ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Sunday, February 12, 2017

The University of the Cumberlands Fights Its Former President over Consideration

 University of the Cumberlands Welcome Sign

A recent case out of the Eastern District of Kentucky, Taylor v. University of the Cumberlands, Civil No: 6:16-cv-109-GFVT (behind paywall), has lots of causes of action, including an interesting dispute over whether an agreement between the university and its former President and Chancellor was supported by consideration. 

While the decision itself, granting in part and denying in part the university's motion to dismiss, is behind a paywall, the dispute has been reported and described in the press. Dr. Taylor served as the President of the university for 35 years. He alleged that the school had agreed to pay him and his wife almost $400,000 annually after his retirement until they were both dead. The school disputed the validity of that agreement. The Taylors then brought several claims against the university, including breach of contract. 

On the motion to dismiss, the main contract argument involved consideration. The university argued that the contract was given in recognition of the Taylors' successful fundraising efforts and service to the school, which had already occurred. This, the university contended, meant it was past consideration and rendered the agreement unenforceable. 

The court acknowledged that the agreement discussed the Taylors' past behavior. However, the court also identified five current promises the Taylors made under the agreement: to continue to serve as president until he decided to retire; to accept the role of Chancellor until he decided to retire; to serve as an Ambassador of the university; to serve the university in any capacity requested; and to continue to fundraise for the university. Therefore, there was consideration. 

The university then argued that the agreement had no definite end date, which would mean it was terminable at will. However, the court noted that that rule applies to contracts that would otherwise run forever. In such a circumstance, the right to terminate at will can be considered appropriate. In this case, the contract would terminate once both of the Taylors were dead. No one knew when that date would be, but presumably the Taylors will not live forever and therefore the contract will not run forever. Therefore, the contract was not terminable at will, and the Taylors lived to fight another day on their breach of contract claim (although the court noted that there were significant disputes surrounding the execution of the agreement and its proper interpretation). 

February 12, 2017 in In the News, Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Friday, January 13, 2017

Reminder: Contracts Mean What They Say. And External Grants Aren't Non-Tenure Track Positions

Frequently when I teach Contracts I find myself telling the students to just put in the contract exactly what they want it to say, because so often I feel like cases revolve around parties saying, "I know what it said, but I thought that meant something else entirely." Although, often, of course, these might be ex post facto proclamations when a situation turns out to not be exactly what the party thought it was going to be. 

A recent case out of Maryland, Norman v. Morgan State University, No. 1926 September Term 2015 (behind paywall), is another illustration of a party claiming that a contract means what a court finds it does not mean. In that case, Norman had sued Morgan State after he was denied tenure there. The parties entered into a settlement agreement under which Norman was permitted to apply for "any non-tenure track position at [Morgan State] for which he was qualified." The current lawsuit is the result of Norman's allegation that Morgan State prevented him from applying for an external research grant that that would have funded a future position at the school for him. 

The court, however, found that the contract clearly stated that Norman could apply for "any non-tenure track position." It said nothing about external grants and external grants are not non-tenure track positions. Therefore the settlement agreement did not require Morgan State to permit Norman to seek the external grant. Norman tried to argue that he would not have agreed to the settlement agreement had he known it allowed Morgan State to block applications for external grants, but the court dismissed that argument based on the plain and unambiguous language of the contract. 

January 13, 2017 in Commentary, Labor Contracts, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Saturday, January 7, 2017

When the Break-Up of a Marriage Is Also a Breach of Contract

HGTV

Photo Source: hgtv.com

The main reason I have cable these days, honestly, is because of my HGTV addiction. I like that the shows are so predictable and formulaic, which makes them low-stress. It's a habit I started years ago as a stressed-out lawyer in a law firm, when I needed to come home and watch something that didn't require thought, and it's kept me company as I transitioned into academia. And I'm apparently not alone in using it as comfort television

I use HGTV a lot in my Contracts class as the foundation of hypotheticals (so much that I'm contributing a chapter to a book detailing how I use it) and so I'm always interested when there is a real-life HGTV contract problem...such as is happening right now with "Flip or Flop." 

You might not be anxiously following HGTV shows, so let me tell you that the world was recently rocked (well, a small corner of the world) by the revelation that Christina and Tarek, the married couple with two young children at the center of the house-flipping show "Flip or Flop," were separated and/or getting divorced. And now come reports that HGTV has threatened them with a breach of contract action if their ongoing marital problems affect the filming of the show.

This is an example of the interesting issues that arise when your personal life becomes the equivalent of your contractually obligated professional life. Christina and Tarek no longer want to be married to each other, apparently, which is a stressful enough situation, without adding in the fact that their marriage is also the source of their livelihood. HGTV has a point that the show is less successful when you know that their personal life is a mess. The network was running a commercial pretty steadily through the holiday season where Christina and Tarek talked about their family Christmas, and every time I saw it I thought it was so weird and that they should pull the commercial. But that was clearly the advertising campaign HGTV had long planned for the show and it was probably costly for HGTV to change it at that point.

I am curious to see what the resolution of this is. I'm unclear how much longer Christina and Tarek were under contract for. They probably hoped to keep their separation quiet for as long as they could (they had, after all, kept it quiet for several months). But now that it's out in the open, we'll have to see how the parties recalibrate not just their personal but also their contractual relationships with each other. There is always a lot of talk about how "real" the shows on HGTV is. This situation is testing where our boundaries on "real" vs. "fake" actually lie. 

January 7, 2017 in Celebrity Contracts, Commentary, Current Affairs, In the News, Labor Contracts, Teaching, Television, True Contracts | Permalink | Comments (1)

Thursday, December 29, 2016

Time Is of the Essence...Or Is It?

Multiple sources report that Syracuse University is suing its long-term law firm over the firm's failure to put a "time is of the essence" clause into one of the university's contracts. I can't seem to track down the docket online so I haven't been able to look at the actual court documents but if you're teaching "time is of the essence" clauses next semester and looking for a recent controversy, here's one!

December 29, 2016 in Current Affairs, In the News, Teaching | Permalink | Comments (0)

Friday, December 23, 2016

Faculty Handbook as Contract

Just a quick entry in advance of a weekend that is a holiday for many, but this post on Inside Higher Ed caught my eye, discussing an in-progress case against NYU. An appellate court allowed two professors' complaint to survive a motion to dismiss based on sufficient allegations that the faculty handbook was a formal binding contract. One to keep an eye on in the new year. 

However you plan to spend this upcoming weekend, I hope it's full of peace and joy. 

December 23, 2016 in Current Affairs, In the News, Teaching, True Contracts | Permalink | Comments (0)

Thursday, December 15, 2016

Reminder: Moral Obligations Do Not Equal Legal Obligations

A recent case out of Arkansas, Baxter v. Wing, No. CV-16-21 (behind paywall), has a nice discussion of the difference between moral obligation and legal obligation. In the case, a man named one of his four stepchildren, Susannah, as the sole beneficiary of his life insurance policy and asked her to share it with her three siblings.

Nobody disputed that it was the deceased man's wish that Susannah share the money with her siblings. The problem, though, was that her obligation to comply with his wishes was merely moral, not legal, and the court could do nothing to force her to comply with it. The deceased man gave Susannah instructions, but he did not make her any promise, nor did Susannah make any promise in exchange. There was no deal along the lines of, "I promise to make you the sole beneficiary if you promise in exchange to share the proceeds with your siblings." The deceased man gave Susannah instructions, which did not rise to the level of an enforceable contract. 

Cases like this are valuable when you're teaching consideration but they always make me sad, because consideration cases so frequently seem to be about families feuding on a level so rancorous that they turn to the court system. Tough cases to get through. 

December 15, 2016 in Commentary, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, November 30, 2016

A Settlement Agreement That's Too Vague Doesn't Settle Much At All

I am always saying to my students that if they care about something, they should put it in their contract, and they should be specific about what it is they want. I think sometimes people might think there's something to gain strategically by being vague, but introducing ambiguity into a contract can work out very poorly (and also takes control out of the hands of the parties). A recent case out of Florida, Boardwalk at Daytona Development, LLC v. Paspalakis, Case No. 5D15-1944, is a case where the court, faced with an ambiguous description of the land at issue in a contract, just threw up its hands in frustration. 

The dispute between these two parties has been long and contentious. According to this article, it's dragged on for over a decade. It was originally rooted in an eminent domain proceeding in which Boardwalk at Daytona ("BDD")'s predecessor obtained property belonging to Paspalakis and the other appellees. The appellees contested BDD's acquisition of their land and eventually that lawsuit was settled. The settlement agreement provided the appellees with an option to purchase and operate 7500 square feet of retail space on the Daytona Boardwalk. The agreement contained no legal description or street address for the property at issue. The agreement said that the land would: (1) be adjacent to another particular business; (2) have a minimum of 50 boardwalk frontage feet; and (3) have sufficient land to build a 7500-square-foot, one-story building. Unfortunately for the appellees, there were at least three parcels of land that met this description, and they ranged drastically in size from around 7700 square feet to over 17,000 square feet. 

The problem with the description of the land in the settlement agreement was exposed when the appellees tried to operate their option. BDD offered a piece of property that met all three criteria set forth in the settlement agreement. However, the property required unusual structural design features that troubled the appellees and also came with a negative easement for light, air, and unobstructed view that benefitted the BDD property next door. The appellees therefore objected to this plot of land and asked for another one. 

BDD sought a declaratory judgment that the plot of land it proposed was sufficient under the settlement agreement and that it did not have to provide another plot of land. The appellees, in response, sought specific performance that BDD provide  a plot of land fitting the description in the settlement agreement, without the restrictions of the land BDD had offered. In the face of the counterclaim, BDD shifted stance and argued that the settlement agreement was too ambiguous to be enforced. 

The trial court sided with the appellees and ordered BDD to convey the largest possible plot of land to the appellees. BDD appealed, and this court agreed with BDD. The court noted that a description of the land in question is usually considered an essential part of any land purchase agreement, and that without any such description there are serious doubts whether the parties reached a meeting of the minds. The description of the land in the settlement agreement here was ambiguous. The trial court correctly examined parol evidence to try to resolve the ambiguity, but it didn't help. The contract terms at issue here simply could have been fulfilled by any of three very different parcels of land.  To this court, there was no contractual way to choose between them and no parol evidence that shed light on which parcel of land the parties had in mind. Indeed, the court was skeptical the parties ever really agreed on which parcel of land would be conveyed, and so the parties never reached a meeting of the minds that could be enforced. Therefore, the court reversed the order of specific performance and entered judgment for BDD instead. 

A bitter pill here for the appellees, who doubtless thought that they were getting something of value in the settlement agreement they struck and end up with nothing to show for it. But it does seem like there was considerable confusion about which land was affected by the situation here. I guess it's a lesson to all of us: try to be as specific as possible. I tell my students drafting contracts is frequently like playing a game of what-if with yourself. What if BDD offers this parcel of land instead of that parcel of land? If the answer to that question is that you would prefer one parcel of land over the other, best to be specific in the contract. 

November 30, 2016 in Commentary, Current Affairs, In the News, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (2)

Monday, November 28, 2016

Rights of First Refusal to License Mineral Rights and Unconscionability

If you are looking for a case with a nice analysis of procedural and substantive unconscionability, a recent case out of Ohio, Christ Holdings, LLC v. Schleappi, Case No. 15 NO 0427, has one. 

The case involved a right of first refusal that the defendants claimed was unconscionable. The trial court agreed with the defendants, but this court reversed the finding. The court started by looking at procedural unconscionability and noting that it requires consideration of "age, education, intelligence,  business acumen and experience," etc. The court then presented in some amount of detail the education and employment history of both parties, concluding that their educational level is roughly equivalent but that the plaintiff did have more business acumen and experience than the defendant. 

However, importantly for this decision, the court noted that the parties actually had a history of conducting real estate transactions between them without the aid of any attorneys, negotiating several times over the course of several years. To the court, this was an indication that both parties were knowledgeable in the particular type of real estate transaction at issue here, even if the plaintiff had more general business acumen. 

The trial court had also been very concerned about the fact that the defendant had been operating under time constraints. But this court noted that the time constraints were not the plaintiff's fault: he gave no indication that he wouldn't have given her time to read the contract over if she had requested it (which she did not). 

After finding no procedural unconscionability, the court then turned to substantive unconscionability. The trial court had found substantive unconscionability for a number of reasons, most notably, though, because this right of first refusal involved the licensing of mineral rights. The trial court asserted that rights of first refusal should be limited to real estate purchases, not to the leasing or licensing of real estate as was at issue here. The trial court seemed to think that rights of first refusal to license were unconscionable in and of themselves, without further inquiry into their terms. This court, however, said that there was no reason to so narrowly restrict the ability of the parties' to use rights of first refusal in their agreements. It found the right of first refusal to be enforceable and remanded for further proceedings. 

 

November 28, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, November 23, 2016

Here's a Nice Anticipatory Repudiation Case for the Next Time You Teach That

A recent case out of West Virginia, Stiles Family Limited Partnership v. Riggs and Stiles, Inc., No. 16-0220, does a nice job analyzing the fact that an anticipatory breach must be unequivocal. The fairly straightforward facts could be a useful way of helping to illustrate this topic the next time you teach it. 

The parties (all members of the same family) entered into a lease under which Riggs and Stiles agreed to farm the property at issue. The lease has been in effect since 2006 without dispute until 2013, when Riggs and Stiles allowed a production company to file an application for a permit to hold a music festival on the farm property. When Stiles Family Limited Partnership learned of the application, they objected; the following month, when they failed to convince the Partnership to allow them to hold the music festival, Riggs and Stiles withdrew the application, and no music festival was ever held on the property. However, the Partnership tried to terminate the lease, arguing that Riggs and Stiles had anticipatorily repudiated the lease when it permitted the filing of the application.  The Partnership claimed that this permission by Riggs and Stiles demonstrated an unequivocal intent on their part to use the land for something other than farming, in violation of the terms of the lease, and it made sense to treat the lease as breached as the moment of application rather than having to wait for the music festival to actually take place.  

The court disagreed, however. It was undisputed that Riggs and Stiles had at all times farmed on the land, never stopping and continuing to farm on the land even after the filing of the application. The application alone was not a breach of the promise to use the land only for farming, as it was undisputed that it was all Riggs and Stiles ever did. And continuing to farm the land was not consistent with an unequivocal repudiation of the lease, because it was actually what Riggs and Stiles was required to do under the lease. Performing consistent with the lease couldn't be considered an unequivocal repudiation of the lease. Moreover, when the Partnership informed Riggs and Stiles that it didn't agree to the music festival being held on the land, Riggs and Stiles withdrew the application for the permit. Rather than being an unequivocal intent to breach the contract, that displayed equivocation on the part of Riggs and Stiles: they sought to take actions to not breach the contract.  

November 23, 2016 in Commentary, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, November 9, 2016

Here's a Nice Case to Use to Review Contract Formation, Conditions Precedent, and Promissory Estoppel

As we reach the end of the semester, I keep trying to remind my students of what we learned at the beginning of the semester, which was only a few weeks ago but feels like several lifetimes ago. As we turn our attention to our last topic of third-party rights, I don't want the students to forget the basics of contract formation. I want them to realize that contracts law builds on itself and is self-referential and so they can't just forget about the stuff that came first. 

Anyway, I say all of that to lead into this nice recent case out of the Eastern District of Pennsylvania, Killian v. Ricchetti, Civil Action No. 16-2874, that deals with issues of contract formation, and then turns to promissory estoppel. Exactly as I keep trying to remind my students to do! So I couldn't resist writing this case up for the blog. It serves as a nice review of a lot of what we've learned and I think I may actually use it in class. 

The alleged contract was a series of e-mails exchanged between two friends. The first e-mail set out a bunch of terms and ended with "there are more little details...it's a start." The response to the e-mail added a few additional terms. This, the court found, did not form a contract, because the response was not an acceptance but rather a counteroffer, due to the fact that it added terms. There was never any reply to that particular e-mail, so the counteroffer was never accepted. 

After these initial e-mails, there were further e-mails between the two regarding the real estate transactions at the heart of the alleged agreement. Those e-mails were enough to form a contract as follows: The first e-mail read, "[W]hen the Pine [Street property] is clear title we form an LLC with an equal partnership of 50% . . . ." with some further details given. The reply to the e-mail was "OF COURSE," which constituted an acceptance. However, there was a condition precedent to this contract: that the parties receive clear title on the Pine Street property in question. Due to no fault of the parties themselves, they never received this clear title, so the condition precedent never occurred, so no duties to perform under the contract ever arose. 

The court then turns to the promissory estoppel question, though. The court found here there were genuine issues of material fact whether there was a promise made and whether the other party acted in reliance on that promise. Similar issues of material fact existed for the unjust enrichment and qunatium meruit claims. Therefore, although the court granted summary judgment on the breach of contract claims, it denied summary judgment on the remaining claims. 

November 9, 2016 in Commentary, Law Schools, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (1)

Wednesday, October 26, 2016

Judicial Disagreement Over Contract Ambiguity: When Are Things OBVIOUS?

We've been talking about contract interpretation in my Contracts class lately and I'm always struck by how many cases involve a lower court ruling of ambiguity and then an appellate court reversal of that ruling, because it always strikes me as such a funny thing. The very definition of ambiguity would seem to be "multiple people disagreeing on the meaning of the word," but the appellate court decisions in those cases necessarily have to dismiss the reasonableness of the lower court's understanding of the meaning in order to assert that the meaning is SO OBVIOUS. This always makes these cases feel a little more...condescending? Than the typical reversal. Like, "We don't know what you were so confused about, lower court, this is OBVIOUS." 

A recent case out of California, Borgwat v. Shasta Union Elementary School District, No. C078692, is another example of this. The plaintiff, upon retiring from the defendant, was entitled to a monthly post-retirement contribution toward her "medical insurance coverage." For a couple of years, the defendant paid the contribution toward the plaintiff's dental and vision coverage. But then the defendant concluded that dental and vision insurance was not included in "medical insurance coverage" and ceased paying the contribution. This lawsuit resulted. 

The lower court found the phrase "medical insurance coverage" to be ambiguous and allowed extrinsic evidence to illuminate its definition, including the fact that the defendant had initially paid the plaintiff the contribution for a few years. Therefore, the lower court endorsed the plaintiff's interpretation that "medical insurance coverage" included dental and vision insurance. 

The appellate court here reversed, though, saying that "medical insurance coverage" was not an ambiguous term. The relevant section of the contract was Section 5.7 but the appellate court looked to Section 5.2, which dealt with benefits during the course of employment. In that section, the defendant had agreed to pay sums "toward the cost of medical, dental and vision benefit coverage." The fact that dental and vision were considered independent from medical insurance in Section 5.2 rendered the use of "medical insurance" in Section 5.7 unambiguous: It can't include dental and vision insurance, because the parties in Section 5.2 revealed that they didn't understand medical to include dental and vision insurance when they felt it necessary to list all three. For this reason, the appellate court refused to allow any extrinsic evidence, because the defendant's mistake in paying for the dental and vision insurance could not change the unambiguous terms of the contract. 

So there you have it. OBVIOUSLY. :-)

October 26, 2016 in Commentary, Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Tuesday, October 18, 2016

Contract Clauses and Transactional Skills

Fundamentals of Contract Law

I'm happy to report that my new book, The Fundamentals of Contract Law and Clauses, is now available.  The book is intended to give students a working knowledge of contract law, meaning that they learn the meaning of contract clauses and how they are shaped and affected by doctrine.  It's a textbook but it's not a casebook - it's intended to be used as a supplement in a first year contracts course or a primary text in a business school or undergraduate contracts law course.  (There's a Teacher's Manual which is available to instructors adopting the book which contains discussion points and exercises). 

 It always seemed a bit strange to me to teach contracts law solely by using cases - this emphasizes how to win disputes rather than how to avoid them.  This makes sense for litigators, but transactional attorneys (which I was for a decade) have a different role.  As Mark Burge has pointed out on this blog, contracts is a good gateway to transactional skills but it's not easy to figure out how to do that seamlessly.  Hopefully, this book will be an easy way to incorporate some "transactional skills" into a first year contracts course. 

October 18, 2016 in Books, Miscellaneous, Teaching | Permalink | Comments (0)

Monday, October 17, 2016

If Albert Einstein Wins the Nobel Prize...

I was listening to the podcast No Such Thing as a Fish (highly recommended) when I learned that Einstein used his Nobel Prize money as a divorce settlement to his first wife...the only catch being that he divorced her in 1919 and won the Nobel Prize in 1921. The podcast characterized this as: "If I win the Nobel Prize, I'll give you the money." Amazing! Imagine being so confident in your Nobel Prize chances! (I guess if you are Einstein, you would be that confident.) 

I couldn't find the contract myself, although the story was verified by Time and also shows up on Wikipedia

I know I just found a new go-to hypo to use in class. 

October 17, 2016 in Celebrity Contracts, Commentary, Law Schools, Teaching, True Contracts | Permalink | Comments (2)

Friday, October 14, 2016

George Richard Lunn, Clergyman, Politician, Ice House Owner

This week, while teaching parol evidence, I taught the case of Mitchill v. Lath, which involves an oral agreement between the parties to tear down an ice house on land to the land their sales agreement was about. A student asked what the deal was with the guy who owned the land the ice house was on, and I admit I didn't know the deal, so I went and looked it up, and here's the deal: 

He was George Richard Lunn, a clergyman who was born in Iowa but settled in Schenectady, where he was elected mayor on a Socialist ticket and later served in the House of Representatives and as Lieutenant Governor of New York. I had no idea who Lunn was and thought it was interesting that he turned out to have a Wikipedia page. The Wikipedia page doesn't mention his role in Mitchill v. Lath but his Prabook entry does. 

October 14, 2016 in Famous Cases, Law Schools, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, September 21, 2016

Your Apartment May Have a Leak, But You Still Have to Prove Damages

We are just about to start discussing damages in my Contracts class, so this recent case out of the District Court for the District of Columbia, Parham v. Cih Properties, Inc., Case No. 14-cv-1613 (GMH) (behind paywall), caught my eye. And then I realized that, wait a second, these are the same parties from one of my very first cases I ever blogged! Small world! They're still fighting with each other!

And the plaintiff is still looking for a real win, because even though she wins here, she only wins nominal damages of $1.00. 

The plaintiff alleged that water leaked into her apartment and damaged a number of items, including a mink coat, a cape with mink tassels, five designer bags, a leather trench coat, two suede suits, snakeskin boots, a box of ivory china, and various other clothes, accessories, and glassware. The court agreed with the plaintiff that the leak had occurred and found that the defendant landlord had breached the warranty of habitability. However, the court found that the plaintiff had failed to provide the court with any reasonable basis on which to base a damages award. The court noted that the plaintiff asserted the loss of a number of unique, designer items that required some sort of expert testimony (not provided) to settle the value. The court further noted that, even for the non-unique items, the plaintiff's testimony as to their value was the only piece of evidence she provided. She had no receipts, appraisals, or even surveys of prices of comparable items, and the court found her personal estimates unpersuasive because she was "an easily confused witness" whose estimated values of the items (if she provided them) were inconsistent and sometimes appeared to be "conjur[ed] out of thin air." Even plaintiff's counsel said in court, "I don't think we really proved damages."

The court agreed with this assessment, finding that the plaintiff provided no reasonable basis for the court to determine damages. The court did,  however, agree that she was entitled to nominal damages, given that the landlord had breached the warranty, and so awarded her $1.00. 

September 21, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, September 7, 2016

Ambiguous Insurance Policy Blocks Insurer's Summary Judgment Motion

I really like this Eastern District of Pennsylvania case, Ionata v. Allstate Insurance Company, Civil Action No. 15-6561, because I think it illustrates really nicely the contractual ambiguity at issue and the consequences of that ambiguity. I might use it as an example in class. 

Ionata and her then-husband bought the property at issue together and it was insured with a standard Allstate Homeowner's Policy, which Ionata kept current through the relevant time period. In 2011, Ionata and her husband divorced. Ionata continued to use the house as her mailing address and also continued to keep her stuff there but seems to have slept on a nightly basis somewhere else. In 2014, Ionata had allowed a close family friend to live in the house. During this time period, the house was destroyed by a fire. 

The policy covered a "Dwelling," defined as a building "where you reside."Allstate argued that residence required "physical occupation" of the house by the policyholder. Therefore, it argued, the house was no longer covered by the homeowner's policy because Ionata was no longer "residing" in it. 

The court noted that Allstate's argument made perfect sense in isolation, but it was inconsistent with other clauses within the policy. So, for instance, the policy contained a clause that permitted the house to "be vacant or unoccupied." As the court succinctly put it, "Logically, it is difficult to reconcile Allstate's position that the policyholder must be living on the premises with a clause that provides the Property may be vacant or unoccupied for any length of time." 

Nor was this the only clause that raised the ambiguity. There was another clause that explicitly permitted the occasional renting of the entire property for residential purposes. If a policyholder was allowed to rent the entire property to others, then the policyholder couldn't simultaneously be required to live in the property herself. 

The court therefore denied Allstate's motion for summary judgment, calling out "the artificial and often arcane structure and language of insurance policies" in making the decision. 

September 7, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Thursday, June 2, 2016

Trump “University” - Fraud in the Inducement?

Donald Trump is currently attacked on many fronts, one of which for the potential re-launch as President of his now-defunct for-profit real estate training classes. The “playbook” used by the corporate recruiters for the business unit required them, among other things, to use such arguably despicable and potentially fraudulent recruiting language as the following:

“As one of your mentors for the last three days, it’s time for me to push you out of your comfort zone. It’s time for you to be 100% honest with yourself. You’ve had your entire adult life to accomplish your financial goals. I’m looking at your profile and you’re not even close to where you need to be, much less where you want to be. It’s time you fix your broken plan, bring in Mr. Trump’s top instructors and certified millionaire mentors and allow us to put you and keep you on the right track. Your plan is BROKEN and WE WILL help you fix it. Remember you have to be 100% honest with yourself!”

and

“Do you like living paycheck to paycheck? ... Do you enjoy seeing everyone else but yourself in their dream houses and driving their dreams cars with huge checking accounts? Those people saw an opportunity, and didn’t make excuses, like what you’re doing now.”

(Can you imagine reading those statements allowed for a living?)

Does promising potential students too much constitute fraud in the inducement? In a not entirely dissimilar case in our own field, law student Anna Alaburda recently lost her lawsuit against Thomas Jefferson School of Law.  Ms. Alaburda had argued that the law school had committed fraud by publishing deceptive post-graduation employment statistics and salary data in order to bait new students into enrolling. Alaburda claimed that despite graduating at the top of her class and passing the California bar exam, she was unable to find suitable legal employment, and had racked up more than $150,000 in student loan debt. An attorney for the school rejected the claims and said Alaburda never proved them. The attorney also reminded jurors that she had turned down a job offer, and that many Thomas Jefferson alumni have had successful careers. The verdict in that case was 9-3 in favor of Thomas Jefferson.

The cases are of course not similar, yet similar enough to remind us of the importance of not promising too much in the for-profit educational field (in Thomas Jefferson’s case, the school won, but a dozen other lawsuits have allegedly been filed against other schools). This makes sense from both an ethical and business risk-avoidance angle.

What about the use of the very word “University”? The media seems to stubbornly – probably for “sound bite” reasons – continue using the phrase even though the business was, in effect, forced to change its name to “The Trump Entrepreneur Initiative” after government pressure around 2010.   The business was just that, and not a certified university.

If Trump decides to start up the business again, does the media not help him do so again by using a much too favorable term? It seems like it. Linguistics matter in the law and beyond. May media PR inadvertently (or not) contribute to a potential fraud? Comment below!

June 2, 2016 in Commentary, Current Affairs, Famous Cases, In the News, Law Schools, Recent Cases, Teaching | Permalink | Comments (0)

Tuesday, May 10, 2016

No "Safe Learning Environment" Term Implied in Enrollment Contract with a Private High School

A recent case out of New Jersey, Zelnick v. Morristown-Beard School, Docket No. L-1947-13, had some interesting things to say about the contractual relationship between a private high school and the students enrolled (and parents of those students). 

The case arose out of an alleged inappropriate sexual relationship between the plaintiffs' daughter, then a student at the school, and her teacher. The plaintiffs' daughter was a minor throughout the alleged sexual relationship; at present, however, the plaintiffs' daughter is an adult who is estranged from her parents and took no part in the case brought here. 

The court refused to get into the details of the relationship between the plaintiffs' daughter and the teacher, finding that the details were mostly irrelevant. It was sufficient to state that there seemed to be some knowledge on the part of the school of inappropriate behavior with other female students on the part of the teacher for a few months before a fateful school trip to Greece, which many of the accusations surrounded. At the time of the school trip, although the teacher violated the school's policy during the trip, the plaintiffs actually spoke up on his behalf, praising his assistance when their daughter fell ill on the trip. Apparently, it later was learned, at least part of the illness was faked, orchestrating "alone time" for the plaintiffs' daughter and the teacher apparently, and the plaintiffs did not know of the inappropriate relationship between their daughter and the teacher at the time that they spoke up on his behalf. 

Shortly after the Greece trip, the school was informed by multiple sources that the plaintiffs' daughter and the teacher had engaged in inappropriate conduct during the trip. The school delayed for months contacting the Division of Child Protection and Permanency (the "DCPP") regarding the persistent rumors surrounding the teacher. It's unclear how the DCPP got involved, although once they did, the teacher fled the country during the investigation into his behavior. At the time, the plaintiffs' daughter was in her senior year at the school, although she was not attending school physically due to assessment by a psychologist that the persistent rumors about her relationship with the teacher were causing her to suffer too much stress. 

Among other claims, the plaintiffs raised a breach of contract claim based on their daughter's enrollment contract with the school. The school argued that the terms of the contract were that they would provide the plaintiffs' daughter with an education in exchange for tuition. The plaintiffs argued that the contract implied that the learning environment provided to their daughter would be safe; the school rebutted that. The court agreed with the school: There was no "safe learning environment" requirement implied in the contract with the school. The plaintiffs' attempt to create one, the court said, was an attempt to convert tort claims into contract claims. 

This is an interesting ruling to me because, on the one hand, I think all of us would hope that the schools we send our children to are striving to provide a safe learning environment. Very few of us would agree to enter into bargains with schools without a belief that the students' best interests must be at the school's heart. On the other hand, while this isn't a school shooting case, I can see this being a complicated promise in an age where this country has grown to expect that our schools are basically under attack.

It does seem to me that, in the court's recitation of the facts, the school behaved poorly here. The school had notice of persistent reports from multiple sources, including other students, other parents, and other school employees, that the teacher's behavior had been personally witnessed to be inappropriate, and for months the school seems to have taken no action and, indeed, to have allowed the teacher in question to act as one of a few chaperones on an international trip. It reminded me of the case Myanna wrote up a few days ago about the contractual duty of good faith in Texas and the lack of fiduciary relationship between universities and students. Maybe we (or just me) place more trust in other people and entities' obligations toward us/me than we/I should. 

The plaintiffs, of course, did have tort claims here--gross negligence and negligent infliction of emotional distress--but the court ruled they did not have standing to pursue them. Those claims seem to have belonged to the plaintiffs' daughter, who, unfortunately, was no longer speaking to her parents, allegedly because of the parents' disapproval of her relationship with her teacher. 

May 10, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Thursday, April 28, 2016

No Contractual Duty of Good Faith in Texas

In spite of most jurisdictions reading a duty of good faith and fair dealing into all contracts, a Fifth Circuit Court of Appeals has held that it is unlikely that the Texas Supreme Court would find such a duty to exist in Texas. Wow. Additionally, the court found that no fiduciary relationship between a university student and his/her university faculty and other representatives.

Section 205 of the Restatement (Second) of Contracts states that “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.” See also Farnsworth, “Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code,” 30 U.Chi.L.Rev. 666, 670 (1963).

The seminal case in this area is Market Street Associates v. Frey, 941 F.2d 599 (7th Cir. 1991). In that case, Judge Posner held that in spite of the somewhat “moralistic overtones of good faith,” not every contract signatory is expected to be his “brother’s keeper.” Nonetheless, “the essentials of the modern doctrine [are] well established in nineteenth-century cases.” “This duty is … halfway between a fiduciary duty (the duty of utmost good faith) and the duty merely to refrain from active fraud. Despite its moralistic overtones it is no more the injection of moral principles into contract law than the fiduciary concept itself is.” “The office of the doctrine of good faith is to forbid the kinds of opportunistic behavior that a mutually dependent, cooperative relationship might enable in the absence of rule. “

In the new Texas case involving a student at SMU who got fired from his part-time job as a Community Adviser for misconduct toward students and faculty, the circuit court held that “Texas law does not impose a generalized duty of good faith and fair dealing and, in fact, rejects it” in all circumstances apart from when 1) a formal fiduciary relationships exists or 2) a “special or confidential relationship” exists. Examples of the former are attorney-clients, trustee-beneficiary, and principal-agents. In Texas, the latter apparently only includes the relationship between an insurer and an insured. That’s it! Texas courts have, found this panel, refused to impose the duty on, for example, employer-employees (not too surprising), lender-borrowers, medical provider-patients (double wow!), mortgagor-mortgagees, and franchisor-franchisees. The court in the described case also said that an “ordinary student-professor relationship is no different;” in other words, there is no fiduciary or even “confidential” or “special” relationship between students and faculty in Texas.

The case does not show how the student’s allegation that a duty of good faith existed between SMU and the student would really have helped the student on the merits. SMU seemed to have a very good case for firing the student from his job. Nonetheless, it is surprising that the court would so categorically reject that such a duty even exists apart from in traditional fiduciary relationships. While it may make sense that “a purely unilateral, subjective” sense of trust in one’s contractual counterpart and that the other party will have one’s interests at heart is not enough to create a fiduciary relationship, there is a vast difference between that and reading out the duty of good faith and fair dealings from most contracts law in general in Texas. Of course, as contracts law is state law, it is true that it is the Texas courts who must change this line of thinking, but doing so seems to be highly warranted given how courts in other parts of the nation rule on the issue.

The case discussed is Hux v. Southern Methodist University, 2016 WL 1621720 (no free online copy available yet).

April 28, 2016 in Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (2)

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)