ContractsProf Blog

Cross-Postings from Concurring Opinions: Online Symposium on Contracts in the Real World

Last week, the Concurring Opinions blog hosted an online symposium on Larry Cunningham's new book Contracts in the Real World: Stories of Popular Contracts and Why They Matter.  An introduction to the symposium can be found here.  With the permission of the authors, we are cross-posting the commentaries here.  Here is a listing of the posts:

Miriam Cherry, Post I
Miriam Cherry, Post II
Miriam Cherry, Post III
Ronald K.L. Collins
Larry Cunningham, Post I
Larry Cunningham, Post II
Larry Cunningham, Post III
Erik Gerding
Susan Schwab Heyman
David Hoffman
Law Student Umo Ironbar
Nancy Kim
Donald C. Langevoort
Jake Linford
Tom Lin
Jennifer S. Taub

Those of you in the teaching world, we hope that you will have a look at Larry's book and give serious consideration to the possibility of adopting it for your courses or recommending it to your students.  To our student readers, this is a really fun book that will enhance your enjoyment of and appreciation of the law of contracts.

[JT] 

Contracts in the Real World and the Law School Curriculum

[Like Jake Linford's post, this is a cross post from Concurring Opinions, which had an online symposium about Professor Cunningham's book, Contracts in the Real World.  I previously blogged about the book here.]

There’s been a lot of noise recently about the law school curriculum and real world training. In contracts courses, that typically means that we should give students experience reviewing and drafting actual agreements. I think there’s another aspect of training that we need to provide students, and that’s to show them the relevance of the cases we assign from musty books, and show them how to apply those cases to new fact patterns. That’s where Professor Cunningham’s book comes in. It is chock full of fun contracts disputes ripped out of today’s headlines. Of course there’s the People magazine allure of reading about celebrities and their unreasonable demands and unbelievable predicaments. Cunningham’s book tells tales of love children and blackmail, bad bets and bad defenses. It was so entertaining that I almost felt guilty reading it – which makes me think that my students will enjoy the engaging tales and humorous anecdotes just as much as I did. Cunningham does a great job of weaving old cases with new ones, and new cases with newer ones. In showing how everything old is new again, Cunningham wages a strong case that contract law is alive and well. It made me feel that my chosen subject area was relevant and timely – and interesting. Sure, Contracts as a 1L course may not have the sex appeal of Con Law, or the life-and-death importance of Crim Law, but Cunningham shows that the subject can be intriguing just the same.

 As Professor Collins put it (better and more eloquently) in his post, what makes this book unique is not just its readability but that it places contracts within their business context. For students who haven’t yet worked on a deal or negotiated a contract, it helps them to understand abstract concepts to have some sort of setting, something they can imagine. When that setting is one that they’ve read about in the paper or heard in the news, it just makes it more fun.

I did have one minor quibble with the book, and it’s that Cunningham’s “alive and well” view of contracts was misleading with respect to one infamous case. Yes, I’m talking about the quick gloss given to ProCD (and by extension, the slew of cases that followed in its wake). Cunningham provides what could be interpreted as a rationale for ProCD, but I wish he would have been a bit more critical. I’m not so sure that the case can be justified doctrinally – Easterbrook’s whole bit about ProCD being the master of the offer and the notice of terms in a box – it stretches the truth a bit much. I’m not quibbling with the result in the case so much as the rationale, and I think the rationale matters for the simple reason that it establishes precedent. Precedent that’s been followed by too many other courts even where the facts don’t warrant it. The court in ProCD could have enforced the contract against Zeidenberg under a quasi-contract theory or maybe an unfair competition claim (although I can’t recall off hand whether ProCD ever raised either). But it didn’t, and now we’re stuck with rolling contracts and the contracting of everything online. But Cunningham comes around in the next section when he acknowledges the challenges of applying old doctrine to new encounters. He comes down hard against those who would make blanket statements that website privacy policies cannot be contracts. As Cunningham notes, “They can be enforceable contracts or promises when meeting traditional tests of manifested intention, assent, and either consideration or reliance.” I couldn’t agree more.

Contracts in the Real World does what may seem impossible to wary 1Ls – it makes an old topic like Contract law seem dynamic, fun - and relevant.

[Nancy Kim]

Some Spy Suits Are Justiciable

We have reported previously on the fact that the Totten doctrine bars suits against the United States by people who enter into espionage contracts with the government.  But what if you are engaged in espionage for the Church of Scientology?

As reported here in the Tampa Bay Times, Paul Marrick and Greg Arnold are suing the Church of Scientology for breach of contract.  The two men claim that David Miscavige, the Church's leader, hired them to spy on the Church’s rivals, especially Pat Broeker, who was ousted during a power struggle in 1986, and whom it was believed still constituted a threat to Miscavige’s power over the church.  The theory was that Broeker had misappropriated $1.8 million in Church funds and that he was in possession of invaluable records entrusted to him by Church founder L. Ron Hubbard (pictured).

Marrick and Arnold allege that the Church has been paying them up to $500,000 a year since 1988 to keep the Church informed of the comings and goings of Broeker, among others, including Indiana governor Mitch Daniels when he was with Eli Lilly, and promised that their positions were permanent.  However, they allege that the Church stopped paying them two earlier this year, and they have now filed suit.

Marrick and Arnold claim that, while no written agreement existed, the assurances given to them by the church constitute a verbal agreement that the church breached when it stopped paying them.  Statute of Frauds much?  They claim to have kept ample records detailing their work, and according to the Tampa Bay Times, when they suggested that they would share that information with the newspaper, the Church initiated settlement talks in a suit it characterized as a "shakedown."  The Church acknowledges that the two men worked for them, providing "various services" as "independent contractors."  

[Christina Phillips and JT]

Challenge to Religious Arbitral Bodies Referred to European Court of Justice

As reported in The Guardian here, a challenge to a series of UK rulings permitting parties to specify the religion of their arbitrator is being referred to the European Court of Justice.  The UK Supreme Court case at issue, Jivraj v. Hashwani, was decided in July 2011.  The two parties to the dispute are members of the Ismaili Muslim community, and they agreed that any disputes involving their joint venture would be decided by an arbitrator who belonged to that same community.  

The parties fell out and, after some complicated litigation, their chosen arbitrator resigned.  Hashwani wanted to replace the Ismaili arbitrator with a retired judge, but Jivraj objected that the nomineed was not Ismaili.  Hashwani contended that the part of the paties agreement specifying the ethnicity of the arbitrator is s unenforceable under European legislation and the Equality Act 2010 because it unfairly discriminates against non-Ismaili arbitrators.  The Supreme Court ruled in Jivraj's favor, finding that the Equality Act does not apply to arbitrators and, even if it did, the requirement that the arbiter be Ismaili was a "genuine occupational requirement" and thus permissible.  

A new, Ismaili arbiter was appointed, but he too resigned, and Hashwani then asked the European Commission to refer the issue to the European Court of Justice.  Given that the dispute is clearly commercial, rather than religious in nature, Hashwani believes that there is no need for the arbitrator to be from the Isamili Islamic community.  The Guardian suggests that an ECJ ruling could have far-reaching consequences for religious arbitration, but it would seem that there is room for a narrow holding that religious arbitration is perfectly appropriate when there are issues of religious law to be adjudicated.  

[JT, with hat tip to my student, Alex Seciuch]

District Court Rules on Paramount's Motion to Dismiss Puzo Estate's Counterclaims

The United States District Court for the Southern District of New York recently awarded a partial win to the Estate of Mario Puzo (author of the popular novel “The Godfather”) when it denied Paramount Pictures Corp.’s (Paramount) motion to dismiss the Estate’s breach of contract counterclaim, which Paramount claimed was preempted by the Copyright Act. The win was indeed partial in that the District Court dismissed the Estate’s remaining counterclaims.  The issue at the heart of the parties' dispute, whether book publishing rights to all sequels were among the rights that Puzo sold to Paramount, was not before the court on Paramount’s motion to dismiss.

The Estate's breach of contract claim is based on a 1969 Agreement between Puzo Sr. and Paramount, (the details of which we recently blogged about here), through which Paramount claims that Puzo signed over all publishing rights regarding any sequel to “The Godfather.”   Based on some language that the parties left out of the 1969 agreement, the Estate reads Paramount's rights more narrowly and alleges that Paramount repudiated and breached the 1969 Agreement when it interfered with rights allegedly reserved in the Estate. In fact, the District Court noted, the Estate is seeking to characterize as repudiation conduct that simply contradicted the Estate's narrow reading of Paramount's contractual rights.  Under New York law, such conduct does not constitute a repudiation unless a party advances an untenable contract interpretation in order to avoid its contractual obligations.  The Court hinted that there was no evidence that Paramount had ever sought to escape its contractual obligations and thus seems to have tipped its hand that it sees no merit in the Estate's breach of contract claim.  However, as Paramount did not move to dismiss on that basis, the court moved on to the preemption issue.  

The District Court rejected Paramount's argument that federal copyright law preempts the Estate's breach of contract claim.  The elements required to prove the Estate’s claim differ from those needed to establish copyright infringement.  Instead of proof of a valid copyright and copying of protected elements of a copyrighted work, the Estate must establish that Paramount had a contractual obligation not to interfere with its exercise of book publishing rights and that Paramount breached that obligation.  Moreover, the Court pointed out,  “a copyright is a right against the world,” providing for exclusive rights in the holder. In contrast, the Estate’s claimed right is one that creates a potential liability in Paramount if it should breach. Everyone else can do as they please.

In sum, because the Estate’s claim focuses on a contractual obligation outside federal copyright law, it is not preempted and Paramount’s motion to dismiss the Estate's breach of contract claim on that basis was denied.

[Christina Phillips and JT]

Fifth Circuit Finds Oil and Gas Lease Agreement Most Definitely Not Indefinite

Last year, the United States District Court for the Eastern District of Texas when the court determined Chesapeake Exploration, LLC (“Chesapeake”) violated its agreement with Peak Energy Corporation (“Peak”) involving certain oil and gas leases in the Haynesville Shale formation.  Chesapeake appealed the district court decision, contending that the agreement at issue was unenforceable under the Texas statute of frauds, was fatally indefinite, and that Peak had failed to tender performance.  On September 12^th, in Coe v. Chesapeake Exploration, LLC, he Fifth Circuit affirmed the award. 

In July 2008, when natural gas prices were soaring, Chesapeake emailed a letter entitled “Offer to Purchase” (the July Agreement) to Peak’s contact, Richard Coe.  The e-mail contained offer of a little over $81 million for the oil and gas leases on Peak’s 5,404.74 acres of land  in Harrison County, TX, at $15,000 per acre.  The offer had to be accepted by 5:00 PM CDT on July 3, 2008, but also described the transaction as a “valid and binding agreement.”  

The parties were to close on August 31, 2008.  After a few delays on both sides, pushing the closing date to October 9, 2008, Chesapeake requested a further delay and then announced that it was backing out.  This decision coincided with the 50% fall of natural gas prices, leaving the leases in question with a value of $3000/acre.  Peak and the Coes then filed suit to enforce the July Agreement.

Although Chesapeake claimed that the July Agreement was void under the Texas statute of frauds because it did not adequately identify the property.  To satisfy the statute of frauds, a contract for the conveyance of an interest in land must only identify the property to be conveyed with “reasonable certainty,” and a “recital of ownership” is one mechanism for providing such certainty.  Since, in the July Agreement, Peak agreed to convey all of its interests in the oil and gas leases, it had provided the requisite recital of ownership and the “reasonable certainty” standard was met.

Further, Chesapeake claimed that the parties had no intent to “bind themselves” by signing the letter and that the agreement lacked material terms.  However, the July Agreement stated on its face that it was “valid and binding,” stated plainly that it was an “Offer to Purchase” and placed a time limit on acceptance.  In addition, Chesapeake repeatedly assured Peak that it would follow through with the transaction.  Chesapeake sought to rely on a confidentiality agreement into which the parties had entered as evidence that the transaction was merely contemplated.  The Fifth Circuit affirmed the District Court’s finding that the confidentiality agreement did not alter the substance of the July Agreement and was a standard form routinely used by Peak when providing information in connection with transactional due diligence. 

Chesapeake further contended that the terms of the July Agreement were so indefinite as to render the agreement unenforceable.  It claimed the agreement did not provide a final lease schedule or a figure regarding revenue interest.  The Fifth Circuit found that the first term was not material and the second term was in fact covered in the July Agreement Although Chesapeake claims it requested that the latter term be deleted, “one party unsuccessfully attempting to retroactively change an essential term does not prove that term had not been previously agreed to and included in the agreement.”  Chesapeake also claimed the July Agreement lacked terms that would have been included in the final Purchase and Sale Agreement, such as warranties of title, depth limitations, non-compete provisions, and options to purchase additional acreage.  The Fifth Circuit rejected these arguments either because they were included in the July Agreement or were not essential terms whose absence would render an agreement indefinite.

In its final attempt to render the July agreement unenforceable, Chesapeake alleged that Peak failed to perform its obligations under the July Agreement when it only delivered 1,645.917 acres instead of 5,404.75.  Both parties were aware that the number of acres Peak could deliver was uncertain, which is demonstrated by the language “approximately” and “more or less,” along with an adjustment clause present in the July Agreement.  The Fifth Circuit thus found that the District Court did not err in concluding  that Peak was willing and able to tender its performance as specified by the July Agreement. 

[JT & Christina Phillips]

New in Print

We have an especially large collection of new articles this week in large part thanks to the efforts of Jeff Lipshaw and the good people at Suffolk Law who hosted a conference in honor of the thirtieth anniversary of the publication of Charles Fried's classic work, Contract as Promise.  As the riches below indicate, this conference will provide theoretical fuel to keep contracts profs going for some time to come.  Charles Fried is pictured below.

Kevin Banks and Elizabeth Shilton, Corporate Commitments to Freedom of Association: Is There a Role for Enforcement under Canadian Law? 33 Comp. Lab. L. & Pol'y J. 495 (2012)

Randy E. Barnett, Contract Is Not a Promise; Contract Is Consent, 45 Suffolk U.L. Rev. 647 (2012)

Brian H. Bix, Theories of Contract Law and Enforcing Promissory Morality: Comments on Charles Fried, 45 Suffolk U.L. Rev. 719 (2012)

Jean Braucher, The Sacred and Profane Contracts Machine: The Complex Morality of Contract Law in Action, 45 Suffolk U.L. Rev. 667 (2012) 

Curtis Bridgeman, Civil Recourse or Civil Powers? 39 Fla. St. U. L. Rev. 1 (2011)

Curtis Bridgeman and John C.P. Goldberg, Do Promises Distinguish Contract from Tort? 45 Suffolk U.L. Rev. 873 (2012) 

Thomas V. Burch, Regulating Mandatory Arbitration, 2011 Utah L. Rev. 1309

Richard Craswell, Promises and Prices, 45 Suffolk U.L. Rev. 735 (2012)

Zev J. Eigen, When and Why Individuals Obey Contracts: Experimental Evidence of Consent, Compliance, Promise, and Performance, 41 J. Legal Stud. 67(2012)

Barbara H. Fried, The Holmesian Bad Man Flubs His Entrance, 45 Suffolk U.L. Rev. 627 (2012)

Charles Fried, Contract as Promise Thirty Years On, 45 Suffolk U.L. Rev. 961 (2012).

David Adam Friedman, Bringing Order to Contracts against Public Policy, 39 Fla. St. L. Rev. 563 (2012)

Avery Katz, Virtue Ethics and Efficient Breach, 45 Suffolk U.L. Rev. 777 (2012)

Gregory Klass, Promise Etc. 45 Suffolk U.L. Rev. 695 (2012) 

Juliet P.  Kostritsky, The Promise Principle and Contract Interpretation. 45 Suffolk U.L. Rev. 843 (2012)

Roy Kreitner, On the New Pluralism in Contract Theory, 45 Suffolk U.L. Rev. 915 (2012)

Jeffrey M. Lipshaw, Contract as Meaning: An Introduction to "Contract as Promise at 30," 45 Suffolk U.L. Rev. 601 (2012)

Daniel Markovits and Alan Schwartz, The Expectation Remedy and the Promissory Basis of Contract, 45 Suffolk U.L. Rev. 799 (2012)

Nathan B. Oman, Promise and Private Law, 45 Suffolk U.L. Rev. 935-960 (2012)

Nathan B. Oman, Why There Is No Duty to Pay Damages: Powers, Duties, and Private Law. 39 Fla. St. U. L. Rev. 137 (2011)

James M. "Jamie" Parker, Jr. and J.K. Leonard. Why Your Secretary Is Really Worth a Million
Dollars: Exploring the Harsh Penalty for Not Proofreading Your Fee Agreements in Anglo-Dutch Petroleum v. Greenberg Peden. 2 St. Mary's J. Legal Mal. & Ethics 104 (2012) 

Henry E. Smith, The Equitable Dimension of Contract, 45 Suffolk U.L. Rev. 897-914 (2012) 

George Triantis, Promissory Autonomy, Imperfect Courts, and the Immorality of the Expectations Damages Default, 45 Suffolk U.L. Rev. 827-841 (2012)

Peer Zumbansen, Rethinking the Nature of the Firm: The Corporation As a Governance Object. 35 Seattle U. L. Rev. 1469 (2012)

[JT]

Sometimes a Hyphen is Just a Hyphen

Did varying hyphen use in a credit swap agreement create an ambiguity?  According to a panel of New York appellate judges (First Department): No, an errant hypen here-or-there does not change the natural meaning of the language.

Here’s a nice summary of the case from the NYLJ (link may require subscription):

Brazilian infrastructure company Concessionaria Do Rodoanel Oeste does not have to pay a termination fee for prepaying $895 million in loans and thereby terminating interest rate swap agreements with investment banks Banco Espirito Santo, Caiza Banco de Investimento and Credit Agricole Corporate Investment Bank, a unanimous appeals panel has ruled in rejecting the banks' argument that the inconsistent use of a hyphen in the swap agreements created ambiguity.

Rodoanel took out $895 million in loans to complete a highway project and hedged them by entering into interest rate swap agreements, a type of derivative, with the banks. Rodoanel decided to pay down the debt before it was due, allowing it to terminate the swap agreements. The banks claimed that Rodoanel owed them a termination fee, called the "Close Out Amount" or "Close-out Amount" in different documents. They said that the differing punctuation created ambiguity about what the term meant, requiring the use of parol evidence in addition to the contracts themselves.

The trial court held that the discrepancy in hyphenation caused an ambiguity and allowed the banks to introduce parol evidence.  The appellate panel reversed and held that the agreement was not ambiguous and that the “ordinary and natural meaning” of the language was dispositive.  It appeared to the court that the banks were attempting to manufacture an ambiguity to effectuate a result that the banks should have provided for in the agreement:

If plaintiffs, who are commercially sophisticated "hedge providers," had intended that, in the event of an early termination, the party "in the money" was entitled to retain the benefits of this favorable market condition, they could easily have expressed this intent in the language of the interest rate swap agreement.

Further, the court wrote that punctuation is a guide in interpreting a contract, but should not be used to contravene the parties’ clearly manifested intent:

Ultimately, this case serves as a reminder that, in a contract containing punctuation marks, the words and not the punctuation guide us in its interpretation (see 17A CJS Contracts §406; 12 AM Jur Contracts §256). Punctuation is always subordinate to the text and is never allowed to control its meaning (Sirvint v. Fidelity & Deposit Co. of Md., 242 App Div 187, 189 [1st Dept. 1934), affd, 266 NY 482 [1934]; see also 17A Jur 2d Contracts §366 [2011]; 68A NY Jur Insurance §869). Of course, punctuation in a contract may serve as a guide to resolve an ambiguity that has not been created by punctuation or the absence therein, but it cannot, by itself, create ambiguity (Wirth & Hamid Fair Booking, Inc. v. Wirth, 265 NY 214 [1934]; see also Stoddart v. Golden, 179 Cal 663, 178 P. 797 [1919]; Randolph v. Fireman's Fund Ins. Co., 255 Iowa 943, 124 NW2d 528 [1963]). It is a cardinal principle of contract interpretation that mistakes in grammar, spelling or punctuation should not be permitted to alter, contravene or vitiate manifest intention of the parties as gathered from the language employed (Sirvint, 242 App Div at 189; Wirth & Hamid Fair Booking, 265 NY at 219).

Banco Espírito Santo, S.A. v. Concessionária Do Rodoanel Oeste S.A., 652013/11, NYLJ 1202571875870, at *1 (App. Div., 1st, Decided September 18, 2012) (link may require subscription to NYLJ).

[Meredith R. Miller]

Estate of Mario Puzo Seeks Declaration Permitting Publication of Sequels to "the Godfather"

As reported here by Entertainment Weekly, Anthony Puzo (“Puzo”), son of Mario Puzo—well-known author of popular mafia novel “The Godfather”—has alleged, on behalf of the Puzo Estate (the “Estate”), material breach of contract and tortious interference on the part of Paramount Pictures (“Paramount”), and has petitioned a Manhattan federal court to deny Paramount the right to make future Godfather films.

Paramount first brought suit in February of 2012 seeking to enjoin the Estate from publishing sequel novels written by new authors using elements and characters from “The Godfather.”  Paramount sought a court declaration that a 1969 agreement that it entered into with Mario Puzo had granted it all rights and copyright interests, including literary rights and rights to the usage of its characters in any sequel or variation of “The Godfather.” Paramount claims that the only right left to the Estate was the right to publish the original novel.

However, in his Counterclaim, Anthony Puzo alleges that his father deleted the language that would have granted Paramount the exclusive right to publish any versions or adaptations of “The Godfather”, and instead opted to retain those rights himself (rights which, if so retained, now belong to his Estate). In addition, Puzo claims Paramount tortiously interfered with contracts between the Estate and Grand Central Publishing Company and Random House, which have agreed to publish various novels using characters from “The Godfather” written by new authors.

Puzo claims Paramount has attempted to either delay, or prevent entirely, the publishing of the new novels. In light of Paramount’s conduct, Puzo and the Estate seek a termination of the 1969 agreement and, which would then permit the publication of the books at issue and whatever else might follow. In addition to declaratory relief, Puzo seeks actual damages expected to be in excess of $5 million, punitive damages for Paramount’s alleged malicious conduct and costs of the suit.

As reported here on boston.com, the Estate-commissioned novel, “The Family Corleone,” was published in May, but profits from the book are to remain in escrow until the litigation between the parties has been settled.

[Christina Phillips & JT]

Seventh Circuit Finds Doctor Was Entitled To Lost Professional Fees

When Trinity Medical Center (Trinity) terminated Dr. Bassam Assaf’s employment as its medical director, Assaf filed suit for breach of contract.  Assaf and Trinity’s new CEO, Tom Tibbitts, negotiated an out-of-court settlement.  In return for dropping his claim, Assaf agreed to the following terms:

•  A salary of $50,000 each year from 2009-2011; and
• Automatic one-year renewal of his employment thereafter unless either party gave 90-days notice of intention to terminate the agreement 

Trinity later claimed that the agreement was incomplete and invalid and refused to reinstate him.  Then, in 2011, it provided notice of termination to Assaf in accordance with the notice terms agreed to.  This must have put Assaf into some perplexity, as he had never been reinstated.  "I haven't been employed for three years, and now on top of that, I'm fired," he might have cried.  In the District Court, the Magistrate decided to enforce the contract, but ultimately found that under Illinois law, he could not order Trinity to reinstate Dr. Assaf. The Magistrate also refused Assaf’s request for professional fees separate from his salary, finding that Assaf had failed to provide adequate evidence of any such lost fees during discovery and thus that Trinity had no opportunity to challenge Assaf's evidence

In Assaf v. Trinity Medical Center, the Seventh Circuit upheld part of the Magistrate's ruling but found that the Magistrate had abused his discretion in preventing Assaf from introducing evidence of lost professional fees.  Assaf sought specific performance of the settlement agreement, entitling him to employment through 2012.  He claimed that Trinity could not terminate him pursuant to an agreement that it had breached.  But while contract law does not permit a party in material breach to benefit from a contract term, the Seventh Circuit was not persuaded that Trinity had taken unfair advantage of the contact terms simply by exercising its right of termination with notice.  

The Magistrate denied Assaf's claims for professional fees because Assaf had disclosed his damage calculations after discovery had ended.   The Seventh Circuit found that excusion of the evidence was an abuse of discretion.  Assaf provided the information a month before trial was set to begin.  Not only was Trinity aware that Assaf sought professional fees, it had access to the information regarding these fees all along, since the information was contained in Trinity's files.  The case was remanded for a determination of the fees owed to Dr. Assaf.

[Christina Phillips & JT]

Student's Claims Against Dental School Brushed Aside

The Indiana University School of Dentistry (IUSD) dismissed Sung Yeun Park, citing her lack of professionalism, failing grades, and breach of confidentiality rules. Park sought readmission through a suit in the Southern District of Indiana alleging breach of contract, as well as equal protection and due process violations.  The district court dismissed Park’s claims for failure to state a claim, and the Seventh Circuit affirmed in Park v. Indiana University School of Dentistry.

Park alleged that IUSD breached its contract with her by failing to follow the dismissal procedures found in IUSD’s Student Handbook and Codes of Conduct, making her claim similar to those in the more successful Georgia case, Barnes v. Board of Regents, about which we recently blogged.   While the Seventh Circuit expressed some skepticism that there was an implied contract between IUSD and its students, Indiana courts in any case take a deferential approach to educational institutions' processes for student discipline. The court noted that “literal adherence to internal rules will not be required where the dismissal rests upon expert judgments as to academic or professional standards.”  The faculty at IUSD determined that Park “failed to progress in her professional development and failed to demonstrate fitness to practice” at the level deemed to be required. Because there was no indication that the decision was made in bad faith, the Seventh Circuit refused to second-guess the judgment of the administration, thereby determining Park had no claim for breach of contract.

Her due process argument amounted to a claim that her constitutional rights were violated because the IUSD had not followed the appropriate procedures, but her the Court found that her contractual interest is protected by state contracts law, not the federal constitution.  Nor did the Court accept Park's claim that her inability to pursue her chosen career path constituted a substantive due process violation.  The complaint contained insufficient allegations to state an equal protection claim.

The Seventh Circuit suggested that Park's claims could also have been dismissed on sovereign immunity grounds, but IUSD for some reason waived that defense by not raising it.

[Christina Phillips and JT]

The Case of the Non-Existent Arbitral Body

On July 26th, the Third Circuit decided Control Screening LLC v. Technological Application and Prod. Co.  The case involved a dispute over the purchase of eight customized X-ray machines for a price of just over $1 million.  The transaction soured and both sides claimed breach.  Control Screening is a New Jersay Company; Techological Application and Production Company (Tecapro) is a state-owned Vietnamese company.  

Although the parties' agreement contained an arbitration clause, Tecapro initiated arbitral proceedings in Belgium under the Belgian Judicial Code.  Control Screening filed a motion to compel arbitration in the United States District Court of New Jersey and to enjoin proceedings in Belgium.    Here's where it gets interesting.  The arbitration clause reads as follows:

In the event all disputes are not resolved, the disputes shall be settled at International Arbitration Center of European countries for claim in the suing party's country under the rule of the Center. Decision of arbitration shall be final and binding [sic] both parties.

The problem is that there is no such thing as the International Arbitration Center of European countries.  

The district court determined that the “only reasonable interpretation of the arbitration clause" was that Taxapro could seek to arbitrate in Vietnam and Control Screening could seek to aribrate in New Jersey.  Since Control Screening exercised its contractual option first, arbitration in New Jersey was proper.  The district court granted Control Screening's motion to compel arbitration.

On appeal, the Third Circuit looked to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which binding in both the U.S. and Vietnam and is implemented in the U.S. through the Federal Arbitration Act (FAA).    Article II(3) of the New York Convention invalidates an agreement to arbitrate "only when it is subject to an internationally recognized defense such as duress, mistake, fraud, or waiver…”  Here, because the parties mistakenly designated arbitration to commence at a non-existent arbitral body, the forum selection clause of the arbitration agreement is inoperative.  However, the remainder of the agreement establishes an intent to arbitrate.  The Third Circuit treated the agreement as though it had no forum selection clause.  

The FAA provides that “arbitration hearings and proceedings shall be within the district in which the petition for an order directing such arbitration is filed.”  On that basis, the Third Circuit determined that New Jersey was the proper district for the commencement of arbitration.  Because Control Screening’s motion to compel arbitration was brought in the District of New Jersey, the New Jersey arbitration site was proper.

This resolution is not entirely satisifying, as Marc. J. Goldstein points out in his detailed discussion of the case on his Arbitration Commentaries blog.  The parties did not agree on a particular venue, but it was pretty clear that they wanted to arbitrate in Europe.  The Third Circuit acknowledges as much when it rejects (in a footnote) the district court's conclusion that the only reasonable interpretation of the agreement was that each party could initiate arbitration in their home countries.  

The opinion does not state what became of Control Screening's motion to enjoin the proceedings in Belgium.  If a U.S. court grants a motion to compel arbitration in the U.S., does it automatically enjoin foreign aribtral proceedings that had already commenced?  We can understand why that result would follow from the district court's reading of the agreement, but the Third Circuit rejected that reading.  Having acknowledged that the parties anticipated arbitration in Europe, why would the Third Circuit enjoin such a proceeding in favor of a venue to which the parties likely considered and rejected?

[JT and Christina Phillips]

 

 

Sixth Circuit Upholds Sanctions and Remands Union Dispute to the NLRB

In July, 2009, DiPonio Construction Company, Inc. (DiPonio) terminated its collective bargaining agreement (CBA) with the International Union of Bricklayers and Allied Craftworkers Local 9’s (the Union).  The Union brought a claim for unfair labor practices (ULP) before the National Labor Relations Board (NLRB) alleging that DiPonio was required by the National Labor Relations Act (NLRA) to bargain for a new CBA.  Five days before the NLRB filed a ULP complaint against DiPonio, DiPonio sought a declaratory judgment from the district court stating that it had properly terminated the CBA.  When the NLRB moved to dismiss DiPonio’s claim for lack of subject matter jurisdiction, DiPonio amended its complaint to include a breach of contract claim and filed a motion to stay the NLRB proceedings.  The timing of the contract claim made it seem motivated by a desire to create jurisdiction in federal court over a dispute over which the NLRB would otherwise have exclusive jurisdiction.

The district court granted the NLRB’s motion to dismiss and imposed sanctions against DiPonio under Rule 11 of the Federal Rules of Civil Procedure.  DiPonio appealed to the Sixth Circuit and the Union sought further sanctions.  Last month, in DiPonio Constrcution Company, Inc. v. Interaitonal Union of Bricklayers and Allied Craftworkers Local 9, the Sixth Circuit affirmed the district court’s ruling in its entirety, while refusing to impose further sanctions.  The Sixth Circuit found that the question at issue was primarily one of representation rather than of contractual interpretation, and thus that resolution of the dispute in a federal court was inappropriate. 

The NLRB has exclusive jurisdiction over controversies concerning sections 7 or 8 of the NLRA, but federal courts have concurrent jurisdiction with the NLRB over contracts interpretation issues.  However, where the matter is primarily one of representation instead of contractual interpretation, courts defer to the NLRB. 

The nature of DiPonio’s bargaining obligations depends on whether the parties entered into the CBA pursuant to § 8(f) or § 9(a) of the NLRA.  Section 9(a) requires employers to “bargain with a union that has been designated by a majority of the employees in a unit for the purposes of collective bargaining with the employer,” while section 8(f) “allows unions and employers in the construction industry to enter into CBA’s without requiring the union to establish that it has the support of a majority of the employees in the unit covered by the CBA.”  In short, if the CBA is a § 8 contract, DiPonio has no duty to negotiate for a new CBA, but if it is a § 9(a) contract, it does.

In a 2006 decision, the Sixth Circuit found that a dispute will be treated as “primarily representational” (1) “where the NLRB has already exercised jurisdiction over a matter and is either considering it or has already decided the matter,” or (2) “where the issue is an ‘initial decision’ in the representation area.”  Here, the question of whether the contract was entered into pursuant to § 8(f) or § 9(a) was already before the NLRB (the Union’s ULP Complaint).  Thus, the matter was deemed primarily representational, and the Sixth Circuit handed the case over to the NLRB.

The Sixth Circuit upheld the Rule 11 sanctions that the district court imposed because DiPonio’s breach of contract claim was without merit and was filed in order to delay the NLRB proceedings.

[JT and Christina Phillips]

An Early Win for Hewlett-Packard in Its Battle with Oracle

For three decades Oracle and Hewlett-Packard (“HP”)  worked together, with HP selling its hardware and Oracle selling its software, to their shared customers and the two corporations cooperating to make certain that Oracle's software was compatible with HP's servers which run on a system called "Itanium."  Tensions arose when Oracle acquired Sun Microsystems (“Sun”), a direct HP competitor, in 2010.  And things did not get better when Oracle hired HP's former CEO, Marc Hurd, and HP sued to enjoin Hurd from sharing trade secrets with his new employers.  Meanwhile, HP sought assurances from Oracle that it would continue to offer its software on HP’s platforms.  Along with assurances from Oracle’s most senior software execs that it was committed to business as usual, the parties signed a “reaffirmation agreement” (the Agreement), which stated in Paragraph 1:

Oracle and HP reaffirm their commitment to their longstanding relationship and their mutual desire to continue to support their mutual customers.  Oracle will continue to offer its product suite on HP platforms, and HP will continue to support Oracle products…on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd.

The parties continued business as usual until Oracle abandoned this “work together” approach.  In a press release issued in March, 2011, it announced, without notice to HP, that new versions of Oracle’s software would no longer be compatible with HP’s server platform.  HP then filed suit, soon followed by Oracle’s very colorful cross-complaint. 

After a 12-day trial, on August 1st, the Santa Clara Couty Superior Court bestowed this win on HP, fiinding in HP's favor on its claims for both breach of contract and promissory estoppel.  The court found that the parties are bound by the Agreement, and that Oracle has a continuing obligtation to offer its product suite on HP's Itanium-based server platforms until HP discontinues the sale of its Itanium-based servers.   

The Superior Court began its inquiry by breaking down the plain language of Paragraph 1 and determined that (1) the first sentence was fully consistent with a continued obligation to make certain that Oracle software is compatible with HP servers, and (2) the second sentence used the language “Oracle will continue…” which can “only be reasonably interpreted as requiring Oracle to continue offering its product on HP’s Itanium platforms.”

The court rejected Oracle's argument that the Agreement  “merely a ‘public hug’ that imposed no obligations on either party,” and that Oracle “retained absolute discretion with regard to” making its software compatible with HP's systems.  In rejecting the "public hug" theory, the court noted that throughout the parties’ history, 99% of their dealings were accomplished without contracts.  Therefore, based on the parties’ prior course of dealing and the plain language of Paragraph 1, because HP was simply asking Oracle to maintain the business relationship as it had been prior to Oracle’s hiring of Hurd, it was fair and reasonable to require Oracle to continue its obligation to make its software compatible with HP systems.  Since the court interpreted the Agreement as a promise by Oracle to continue to work with HP, it found that Oracle's unilateral announcement that it would no longer make its software compatiable with HP systems constituted a breach of contract.

The court also ruled for HP on its promissory estoppel claim, based upon unambiguous promises made by two Oracle executives.  In reliance upon these assurances, HP provided Oracle with nearly $5 million of Itanium servers for porting and continued to invest in research and development in order to optimizing compatibility with Oracle’s software.  Further, HP also entered into the Itanium Collaboration Agreement (“ICA”) with Intel, a $264 million investment.  As the parties’ had been long-time business partners, it was foreseeable that HP would have no reason to doubt Oracle’s word and would make investments based on its support.   HP relied upon the parties’ long-term, upstanding business relationship to its detriment.  As a result, the court found that all elements of a promissory estoppel claim were satisfied. 

In sum, the plain language of the agreement, Oracle’s continued assurances of commitment, both to HP and to the public, and the parties’ long history of informal dealing sans contracts led the court to find for HP on both the breach of contract and promissory estoppel claims.  The court ordered Oracle to continue its porting obligations without charge “until such time as HP discontinues the sale of its Itanium-based servers.”

As reported here by allthingsd.com, Oracle released the following statement:

“Last March, Oracle made an engineering decision to stop future software development on the Itanium chip.  We made the decision as we became convinced that Itanium was approaching its end of life and we explained our rationale to customers here.  Nothing in the Court’s preliminary opinion changes that fact.  We know that Oracle did not give up its fundamental right to make platform engineering decisions in the 27-words HP cites from the settlement of an unrelated employment agreement.  HP’s argument turns the concept of Silicon Valley ‘partnerships’ upside down.  We plan to appeal the Court’s ruling while fully litigating our cross claims that HP misled both its partners and customers.” 

So, the battle has been lost but the war continues.

[Chrstina Phillips and JT]

 

Georgia State Court Reinstates Suit by Student Claiming Unlawful Expulsion

In Barnes v. Board of Regents, the Superior Court of Fulton County, Georgia found that Valdosta State University's student handbook serves as a binding contract that guaranteed students certain procedural rights before they could be expelled from the university and that the state had waived its sovereign immunity defenses to suit for violations of the student handbook by entering into such a contract with its students.  

In 2008, former Valdosta State University (“VSU”) student Thomas Barnes (“Barnes”) sued the Board of Regents of the University System of Georgia (the “Board”) and VSU's President, Ronald M. Zaccari (Zaccari) for breach of contract.  Barnes' complaint describes the underlying facts as follows:

Barnes was summarily expelled from VSU without notice or hearing in May 2007.  Since March 2007, Barnes had been voicing his objections (on environmental and financial grounds) to a proposed new campus parking garage.  Beginning in April 2007, Barnes and Zaccari had a series of meetings at which, according to Barnes, Zaccari castigated the student for having embarrased Zaccari.  According to the complaint, since the meetings did not deter Barnes from protesting the new parking garage, Zaccari began digging into Barnes’s academic and psychiatric records looking for grounds for expulsion. Zaccari decided to “administratively withdraw” Barnes without notice or a hearing on the ground that “Barnes presented a clear and present danger to the campus.”  

Query: is expelling a potentially dangerous student a good way of keeping your campus safe?  Wouldn't such an expulsion be more likely to unhinge a student whose mental balance was already on edge (not that there's any evidence that Barnes did in fact pose a threat)?   It's not as if college campuses are equipped with cutting-edge electronics, including those retinal scanners that Phillip K. Dick imagined in Minority Report, and could prevent any expelled student from ever returning to campus.

But we digress.

Barnes originally filed suit in federal court, and the Eleventh Circuit had ruled that the Board is immune to Barnes’s suit based on 11th Amendment sovereign immunity, although Barnes' suit agianst Zaccari was permitted to proceed.   Barnes re-filed his suit against the Board in state court, and the Fulton County Superior Court rejected the defense of sovereign immunity because, under Georgia law, such immunity is waived in actions alleging the breach of a written contract.  

[Christina Phillips & JT]

 

Gnarly Formation and Damages Case out of the Fifth Circuit

The facts of Westlake Petrochemicals v. United Polychem are complicated.  Here's a nutshell of the facts:

• In July 2008, A broker matched a bid for 5 million pounds of ethylene per month in 2009 by United Polychem (UPC) with an offer to sell by Westlake Pharmaceuticals (Westlake);
• Westlake's offer to sell was subject to approval of UPC's credit;
• Credit approval proved problematic, and UPC's President was required to provide a personal guaranty
• In September 2008, Westlake also demanded that UPC secure its credit with a $2 million letter of credit; and 
• In October 2008, UPC claimed that because Westlake had never formally accepted UPC's credit, the deal had never closed.

At trial, the District Court found UPC liable for $6.3 million in damages plus $634,000 in attorneys' fees.  The District Court also held UPC's President jointly and severally liable based on the guaranty.

Ethylene

On appeal, UPC contended that there was no consideration for the agreement.  Westlake's obligations were contingent on its approvel of UPC's credit, which it never gave.  The Fifth Circuit ruled as follows:

• Westlake did not have a unilateral right to reject UPC's credit, but would have been subject to a breach of contract claim had it done so, as the deal is considered made with the expiration of a short window after the broker brings the parties together;
• Because credit is not considered an "eseential element for the purposes of the Statute of Frauds, the Statute was satisfied here by the broker's written confirmations to both parties by instant message (!) and e-mail, even thought those writings omitted the credit term;
• The broker had authority to bind the parties; and 
• Westlake's approval of UPC's credit was not a condition precedent to the formation of the contract.

 On the damages issue, the District Court ruled that the jury shoudl be instructed that, pusuant to UCC s. 2-708(a) Westlake was entitled to the difference between the contract and market price at the time and place of tender.  The parties gave various estimates of what damages would be appropriate, but since the price of ethylene dropped after the contract was formed, the amount was considerable.  However, in this case the Fifth Cicuit found that s. 2-708(b) applies instaed of 2-708(a) and that Westlake is only entitled to its lost profits.  The Fifth Circuit so concluded because Westlake never purchased the ethylene it was to sell to UPC, and awarding it full expectation damages in such circumstances would constitute a windfall.  The Fifth Circuit remanded the case to the Distirct Court for a new calculation of damages.  

As to UPC's President's liability, the Fifth Circuit found the Guaranty ambiguous.  It had been cancelled before the first payment on ethylene shipments would have been due.  It was not entirely clear whether the Guaranty was to apply to all shipments under the contract or only to those on which payment was due prior to calculation. In such circumstances, the Fifth Circuit held that the guaranty must be construed in favor of UPC's President and that he could not be held jointly and severally liable with UPC.

[JT]

Contract Dispute at Thomas M. Cooley Law School

On August 6, 2012, the Sixth Circuit decided Branham v. Thomas M. Cooley Law School, a case involving the termination of a tenured law professor, Lynn Branham.  Professor Branham, currently visiting at the St. Louis University School of Law, is an expert in criminal law and had been teaching at Cooley Law School since 1983.  For some reason, the Cooley Law School asked her to teach constitutional law and torts in Spring 2006.  She complained but complied and then went on leave for a semester.  When she returned, she was again asked to teach constitutional law.  When she refused, she was terminated.

A District Court found that Professor Branham had not been properly terminated, because the dismissal process had not been in accord with those provided for in her employment contract.  Cooley then followed the proper procedures -- Cooley's faculty voted to dismiss Branham and the Cooley's Board of Directors upheld that decision.  The District Court was thereby satisfied, and it entered judgment for Cooley.

The Sixth Circuit affirmed the District Court's ruling on the breach of contract issue.  Professor Barnham had entered into a one-year contract with Cooley, and the fact that she had tenure did not create rights beyond those provided in the employment agreement.  She was entitled to a faculty vote and then the vote of the Board of Directors.  Both of those occurred, and the Sixth Circuit was not overly concerned with the fact that they occurred tardily. 

Under Michigan law, an employer's process must comply with five elements of "elementary fairness": notice, opportunity to be heard,  formulation of issues and fact, a rule of finality and other procedural elements appropriate to the nature of the proceeding.  The Sixth Circuit was satisfied that the elements of elementary fairness were met in this case. 

One might think that Professor Barnham should be entitled, at the very least, to damages for breach of contract for the period during which she had been dismissed without appropriate procedures, but the Sixth Circuit found that because Cooley eventually followed the appropriate procedures, Professor Barnham had no claim for damages.  She was only entitled to equitable relief, which she apparently recieved when Cooley complied with the District Court's order to give her appropriate process.

The Sixth Circuit opinion focuses on the contractual issues and on the question of whether Cooley followed the appropriate procedures for the termination of a faculty member.  The Court defers to the faculty members who determined that Cooley had "good cause " for termination of Professor Barnham.  We can only hope that, at some point, some body with authority to make such a determination de novo will recognize that a tenured faculty member's refusal to teach courses removed from her area of expertise does not constitute "good cause" for her termination.

[JT]

 

ABA Program on 'Wrap Contracts

For those of you attending the ABA conference in Chicago this week, there is a CLE program on Clickwraps, Browsewraps and Why ESIGN Deserves a Bum Rap. The speakers are Mark J. Furletti of Ballard Spahr, Christine Poulon of PayPal and yours truly.  The panel is from (the unspeakable hour of) 8:00am-10:00am.  If any of you early risers are at the meeting in Chicago, stop by for an earful about the state of electronic contracts.

[Nancy Kim]

Update on Golden Globes Parol Evidence Dispute

In an earlier post, we detailed the dispute between the Hollywood Foreign Press Association (“HFPA”), which votes on and presents the Golden Globe awards, and Dick Clark Productions (“DCP”), which produces the award telecast.  One issue in the case involved the parol evidence rule.  HFPA argued that DCP could not renew its contract with the NBC television network without first obtaining HFPA's consent. Because the writing did not specify this type of consent right, HFPA wanted to bring in extrinsic evidence regarding its existence.  We then updated the story after HFPA lost at the district court level and after Dick Clark's passing.  The latest development is related to the appeal.  According to the Hollywood Reporter:

A federal judge has agreed to a motion by the HFPA which will allow the press group to file an appeal to their loss at trial with the appeals court prior to the second phase of the trial. As part of the decision by federal Judge Howard Matz, the second phase of the trial will now be put off at least until the appeals court rules on this motion.

Daniel Petrocelli, attorney for the HFPA, said that normally there would be no appeal until the entire trial was concluded, including the second phase which has to do with such issues as what expenses DCP takes out from the show’s production, who has the right to the pre-show and who holds digital rights.

Petrocelli estimates the appeal will take as much as 18 months to reach a judgment. He said that he will actually file the appeal, following a notice of appeal, around October or November.

So, final resolution of the issue will take some time.  Expect more updates here when that finally occurs.

[Heidi R. Anderson]

 

Political Question Doctrine Precludes Adjudication of Tort Claims against Government Contractor

On January 2, 2008, Staff Seargant Ryan D. Maseth stepped into a shower in his living quarters at the Radwaniyah Palace Complex (RPC) outside of Baghdad and was killed by electrocution caused by a malfunctioning water pump that was not grounded and faulty electical infrastructure.  His estate sued Kellogg, Brown and Root Services, Inc. (KBR), the contractor responsible for maintaining the facilities at RPC.  On July 13th, the District Court for the Western District of Pennsylvania dismissed the lawsuit, Harris v. Kellogg Brown & Root Services, Inc., finding that the political question doctrine and the combatant activities exception to the Federal Tort Claims Act (FTCA) barred the court from proceeding with the case any further.  

The court had previously denied KBR's initial motion to dismiss on the same grounds, but after further discovery and two Circuit Court decisions that relied on the political question doctrine to dismiss torts claims against military contractors, the court reversed itself.  While the court had initially assumed that KBR had discretion under its contracts with the military to make decisions about electrical repairs, it is now persuaded that any possible negligece by KBR cannot be divorced from military determinations.

On the political question doctrine, the court summarized its findings as follows:

[F]urther adjudication of this case will require evaluation of the military’s decision to continue to house soldiers in hardstand buildings with hazardous electrical systems even though the military was aware that the buildings lacked grounding and bonding and the military possessed specific knowledge that such electrical deficiencies had resulted in electrocutions to military personnel, causing injuries and even deaths, prior to the events of this case. 

In addition, the court concluded that the combatant activities exception to the FTCA also applied and provided a separate grounds for dismissal.   Although that exception does not directly address its applicability to government contractors, courts have extended its protections to such contractors.   The tough issue was whether or not KBR's activities had a direct relation to combat activities.  The court concluded that they did. 

[JT]