Tuesday, September 12, 2017
The U.S. Court of Appeals for the Second Circuit recently reversed a district court’s decision to deny Uber’s move to compel arbitration in a contract with one of its passengers, Spencer Meyers.
The district court had found that Meyer did not have reasonably conspicuous notice of Uber’s terms of service (which contained the arbitration clause) when he registered a user, that Meyer did not unambiguously assent to the terms of service, and that Meyer was not bound by the mandatory arbitration provision contained in the terms of service.
The Second Circuit summed up the usual difference between clickwrap agreements, which require a user to affirmatively click on a button saying “I agree” and which are typically upheld by courts, and browsewrap agreements, which simply post terms via a hyperlink at the bottom of the screen and which are generally found unenforceable because no affirmative action is required to agree to the terms.
In the case, Meyer had been required to click on a radio button stating “Register,” not “I agree.” But in contrast to browsewrap agremeents, Uber also informed Meyer and other users that by creating an account, they were bound to its terms. Uber did so via a hyperlink to the terms on the payment screen.
Meyer nonetheless claimed that he had not noticed or read the terms. The Court thus analyzed whether he was at least on inquiry notice of the arbitration clause because of the hyperlink to the terms. This was the case, found the court, because the payment screen was uncluttered with only fields for the user to enter his or her payment details, buttons to register for a user account, and the warning and related hyperlink. Further, the entire screen was visible at once and the text was in dark blue print on a bright white background. Thus, the fact that the font size was small was not so important.
Mayer was bound to the arbitration clause because he had assented to that term after getting “reasonably objective notice.”
Friday, September 8, 2017
In my head it's still the beginning of the school year, even though at my school we just finished our third week of classes already. This means that, because we only have a one-semester Contracts course, I'm just finishing up contract formation and moving on, and this case is kind of a nice little reminder review about the principles surrounding offers.
The case out of New Jersey, Kristine Deer, Inc. v. Booth, No. C-29-16 (behind paywall), involved a luxury active wear company, K-DEER, for which the defendant, Booth, worked. Booth had several conversations over the course of her employment with K-DEER's sole shareholder, Kristine Deer, about Booth receiving possible equity interest in the company. However, every one of those conversations was fairly vague. Deer seemed to always finish the conversations with some kind of demurral: that she had to "think about" it more, or that she wasn't "ready to have the conversation." Eventually, Booth resigned with an e-mail that read "If you are not willing to pursue an active dialog about ownership I am not interested in working at K-DEER."
The parties are now involved in litigation, which included, among other things, Booth's counterclaim for breach of contract. She alleged that "Deer led [her] to believe she was a partner and had a right to equity in K-DEER," because she "did not explicitly deny her requests for equity" and called her a "partner" at times. However, the court quoted at length from Booth's deposition, where she admitted that Deer did not offer her any equity and that, in fact, her unwillingness to do so was why she resigned. Under these circumstances, it was impossible to find an offer from Deer to Booth. There was no expression of commitment on Deer's part. In fact, all of Deer's statements seemed to evince the opposite. So the court found no contract existed between the parties.
As I am teaching my students to do now, the court then moved on, examining Booth's claim for quantum meruit. However, Booth never alleged that she wasn't adequately compensated, just that she would have left K-DEER earlier had she realized Deer wasn't going to give her equity. That did not justify quantum meruit. The court found that Booth had been compensated for all the work she had performed, so there was no unjust enrichment on K-DEER's part.
Saturday, September 2, 2017
There's an interesting case out of the Eastern District of Pennsylvania, The Dille Family Trust v. The Nowlan Family Trust, Civil Action No. 15-6231, dealing with issues around the trademark BUCK ROGERS. But it also has a breach of contract angle that requires us to learn the history of Buck Rogers. So let's dive in!
Philip Nowlan wrote a story called Armageddon 2419 A.D. that appeared in August 1928, starring a character named Anthony Rogers. In 1929, Nowlan wrote a sequel to the story, also starring Rogers. Nowlan, identified as the "creator of . . . 'Buck' Rogers," entered into a contract in 1929 with a newspaper service owned by John F. Dille to syndicate the comic strip "Buck Rogers." This contractual relationship seemed to survive through the 1930s, until Nowlan died in 1940. Nowlan's widow, Theresa Nowlan, then sued the newspaper service alleging underpayment under the contracts. The parties settled in 1942, which is where the breach of contract claim in the current case arises from. The agreement provided that Theresa Nowlan and her "heirs, executors, or administrators" released all claims against the newspaper service related to Buck Rogers and also conveyed all intellectual property interest in Buck Rogers to Dille.
Neither the Dille Family Trust nor the Nowlan Family Trust were parties to this settlement agreement. They were not even in existence until decades after it was signed. However, the Dille Family Trust asserted that it is the successor in interest to John Dille and that the Nowlan Family Trust is the successor in interest to Theresa Nowlan. Therefore, it contends that it can sue the Nowlan Family Trust for breach of the 1942 settlement agreement.
The court, however, disagreed. While there was no dispute that the trustee and beneficiaries of the Nowlan Family Trust were descendants of Theresa Nowlan, that was not enough to establish that the Nowlan Family Trust was an "heir, executor, or administrator" or otherwise a successor in interest to Nowlan's obligations under the 1942 settlement agreement. The Dille Family Trust did not show any sort of transfer of the agreement to the Nowlan Family Trust, nor did it introduce any other document (such as Theresa Nowlan's will) that might have indicated that the rights and obligations of the 1942 settlement agreement passed to the descendants in question. Therefore, the Dille Family Trust could not maintain a breach of contract action against the Nowlan Family Trust based on the 1942 settlement agreement.
Thursday, August 31, 2017
I just taught modification of terms earlier today so this recent case out of Missouri, Andes v. Dickey, Docket Number WD80135 (behind paywall), caught my eye. It involves an agreement regarding a jointly-owned residence between a woman and her daughter, which to me tinges the entire litigation with an extra layer of tragedy over the fact that they ended up in litigation against each other.
Andes and Dickey bought a house together and reached an agreement with each other (unsurprisingly not involving legal counsel) regarding use of the house, payment for the house, etc. One of the terms of this agreement between Andes and Dickey was that Andes would buy Dickey out through payment of monthly installments of $2,000 until the amount of $66,875.50 was reached (roughly thirty-three months of payments). The parties reduced this agreement to writing and signed it. They then also obtained a line of credit together to make the extensive renovations and repairs that the house turned out to need.
Andes and Dickey began clashing over the terms of their joint ownership of the house. Andes threatened to terminate Dickey's access to the line of credit and then suggested that Dickey take the remaining balance in the line of credit (around $70,000) as satisfaction of the buy-out provision, giving Andes the house. Dickey rejected Andes's proposal that she accept the line of credit as buy-out. Instead, worried that Andes would cut off her access to the line of credit, she withdrew the remaining balance of the line of credit and deposited it in a different account that she claimed she intended should still be used for renovations. Andes, finding out that Dickey had withdrawn the balance, asserted several times that Dickey should accept the line of credit balance as buy-out under their agreement. Every time, Dickey continued to state that she would not so accept it and that the money should continue to be used to renovate the house.
This led Andes to sue, claiming that she had bought out Dickey and seeking specific performance that Dickey's interest in the house be transferred to Andes. The trial court found that the buy-out provision had been satisfied and gave Andes the title to the house. Dickey appealed.
The appeal centers on whether or not the original buy-out provision was effectively modified so that the line-of-credit balance would satisfy it. This was not a situation where Andes simply tried to accelerate payment. Both Andes and Dickey were obligors under the line of credit. So, in giving Dickey the line-of-credit balance, Andes was not paying funds from herself to Dickey, as the parties had agreed. Instead, Andes was promising to assume sole liability for the line of credit. This, the court found, was materially different from the terms the parties had reached and so Dickey needed to accept the new terms. Both parties agreed that Dickey had consistently rejected Andes's proposals regarding the line of credit, so there was no acceptance, so there was no effective modification. No buy-out happened and the original buy-out terms remained in effect.
At any rate, the new supposed deal regarding the line of credit concerned real estate and so should have been in writing, which it was not.
Saturday, August 26, 2017
There has to be some evidence that you were intended to be a third-party beneficiary in order to be able to enforce the contract.
This reminder courtesy of a recent case out of the Southern District of New York, Fashion One Television LLC v. Fashion TV Programmgesellschaft MBH, 16-CV-5328 (JMF), where Fashion One Television tried to sue on a contract between the defendant and Fashion One LLC. Fashion One LLC was a "direct affiliate" of Fashion One Television, with the same owner and principal place of business. However, that doesn't change the fact that Fashion One Television was still a separate legally distinct entity who did not sign the contract, and nothing on the face of the contract indicated that Fashion One Television was an intended beneficiary of the contract entitled to enforce the contract. The contract had a merger clause and a clause that prohibited it from being assigned. So, Fashion One Television was not an intended third-party beneficiary, could not enforce the contract, and lacked standing, and its complaint was dismissed.
Friday, August 25, 2017
When I poke through recent contracts cases trying to find ones to blog about, I tend to decide pretty quickly whether I want to spend time reading an opinion or not. This recent case out of Virginia, American Demolition and Design v. Pinkston, CL16000199-00 (behind paywall), caught my eye because the very first paragraph sounds like a hypo:
This case arises out of a contractual negotiation for sale of real property . . . from . . . Pinkston to . . . Sweet. The negotiations never resulted in a final contract for sale of the property and no conveyance of the real property ever resulted. After the parties entered into contractual negotiations, but before the parties terminated contractual dealings, with oral permission from Pinkston, Sweet began preliminary construction on the property for the purpose of improving parts of the farmhouse located on the property. Although Pinkston discovered that Sweet’s work on the property had exceeded the scope of their discussions, Pinkston never stopped Sweet from performing further work on the property. Finally, when Sweet and Pinkston learned that a lien against the property hindered Pinkston from conveying title, Sweet stopped all work on the property. The property was subsequently rendered to be worth only a fraction of what it was previously worth before Sweet began working on the property.
So, naturally, I stopped to read the rest. Sweet brought the suit quantum meruit, for recovery of the value of his work performed on the property.
The court acknowledged that there was no written contract about Sweet's work on the property, but the parties did make oral agreements on the subject that the court used in evaluating the quasi-contract claim. The work that Sweet performed on the property apparently brought the value of the property down, raising the question of whether it conferred a benefit on Pinkston as is required for recovery. However, the court noted that Pinkston knew Sweet was doing the work and did nothing to prevent him from doing it. In fact, they negotiated that Sweet would do the work. Therefore, the court found the work was a benefit that Sweet conferred on Pinkston with Pinkston's knowledge, despite the effect of the work on the value of the property at issue.
But mere rendering of the services is not enough to merit recovery. The circumstances also must indicate that it would be inequitable for Pinkston to retain the benefit of Sweet's work without compensating him for it. There was no evidence that the parties ever thought Pinkston would pay Sweet for his labor. It was very clear that Sweet, expecting to buy the property, was in fact performing the work for himself, not Pinkston. Not only did Sweet not expect Pinkston to pay him, he expected to have to pay Pinkston when he bought the house. Therefore, the circumstances did not indicate that Pinkston needed to pay Sweet for his work.
The case stands as a word of warning: be careful expending time and effort on a piece of real estate before negotiations for it have concluded.
Monday, August 21, 2017
This case, out of the Northern District of California, Chaquico v. Freiberg, Case No. 17-cv-02423-MEJ, concerns a fairly common entertainment law issue that results when bands lose and gain members: who gets to still use the band name? Jefferson Starship has a fairly rocky naming history, having originally been called Jefferson Airplane and later morphing into Starship after a prior fight over the name. Because band name ownership can be a tricky thing to decide under intellectual property law, and because it might result in rulings that the band members (current and former) might not like, bands frequently try to handle these disputes by contract. Like with any contract, the efficacy of this approach differs based on the wording of the particular contract, which is what happens with the contract claims in this case: based on wording and timing and the interplay of other contracts, the court dismisses all of them but those that happened after January 2016.
(If you're interested in this sort of thing, Rebecca Tushnet writes up another of these cases, this one involving the band Boston.)
Sunday, August 20, 2017
Beauty Salon's Customer Lists Weren't Confidential When They Were on Social Media (and more beauty salon rulings)
A recent case out of New York, Eva Scrivo Fifth Avenue, Inc. v. Rush, 656723/2016, stems from the defendant, Rush, being discovered working for a rival beauty salon, Marie Robinson, while still employed by the plaintiff, Scrivo. Scrivo terminated Rush upon learning of this. Rush spoke to two clients in the Scrivo salon before exiting the salon, allegedly saying she would get in touch with them, and at least one of the clients left the salon, refusing to be serviced by anyone but Rush. Rush also posted a note on her personal Instagram saying that she would be moving to Marie Robinson and people should get in touch with her for appointments.
Scrivo sued alleging, among other things, breach of contract, based on the restrictive covenant contained in the Employment Agreement, which prohibited Rush from, among other things, soliciting Scrivo's clients and disclosing confidential information and trade secrets. Scrivo sought to enjoin Rush from soliciting, communicating with, or providing services to anyone she serviced while working for Scrivo, for a period of one year.
Unfortunately for Scrivo, the court denied its motion. The court noted that the noncompete needed to protect Scrivo's legitimate interests, avoid undue hardship on Rush, and be in the public interest. The court found that Scrivo failed to demonstrate the that noncompete was necessary to protect its interests. There was nothing about Rush's services that were "unique or extraordinary," and Rush was replaceable. Scrivo's customer lists were not confidential information, because the identity of its customers was pretty readily available online in social media posts and Scrivo never attempted to hide any of it. None of the skills Rush used in cutting hair were confidential, either. Rush claimed to be self-taught, claimed not to have taken any customer lists, and claimed that any clients that followed her did so of their own accord and initiative and that she did not solicit them.
Not only was the court dubious that Scrivo had legitimate interest to protect, the court also thought the sought injunction was unduly burdensome on Rush. Scrivo provided evidence that Rush had serviced 900 clients over the course of six years at Scrivo. Rush would surely have to therefore affirmatively ask each person who came to Marie Robinson if they had ever been serviced at Scrivo in order to ascertain if there was a possibility Rush had worked on them. Scrivo wanted Rush to turn away clients who came in independently, and the noncompete had only required Rush to refrain from soliciting clients.
Finally, the court didn't think Scrivo would suffer any irreparable harm without injunctive relief. If Scrivo could prove Rush violated the noncompete, then Scrivo could get the value of the services the client didn't purchase from Scrivo.
Thursday, August 3, 2017
I'm just going to start a little subset of cases involving misrepresentations in the context of real estate transactions. This latest case is out of Tennessee, Hall v. Eagle Rock Development, LLC, No. E2015-01487-COA-R3-CV (you can listen to the oral arguments here). In this case, the Halls won rescission of the purchase contract and a refund of the money they paid, based on misrepresentations regarding the lot's access to public sewage disposal. While there was a dispute as to whether they were specifically told by the development's broker that the lot had access to public sewage, the court found the broker had not been "forthcoming" about the sewage situation, and the other documents involved in the transactions represented at several points that public sewage access would be possible, including the MLS brief and the real estate listings that contained public sewage as a product feature. The website for the development stated that the lots would have public sewage access, and nowhere qualified the statement as being contingent on certain funding requirements. Plus, there was a sewer manhole directly in front of the lot.
The first time the Halls were provided with a disclosure statement indicating they would not have public sewage access was actually the day the sales contract was executed, despite the fact that the sellers had prepared this document months earlier and so could have shared it well in advance. The fact that the Halls signed the disclosure statement while executing the sales contract did not bar their recovery. (Nor did the fact that the Halls' contract stated that they were purchasing the property "as is.")
The Halls maintained that they would never have bought the lot had they known it didn't have public sewage access, not least because it restricted the size of the house they could build on the lot. Accordingly, the court ordered the contract rescinded and the purchase price be refunded, which was exactly the remedy that the Halls were seeking.
The sellers pointed out that it actually took the Halls three years to figure out public sewage access was not possible. They claimed that the problem here was the Halls' failure to fully investigate the property or fully read the documents they signed at closing. However, the court found that the weight of all the contrary representations the Halls had been given outweighed this.
Tuesday, August 1, 2017
You, like me, might often resort to Snopes to weed through what's true and what's not in the avalanche of information we're exposed to every day. (My most recent Snopes search: can a gift shop upcharge federal postage stamps? The answer is yes!) Recently Snopes turned to its constituents on the Internet to help provide funding to keep the website alive, precipitated by a lawsuit stemming from several contracts between the parties at issue. The whole thing is a matter of messy corporate structure that really seems like it's going to depend on the court's reading of the stock purchase agreement between the parties. Vox has a rundown of the whole situation here (that I'm quoted in).
Thursday, July 27, 2017
Recently, Procter & Gamble has been sued for copyright infringement based on its use of photographs on packaging. It's not that P&G didn't have a license; it's that P&G allegedly violated the scope of the license. The allegations claim that P&G, trying to keep costs down, negotiated for fairly narrow rights. It makes a ton of sense to do that if that's all you want the photos for. After all, why pay for rights that you're probably not going to utilize? However, the caveat with that is to be sure that you won't want to use the photos beyond what you're negotiating. That's allegedly what P&G did, and why it finds itself the subject of a lawsuit.
Wednesday, July 26, 2017
This recent case out of the Central District of California, Perez v. DirecTV Group Holdings, LLC, Case No. 8:16-cv-1440-JLS-DFMx, has some interesting allegations. The plaintiff claims that DirecTV contacted her, unsolicited, at her place of business and sold her a promotional deal there for satellite cable. After the plaintiff agreed to the deal, DirecTV installed the equipment that same day and then asked the plaintiff to sign an Equipment Lease Agreement (ELA). The ELA was entirely in English, even though all communications up to that point had taken place in Spanish (and even though DirecTV apparently had a Spanish-language version of the ELA). The plaintiff signed the ELA, even though she couldn't understand it and it wasn't translated for her, and gave it to the DirecTV representative. She was not given a copy to keep for herself.
Later, after selling her the satellite cable, DirecTV then contacted the plaintiff to say that she didn't have permission to display the cable, since she was displaying it in a business. It demanded settlement of the purported illegal reception and display. The reception and display DirecTV complained about was the same equipment that DirecTV had just installed. DirecTV demanded $5,000 from the plaintiff to settle the claim. The plaintiff brought this class action, alleging that this was part of a scheme DirecTV had to target selling its services to small business owners (especially minority business owners) and then immediately turn around and accuse those small business owners of having purchased the wrong type of DirecTV for their businesses.
DirecTV moved to compel arbitration. The ELA did have an arbitration provision, and the plaintiff did sign it. However, the ELA referenced the Customer Agreement, which she did not receive until it was sent to her by mail later, and therefore the ELA's terms were actually ambiguous, meaning there was no clear agreement to arbitrate.
DirecTV therefore argued that the plaintiff consented to arbitration when she received the Customer Agreement in the mail, with its full and thorough arbitration provision, and didn't cancel DirecTV's service. However, silence alone does not ordinarily represent acceptance. And the offer and acceptance on the contract between the plaintiff and DirecTV had already happened, on the day of installation. There was nothing in the ELA that indicated that the terms of the contract would change in the future when she received the Customer Agreement and that by keeping the Customer Agreement she was consenting to those changes.
Other courts have enforced DirecTV's arbitration provision but those cases were distinguishable because those customers were given the Customer Agreement before installation. In at least one other case, a court enforced the Customer Agreement when it was provided after installation because of "practical business realities." This court, however, expressed skepticism that "business practicalities" were a valid justification, and, at any rate, there was no such business practicality at issue here. DirecTV could easily have provided the plaintiff with the Customer Agreement when service was installed.
At any rate, even if the arbitration provision were enforceable, it excepted any dispute regarding "theft of service," which the case at issue concerns. DirecTV alleged that it was not required to arbitrate these disputes, but its customers were. This one-sided interpretation of this provision raised issues of unconscionability, especially paired with the plaintiff's powerlessness to negotiate the contract at all, which was not in a language she spoke, and which she did not receive until after she was in a position where to refuse the terms would have resulted in a contractual penalty of a cancellation fee of several hundred dollars. Therefore, the court refused to compel arbitration.
Tuesday, July 25, 2017
I started reading this case out of the Northern District of Alabama, ProctorU, Inc. v. TM3 Software GMBH, Civil Action Number 2:17-cv-00926-AKK (behind paywall), because it involves exam proctoring software, which of course is a type of software I am interested in. It ends up really being a case about forum selection and German law vs. American law.
ProctorU alleged that TM3 was contractually obligated to provide software that could "accurately identify test-takers" within 140 characters. Instead, TM3 provided software that ProctorU claimed could not accurately identify test-takers, even after 280 characters. (I'm not sure how this works technologically; the opinion doesn't get into it beyond this, although I found the website for the software here.) ProctorU therefore sued in the Northern District of Alabama. TM3 moved to dismiss based on a forum selection clause in their contract that required cases to be brought in Germany.
ProctorU tried to argue that the forum selection clause was unenforceable because of the differences between German and American law. For instance, a jury trial wouldn't be available to ProctorU, it wouldn't be able to recover punitive damages, and discovery would be much more limited than American discovery. The court, however, found that nothing about those differences indicated that ProctorU would be unable to prove its case in Germany.
ProctorU also tried to argue that it had agreed to the forum selection clause based on misrepresentations by TM3, and that, having been induced by fraud, it should therefore be unenforceable. ProctorU alleged that TM3 told ProctorU its investor was the state of Bavaria, who would not agree to any forum selection clause that was not German. It turned out that Bavaria had only an indirect minority interest in TM3. ProctorU claimed had it known how minor the state of Bavaria's interest was, it would not have agreed to the German provision. However, the court found that the statement that the state of Bavaria was an investor was true; TM3 had not told ProctorU that the state of Bavaria was a majority investor. Furthermore, it was ProctorU's obligation to conduct due diligence before accepting the contract terms, which should have revealed who TM3's investors were.
Therefore, the court dismissed the case based on the forum selection clause.
Tuesday, July 18, 2017
At ContractsProf Blog, we love it when our readers send us new material or highlight interesting cases. This post below provides an interesting tale of course of performance with a sprinkling of negotiable instruments law. It comes to us courtesy of Keith Paul Bishop, partner with the California corporate and securities law firm of Allen Matkins. You can find Keith's original post on his firm's blog here.
Most creditors likely assume that they have not been paid unless and until they receive checks from their debtors. In many cases that assumption may be correct, but in some cases it won’t be. Section 1476 of the California Civil Code provides:
If a creditor, or any one of the two or more joint creditors, at any time directs the debtor to perform his obligation in a particular manner, the obligation is extinguished by performance in that manner, even though the creditor does not receive the benefit of such performance.
The application of this statute is illustrated by a case, Sleep EZ v. Mateo, Cal. Ct. Appeal Case No. BV 031618 (July 4, 2017). The contract at issue in the case was an apartment lease. The lessor’s manager had instructed the tenant to pay the rent by mail to a post office box and to always pay by money order. The tenant had done so for 30 years until one day the lessor didn’t receive the rent. The trial court gave judgment for the defendant finding that the tenant had purchased a money order for the full amount of the rent due and the lease required that rent be paid “to landlord by U.S. Mail”. The Court of Appeal affirmed, citing Section 1476. In doing so, the Court rejected the landlord’s argument that under Section 3310 of the California Uniform Commercial Code a money order remains unnegotiated until it is honored.
Several facts may distinguish this case from other cases in which a debtor defends on the basis that the check was mailed. First, the record established that the creditor had required rent to be paid only by mail and prohibited payment in person. Second, the record established that the tenant had performed in this manner for several decades. Third, the tenant was able to introduce evidence that she had performed as directed by the landlord (i.e., the receipt for the money order).
Monday, July 17, 2017
A recent case out of Texas, Carnegie Homes & Construction, LLC v. Sahin, No. 01-16-00733-CV, brings up no fewer than three golden discussion topics of contracts law courses: conditions precedent, specific performance, and unclean hands.
The dispute is actually a pretty run-of-the-mill disagreement over a real estate purchase. It just happens to contain a lot of arguments.
First, Carnegie Homes, the buyer, attempted to argue that a number of conditions precedent had never been fulfilled, and therefore none of its obligations to buy the property had been triggered. The contract in question did read it "shall only be effective upon performance of the conditions set forth in Section E of this agreement." But despite calling the contents of Section E "conditions," the court read them and found them to be covenants, not conditions, dictating when and how much Carnegie Homes would pay and how much their respective obligations would be. Rather than conditions, Section E contained mutual promises, and indeed, Section E was called "Terms" instead of conditions. Therefore, the reference to conditions was a mistaken one.
Second, specific performance was deemed to be the proper remedy, because the contract was for the sale of a unique property. Carnegie Homes tried to argue that specific performance was not usually made available to the seller of a piece of property, only to the buyer of that property. However, the court said that specific performance was not so limited and that sellers have the right to seek and be rewarded specific performance just as much as buyers.
Finally, Carnegie Homes tried to argue that unclean hands prevented the seller, Sahin, from receiving relief. The conduct Carnegie Homes complained of concerned Sahin's service of a supplemental petition that alleged Carnegie Homes committed fraud. Sahin served the petition but never filed it. Carnegie Homes, however, was required to disclose it in a loan application, which allegedly caused it to be refused financing, leading to Carnegie Homes's difficulty in fulfilling its obligation to buy the property. The court, however, found that the disclosure to one lender did not block Carnegie Homes from performing the rest of its obligations, and did not act as unclean hands on Sahin's part. The contract did not require Sahin to help Carnegie Homes obtain financing, nor did it condition Carnegie Homes's obligation to pay on the receipt of financing. Therefore, Carnegie Homes was not excused from its obligations and Sahin was entitled to relief.
Wednesday, July 12, 2017
I'm blogging this case because I had a whole conversation with non-lawyer friends about what the term "renovate" means, and I think maybe they changed my mind about what "renovate" means. I don't know. Upon first reading this case, I spent a lot of time reflecting on all the episode of "House Hunters Renovations" I've watched and what actually happens in them.
Anyway, if you want to go away and watch a marathon of "House Hunters Renovation" at this point, it's okay. I understand. This blog post will still be here for you to contemplate afterward.
The case in question (there is an actual case) is a recent case out of Pennsylvania, Blackburn v. King Investment Group, No. 2409 EDA 2016, and, as you may have guessed, the debate in the case was over the meaning of the word "renovate" in the contract. One party maintained that the term was ambiguous, because it could have required them to demolish the bathrooms at issue or merely to do what was necessary to bring them up to modern standards (which was less than full demolition). The other party argued that it was not an ambiguous term and clearly required demolition.
The court agreed that it was a clear and unambiguous term that required demolition and replacement, and this was what got me to thinking: Do I think that renovation requires demolition? At first my kneejerk reaction was like, "I don't know, I don't think it does." But after conversations with people, I decided maybe it does mean demolition? That doing something less than demolition wouldn't be called renovation but just updating? If you say you're going to renovate your kitchen, does that always imply that you're demolishing the entire kitchen? If you do less than that, is saying you renovated your kitchen misleading?
My struggling with the word leads me to believe maybe it's not clear and unambiguous but I often feel that way with these types of cases. What I find extra-striking about this case is that, while the court proclaimed the term "clear and unambiguous," it did so by relying entirely on parol evidence, and this parol evidence, in my view, just determined what the parties understood "renovation" to mean. I think finding what renovation meant in the context of this contract to these parties makes a lot more sense than declaring it to be a clear and unambiguous term generally.
Tuesday, July 11, 2017
Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:
General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.
What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.
How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:
“The plaintiffs' complaint offers the following autopsy of the error: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”
The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.
A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”
The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742
Monday, July 10, 2017
When I teach my students rules of construction and we talk about contra proforentem, I feel like the standard examples I use with them are insurance contracts, where it's easy to identify who the drafter is. A recent case out of Indiana, Song v. Iatarola, Court of Appeals Case No. 64A03-1609-PL-2094 (thank to D.C. Toedt for the new non-paywall link!), involved an actual discussion of who was the "drafter" in a situation where both parties had input in the contract. The Iatarolas seemed to try to argue that Song should be considered the drafter and have the contract construed against him because he was the one who typed it into Microsoft Word. The court pointed out, though, that the rule of construction is about independent drafting, not a situation where both parties contributed to the contractual terms. Who physically types the contract up means nothing if both parties have helped to decide on the terms being typed up. I have never thought to discuss that with my students, but I think I might bring it up, just to be clear on what the rule is talking about.
Friday, July 7, 2017
If You Want to Hold Your Real Estate Development to Its Master Plan, Make Sure It's in Your Contract
A recent case out of Idaho, Swafford v. Huntsman Springs, Inc., Docket No. 44240, serves as a word of warning for those purchasing plots in real estate developments. As someone who recently purchased a plot of land in an in-progress real estate development, I read this case with interest.
The Swaffords bought a plot of land early on in the development's life, based on a master plan that they had viewed. Later, as the development continued underway, Huntsman Springs altered its plans, so that they way it turned out was not as it had been in the master plan the Swaffords had viewed. The Swaffords then sued for breach of contract.
The problem was that the "master plan" had never been part of the Swaffords' contract with Hunstman Springs. The contract did not incorporate the master plan and in fact the contract stated in several places that Huntsman Springs was bound by no other representations outside of the four corners of the contract and, in an integration clause, that the contract was the entire agreement. The contract was much less specific in Huntsman Springs's obligations to the Swaffords, but Huntsman Springs did comply with all of them. Therefore, there was no breach of contract.
Important lesson learned: If you want your developer bound by a master plan, make sure it's in your contract. (Of course, that's possibly easier said than done, depending on power differentials. But, if you allow for reasonable modifications of that master plan in some way, maybe you could accomplish it.)
Tuesday, July 4, 2017
A recent case out of New York, In re Estate of Edmund Felix Hennel, No. 78, explains when promissory estoppel will overcome the statute of frauds, and the answer is: not always. Sometimes unfairness may result from the failure to overcome the statute of frauds, but promissory estoppel only saves a party in cases of unconscionable injury.
In the case, Hennel's grandsons allegedly reached an agreement with him whereby they would assume maintenance for a particular property and eventually assume ownership, and their grandfather would pay off the property's mortgage in his will. A 2006 will seemed to have terms that supported this oral agreement. However, a 2008 will revoked all previous wills and did not include the same terms, although the grandsons claimed Hennel told them nothing had changed in their agreement. The grandsons assumed ownership of the property but the 2008 will failed to pay off the property's mortgage.
After Hennel's death, his grandsons sued to have the property's mortgage satisfied by their grandfather's estate, but they admitted that they could not satisfy the statute of frauds, since their agreement with their grandfather had been oral. Instead, the grandsons sought to rely on promissory estoppel. The court held, however, that even if they satisfied the elements of promissory estoppel, they would not suffer unconscionable injury if the statute of frauds was enforced, and unconscionable injury was required to allow promissory estoppel to trump the statute of frauds. Here, the grandsons had been able to pay the mortgage out of the rental income the property generated, and the grandsons did not have to expend any personal money to pay the mortgage. In such a case, there was no unconscionable injury.
The court noted that the grandsons could always sell the property if they wished to get out from under the mortgage, considering that the property had an estimated $150,000 worth of equity. The grandsons contended that, had the mortgage been paid as they had been promised, they would have received the full value of the property ($235,000) as equity. The court agreed this loss was unfair, but it was not unconscionable. In fact, the court stated, "cases where the party attempting to avoid the statute of frauds will suffer unconscionable injury will be rare."