ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, July 12, 2017

What Does "Renovate" Mean to You? (A Perfect Question for Those, Like Me, Addicted to HGTV)

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. 

July 12, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, July 11, 2017

Law Firm Associate Makes $1.5 Billion Mistake

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

July 11, 2017 in Current Affairs, Famous Cases, In the News, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, July 10, 2017

Who Typed What Where, and Does That Matter?

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. 

July 10, 2017 in Commentary, Law Schools, Recent Cases, True Contracts | Permalink | Comments (2)

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.)

July 7, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, July 4, 2017

New York Court Explains What It Takes for Promissory Estoppel to Trump the Statute of Frauds

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." 

July 4, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 26, 2017

"As Is" Clauses Don't Grant You Immunity If You Commit Fraud -- and Parol Evidence Can Help Prove It

A recent case out of South Dakota, Oxton v. Rudland, #28070 (behind paywall), is another case involving alleged fraud during the sale and purchase of a house, this one with an explicit parol evidence debate. 

As in the previous case I blogged about on this topic, the contract for the house contained an "as is" clause. The Oxtons agreed that the contract with this "as is" clause was unambiguous and fully integrated. However, they argued that the parol evidence rule never applies when a party is alleging fraud. Because they were alleging fraud, they wanted to be able to bring in parol evidence regarding that fraud. 

The court agreed that the parol evidence rule does not apply in cases of fraud, which cannot be avoided by disclaimers in the contract. Therefore, the court looked at the Oxtons' evidence of fraud, which consisted of the fact that the Rudlands who sold them the house had just bought it a few months before and in the course of buying it had been told about "major settling" of the house (the problem at issue). The Rudlands, however, did not disclose that "major settling" when they sold to the Oxtons months later. The Rudlands countered that the disclosure statement that did not contain any language about "major settling" was largely irrelevant, and that the Oxtons were well aware they were purchasing the home "as is" and had the opportunity to obtain an inspection before finalizing the contract. 

The court found that it could not resolve these questions of fact but that there was enough evidence to possibly support the Oxtons' fraud claim, such that summary dismissal of that claim was inappropriate. The court allowed the parol evidence to support the claim, and also explicitly pointed out that "as is" clauses do not provide "general immunity from liability for fraud." Therefore, the Rudlands could not rely on the "as is" clause alone as blanket protection for all of their behavior and statement, and the litigation over the alleged fraudulent inducement should continue. 

It's interesting to contrast this with the Texas case I just blogged. There, the court held that getting an inspection was enough to prove that you were not relying on the sellers' statements. The Oxtons did obtain an inspection in this case but little attention is given to that fact. I wonder if it will gain more prominence as the debate over the alleged fraud goes forward, as at the moment the case was pretty focused on the parol evidence rule and the operation of the "as is" clause, not on the effect of the inspection. 

June 26, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, June 21, 2017

Grammatical Rules Shed Little Light on Contract Provision

More fun with ambiguity! I like this recent case out of Pennsylvania, BL Partners Group, L.P. v. Interbroad, LLC, No. 465 EDA 2016, because it really delves into grammatical rules in a way that pleases the 13-year-old me who enjoyed learning how to diagram sentences. (I did. I can't help it. I admit it publicly here.)

The appellant leased billboard space on the rooftop of a building owned by the appellee. The appellee decided to demolish the building and sent the appellant a termination notice. The appellant argued that the termination notice was invalid under the terms of the lease and that it would not vacate the premises. The provision in question was: 

"In the event that Lessor's building is damaged by fire or other casualty and Lessor elects not to restore such building, or Lessor elects to demolish the building, Lessor may terminate the Lease . . . ."

The trial court found that this provision gave the appellee the right to demolish the building for any reason, finding that the comma preceding the "or" indicated that it was an independent basis for termination and was not dependent upon the building first being damaged by fire or other casualty. This appeal followed. 

The appellate court began its analysis by looking to the dictionary definition of the word "or," and then finding that the placement of a comma before the word "or" joins two independent clauses. Nonrestrictive phrases separated by commas are construed as parentheticals, "supplemental to the main clause." The appellate court then concluded that the intent of the contracting parties was not clear. The appellate court said that the trial court's reading actually read words into the contract, i.e., "In the event that Lessor's building is damaged by fire or other casualty and Lessor elects not to restore such building, or in the event that Lessor elects to demolish the building, Lessor may terminate the Lease . . . ." The appellate court said it was unclear if that reading was correct, or if in fact the clause should be read in conjunction with the previous clause, and therefore the meaning could not "be determined definitively from the particular terms, grammar, or structure" of the provision. Both parties offered reasonable interpretations, and therefore extrinsic evidence had to be examined for the true meaning of the provision. 

June 21, 2017 in Recent Cases, True Contracts | Permalink | Comments (1)

Thursday, June 15, 2017

Disclaimer Saves a Faculty Handbook from Being Considered a Contract

I've blogged before about whether a faculty handbook creates a binding contract between a university and its faculty. A recent case out of Indiana, Dodson v. Board of Trustees of Indiana University, Court of Appeals Case No. 45A03-1611-CT-2703, found that disclaimers contained within the faculty handbook can protect it from being considered a binding contract. 

Dodson had alleged that she had been denied tenure in contravention of the faculty handbook, and that this constituted a breach of contract on behalf of the university. The university, however, pointed out that the handbook had a disclaimer that it was not be a construed as a contract, and as a result Dodson's claim failed. The disclaimer was evidence that the university never intended the handbook to be part of its contract with Dodson. 

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

Tuesday, June 13, 2017

5-hour ENERGY + 3-year delay could = laches

5-hour ENERGY is one of those products that I feel like an entire class could be built around. I already teach a couple of 5-hour ENERGY cases in trademark, and here's a contracts case (that seems to also have patent and trade secret implications). The case is Innovation Ventures, LLC v. Custom Nutrition Laboratories, LLC, Case No. 12-13850 (behind paywall), out of the Eastern District of Michigan. 

The heart of the allegations currently at issue in this most recent litigation revolve around a previous settlement agreement between the parties, under which the defendant agreed not to use certain 5-hour ENERGY ingredients in any formulas for other energy shots. The defendant didn't deny that it did in fact use those prohibited ingredients. However, it raised a laches defense to try to shield it from liability, alleging that the plaintiff delayed filing the lawsuit for three years, during which the defendant was openly using the ingredients at issue, with the plaintiff's knowledge. During the time period that the plaintiff delayed suit, the defendant alleged that it developed and sold other products that it would have developed differently had the plaintiff indicated that it had an issue with the defendant's activities. The plaintiff's response, however, was that, because it brought suit within the applicable statute of limitations, laches can't apply. 

The plaintiff's argument was unavailing. The court noted that Michigan had again and again reiterated that statute of limitations not having run alone cannot be enough to defeat a valid laches defense. The defendant alleged that the plaintiff knew that the defendant was selling products with the prohibited ingredients and sat back and waited for more products to be developed and further damages to accrue before bringing suit. This behavior, if true, could support a finding of laches. 

(There were lots of other issues, allegations, and defenses in this litigation. I've focused on this one small piece.)

June 13, 2017 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (2)

Wednesday, June 7, 2017

Looking for Some Unambiguous Insurance Policy Language? Here's Some

Insurance contracts often provoke disputes over language interpretation. A recent case out of West Virginia, Erie Insurance Property & Casualty Co. v. Chaber, No. 16-0490, overturns on appeal the lower court's finding of ambiguity, declaring that the language at issue was in fact unambiguous.

The Chabers had an insurance policy that excluded "earth movement," which was defined as including "landslide . . . whether . . . caused by an act of nature or . . . otherwise caused." Soil and rock slid down a hill behind the Chabers' property and damaged it. The insurance company refused to pay out, pointing to the exclusion of landslides. The Chabers alleged that the landslide was caused by improper excavation, not natural causes, and thus shouldn't have been excluded under the policy. The lower court found that the insurance policy was ambiguous, and that the Chabers might have expected that landslides caused by actions of humans were covered. The appellate court, however, disagreed. 

The appellate court found that previous cases had found ambiguity in insurance policies that excluded events arising "from natural or external forces." In contrast, the Chabers' insurance policy language was the much more general "act of nature or . . . otherwise caused," losing the word "external" that had been considered ambiguous. The language in the Chabers' policy was relatively new but the few courts that had considered it had found it to be unambiguous. Therefore, the appellate court found the policy was unambiguous and covered landslides, whether human-triggered or naturally occurring. 

I always find it interesting when courts disagree regarding ambiguity, because the very fact of courts disagreeing seems to indicate ambiguity! However, this policy does seem to be unambiguous in its breadth of exclusions. Possibly the lower court just felt bad for the Chabers. 

June 7, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 5, 2017

Prince's Music: More Contract Disputes

I've already blogged about the contractual disputes around the music that the late artist Prince left behind when he died unexpectedly. They continue with another case in the District of Minnesota, Paisley Park Enterprises, Inc. v. Boxill, Case No. 17-cv-1212 (WMW/TNL). In this dispute, Boxill, a consultant and sound engineer who worked with Prince, had announced that he would release five Prince recordings in his possession on the anniversary of Prince's death. Prince's estate sued, seeking a preliminary injunction against the release, which the court granted. One of the causes of action revolved around the Confidentiality Agreement that Boxill had entered into with Prince. Under the terms of the agreement, Boxill was allowed to enter Prince's home and work with Prince and disclaimed any property interest connected with this work. Yet when Prince's estate demanded return of the recordings in Boxill's possession, he refused to turn them over. This was sufficient to demonstrate a likelihood of success on the merits for breach of the contract. 

Boxill's main argument was that the Confidentiality Agreement only covered his work consulting on the remodel of Prince's music studio; the Confidentiality Agreement did not cover Boxill's work as a sound engineer recording music with Prince. Boxill's reasoning on this was that the Confidentiality Agreement prohibited him recording any of Prince's performances, but he was required to do so when he was working with Prince as a sound engineer. The Prince estate's response to this was that it had waived the recording portion of the Confidentiality Agreement but the rest stayed in force and covered all of Boxill's activities. The Court concluded that either interpretation was plausible, and that Prince's estate had a "fair chance" of prevailing on the merits. 

A motion to dismiss is currently pending in the case, so we'll see what happens!

June 5, 2017 in Celebrity Contracts, Current Affairs, In the News, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 31, 2017

Alleging Medical Necessity Under a Health Insurance Contract

We are by now probably all familiar with the modern phenomenon of GoFundMes to cover medical care. Those funds likely aren't just to cover situations where the parties didn't have health insurance, but also situations where the parties did have health insurance and the health insurance refused to pay. Sometimes because of the terms of the particular health insurance policy, but also sometimes without adequate justification. A recent case out of the Southern District of Florida, Grewal v. Aetna Life Insurance Co., Case No. 17-cv-80318-MIDDLEBROOKS (behind paywall), seems like the latter situation, based on the allegations of the complaint. 

Grewal, who had Aetna health insurance, also had a six-year-old son, A., who became seriously and unexpectedly ill. He was eventually diagnosed with a rare and very dangerous condition that required long-term care and inpatient rehabilitation. A.'s doctors determined that he should be transferred to a different hospital that could properly treat A. The hospital where A. had been was unable to handle the specialized care A.'s condition required. (In fact, there were allegations the hospital had allowed A. to lay in his own vomit for long periods of time, which seems...alarming???)

Aetna refused to clear A.'s flight transfer, finding that it was not medically necessary, but A.'s condition grew increasingly serious, so A.'s father decided to go through with the flight. He then filed a claim with Aetna to pay for the flight, which Aetna refused within days, without examining A. or the hospitals in question. This refusal left A.'s father with a bill over $300,000. 

Aetna's motion to dismiss required the court to determine if the complaint had sufficient allegations that A.'s flight between hospitals was indeed "medically necessary." And the court determined that it did. The complaint alleged that, at the time that A. was transferred, ground transportation was unsafe because of the seriousness of A.'s condition. Therefore, if A. had to be transported, it had to be by flight. And the complaint further alleged that A.'s current hospital was so inadequate to treat A. that it was a life-threatening situation for A. Finally, the complaint alleged that A.'s doctors, those medical professionals most familiar with A.'s condition, recommended the flight transfer. Those allegations were all sufficient to establish that the transfer was "medically necessary" and thus covered by the health insurance policy. Therefore, taking the facts in the complaint as true, a breach of contract was alleged. 

We'll see how this case plays out, but I can't help but feel intense sympathy for A.'s father, having to make this decision. Imagine your six-year-old son being suddenly, unexpectedly, very seriously sick, and your son's doctors saying he needed to be transferred to have any chance at recovery. How rational do you think you would be dealing with your insurance company in your situation? Would you really consider it time to have a debate over contractual language? 

May 31, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, May 29, 2017

Your Mother-in-Law Pays Off Your Student Loans, Then You Divorce Her Son. Now What?

Here's another case for the "it's always better to get it in writing" file. Although here the failure to get the contract in writing doesn't doom recovery, it does just add an extra layer of analysis that might otherwise have been avoidable. 

The case, out of Alabama, is Julie Gerstenecker v. Janice Gerstenecker, 1160144, and you can probably guess immediately from the shared last name that doubtless the reason the contract wasn't in writing was because of the familial relationship between the parties. In fact, Julie was Janice's daughter-in-law. Janice, concerned about the interest rate on Julie's student loan, claimed to offer to pay off the loans in their entirety, in exchange for Julie paying her back interest-free at a rate of $700 a month (later to raise to $1,000 a month). Julie sent Janice an e-mail with the student loan information (including specific instructions as to how Janice could pay them off) and Janice thereafter paid the student loans off. Julie then paid Janice, as allegedly agreed, for four consecutive months. However, after that Julie and Janice's son divorced and Julie stopped making any further payments. Janice sued for breach of contract. 

Julie denied there had been any contract, although I think her credibility was undermined by her testimony in response to why, if there had been no contract, she had written the checks to Janice: Julie claimed not to be able to remember why she had written the checks at issue to Janice. At any rate, she tried to raise a statute of frauds defense, asserting that the contract could not have been completed in a year and that therefore it should have been in writing (which it was not). However, she raised the defense so late in the case that the court basically deemed she had waived it. 

The court then went on to address Julie's argument that there was not enough evidence of mutual assent. Julie agreed that she did e-mail Janice her student loan information and that she did give Janice the checks at issue, but argued that evidence was ambiguous and did not indicate that she had accepted Janice's offer. The court disagreed. Julie provided Janice with all of the information Janice needed to pay off the student loans, and then Julie began her performance in response by beginning to pay Janice (no other explanation for the checks, after all, had ever been offered). That was enough evidence that a contract had existed. 

The only thing left to debate was the measure of damages. The trial court had awarded Janice the entire repayment amount. However, the appellate court concluded that was incorrect because there was no evidence that the contract contained an acceleration clause. Therefore, Janice could only receive a judgment for the amount of money Julie already owed in missed payments. 

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

Thursday, May 25, 2017

In Arizona, a Breach of Good Will Does Not Require Spite

A recent case out of Arizona, Russo and Steele, LLC v. Tri-Rentals, Inc., No. 1 CA-CV 16-0042, deals with breach of the covenant of good faith and fair dealing, which is read into every Arizona contract. In the case at issue, though, Tri-Rentals's behavior was not "self-dealing," and Tri-Rentals argued that self-dealing, or spite, or ill will was required to breach the covenant. Not so in Arizona, though. Arizona does not require self-dealing conduct. Rather, the covenant is breached if you prevent the other party from receiving the benefit of the bargain, whether or not you do so out of spite or some advantage to yourself. 

(The case itself is an interesting one, stemming out of collapsed tents at a car show that resulted in damage to several classic vehicles.)

May 25, 2017 in Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 24, 2017

He Who Breaches First, Etc.

Here is just a quick straightforward case out of the Eastern District of Michigan, Pittman v. Pacifica Loan Pool, LLC, Case No. 15-13877 (behind paywall), about the effect of a breach of contract on the other party to the contract. In the case, Pittman alleged that Pacifica breached the agreement by failing to pay the required property taxes. However, Pacifica countered that Pittman breached the agreement first by failing to make his required monthly payments. The court noted that the party who commits the first substantial breach of contract cannot sue the other party for failing to perform. Pittman's failure to make his required payments was a substantial breach on his part, and predated Pacifica's behavior. Therefore, he could not maintain this cause of action.  

May 24, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, May 23, 2017

If You Hire a Home Inspector, Listen to the Inspector, Not the Sellers

A recent case out of Texas, Naquin v. Cellio, No. 14-04054-431, deals with "as-is" clauses and fraudulent inducement in the context of a real estate transaction. 

Naquin bought a home in 2012. The home purchase contract stated that she was buying the home "in its present condition." Naquin hired an inspector to look the home over, received a report, and decided to buy the house. Naquin then claims to have discovered, inter alia, plumbing issues caused by a toilet that had been added to a pool house on the grounds, and claims that she had been fraudulently induced to buy the house by the Cellios' misrepresentations. 

The court upheld the enforceability of the "as-is" clause. There was no disparity of bargaining power between the parties, and both parties were represented by real estate agents in the transaction. The parties specifically negotiated over the "as-is" clause and agreed to give Naquin the right to complete an inspection of the property before closing the transaction (which Naquin did). 

However, the "as-is" clause would not be enforceable of the Cellios made a fraudulent misrepresentation. It was true that the Cellios executed statements saying they were unaware of any issues with the plumbing and that they had not done anything to the home without the necessary permitting (although it also appeared to be true that the Cellios thought this statement was true when they made it). But, at any rate, it was also true that Naquin knew that there were plumbing issues and structural defects because those had come up in the inspection. The inspection report, the court held, should have trumped the Cellios' representations, and Naquin should have relied on that. In fact, when Naquin hired the inspector, it was an indication that she was not relying on the Cellios' word. Therefore, she couldn't prove that she had been fraudulently induced. 

May 23, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 10, 2017

Doing Your Job Well to Benefit Your Employer Doesn't Result in Unjust Enrichment

In a recent case out of the Western District of Pennsylvania, Argue v. Triton Digital, Inc., Civil Action No. 16-133 (behind paywall), Argue, an engineer, brought suit alleging that his employer had been unjustly enriched by Argue's efforts. It's an interesting allegation. The court pointed out that what Argue was characterizing as "unjust enrichment" was really just him performing his job. He received a salary in exchange for his work, which included inventions, and his employer took that work and those inventions and used them to increase the value of its business. That wasn't unjust enrichment; the employer was entitled to do exactly what it did.  

Complicating this further? Argue had an employment agreement. The court pointed out that unjust enrichment is a doctrine that's supposed to be used only when no contract exists between the parties. Here there was a written agreement that provided Argue's employer with the right to Argue's inventions on the job. He could not, therefore, argue unjust enrichment at all. 

May 10, 2017 in Current Affairs, In the News, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, May 8, 2017

Enforcing a Non-Solicitation Agreement Regarding Personal Client Relationships

In a recent case out of the District of New Jersey, Saturn Wireless Consulting, LLC v. Aversa, Civ. No. 17-1637 (KM/JBC) (behind paywall), the court took a (light) "blue pencil" to a non-solicitation covenant in the parties' contract. 

Saturn hired Aversa and they entered into a non-solicitation clause that prohibited Aversa from contact with any entity connected with Saturn, for the purpose of diverting work from Saturn, for a period of one year following Aversa ceasing to work for Saturn. Aversa resigned from Saturn and set up his own business that was partly in competition with Saturn. Saturn sought a preliminary injunction prohibiting Aversa from these activities based on the non-solicitation clause of the employment contract. 

The court carefully interpreted the non-solicitation clause, noting that Aversa was restrained from doing some business with Saturn's customers but not restrained from doing any business with them. Rather, the non-solicitation said that the prohibited activities had to be "for the purpose of diverting work or business." If Aversa was working with some entities in some areas where Saturn was not operating--as he was--then those activities were permitted under the agreement. 

The court did not, however, buy Aversa's argument that he did not run afoul of the non-solicitation clause because he did not contact the customer; the customer contacted him. The court noted that the clause had been expansively worded to include any "contact," not just solicitation, and therefore Aversa's returning of the customer's phone calls qualified. 

Aversa also tried to argue that Saturn had not alleged any trade secrets or confidential information that Aversa knew that Saturn was trying to protect. Rather, Saturn's allegations were more generally about Aversa's relationships with the customer at issue. Aversa stated that Saturn was therefore trying to prevent him from using his general skills and know-how, which it could not do. However, the court found that Saturn had a legitimate interest in protecting customer relationships to some extent, independent of any trade secrets or confidential information. The evidence showed that Saturn invested resources to help Aversa build business relationships on Saturn's behalf. Aversa could not then turn around and use that investment to harm Saturn. However, the court made clear that this prohibition applied only to Aversa working with the same people he'd personally worked with while at Saturn. Otherwise, Aversa would be subjected to undue hardship in his chosen career field. 

May 8, 2017 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, May 5, 2017

An "Egregious" Breach, But No Damages...

I haven't done a damages case in a while so here's one for you out of California, Wiring Connection, Inc. v. Amate, B264113

The parties entered into a lease totaling 65 months at $6,252 per month. After signing the lease, though, Amate leased the property to someone else and Wiring then had to lease a different property, under a three-year lease for $7,500 a month. Wiring sued for breach of contract and won. The court then had to determine damages. The lower court stated that the proper measure of damages would be the fair market value of Amate's property, less the amount Wiring had agreed to pay for it in the breached lease. Amate called an expert witness who testified that $6,252 had been the fair market value of Amate's property. The lower court was skeptical of this expert testimony, but Wiring did not call any expert witnesses of its own. Rather, Wiring argued that the proper measure of damages was the difference between what it would have paid in rent over 65 months at Amate's property and what it would pay in rent over the same time period at the property it had had to rent instead once Amate breached the lease.

The lower court said that, based on the evidence in front of it, it could not calculate any difference between the fair market value of Amate's property and the amount Wiring was going to pay under the lease, and found that it therefore could not award any damages to Wiring. The lower court said it was unhappy with the result, since Amate's breach had been "egregious," but it felt its hands were tied on the matter.

The appellate court agreed with the lower court. The lower court's statement of the measure of damages was the correct one, and Wiring failed to prove that there had been any difference between the fair market value and what was in the lease. Therefore, Wiring got nothing.  

I find this case a little curious because I find it difficult to believe that Wiring wasn't damaged in some way. Wiring is now paying substantially more for rent than it would have if the agreement had never been breached, after all. But it also seems like Wiring could have met its burden based on how much the new tenant was paying for Amate's property? I assume the new tenant was paying more (otherwise it would seem odd for Amate to breach, unless there was a personal relationship involved), and that that new tenant's monthly rate could be used to establish damages for Wiring. Probably not as high as the damages Wiring was seeking but at least something. But there is no discussion in the case of what the new tenant was paying, that I could see, so it either was less than Wiring was going to pay and so unhelpful to Wiring or Wiring simply ignored it in favor of putting all of their eggs in the basket of being compensated for the difference between their more expensive second lease. 

Either way, this is a painful damages case from Wiring's perspective. A welcome one, of course, from Amate's perspective! 

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

Thursday, May 4, 2017

A Mistake Case Results in Rescission of a Contract

Sometimes rights can get passed along like a game of telephone. A recent case out of California, M.U.S.E. Picture Productions Holding Corp. v. Weinbach, B261146 (behind paywall), deals with a mistake that voids the original contract for those rights. 

Muse agreed to develop a film based on the book and screenplay "The Killer Inside Me," which Weinbach claimed to own the rights to. After about a decade during which Muse did not produce the film, Muse sold its rights to Windwings, and then Windwings sold its rights to Kim, who eventually produced a movie. In the meantime, Muse sued Weinbach for intentional misrepresentation during the original negotiation for the right, and Weinbach cross-claimed for breach of the agreement stemming from Kim's production of the movie. (Windwings and Kim were also involved in litigation with Weinbach, not relevant to this blog entry, but you can find a ruling from it here.)

Basically, Muse contended that Weinbach did not have the right to produce the film based on the novel at the time that he transferred those rights to Muse. Weinbach contended, however, that this was not a mistake of fact but rather one of judgment because it relied upon a later court interpretation of the extent of Weinbach's rights. The court agreed with Muse, however. Weinbach had repeatedly told Muse that he had the right to produce a movie from the book and never wavered from that, so it wasn't like Muse ever thought it was negotiating for a dubious right; Muse thought Weinbach had the right, because that's what Weinbach asserted. A later court ruling raised doubts, but Muse had had no reason to ever expect a later court ruling on the question. This mistake was material because Muse would not have entered into the contract if it had thought Weinbach didn't possess the right in question. And there was no evidence that Muse assumed the risk that Weinbach didn't have that right. Therefore, this mistake justified rescission of the contract. 

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