ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, April 5, 2016

Hurricane Sandy and Art

Hurricane Sandy's flooding of the Red Hook section of Brooklyn damaged are in the Christie's warehouse located there, and provoked a rash of subrogation cases against Christie's, including AXA Art Insurance Corp. v. Christie's Fine Art Storage Services, Inc., 652862/13

All of the cases revolved around the same core set of facts: As Hurricane Sandy was approaching, the Mayor of New York warned that Red Hook was likely to be flooded, and eventually ordered its evacuation. Christie's sent an e-mail to its clients stating it would "take extra precautions" in the face of "significant inclement weather," and that "may include" making sure the generators were working, providing extra security, and raising all of the artwork up off the floor. Allegedly Christie's did none of these things. Shortly after Sandy went through, Christie's sent another e-mail assuring its clients that the artwork was safe, but a few days later Christie's corrected itself, contacting some of its client to inform them that flooding had damaged some of the artwork. 

Some insurance companies had to pay out millions of dollars in the wake of this news, and this insurance companies sought to collect the money from Christie's. AXA brought a typical case, that resulted in a typical failure, based on the fact that Christie's storage agreement contained a waiver of subrogation: Christie's clients were "responsible for arranging insurance cover" for the artwork stored at Christie's and "agree[d] to notify [the] insurance carrier/company of this agreement and arrange for them to waive any rights of subrogation against [Christie's] . . . with respect to any loss of or damage to the [artwork] while it remains in [Christie's] care, custody and control." 

The court held that this subrogation waiver acted to bar AXA's claims for gross negligence, negligent misrepresentation, breach of bailment, and breach of contract. AXA tried to argue that this was in violation of U.C.C. Section 7-204, but the court disagreed: The U.C.C. prevented Christie's from exempting itself from all liability, but this subrogation waiver, according to the court, merely allocated the risk of liability to the insurance companies. AXA also argued that Christie's breached the storage agreement in its actions (apparently no artwork was supposed to be stored on the ground floor, which had been represented to the clients as being used for "intake" before the artwork was move to more secure storage), but the court said those breaches didn't affect the enforceability of the subrogation waiver. 

Well, the appellate court has spoken, and claims like AXA's now live to be litigated another day. In the similar case XL Specialty Insurance Company v. Christie's Fine Art Storage Services, Inc., the appellate court held that the subrogation waiver did violate Article 7 of the U.C.C. and attempt to exempt Christie's from all liability, the lower court's characterization otherwise notwithstanding. Therefore, the fight will now shift to whether Christie's actions were reasonable. 

April 5, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, April 4, 2016

Universities, Graduate Students, Patents, and Policies

 

Harvard college - science center.jpg
CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=39855 (Harvard Science Center)

It's a very common thing, to be provided with a "policy" as opposed to a "contract." A recent case out of the District of Massachusetts, Charest v. President and Fellows of Harvard College, Civil Action No. 13-11556-DPW, addresses that exact issue, and concludes, as you might expect, that what you call something isn't as important as how you behave. 

Dr. Mark Charest was a chemistry graduate student at Harvard University. While he was there, he and his supervisor (also a defendant in this lawsuit) and other scientists developed a "novel and valuable method for creating synthetic tetracyclines," important for commercial antibiotics. Universities have lots of valuable things being created by their employees and students, so it's not surprising that Harvard had a policy in place for this sort of situation. Harvard had Dr. Charest, as a student, sign the Harvard University Participation Agreement, which contained a clause that Dr. Charest "ha[d] read and [] under[stood] and agree[d] to be bound by the terms of the 'Statement of Policy in Regard to Inventions, Patents, and Copyrights,'" referred to in this case as the IP Policy. A lot of things happen from that point on, but the important thing to know for purposes of this blog entry is that Dr. Charest maintained that Harvard had breached the IP Policy. Harvard, in response, maintained (among other things) that the IP Policy was not a contract. 

Other than being called a "policy," you might think this an odd argument for Harvard to try to make, considering that having Dr. Charest sign an agreement to be bound by the IP Policy sounds pretty contract-y. A 1988 Massachusetts Supreme Judicial Court decision, Jackson v. Action for Boston Community Development, had held that an employer's personnel manual was not a contract, and so Harvard relied heavily on that precedent, trying to cast its IP Policy as similar to the personnel manual in that case. 

Jackson established a number of factors for its decision, and, while some of those factors did weigh in favor of Harvard, others weighed in favor of Dr. Charest. For instance, Harvard maintained the ability to unilaterally modify the IP Policy and there were no negotiations between Harvard and Dr. Charest over the IP Policy, two factors Jackson said support a conclusion that the IP Policy does not impose contractual obligations. However, Harvard called special attention to the IP Policy and Dr. Charest's agreement to it, required Dr. Charest's signature acknowledging the IP Policy, and the IP Policy spoke in mandatory terms rather than suggestive terms, all of which made it seem more like a binding contract. 

In the end, the court found that, as the Jackson precedent has developed, the really important thing is whether Dr. Charest understood himself to have to agree to the terms of the IP Policy in order to continue as a student researcher at Harvard, and that Harvard was likewise agreeing to be bound. The court concludes that yes, this was true. The IP Policy sounded as if it was being very clear about Harvard's obligations, because of its unambiguous language. Harvard itself consistently referenced the IP Policy as governing its actions when questioned by Dr. Charest and when communicating with its students. Therefore, Harvard could not pretend now that it had not been behaving as if it was bound by the terms of the IP Policy. 

(Nevertheless, the court went on to dismiss most--but not all--of Dr. Charest's claims. The facts are too complicated to get into in the scope of this blog entry, but if you're interested in the relationship between research universities and their graduate students, it's an interesting read.)

UPDATE: This case has now settled. Dr. Charest released the following statement:

"Harvard University and I have settled our ongoing litigation regarding the allocation of royalties related to the license with Tetraphase Pharmaceuticals on mutually agreeable terms.  In light of my claims and goals in bringing this litigation, I am very pleased to accept terms I view as equitable.”

You can read more here.

(Thanks to Brian O'Reilly at www.oreillyip.com for the update!)

April 4, 2016 in Commentary, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, March 30, 2016

Seventh Circuit Rejects Arbitration Clause in "Scrollable Window" Internet Contract

Have you ever been frustrated with seeming endless and practically unreadable scroll-down window that accompany many internet contracts? Or maybe you don't even think about them enough to be frustrated. The dozens of pages of scroll text typically end with a checkbox stating, "I have read and understood the foregoing agreement." All but the most unusually focused among users will check the box without having read the verbose digital boilerplate, and both sides surely recognize the untruth of the "read and understood" certification.

Seal_appellate_court_seventhA court has recently refused to enforce an arbitration provision because it was buried at the bottom of the lengthy scroll able window. And the decision came from not just any court, but from the United States Court of Appeals for the Seventh Circuit--known for present purposes as the founder of the ProCD and Hill v. Gateway 2000 line of shrinkwrap arbitration-clause cases.

Over at the National Law Review, attorney Eric G. Pearson describes the facts of  in Sgouros v. TransUnion Corp., No. 15-1371 (7th Cir. March 25, 2016), an opinion by Chief Judge Diane Wood applying Illinois law:

Sgouros purchased a “credit score” package from TransUnion, and he later brought suit, alleging that TransUnion had provided him with a number that was erroneously high and thus useless to him in his negotiations with a car dealer. TransUnion filed a motion to compel arbitration, which the district court denied.

The crux of the dispute concerned the webpage for “Step 2” in Sgouros’s purchase, which asked him for an account username and password and for his credit-card information. See slip op. at 4. Below these fields were two bubbles to answer whether a user’s home address was the same as the user’s billing address (“yes” or “no”), and below that was a scrollable window in which only the first two-and-a-half lines of a “Service Agreement” were visible. Had he read to page 8 of the 10-page agreement, Sgouros would have found the arbitration clause. Below the scrollable window was a hyperlink to a printable version of the agreement and a bold-faced paragraph memorializing an “authorization” to obtain credit information. Rounding out the bottom of the page was a button labeled “I Accept & Continue to Step 3.”

Judge Wood's opinion itself begins, for those of us who admire persuasive storytelling, with an excellent example of framing the story around the ultimate result:

Hoping to learn about his creditworthiness, Gary Sgouros purchased a "credit score" package from the defendant, TransUnion. Armed with the number TransUnion gave him, he went to a car dealership and tried to use it to negotiate a favorable loan. It turned out, however, that the score he had bought was useless: it was 100 points higher than the score pulled by the dealership.Believing that he had been duped into paying money for a worthless number, Sgouros filed this lawsuit against TransUnion. In it, he asserts that the defendant violated various state and federal consumer protection laws. Rather than responding on the merits, however, TransUnion countered with a motion to compel arbitration. It asserted that the website through which Sgouros purchased his product included (if one searched long enough) an agreement to arbitrate all disputes relating to the deal.

Transunion_logoIn what will surely be a much-used and much-cited analysis of the scroll-box layout, the Seventh Circuit described the assent-oriented defects of the Transunion website. As Pearson summarizes it:

  • The arbitration clause was not visible in the window.
  • The site did not call the user’s attention to the arbitration provision in any other way.
  • The site did not require the user to scroll to the bottom of the window or to first click on the scroll box.
  • It was not clear that the purchase “was subject to any terms and conditions of sale.”
  • The term “Service Agreement” said nothing “about what the agreement regulated.”
  • The hyperlinked version of the agreement was labeled only “Printable Version”—not “Terms of Use” or “Purchase” or even “Service Agreement.”
  • The bold-faced paragraph was merely an authorization, and the button labeled “I Accept” actually misled the consumer to thinking that this was an acceptance of only the authorization’s terms. “No reasonable person would think that hidden within that disclosure was also the message that the same click constituted acceptance of the Service Agreement.”

All in all, an interesting turn of events from an important court on issues of clickwrap terms and arbitration.

March 30, 2016 in E-commerce, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (2)

Sunday, March 27, 2016

Wording That Assignment Clause Correctly

One of the areas of contract law where the mere language alone frequently trips my students up is the area of assignment and delegation, largely because neither courts nor contracts are always exactly precise in what they mean in this area. It remains one of the areas that, say, a large insurance company can find it got the wording wrong, as happened in a recent case out of Florida, Bioscience West v. Gulfstream Property and Casualty Insurance, Case No. 2D14-3946

A homeowner had bought a insurance policy from Gulfstream. The policy prohibited assignment "of this policy" without Gulfstream's written consent. The homeowner's house suffered water damage and she hired Bioscience to fix the damage. She assigned "any and all insurance rights, benefits, and proceeds pertaining to services provided by BIOSCIENCE WEST INC. under the above referenced policy to BIOSCIENCE WEST, INC." When Gulfstream subsequently denied the homeowner's insurance claim, Bioscience sued as the assignee of the homeowner's right to recover the insurance policy's benefit. Gulfstream responded by stating that the policy could not be assigned with Gulfstream's consent, which had never been given. The distract court agreed, found the homeowner's assignment to be improper, and entered summary judgment in Gulfstream's favor. 

The appellate court disagreed. The appellate court said that the phrase "assignment of this policy" plainly referred to the entire policy. What the homeowner assigned, however, was something less than the entire policy, i.e., just a portion of the benefits. Therefore, under the "unambiguous" wording of the policy, the homeowner's actions were permissible without Gulfstream's consent; Gulfstream's consent was only required if she tried to assign the entire policy. 

And, in fact, the court found this was consistent with the loss-payment portion of the policy, which provided that Gulfstream would pay the homeowner "unless some other person . . . is legally entitled to receive payment." The court said that proved that Gulfstream understood that the homeowner would be able to assign benefits under the policy. (Although arguably all this proved was that Gulfstream understood that the homeowner would be able to assign benefits under the policy with Gulfstream's consent.) At any rate, there was ample precedent in Florida's case law supporting the proposition that policyholders can assign post-loss claims without the consent of the insurer. 

March 27, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Saturday, March 26, 2016

Things We Should Talk About When We Talk About Health Care

I just find this case so tragic and frustrating that I had to share with others, because that's just how I am, I like to spread those emotions around. But I think it's important, as we continue to debate how we do health care and health insurance in this country, to really think about the outcomes of these questions. And I have a nephew who was born premature and had to spend a little time in the NICU. My nephew is now a happy, energetic, clever five-year-old who we are very grateful for (even though we don't understand how five years have managed to pass, surely that's incorrect and he was just born yesterday, no?), but this case made me think of him and remember those first few scary days when you have a baby who you can't bring home with you. And how unforgiving bureaucracy can be in the face of your mere human emotions. 

Kurma v. Starmark, Inc., No. 12-11810-DPW, a recent case out of the District of Massachusetts, introduces us to the Kurmas. Their son was born about two months premature and was immediately hospitalized after birth and remained in the intensive care unit for over two months. His hospital bills totaled more than $667,000. It seems as if it was a happy ending for the baby boy and that he eventually went home with his parents, because the case doesn't tell us otherwise, so that at least seems like good news for the Kurmas. 

The bad news was that they failed to comply perfectly with all of the formalities of their health insurance policy, and for this reason the court found it had no choice but to find that the baby boy was not covered by his father's health insurance plan and therefore the Kurmas are responsible for the $667,000 hospital bill. 

Mr. Kurma had been employed by First Tek since 2006. First Tek enrolled in the Bluesoft Group Health Benefit Plan on July 1, 2010. Mr. Kurma and his family joined in the plan as soon as it became available. His wife at the time was already pregnant, and her pregnancy care was covered under the plan. Their son was born on October 7, 2010, three months after they joined the Bluesoft plan. 

What makes this case so tragic to me is that it wasn't as if Mr. Kurma did nothing to inform his health insurance that his baby son had been born. He did, in fact. He called his health insurance's claims processor on October 14, 2010, to inform him that his son had been born the previous week. Everybody agreed that this was timely notice to the health insurance company of the baby's birth. A week later, on October 21, Mr. Kurma received a letter from an affiliate of his health insurance company referring to "Baby Boy" and requesting medical information to determine the necessity of the baby's ongoing treatment. 

Mr. Kurma had several more conversations with his health insurance company during the month of October. The parties disputed what was said in those conversations, although they agreed that Mr. Kurma wished to add his newborn son to the health insurance plan. There was disagreement as to whether or not Mr. Kurma was told that he needed to provide his HR department at work with written notice of his son's birth in order to add him to the policy. At any rate, on November 8, 2010 (more than 30 days after the baby's birth, which was the time limit Mr. Kurma had under the policy), the health insurance company sent Mr. Kurma a "Certificate of Group Coverage" that "is evidence of your coverage under this plan." The new baby was listed as the individual to whom the coverage applied and the "Date coverage began" was given as October 7, 2010, the date of the baby's birth. To be honest, I would at that point, if I were Mr. Kurma, probably have considered the baby to have been covered, as that piece of paper would have seemed self-evident to me as "evidence of...coverage." However, this piece of paper contained a trick: It claimed the "Date coverage ended" as October 6, 2010, the date before the baby's birth. According to the health insurance company, this should have been a red flag to Mr. Kurma, as that was the health insurance company's way of indicating that it had refused coverage on the baby. I'm not entirely sure why the way to do this wouldn't have been to send a letter saying "We are not covering the baby," rather than sending some weird time-travel-y message like this. It would be a good policy for all of us to just say what we mean in communications like this, don't you think? This paper, far from raising any red flag that Mr. Kurma needed to do anything further, seemed to reassure Mr. Kurma that he had done everything he needed to do. 

And, even more confusingly, not even the insurance company itself, internally, seemed to know whether or not it thought the baby was covered. On November 4, an employee noted that the baby was automatically covered for the first month of his life and then needed to be formally added to the policy. A second note on November 5 corrected that to explain that the baby needed to be immediately enrolled in order to be covered. But it seems to me that if not even the health insurance company's own employees can figure out whether or not the baby was covered, it seems ridiculous to assume that a harried new father, with a baby in intensive care and a five-year-old at home to worry about, was supposed to be able to figure it out. 

On November 29, 2010, Mr. Kurma had a conversation with his health insurance company in which he stated that he had added his new son to the plan. That night he e-mailed HR at First Tek to ask them to add the baby to the plan. That e-mail was the first written contact Mr. Kurma had had with HR. It came, as you can see, more than 30 days after the baby's birth. Which was a violation of the policy, which provided, "You notify Us and the Claims Processor of the birth . . . within 30 days," with "Us" defined as Mr. Kurma's employer, First Tek. Mr. Kurma had only informed the claims processor within 30 days. 

In December 2010, Mr. Kurma was told for the first time that the health insurance company was denying coverage for his new baby. Confused, Mr. Kurma inquired as to why and was told it was his failure to return the written enrollment forms to his HR department within 30 days of the baby's birth. Mr. Kurma called his health insurance company to complain; they were unmoved. 

Mr. Kurma's employer, however, was moved by Mr. Kurma's situation. To be honest, it seems as if First Tek knew all along that Mr. Kurma's son had been born and was in intensive care, which makes sense to me, as it is the kind of thing that employers tend to know, if you're taking time off and such. First Tek's CEO actually contacted the health insurance company on behalf of Mr. Kurma, asking for leniency: "[Mr. Kurma] has a prematurely born child who is still in hospital and in deep sorrow and was not in a right frame of mind. Is there anything you can do to make the carrier make an exception?" The carrier--who nobody disputed was well aware of the baby's existence and Mr. Kurma's desire to add him to the plan--refused to make such an exception, insisting that it could not because First Tek (the company requesting leniency) had not been properly notified. Note that that was the only basis for the health insurance company's denial, as stated in the letter it sent Mr. Kurma: "The plan required that Mr. Kurma notify [the insurance company] AND his employer, within 30 days after the infant's date of birth. [The insurance company] received notification within the required time frame, but First Tek did not." No matter, apparently, that First Tek itself requested that its notice requirement be waived and at any right apparently believed itself to have been properly notified. 

Now the insurance plan in this case contained language that added further confusion to what was going on here: It gave First Tek "full, exclusive and discretionary authority to determine all questions arising in connection with this Contract including its interpretation." Under this clause, one might think that, if First Tek considered itself to have been validly notified, then it was. Not so fast, though. The insurance plan also contained language that the insurance company "has full, discretionary and final authority for construing the terms of the plan and for making final determinations as to appeals of benefit claim determinations . . . ." So whose interpretation, First Tek's or the insurance company's, should win here, when they both have some sort of "full" and "discretionary authority"?

The court concluded that this language meant that First Tek had authority over contract interpretation, but the insurance company had authority over claim determinations under the contract. Therefore, First Tek was correct in its assertion that the baby was enrolled, because that lay within First Tek's discretion. However, First Tek could not contradict the insurance company's determination, even accepting that the baby was enrolled, that the benefits were denied. I admit I'm so confused by this determination, I read this paragraph of the decision over several times, and I'm fighting a cold myself at the moment (and worrying about what health insurance coverage I'm going to mess up should I need to see a doctor over this illness!), so if I'm reading this wrong, please let me know, but this seems contradictory. What's the point of giving First Tek "ultimate" authority over who's enrolled under the policy if the health insurance company has "ultimate" authority to ignore First Tek's "ultimate" authority and deny benefits because it doesn't think people are enrolled? The court seems to think that this is a system that makes sense, but it mostly seems to me that it's just a fancy way of obscuring the fact that First Tek really had no authority here. Which might be fine as just a straightforward matter, but this is anything but straightforward: The contract manages to strip First Tek of authority by saying the opposite, much like the weird denial of coverage the insurance company sent that actually read that it was "evidence . . . of coverage." This is like being Alice in Looking-Glass Land, frankly. 

Images

At any rate, as you could probably tell was coming, Mr. Kurma loses this case. What's interesting is that he presents no claim that he ever informed First Tek in any way of the birth of his son within the relevant 30-day period. I find this difficult to believe, personally, and I don't know how there couldn't have been something he could have used to argue that he gave First Tek some notice, especially given the evidence that even First Tek's CEO tried to get coverage for the baby. But the court says there was no dispute that there had been no notice "of any kind," not even oral, and so Mr. Kurma failed under the terms of the policy. 

Mr. Kurma argued that First Tek clearly wished the baby to be enrolled and tried to intercede with the insurance company on Mr. Kurma's behalf. The court's reaction to this is unimpressed: the plan says what the plan says, and First Tek's desire not to follow the plan doesn't mean anything. (Of course, presumably First Tek didn't have a whole lot of opportunity to negotiate the terms of the plan in the first place.) Mr. Kurma also tries to argue estoppel, which fails because, again, the words of the plan were clear, and Mr. Kurma failed to follow them, so he can't argue estoppel. Likewise, there was no duty on the insurance company's part to explain to Mr. Kurma what steps he had to take to insure his son, and there was no bad faith on the insurance company's part in failing to do so. 

So, the end result is that the Kurma family is now over $667,000 in debt, as a result of having sought to save their son's life. This case just kills me. I know what the plan said, but I am a trained lawyer who found the words being said to Mr. Kurma confusing; I am bewildered by how it could be reasonable to expect Mr. Kurma to wade through all of this during what was doubtless the most stressful and emotionally exhausting time of his life. Think of how challenging you find it to deal with bureaucracy under ideal circumstances; imagine having to do it while your tiny infant son is fighting for his life in intensive care. And having to do it under circumstances where you're given dense pages of legalese, no assistance to walk through that legalese, and documents that say one thing while meaning the opposite. 

I know that insurance companies have a lot to deal with, too. And I know this insurance company didn't want to pay $667,000 in medical bills. I know this insurance company wanted to make sure it makes people jump through a few hoops first to make sure they really deserve the health care. But I just find this outcome in this case tragically absurd in a way that makes me despair for how we're dealing with health care in this country: Nobody disputed that the health insurance company was well aware Mr. Kurma's wife was pregnant and would presumably soon be having a child; nobody disputed that the health insurance company was well aware Mr. Kurma's son had been born and was hospitalized; nobody disputed that the health insurance company indicated to Mr. Kurma that it was evaluating the necessity of his son's medical treatment; nobody disputed that the health insurance company even sent "evidence of . . . coverage" to Mr. Kurma. And still the health insurance company didn't have to cover the baby, because of one missed hoop that the company it pertained to sought to waive entirely. 

Maybe your view is that Mr. Kurma should have been more on top of things. But I just think this seems like an incredibly harsh case. 

*********************************************************************************************************

Peter Gulia, an adjunct professor at Temple University Beasley School of Law, sent me this as a follow-up and I add it to the text here with his permission because I think it's a valuable contribution. 

Your great essay on Kurma v. Starmark, Inc. paints a striking story.  But let me give you a way to reconsider what happened.

The health plan is a “self-funded” health plan that is not health insurance.  The employer pays the claims from the employer’s assets.  (The employer likely has a stop-loss insurance contract that pays the employer, not the plan or any participant, if claims exceed specified measures.)

Starmark is not an insurer; it provides services to the employer, which also is the health plan’s sponsor, administrator, and named fiduciary.

In any moment during Mr. Kurma’s difficulties, the employer, acting as the plan’s administrator, could have instructed the processor to treat Kurma’s newborn as regularly enrolled.  Doing so would make the employer responsible to pay the mother’s and newborn’s medical expenses.

(Even if the employer asked:  “Is there anything [the processor] can do to make the carrier make an exception?”, this likely referred to trying to persuade the stop-loss insurer to provide more coverage than its contract promised.)

If one analyzes this case under the common law of contracts, one might classify it as a duty-to-read case.  The reported facts suggest the participant did not read the plan, and also did not read, at least not carefully, its summary plan description.

That Mr. Kurma suffered a loss because he didn’t sufficiently understand his employee-benefit plan’s conditions is harsh.  But it’s not because Starmark failed to perform its service agreement.  And it’s not because Starmark sought to avoid an expense it never would bear.

March 26, 2016 in Commentary, Legislation, Recent Cases, True Contracts | Permalink | Comments (1)

Sunday, March 20, 2016

Browsewrap Unenforceable and Motion to Compel Arbitration Denied

A recent California appellate court case, Long v. Provide Commerce, Inc., found that a browsewrap agreement containing an arbitration clause failed to provide notice sufficient for assent. The case is likely to be significant in shaping wrap contract doctrine because it is the first California appellate court decision which addresses “what sort of website design elements would be necessary or sufficient to deem a browsewrap agreement valid in the absence of actual notice.”


The plaintiff, Brett Long, purchased a floral arrangement on the ProFlowers.com website. The arrangement he purchased was advertised as a "completed assembly product" but he alleged that it was delivered as a "do-it yourself kit" which required assembly. He filed a class action lawsuit on behalf of California consumers. Provide, the owner and operator of the ProFlowers.com website, moved to compel arbitration pursuant to its Terms of Use which contained an arbitration clause.


The Terms of Use were accessible via a hyperlink titled TERMS OF USE at the bottom of each webpage. The hyperlink was in light green typeface on a lime green background along with other hyperlinks in the same format. In order to complete his order, Long had to input information and click through buttons which were displayed in a white box against the website’s lime green background. At the bottom of the box was the following notice, “Your order is safe and secure.” Below the white box was a dark green bar with a hyperlink stating SITE FEEDBACK in light green typeface. Below the dark green bar, at the bottom of each “checkout flow” page were two hyperlinks, PRIVACY POLICY and TERMS OF USE in the same light green typeface as the website’s lime green background.


After placing the order, Provide sent Long an email order confirmation. The email contained a dark green bar with several hyperlinks to product offerings such as “Birthday” or “Anniversary.” Next, the email displayed a light green bar thanking the customer for his order and followed by order summary details and other related information. Following the order details were two banner advertisements and a notification regarding account management services with accompanying hyperlinks. Following that, another dark green bar stated “Our Family of Brands” and listed logos for Proflowers and 5 other companies. Next, the email contained customer service information in small grey typeset and then, in the same grey typeset, two hyperlinks titled “Privacy Policy” and “Terms”.


The California appellate court found that the Terms of Use hyperlinks were not sufficiently conspicuous to put a “reasonably prudent Internet consumer” on inquiry notice and that the Plaintiff did not manifest his unambiguous assent to be bound. The court noted that just because the Terms of Use hyperlinks were visible without scrolling was insufficient to establish an enforceable browsewrap. It referred to the “bright line rule” set forth in Nguyen v. Barnes & Noble Inc.: “(W)here a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on- without more – is insufficient to give rise to constructive notice.” The court also noted that “to establish the enforceability of a browsewrap agreement, a textual notice should be required” to show continued use constitutes assent. In other words, a conspicuous hyperlink alone does not constitute reasonable notice.


This case is another in a line of cases coming out of California and the Ninth Circuit which is making a long overdue correction to contract law doctrine  -- doctrine which veered dangerously off course with ProCD and its ilk. As I’ve previously noted, the law in this area is still working itself out, and my guess is that other jurisdictions will start reevaluating the meaning of “assent” when it comes to wrap contracts  (and start following the Ninth Circuit’s more reasonable understanding of reasonableness).

(Disclosure and fun fact: I am the recipient of a chair funded from a class action settlement involving ProFlowers).

March 20, 2016 in E-commerce, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Saturday, March 19, 2016

When Minutes Really Matter

 2010-07-20 Black windup alarm clock face

Every time I teach the mailbox rule, I'm amazed by how different the world was not so long ago. Imagine having to wait days to receive documents, instead of seconds via e-mail. When I was practicing, if documents didn't come through to me instantaneously, I found myself going through my spam, annoyed at the delay and the time I was losing in not having the documents in hand immediately. I think all the time that the practice of law must have been very different. 

A recent case out of the District of Maryland, CMFG Life Insurance Co. v. Schell, Case No. GJH-13-3032, made me think again about how important timing can be. In that case, a delay in sending a document that amounted to only a couple of hours contributed to a sizable financial loss.

Sandra Lee had an annuity with CMFG that listed as its beneficiaries her husband William Schell and her three children. On December 14, 2012, between 11 and 11:30 am, Schell delivered a Change of Beneficiary form to the office of Lee's financial advisor, Nelson Turner. The form, signed by Schell as attorney-in-fact for Lee pursuant to a power of attorney that had been executed by Lee on December 6, named Schell as the sole beneficiary of the annuity, removing Lee's three children. Turner faxed the form to CMFG; the fax transmission stated CMFG received it at 2:01 pm.

At 1:10 pm, in between the time of Schell leaving the form with Turner and the time of CMFG receiving the faxed form, Lee died. Therefore, CMFG rejected the beneficiary change because it had not received the form prior to Lee's death, as required by the contract. Schell objected to CMFG's payment of the benefits to Lee's children, arguing that he was the only beneficiary of the annuity, and this lawsuit resulted. 

Section 4.2 of the annuity stated that the beneficiary could be changed "by written request any time while the annuitant is alive." Both parties agreed that this language was clear that any beneficiary change had to take place while Lee was alive. But Schell said that the contract said the beneficiary change would be effective on the date signed, and he signed it while Lee was alive. The court, however, noted that this reading of the contract ignored the "by written request" language. The annuity actually contained a definition of "written request" that said it was a "written notice . . . received in our home office." The court noted that, although Schell might have signed the beneficiary form while Lee was still alive, it was not received by CMFG, as required by the contract, until after Lee had died. Therefore, it was not effective under the terms of the contract requiring it to be received while Lee was alive. 

You might be thinking that, if not for Turner's delay in faxing the form, Schell would have been tens of thousands of dollars richer at this moment. However, the court went on to rule that the change of beneficiary form would not have been effective in any event because Schell could not breach his fiduciary duty to Lee and use his power of attorney to achieve his own personal gain. 

At any rate, though, if you do have a properly executed change of beneficiary form for an annuity, it is in your best interest not to delay sending it in and making it effective. 

March 19, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (2)

Monday, March 14, 2016

Using Contract Law to Protect Guestworkers

 

H-2B visas provide for foreign citizens to work temporarily for American businesses in non-agricultural roles. However, these visas can sometimes lead to abuse of the foreign citizens working under them, as was alleged in a recent case out of the Eighth Circuit, Cuellar-Aguilar v. Deggeller Attractions, No. 15-1219. Also blogged about here from a workplace law point of view, the case involved a group of nineteen workers who had been employed in a traveling carnival. The workers alleged, among other things, that their employer had breached their employment contracts by paying them below the minimum wage. 

The district court found that there had been no contract between the workers and their employer, basing its decision on the federal regulations governing the H-2B visa program. However, the appellate court said that was the incorrect place to look for guidance on whether a contract existed. Rather, the existence of a contract is governed by state common law, and in this case there was enough evidence of a contract to survive a motion to dismiss. The workers received offers of employment from Deggeller and then traveled to the United States in acceptance of those offers, which was enough to establish a contractual relationship. The court then used the federal regulations governing the H-2B visa program to fill in the particular terms of the contract, which included a requirement that the employer pay no less than the minimum wage. Therefore, the workers' allegations that the employer had breached this requirement established a valid contract cause of action. 

Allowing the workers to proceed on a contract theory may seem like a positive development for similarly situated workers who might find themselves taken advantage of. However, I had the pleasure recently of hearing Prof. Annie Smith from the University of Arkansas School of Law speak on the prospect of mandatory arbitration clauses being applied to guestworkers. As we all know, mandatory arbitration clauses are currently in major vogue, and Prof. Smith expressed concern that mandatory arbitration would be detrimental to already vulnerable guestworkers. The decision here might encourage employers like Deggeller to enter into more formal contracts that would include arbitration clauses. If they're going to be found to be in a contractual relationship anyway, presumably the employers would want to exercise control over the terms of that contractual relationship. 

March 14, 2016 in Commentary, Games, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, March 7, 2016

Regulating against Forced Arbitration in Consumer Cases

As Stacey writes just below this post, much is happening in the arbitration arena currently.

In December, the United States Supreme Court ruled that the 1925 Federal Arbitration Act pre-empts state law. Thus, when parties have executed agreements calling for arbitration rather than court resolutions, the arbiration clause will be upheld. The case was DirectTV, Inc. v. Imburgia, No. 14-462.

In the case, Imburgia’s contract stated that “[i]f ... the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 [the arbitration section] is unenforceable.” http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf

The Supreme Court noted that when DIRECTV drafted the contract, the parties likely believed that the words “law of your state” included California law that then made class-arbitration waivers unenforceable. But the Court’s subsequent holding in AT&T Mobility LLC v. Conception found that the Federal Arbitration Act pre-empts state law on the issue. Thus, parties cannot contractually bind themselves to invalid state law. When they refer to “state law,” this means only valid state law.

These rulings favor businesses, not consumers. This is so particularly so in cases between consumers and banks or credit card companies. A 2007 report found that over four years, arbitrators ruled in favor of the financial institutions in no less than 94% of the cases.  Of course, in the typical take-it-or-leave it style contract, consumers have the choice only of agreeing to arbitrate or not getting the desired service.

As for the belief that arbitration saves scarce judicial resources, it is noteworthy that businesses file four times as many lawsuits as individuals. “It is hard to imagine any company giving up its own right to sue another company in a business dispute.” Double standards abound here.

Meanwhile, in early February, Senators Leahy and Franken introduced the Restoring Statutory Rights Act. This would create an exception in the Arbitration Act for disputes involving individuals and small businesses. The only way individuals would enter into arbitration is if they agreed to do so after the dispute has been filed. That’s very different from the current process, which automatically shunts all customer disputes into binding arbitration.

The Consumer Financial Protection Bureau is also considering a ban in mandatory-arbitration provisions in contracts for credit cards and other financial services. The Centers for Medicare and Medicaid Services is looking to do the same in relation to nursing home contracts.

Acts and regulations are highly warranted in this context. We know where the Supreme Court currently stands on the issue. We do not know where it will go with a new justice soon to be appointed, but judicial branch action in this area may not be forthcoming any time soon.

March 7, 2016 in Famous Cases, Legislation, Recent Cases, True Contracts | Permalink | Comments (0)

Arbitration Provisions, Professional Organizations Edition

People keep challenging arbitration provisions, and they keep losing. In this instance, a case out of Washington called Marcus & Millichap Real Estate Investment Services of Seattle, Inc. v. Yates, Wood & MacDonald, Inc., No. 73199-8-I

This time, the parties were both voluntary members of the Commercial Broker's Association (the "CBA"), the bylaws of which contained a clause that CBA members agreed to arbitrate disputes with each other according to the CBA's arbitration procedure. Neither party ever signed any sort of membership agreement to belong to the CBA, which Marcus focused on in its argument that the arbitration provision therefore wasn't enforceable. Marcus argued that, without a signed agreement, there was no evidence that it had manifested assent to the arbitration provision. However, well-established Washington law held that membership in the voluntary organization was evidence enough that Marcus and Yates assented to abide by its bylaws. There was no requirement that there be a signed agreement.

Marcus didn't confine its arguments to just asserting that there should have been a signed agreement, however. Marcus then tried to argue that it wasn't even a member of the CBA, because of the fact that no one had been able to produce a membership agreement signed by Marcus. This was a bad move on its part and lost it a lot of credibility. The court pointed out that Marcus had paid all of the CBA's required fees and dues since 1993 and had in fact on two previous occasions taken advantage of the CBA's arbitration tribunal to resolve disputes, a procedure only available to CBA members. The court also pointed out that, despite testifying that he did not believe Marcus was a member of the CBA, Marcus's regional manager had routinely provided other brokers with Marcus's "CBA Office ID" number. 

Marcus was willing to fight hard to keep this dispute out of arbitration, to the point of having to be scolded by the court for "prevaricating." At the point when that is happening, I'm not sure winning the case and staying in front of that judge is what you want! 

March 7, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, March 2, 2016

The "Bare Necessities" of Continuous Accrual

This case out of California, Gilkyson v. Disney Enterprises, Inc., B260103, involves the song "The Bare Necessities," which, as you can see from the above, is readily available on YouTube. The song was written by Terry Gilkyson (this might come up in a trivia competition someday, you never know). His adult children are the plaintiffs in this case. 

In the 1960s, Gilkyson wrote several songs for Disney pursuant to a work-for-hire contract under which Disney was deemed the author and owner of the songs and Gilkyson was paid $1,000 per song together with ongoing royalties for certain licensing. The contract specifically excluded royalties for use of the songs in "motion pictures, photoplays, books, merchandising, television, radio and endeavors of the same or similar nature." Disney has paid royalties on the song to Gilkyson and his heirs but Disney has never paid royalties for use of the songs in any audiovisual medium, including DVDs. The Gilkyson heirs disagree with Disney's interpretation of the contract and believe that they are entitled to royalties for use of the songs on VHS tapes and DVDs. Disney argues that the four-year statute of limitations on breach of contract actions bars all of the Gilkysons' claims, because all of the VHS tapes and DVDs complained about were first issued sometime prior to 2007. Therefore, according to Disney, Gilkyson should have brought this claim by 2011, not, as it did, in 2013. 

Disney loses this argument, however, based on the continuous accrual doctrine: "[E]ach breach of a recurring obligation is independently actionable." Basically, California law interprets the contract with Disney as being divisible, with each breach of that contract actionable and subject to its own statute of limitation period. Therefore, the court concluded that the Gilkysons could seek recovery of the royalties that were due for a period beginning four years from the filing of their complaint (so, from 2009 onward). According to this court, the California state court jurisprudence on this appears to be clear (although note that, at the trial court level, this case was dismissed without applying the continuous accrual doctrine). Disney pointed to a Central District of California case from 2001 that rejected the plaintiff's continuous accrual doctrine argument, but this California state court noted that it did so without any citation to any California case and that this court disagreed with that case's conclusion. 

So it's on to the next step for these parties: fighting over the interpretation of the contract. Or settlement. 

March 2, 2016 in Film, Film Clips, Music, Recent Cases, Television, True Contracts | Permalink | Comments (0)

Monday, February 29, 2016

Arbitration Provisions and Exotic Dancers

Are arbitration provisions binding against exotic dancers? Well, if you're wondering, in this Connecticut case, Horrocks v. Keepers, Inc., CV156054684S (behind a paywall), the answer is yes. 

The plaintiffs here filed the lawsuit alleging that they were employees, not independent contractors as the gentleman's club maintained, and as such the club had violated plaintiffs' legal rights as employees, including failing to pay minimum wage. The club moved to stay the proceedings arguing that it had signed an entertainment lease agreement with all of the dancers that required binding arbitration to resolve disputes. 

The plaintiffs' main argument was that the entire entertainment lease agreement was void because it had an illegal purpose in seeking to implement the club's violation of labor laws as alleged in the plaintiffs' complaint. Because the entire agreement was void, the argument went, the arbitration clause wasn't enforceable. In the alternative, the plaintiffs argued that the arbitration provision was unconscionable. 

On the plaintiffs' first point, the court concluded that the legality of the overall entertainment lease agreement was a matter for the arbitrator to decide. According to Connecticut precedent, the courts' job is only to determine if the arbitration clause is valid; every other issue is left to the arbitrator. Therefore, all of the arguments about the illegality of the entertainment lease agreement were left to the arbitrator, and the court focused its analysis on the alleged unconscionability of the arbitration provision. 

We've seen this story before. And, in fact, courts have seemed pretty determined to find arbitration provisions enforceable, even when other parts of the contract were unconscionable (or, as here, where it was questionable whether the contract was enforceable at all). There was actually Connecticut precedent about another set of exotic dancers suing another gentlemen's club with similar allegations, and in that case, D'Antuono v. Service Road Corp, 789 F. Supp. 2d 308 (D. Conn. 2011), the court upheld the arbitration provision against attacks of unconscionability. The court in this case follows the precedent, finding this case indistinguishable from D'Antuono.  

The court here allows for the possibility that this arbitration clause was part of an unenforceable adhesion contract presented in bad faith with a knowing illegal purpose, but says that alone isn't enough to deny enforcement of the arbitration clause, because that would only be procedural unconscionability. As far as substantive unconscionability went, the cost and fee shifting provisions provided in the arbitration clause weren't unreasonable, and the class action waiver included in the arbitration provision was also not unconscionable according to precedent: "Requiring the plaintiffs to pursue their claims individually is not an ineffective vindication of their rights." 

I admit that I'd never really given a lot of thought to class action waivers, but it does seem odd to assert that class action waivers do not harm the plaintiffs' ability to vindicate their rights. After all, class actions are frequently understood to exist to correct the problem that, sometimes, individual pursuit of claims isn't effective. 

At any right, individual pursuit through arbitration is what these plaintiffs are left with. 

February 29, 2016 in Commentary, Recent Cases, True Contracts | Permalink

Wednesday, February 24, 2016

Arbitration Provisions, Unconscionability, and Employment Contracts

We've looked at arbitration provisions and unconscionability before. In this recent case out of California, Yeotis v. Warner Pacific Insurance Services Inc., No. B245770, the agreement in question was found to be unconscionable in places, but that didn't doom the arbitration provision contained within it. 

There was an element of procedural unconscionability to the contract. The court concluded that the contract was an adhesion contract, because the plaintiff was required to sign it in order to keep her job. There was, therefore, some procedural unconscionability attached to the formation of the contract. Additionally, there was some substantive unconscionability in the contract's provisions that gave the court pause. The wording of the contract required the plaintiff to pay fees in arbitration that she wouldn't have had to pay in a court of law. The defendant tried to argue that that was only the impression given and that the plaintiff would never have had to pay those fees in reality, but the court was concerned that the plaintiff would assume, under the contract's language, that she would be responsible for the fees and therefore might hesitate to pursue her remedy against the employer. 

So the court directed the costs provision to be severed from the contract, but it found that the rest of the contract was enforceable. The procedural unconscionability was slight, it thought, and did not permeate the whole contract. The plaintiff's allegation that she had never been provided with the relevant arbitration rules prior to signing the contract was unpersuasive to the court as a more serious procedural unconscionability problem because the court thought she could have found the rules herself very easily and there was no contention otherwise. As for the rest of the arbitration procedures as explained in the contract, the court found that they were not substantively unconscionable and so could be enforced. 

 

February 24, 2016 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, February 15, 2016

Negligence Liability Releases, Pennsylvania Gold's Gym Edition

Gold's Gym, 3910 Wilson Blvd (Arlington, Virginia)

As a companion piece to the Delaware Planet Fitness case I discussed a few days ago, here's another case about negligence liability releases and gyms, this one involving a Gold's Gym in Pennsylvania: Hinkal v. Pardoe, No. 165 MDA 2014 (behind paywall).

In this case, the plaintiff was a member of Gold's Gym who used the personal trainer services offered by the gym. She was injured while working with weights under the direction of her Gold's Gym personal trainer. (Here, unlike in the Planet Fitness case, we get some details about her injury. It was a serious neck injury and required two separate surgeries, and it was alleged the injury resulted from there being too much weight on the equipment she was instructed to use and that she was told to continue using even after she complained of injury, because the personal trainer, it was alleged, didn't recognize the seriousness of the injury.) As in the Planet Fitness case, the Gold's Gym membership agreement that the plaintiff signed contained a release from liability for negligence. 

The court went through an analysis of whether this release was enforceable, noting that in Pennsylvania such releases are enforceable where they do not contravene public policy, they entirely concern two private individuals and their private affairs, and both parties bargain freely and the contract is not one of adhesion. Here, the court found that this contract was between a private individual and an entity concerning the individual's private affairs, and it was not against public policy because it did not concern any matter of public interest, which the court defined as "employer-employee relationship, public service, public utilities, common carrier, and hospitals." In addition, the court found that the plaintiff was not required to enter into a membership with Gold's Gym, so the plaintiff could not complain that she did not have bargaining power, because her decision to sign the membership agreement was purely voluntary and she could have walked away. 

Interestingly, the plaintiff didn't really seem to argue against any of those conclusions on the part of the court. What the plaintiff seemed to argue was that the release wasn't valid because she never read it and Gold's Gym never mentioned it to her or explained to her that she was exposing herself to the risk of being unable to sue based on negligence. She asserted that she signed the contract without reading it (as, let's face it, we almost all do) and without any in-depth discussion of it with Gold's Gym and that therefore the clause couldn't be enforced against her. The court, however, was unsympathetic. It pointed out that she had a duty to read the contract before she signed it and that her signature not only indicated that she knew she should have read it but also appeared directly after a line directing her to make sure she read both sides of the agreement. The release was written in ambiguous and straightforward language and she would have understood it had she read it, according to the court. 

There was, however, a dissent in this case, and while that dissent wasn't on the plaintiff's side with regard to not reading the contract, it did believe that allowing a release of liability for negligence in this situation was against public policy. As far as the dissent was concerned, gyms "implicate health and safety concerns," and so should therefore be a matter of public concern in the same way hospitals are. In fact, there was precedent that Pennsylvania had refused to allow a waiver of negligence liability in a case involving health treatments at a spa under the reasoning that it involved health and safety, and the dissent thought this case should fall under the same umbrella. Because Gold's Gym purported to provide for the physical health of its members, the dissent thought the public had an interest in ensuring that the services offered by Gold's Gym were qualified and held to a duty of care. The dissent also pointed out that other states would reach this same public policy conclusion, pointing specifically to New York as a state that would have held this release invalid, which we just saw in the trampoline park case

So there you have it: Another gym case, and another opinion supporting the release of liability for negligence, but this one with a dissent raising the question that such releases might be against public policy. 

February 15, 2016 in Recent Cases, Sports, True Contracts | Permalink | Comments (0)

Wednesday, February 10, 2016

Negligence Liability Releases, Delaware Planet Fitness Edition

 Planet Fitness, Revere, Massachusetts

On the subject of, again, releases for liability for negligence, a recent Delaware case, Ketler v. PFPA, LLC, No. 319 2015, examined one in the context of a Planet Fitness gym. The plaintiff was a member at Planet Fitness and had signed a membership agreement that contained a release for liability from negligence. The plaintiff was later injured while working out at Planet Fitness when the rowing machine he was using broke. He tired to argue that the release from liability for negligence was unenforceable. The court disagreed. 

Under Delaware law, a release is enforceable if it is unambiguous, not unconscionable, and not against public policy. Here, the language of the release was straightforward and unambiguous. Furthermore, the court found the release wasn't unconscionable. It was true that the plaintiff had no opportunity to negotiate the terms of the contract but that wasn't enough on its own to find unconscionability. The court noted that the plaintiff was free to not join Planet Fitness so the release wasn't unconscionable. Finally, the release wasn't against public policy because the Delaware legislature has never spoken on the issue of releases of liability and it is the legislature that establishes public policy. So the release was enforceable and the plaintiff's claims were barred. 

February 10, 2016 in Recent Cases, Sports, Weblogs | Permalink | Comments (0)

Monday, February 8, 2016

Arbitration Provisions and Unconscionability

This case is a lesson in: Do what the judge tells you to do. 

Ruiz v. Millennium Square Residential Association, Civil Action No. 15-1014 (JDB), out of the U.S. District Court for the District of Columbia, is a fairly staid dispute over whether a condominium owner complied with the condominium association bylaws when he made changes to his unit. The bylaws contained an arbitration provision for disputes like this, which the plaintiff argued was unconscionable. 

The court didn't seem to think much of the unconscionability argument. First of all, procedurally, it was unpersuaded by the plaintiff's allegation that, because he had to accept the bylaws as they were and couldn't negotiate them, they were unconscionable. The court pointed out that this would make all condominium bylaws everywhere unconscionable, which the court termed "at odds with common sense." The court pointed out that some very powerful buyers might in fact have the ability to negotiate condominium bylaws (which would seem to me to present a different case altogether, and so not very relevant to this case at all). The court also pointed out that the plaintiff could have chosen to buy real estate elsewhere if he didn't like the bylaws at Millennium Square. 

As for substantive unconscionability, the plaintiff raised three separate problems with the arbitration structure set forth in the agreement: (1) it didn't require a written decision; (2) it didn't provide for discovery; and (3) it didn't allow the plaintiff to participate in selecting the arbitrators. The court was dismissive of the first two arguments, saying that precedent doesn't require arbitration to have those characteristics, so there was no reason to find a clause not requiring them to be unconscionable. 

The third argument is where the defendant dropped the ball in this litigation, apparently. The defendant tried to argue that the plaintiff did have a role in selecting the arbitrators under the agreement. This argument hinged on reading together two separate provisions of the agreement. The court, however, was unconvinced by this reading. The court then specifically requested that the defendant address whether the arbitration procedure would be unconscionable if the defendant's reading was wrong and the plaintiff didn't have a role. The court actually invited supplemental briefing on that issue. The defendant, however, declined to make that argument. Maybe the precedent was really bad for the defendant, but it's generally a good idea to give the court supplemental briefing when it requests it, I think. The court concluded that the defendant's behavior was a concession that the clause was unconscionable. Faced with a failure to argue by the defendant, the court concluded that the defendant's reading of the contract was wrong; plaintiff had no role in selecting the arbitrators under the agreement; and that was unconscionable because the court had been given no ability to rule otherwise. 

The court therefore severed the unconscionable arbitration procedure in the arbitration clause but upheld the rest of the clause. It requested that the parties work together to arrive at new, detailed, acceptable arbitration procedures. 

February 8, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, February 3, 2016

Liability Releases for Negligence, New York Trampoline Park Edition

A recent case out of New York, Gosh v. RJMK Park LLC, No. 155024/2015 (thanks to reader Frank for the non-paywall link!), tackled the familiar issue of negligence liability release provisions, this time in the context of a trampoline park that the plaintiffs' child was injured at while playing "trampoline dodgeball." I had no idea what this was, so I looked it up. Here's a video: 

It mainly looks like something people who don't get motion-sick should play (i.e., people who are not me). 

The plaintiffs had signed an agreement with the trampoline park with a clause under which they waived all claims against the trampoline park arising out of negligence. Under New York law, such a clause is unenforceable when "a place of amusement or recreation" with an entry fee is involved as against public policy. 

However, that didn't mean the plaintiffs got everything they wanted in this case. The plaintiffs' argument was that the presence of the negligence liability release clause rendered the entire agreement with the trampoline park unenforceable, including the venue provision that required them to bring suit in Westchester County. The court disagreed: Just because that one provision was unenforceable didn't mean the entire agreement got thrown out. Rather, the court severed the negligence liability release provision as "unrelated" to the main goal of the agreement. It didn't actually clarify what the main objective of the agreement was, just dismissed the release provision as being related to "legal stuff," basically. At any rate, the agreement had contained the standard boilerplate provision stating that any illegal clause should be severed from the agreement and the rest of the agreement enforced, which also supported the court's conclusion. So venue was transferred to Westchester County. 

February 3, 2016 in Commentary, Games, Recent Cases, Sports, True Contracts | Permalink | Comments (2)

Monday, February 1, 2016

How Much Does It Cost to Have an IMAX Theater in Your Own Home?

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Okay, there's actual contract stuff to talk about in this case, but mostly I was fascinated to learn that IMAX theaters rent the movie-showing equipment from IMAX and, in 2004 at least, the cost was $41,400 in annual maintenance fees plus the greater of $75,000 or 7% of the box office receipts in annual rent. So, if you win the lottery and want an IMAX theater in your house, there's a rough idea of the kind of costs you're looking at. 

And now that we've learned that fascinating tidbit of information, what happens when you get into a fight with IMAX about whether the equipment it's leased you is capable of playing "Hollywood" movies? 

That's what happened in a recent case out of the Middle District of Pennsylvania, IMAX Corp. v. The Capital Center, Civ. No. 1:15-CV-0378. In that dispute, Capital Center alleged that it told IMAX it wanted to rent its equipment so it would be able to show "Hollywood" movies. In 2004, it entered into a fifteen-year lease of IMAX's movie-showing equipment/software/etc. Apparently around 2014, IMAX announced that it had developed new technology that rendered the equipment Capital Center had rented obsolete, interfering with Capital Center's ability to play "Hollywood" movies. (I keep putting "Hollywood" in quotation marks because it's in quotation marks in the opinion. Clearly Capital Center considered it a direct quote and an important characterization.)

In reaction to the new technology, Capital Center stopped paying rent on the old technology, apparently because it felt its equipment was now valueless. IMAX pointed out that Capital Center had therefore breached the contract and IMAX was entitled to the remainder due under the lease in liquidated damages (a clause in the contract). Capital Center gave the equipment back to IMAX, and IMAX sued to collect the money it claimed it was due under the contract. Capital Center raised in response defenses of mutual mistake and frustration of purpose. It also claimed IMAX had no right to demand the further rent amounts because Capital Center no longer had possession of the equipment. Finally, it claimed that IMAX had not properly disclaimed its warranty that the equipment was fit for a particular purpose, i.e., playing "Hollywood" movies. Unfortunately for Capital Center, none of these defenses succeeded. 

Capital Center's mutual mistake defense centered on the "mistake" that both parties made that the equipment that was the subject of the lease would still be capable of playing "Hollywood" movies fifteen years later. However, the mutual mistake defense exists to vindicate mistakes of fact, not errors in predicting the future; this situation was the latter. There was no "fact" that IMAX thought it knew that the equipment would still be valid in fifteen years. And, in fact, the agreement itself contemplated as much, because the agreement contained a clause noting that IMAX might upgrade its equipment and setting forth the terms by which Capital Center could receive the improved equipment. Difficult for Capital Center to argue that the parties were mistaken about the future viability of the equipment in question when the agreement itself noted that the equipment in question might not be viable in the future. 

The frustration of purpose defense failed for a similar reason. Here, the purpose of the contract might have been to play "Hollywood" movies but there was no unforeseen event that occurred after the signing of the contract that frustrated that purpose. The agreement itself predicted that the equipment might not continue to be viable for the showing of "Hollywood" movies. Therefore, the continued viability of the equipment could not be said to have been a basic assumption of the contract. 

As for the argument that IMAX shouldn't be entitled to future rent payments because IMAX was in possession of the equipment, under Pennsylvania law, IMAX was entitled to choose either future rent payments or repossession of the equipment. However, IMAX didn't seek to repossess the equipment; Capital Center gave the equipment back to IMAX of its own volition. Therefore, IMAX wasn't seeking repossession, only the future rent payments: a choice it was allowed to make. 

Finally, the contract between the parties had contained a clause in which IMAX disclaimed all of the usual warranties, including suitability to a particular use, i.e., showing "Hollywood" movies. Under Pennsylvania law, such a disclaimer is valid as long as it is "conspicuous." Capital Center tried to argue that the disclaimer in question wasn't conspicuous, but it was the only clause in the seven-page Schedule B of the agreement that was in bold font, which, according to the precedent, rendered it "sufficiently conspicuous." 

February 1, 2016 in Commentary, Film, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (2)

Wednesday, January 27, 2016

Binding Arbitration Clauses, Educational Training Materials Edition

No, it's not legal-education-related, but rather real-estate-education-related. Which, according to the plaintiff, didn't actually teach her what it promised to teach her. So she sued. The defendant, however, noted that she'd signed a contract with an arbitration clause and so they shouldn't be in court. And the court agreed, in Kane v. Yancy, CIVIL ACTION NO. H-15-1861 (behind paywall), a recent case out of the Southern District of Texas. 

Arbitration clauses are, of course, generally looked upon favorably by courts. In this case, there was no dispute that the contract contained an arbitration clause and that the plaintiff signed the contract. Rather, the plaintiff argued that the arbitration clause was unconscionable. The plaintiff claimed the arbitration clause was on the back of the piece of paper that she signed and she never saw it. She further claimed that the arbitration clause required each party to bear their own costs and attorneys' fees, which made the cost of arbitration unconscionably prohibitive for her.

All of the plaintiff's arguments failed. Texas precedent indicated that the question of whether the costs and attorneys' fees portion of the arbitration clause was enforceable was a question for the arbitrator to decide, not the court. At any rate, the court didn't feel that the fees were so exorbitant as to cause concern. 

In addition, the court didn't really care about her allegation that she had never seen the arbitration clause because the plaintiff's signature was under a statement indicating that she had read everything on the back of the piece of paper she signed. As we all know, on virtually a daily basis we attest that we've read terms and conditions that we have maybe only barely glanced at, if that. Clearly, that's what the plaintiff in this case did, too. This court didn't care from a legal unconscionability standpoint. 

The plaintiff made a couple of other interesting arguments. She tried to argue that, by answering her complaint in court, the defendant had waived its right to arbitration. The court, unsurprisingly, didn't buy it. She also tried to argue that the defendant's breach of the contract excused her from being bound by the arbitration clause. The court, however, noted that the defendant's alleged breach of the contract had nothing to do with the arbitration clause itself, and thus that clause was not excused by the defendant's alleged conduct. 

The defendant actually moved for sanctions but the court said that the plaintiff's actions weren't frivolous or intended to harass. So the plaintiff may have lost everything else, but at least she didn't get sanctioned. Hashtag-finding-a-silver-lining. 

January 27, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, January 25, 2016

Is a Dollar Movie in This Day and Age Still Feasible?

Cinemaaustralia

The average price for a movie ticket in the United States is apparently $8.61. A recent case out of Ohio, Capital City Community Urban Development v. Columbus City, Case No. 13CVH-01-833 (behind a paywall), dealt with the question of whether a dollar movie is still feasible when most movies cost more than $8.00. 

The contractual provision at issue was: "The Buyer agrees to provide Saturday movies for children once the theater is operational, and for as long as feasible. The cost is to be $1.00 or less for a double feature." (So, in fact, it was fifty cents a movie.) The clause actually wasn't that old (from what I could discern from the facts, it seems to have only been written in 2002), so it wasn't as if the dollar price was intended to be profitable, which both parties acknowledged. However, the issue was that the defendant had sought donations to offset the cost of the features and been unsuccessful. That meant that the theater would suffer a loss of $100,000 a year to fulfill the contractual provision, which would have been a substantial hardship to the theater. Moreover, the double feature wasn't very popular in the community. In a theater with a capacity of 400, it usually only attracted a few dozen patrons. 

The parties fought over whether the definition of feasibility included a consideration of the economics of the issue. There was some precedent that feasibility required looking at the finances of the situation. Also, compellingly in the court's view, feasibility had to take into account the finances or else it had no meaning. The argument that "feasible" meant "capable of being done" without looking to the finances meant that it would be "feasible" basically as long as the theater was open, i.e., as long as the theater had a projection. That would mean that it would be "feasible" until the theater closed down entirely. If that was the meaning of the word "feasible," there was really no reason to have that specification in the contract: it would have just been a clause in effect until the theater closed. 

This all makes sense to me, especially considering that there didn't seem to be much public interest in having the double feature continue. However, what's really striking to me about this opinion is the statement that "Columbus never showed a Saturday children's movie." So apparently Columbus's argument was really that it was never feasible to have the double feature. This meant Columbus agreed to a provision in the contract that it apparently never intended to comply with? That's not a wrinkle that gets introduced in this case--in fact, the line that no double feature had ever been shown is basically a throwaway line--but I found it to be the most striking detail. 

January 25, 2016 in Commentary, Film, Recent Cases, True Contracts | Permalink | Comments (0)