
Monday, December 12, 2016
If you've ever been in charge of taking care of a swimming pool, you know that it has a lot of moving parts and requires a working knowledge of chemistry and an adroitness at mathematics that is often lacked by those who become lawyers.* So I started reading this case because the first sentence told me it was about a swimming pool, but it's an interesting and fairly straightforward situation of contract ambiguity being resolved by extrinsic evidence. If you're looking for a recent case for your students to see this in action, this one might be it.
The case is Horizon Pools & Landscapes, Inc. v. Sucarichi, No. 01-15-01079-CV, out of Texas. Sucarichi entered into a contract with Horizon to install a swimming pool and spa. The dispute centered around the number of lights Horizon was supposed to install. Sucarichi alleged that Horizon was supposed to install three lights total: two in the swimming pool and one in the spa. Horizon maintained that it was supposed to install two lights total: one in the swimming pool and one in the spa.
The contract was ambiguous on this point. The contract was divided into many different sections. The relevant ones were as follows:
- A section reading "Lights(s)" [sic] with the handwritten notation "(2) L.E.D."
- A section reading "Pool Light" with a handwritten notation that was illegible
- A section concerning the spa reading "Light 100 watt."
The court found that it was equally plausible that the contract here required three lights total, with the first general light section referring to two in the swimming pool and the spa section referring to one, or that the contract required two lights total, with the first general light section giving just the total of lights to be installed between the swimming pool and the spa. The illegibility of the "Pool Light" section made this question impossible to resolve without looking to extrinsic evidence.
Horizon admitted that its salesman filled out the contract (including the illegible notation). Horizon also did not contest that its salesman told Sucarichi he needed to have two lights installed in his swimming pool. Sucarichi testified that he thought the contract provided for two lights in the swimming pool, based on the Horizon salesman's recommendation, and one light in the spa, for three total. He wrote as much in a letter to Horizon prior to the beginning of the court case, when he was trying to get Horizon to add the second light. Therefore, the court thought there was sufficient proof that the parties had agreed to install a total of three lights, with two in the swimming pool and one in the spa.
One of the lessons to take away: Make sure your contracts are legible!
*gross overgeneralization based on me and my frequent intense confusion when I try to take care of our family swimming pool. My talents lie elsewhere!
Wednesday, December 7, 2016
When the legendary musician Prince died suddenly, he left behind an enormous volume of music and no will. The courts have already been dealing with how to distribute Prince's assets to a complicated and squabbling cadre of potential heirs. The rights to all of his music have raised their own complicated issues that have most recently manifested themselves in a lawsuit in the District of Minnesota, NPG Records, Inc. v. Roc Nation LLC, Case No. 16-cv-03909.
The case revolves around Roc Nation's streaming of Prince's music on its streaming service Tidal, and whether or not it had the contractual rights to do so. Roc Nation alleges yes, based on what it terms both written and oral agreements that it struck with Prince before his death. Commentators have tried to draw conclusions about these agreements based on Prince's statements and other behavior before his death. NPG, meanwhile, claims that there was a single contract between Prince and Roc Nation and that it only allowed Roc Nation to stream a very limited number of songs, which Roc Nation has now violated in streaming a much wider variety of Prince's song catalog. The case has been reported on in multiple places, including here and here and here and here.
If this case progresses, it seems like it's going to require an untangling of written contracts between the parties, whatever oral statements Prince will allege to have been made, and the interaction between the two. It adds an interesting layer to consider that Prince was notorious for fighting for artists' rights to their music and had a fraught relationship with online streaming of music. He does seem to have favored Tidal above the other Internet services. In any case, although NPG claims that there was never any such license and Tidal has been infringing the songs' copyright since it began streaming them, NPG has already proactively sought to cancel any license that Prince may have granted to Roc Nation to stream the music in question.
(I'd post something Prince-related from YouTube, but Prince didn't like his music to be on YouTube. And, in fact, Lenz v. Universal Music Corp., the recent case that wended its way through the Ninth Circuit and is currently on petition to the Supreme Court, involves a Prince song in a YouTube video.)
Monday, December 5, 2016
One of the things I find students struggle with when it comes to parol evidence is determining for what purpose they are considering the evidence. A recent case out of Maryland, Wiencek + Associates Architects + Planners v. Community Homes Housing, Inc., No. 0642 September Term 2015 (behind paywall), has a nice discussion on this.
In the case, the parties both signed a document that was called "Agreement to Redevelop and Preserve Affordable Housing." The contract contained an integration clause. Both parties also admitted later that they had signed the document because it was required to obtain financing from the Department of Housing and Urban Development ("HUD"), which the parties had both desired. HUD, however, refused to guarantee any financing for the project. Community Homes then took the position that there was no contract with Wiencek because the contract was not to take effect unless HUD financing was received. Wiencek disagreed and sued Community Homes for breach of contract.
The trial court considered parol evidence to determine whether the contract between the parties was enforceable. Wiencek argued this was improper because of the contract's integration clause. But Community Homes noted that the parol evidence was not being considered to add a term to the contract; rather, it was being considered to determine if the contract even existed in the first place, and therefore was permissible. The court agreed with Community Homes that considering parol evidence was perfectly acceptable in this situation. The court noted that it could not enforce the contract's integration clause when what it was trying to determine was whether the contract containing the integration clause even existed.
The parties here had agreed orally that the contract would not come into effect unless HUD guaranteed financing. Although there was nothing in the contract about that, the parol evidence admitted as to the intent of the parties was clear. The contract was only signed in order to try to obtain the HUD financing; once that objective had failed, the parties did not intend the contract to be enforceable any longer.
Wiencek tried to make an argument that the law should have a policy to deter "fictitious" contracts. In effect, Wiencek claimed that the court was allowing the parties to "pretend" to have entered into a contract to try to "trick" HUD into providing financing, with no intention of actually entering into a contract with each other. The court, however, did not see any reason to enforce the contract between the parties in this circumstance. It was the court's view that, if HUD felt it had been harmed by the representation that there had been a contract between the parties (even though the court did not decide one way or the other whether that representation was incorrect), HUD should seek a remedy from the court for the harm, not Wiencek.
Wednesday, November 30, 2016
I am always saying to my students that if they care about something, they should put it in their contract, and they should be specific about what it is they want. I think sometimes people might think there's something to gain strategically by being vague, but introducing ambiguity into a contract can work out very poorly (and also takes control out of the hands of the parties). A recent case out of Florida, Boardwalk at Daytona Development, LLC v. Paspalakis, Case No. 5D15-1944, is a case where the court, faced with an ambiguous description of the land at issue in a contract, just threw up its hands in frustration.
The dispute between these two parties has been long and contentious. According to this article, it's dragged on for over a decade. It was originally rooted in an eminent domain proceeding in which Boardwalk at Daytona ("BDD")'s predecessor obtained property belonging to Paspalakis and the other appellees. The appellees contested BDD's acquisition of their land and eventually that lawsuit was settled. The settlement agreement provided the appellees with an option to purchase and operate 7500 square feet of retail space on the Daytona Boardwalk. The agreement contained no legal description or street address for the property at issue. The agreement said that the land would: (1) be adjacent to another particular business; (2) have a minimum of 50 boardwalk frontage feet; and (3) have sufficient land to build a 7500-square-foot, one-story building. Unfortunately for the appellees, there were at least three parcels of land that met this description, and they ranged drastically in size from around 7700 square feet to over 17,000 square feet.
The problem with the description of the land in the settlement agreement was exposed when the appellees tried to operate their option. BDD offered a piece of property that met all three criteria set forth in the settlement agreement. However, the property required unusual structural design features that troubled the appellees and also came with a negative easement for light, air, and unobstructed view that benefitted the BDD property next door. The appellees therefore objected to this plot of land and asked for another one.
BDD sought a declaratory judgment that the plot of land it proposed was sufficient under the settlement agreement and that it did not have to provide another plot of land. The appellees, in response, sought specific performance that BDD provide a plot of land fitting the description in the settlement agreement, without the restrictions of the land BDD had offered. In the face of the counterclaim, BDD shifted stance and argued that the settlement agreement was too ambiguous to be enforced.
The trial court sided with the appellees and ordered BDD to convey the largest possible plot of land to the appellees. BDD appealed, and this court agreed with BDD. The court noted that a description of the land in question is usually considered an essential part of any land purchase agreement, and that without any such description there are serious doubts whether the parties reached a meeting of the minds. The description of the land in the settlement agreement here was ambiguous. The trial court correctly examined parol evidence to try to resolve the ambiguity, but it didn't help. The contract terms at issue here simply could have been fulfilled by any of three very different parcels of land. To this court, there was no contractual way to choose between them and no parol evidence that shed light on which parcel of land the parties had in mind. Indeed, the court was skeptical the parties ever really agreed on which parcel of land would be conveyed, and so the parties never reached a meeting of the minds that could be enforced. Therefore, the court reversed the order of specific performance and entered judgment for BDD instead.
A bitter pill here for the appellees, who doubtless thought that they were getting something of value in the settlement agreement they struck and end up with nothing to show for it. But it does seem like there was considerable confusion about which land was affected by the situation here. I guess it's a lesson to all of us: try to be as specific as possible. I tell my students drafting contracts is frequently like playing a game of what-if with yourself. What if BDD offers this parcel of land instead of that parcel of land? If the answer to that question is that you would prefer one parcel of land over the other, best to be specific in the contract.
Monday, November 28, 2016
If you are looking for a case with a nice analysis of procedural and substantive unconscionability, a recent case out of Ohio, Christ Holdings, LLC v. Schleappi, Case No. 15 NO 0427, has one.
The case involved a right of first refusal that the defendants claimed was unconscionable. The trial court agreed with the defendants, but this court reversed the finding. The court started by looking at procedural unconscionability and noting that it requires consideration of "age, education, intelligence, business acumen and experience," etc. The court then presented in some amount of detail the education and employment history of both parties, concluding that their educational level is roughly equivalent but that the plaintiff did have more business acumen and experience than the defendant.
However, importantly for this decision, the court noted that the parties actually had a history of conducting real estate transactions between them without the aid of any attorneys, negotiating several times over the course of several years. To the court, this was an indication that both parties were knowledgeable in the particular type of real estate transaction at issue here, even if the plaintiff had more general business acumen.
The trial court had also been very concerned about the fact that the defendant had been operating under time constraints. But this court noted that the time constraints were not the plaintiff's fault: he gave no indication that he wouldn't have given her time to read the contract over if she had requested it (which she did not).
After finding no procedural unconscionability, the court then turned to substantive unconscionability. The trial court had found substantive unconscionability for a number of reasons, most notably, though, because this right of first refusal involved the licensing of mineral rights. The trial court asserted that rights of first refusal should be limited to real estate purchases, not to the leasing or licensing of real estate as was at issue here. The trial court seemed to think that rights of first refusal to license were unconscionable in and of themselves, without further inquiry into their terms. This court, however, said that there was no reason to so narrowly restrict the ability of the parties' to use rights of first refusal in their agreements. It found the right of first refusal to be enforceable and remanded for further proceedings.
Wednesday, November 23, 2016
A recent case out of West Virginia, Stiles Family Limited Partnership v. Riggs and Stiles, Inc., No. 16-0220, does a nice job analyzing the fact that an anticipatory breach must be unequivocal. The fairly straightforward facts could be a useful way of helping to illustrate this topic the next time you teach it.
The parties (all members of the same family) entered into a lease under which Riggs and Stiles agreed to farm the property at issue. The lease has been in effect since 2006 without dispute until 2013, when Riggs and Stiles allowed a production company to file an application for a permit to hold a music festival on the farm property. When Stiles Family Limited Partnership learned of the application, they objected; the following month, when they failed to convince the Partnership to allow them to hold the music festival, Riggs and Stiles withdrew the application, and no music festival was ever held on the property. However, the Partnership tried to terminate the lease, arguing that Riggs and Stiles had anticipatorily repudiated the lease when it permitted the filing of the application. The Partnership claimed that this permission by Riggs and Stiles demonstrated an unequivocal intent on their part to use the land for something other than farming, in violation of the terms of the lease, and it made sense to treat the lease as breached as the moment of application rather than having to wait for the music festival to actually take place.
The court disagreed, however. It was undisputed that Riggs and Stiles had at all times farmed on the land, never stopping and continuing to farm on the land even after the filing of the application. The application alone was not a breach of the promise to use the land only for farming, as it was undisputed that it was all Riggs and Stiles ever did. And continuing to farm the land was not consistent with an unequivocal repudiation of the lease, because it was actually what Riggs and Stiles was required to do under the lease. Performing consistent with the lease couldn't be considered an unequivocal repudiation of the lease. Moreover, when the Partnership informed Riggs and Stiles that it didn't agree to the music festival being held on the land, Riggs and Stiles withdrew the application for the permit. Rather than being an unequivocal intent to breach the contract, that displayed equivocation on the part of Riggs and Stiles: they sought to take actions to not breach the contract.