ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

Saturday, October 3, 2015

Gag Clauses in Consumer Contracts

They’re still doing it: companies not wanting negative online reviews of their products or services attempt to contractually prohibit unsatisfied customers from posting such feedback. Not only that, but some companies also seek to take legal and other retaliatory action against their customers if they defy such attempted clauses.

For example, the FTC recently instigated suit against weight-loss company Roca Labs for threatening legal action against customers writing negative comments about the company’s allegedly ineffective weight loss powder.  (H/t to my colleagues on the AALS Contracts listserv for mentioning this story).  When one of Roca Lab’s customers posted a comment on the Better Business Bureau website, the company cited to their contract with the client that stated, “You will not disparage RL and/or any of its employees, products or services... If you breach this agreement... we retain all legal rights and remedies against the breaching customer..."  The company also asked the customer for information about her contacts on Twitter and Facebook (she luckily declined…).

There is no federal law prohibiting companies from trying to suppress negative reviews, but the FTC alleged unfair practices, among other things because the clause in question was buried in fine print.  The issue may also be a First Amendment problem, according to an attorney for, a third-party website that, as the name indicates, allows negative reviews of companies.

I could not agree more that the voice of customers who have been disappointed for good reason should be heard. It is, frankly, ridiculous what some companies can get away with in this country in this day and age, in my opinion.  (In the EU, for example, much more consumer-friendly regulations exist. In the USA, the legislative balancing of consumers v. companies often, in my opinion, is more of a slant favoring businesses, but that’s a thought for another day).  But here’s the thing: what about the true risk of disgruntled customers posting reviews that don’t quite reflect what really happened, that exaggerate the situation, or that simply make things seem worse than what they really were?  Even with emoticons, things can seem very harsh once written down even if they were not necessarily meant to be. 

Take, for example, popular hosting website Airbnb.  My husband and I own a historically registered house that requires a lot of upkeep and fixing after 90 years of neglect, so we signed up as hosts to try it out and, of course, to make a little extra money.  We love it!  We meet the most interesting people that truly enjoy our house. But as one’s success on that and other websites is, in reality, often tied closely to having a large amount of very good reviews, we also live with the constant worry that one day, somebody could post a negative review about something that most people would probably consider seemingly minor (our house is almost 100 years old, and there are necessarily small kinks with a house like that).  See also Nancy Kim’s recent blog on our apparently increasing need to judge each other negatively. At least Airbnb allows its users to post comments to reviews, but not all websites follow such practice.

My point is simply this: it is, of course, to go overboard to require one’s paying customers to not post negative reviews via contractual clauses or other methods. But how do we balance the need for true and honest, productive reviews with the risk of disgruntled and perhaps even dishonest customers?  Comment below!

October 3, 2015 in Current Affairs, In the News, Legislation, True Contracts, Web/Tech | Permalink | Comments (2)

Monday, September 14, 2015

Contracts Professor Confronts Warranty Issue

FinishA good bicycle is a magic carpet.  It translates minimal energy into forward motion with thrilling efficiency.  In short, I love my bicycle, as evidenced by the picture at right showing me and my bicycle at the end of a three day, 200-mile ride from Chicago to Three Rivers, Michigan.  That joyful expression is not characteristic of me, unless of course I am teaching contracts law.

The folks involved in making cycling so effortless take extraordinary pride in their work.  Five years into my love affair with my bicycle, one of my shifters broke.  I took it in to the shop, prepared to pay quite a bit to replace a vital part of the mechanics of the bicycle.  When I went to pick it up, the mechanic informed me that he had only charged for labor.  The manufacturer had replaced the faulty shifter because, he said with a shrug, "they're not supposed to break."  Imagine a mechanic slamming the hood of your repaired Ford Escort and saying anything remotely similar!

About a month ago, my bicycle made a sound like I hit something, and from then on something wasn't right but I couldn't figure out what.  I had not actually hit anything that I could see.  My mechanic shared my assessment that something didn't feel right about the bike, and after a brief examination he exclaimed, "Here's the problem!  You broke the frame."  I didn't like his accusatory tone, but things got a lot better when he told me confidently that the frame was broken in a way that should not have occurred and should be covered by warranty.  I had not abused my bicycle; I was the victim here.

Sure enough.  My bicycle, like most quality bicycles, has a lifetime warranty on its frame.  

There was only one problem.  I had to prove that I was the original owner of the bicycle.  I bought it over nine years ago.  I neither registered it nor kept the receipt.  And me, a contracts professor!  The dealer who sold it to me closed his store and vanished like Keyser Soze.  The new local dealer tried his best to help me.  We both called and pleaded with my bike manufacturer, but they would not honor the warranty without proof that I was the original purchaser, and they would not accept sworn testimonials from the phalanx of friends, acquaintances and strangers to whom I had sung the praises of my bicycle over the past decade and whom I had recruited to testify on my behalf.  The acceptable forms of proof were limited to the original receipt or a facsimile thereof.  

I get it.  I could have bought the broken bicycle a week ago on e-Bay for all they know.  

My awesome mechanic loaned me a most excellent cyclocross bicycle while I grieved.  He was hoping to convert me to the brand he carries.  That bicycle was pretty amazing.  But as I said, I love my bicycle.  As I write, my mechanic is attaching my old bicycle's mechanics and cables to the new "crash replacement frame" that the manufacturer sent me.  It's a reasonable compromise.  The new frame cost me about half of what it otherwise would have, and I remain a loyal customer, perhaps a bit less starry eyed and resolved to keep my receipt somewhere memorable and to register myself as the original owner of the new frame.  I'll do all that, of course, if I can get around to it.  But how likely is it that I would ever need to enforce a warranty?  Could lightning strike twice?

September 14, 2015 in True Contracts | Permalink | Comments (2)

Friday, September 11, 2015

You Saved More than you Spent - You’re a Shopping Genius!

A woman visits a Nordstrom Rack store and sees a cardigan that she really likes. It costs $49.97, but features a “Compare At” price tag of $218.00 representing “77% worth of savings.” The woman buys the sweater, allegedly believing that the sweater really had been sold by Nordstrom itself or other department stores at the higher price. The receipt states, “You SAVED: $168.03 Congratulations! You saved more than you spent. You're a shopping genius!” If neither Nordstrom, Nordstrom Rack nor other retailers ever sold the cardigan at the higher price, is that common-law fraud, breach of contract, or unjust enrichment?

Posting any kind of “before” prices that have never truly been in effect does, at first blush, seem fraudulent. But it is not fraud, at least according to Shaulis v. Nordstrom, Inc., d/b/a/ Nordstrom Rack.  “It is well-settled that a common-law action for fraud requires a pecuniary loss.” Here, the court found none as “plaintiff did not allege that she did not receive the sweater or that she paid more than the sweater is worth. Maybe so, but what about fraud in the inducement? This was not at issue in the case, but arguably should have been. “Fraud in the inducement occurs when a party contends it would not have entered into the agreement ‘but for’ the fraudulent statements made by the other." That is precisely what the plaintiff here seems to claim. Could the pecuniary loss then not simply be the price paid for an item believing it was a better deal than it actually was? If I buy a painting I like, but it is not the Rembrandt I was told it was, can I not sue for fraud simply because I actually got a painting that can hang on a wall and has the value it was sold for?  Alas, that goes to show that plaintiffs must “win their own cases,” as the saying goes.

Plaintiff also claimed that Nordstrom was unjustly enriched by obtaining revenues and profits that it would not otherwise have obtained absent its conduct. The court found this to be a conclusory statement that did not allege that Nordstrom retained a benefit that would be inequitable without payment for its value.

Bad faith, at least? Not even that. Plaintiff complained that Nordstrom “either explicitly violated” the contract or violated the implied covenant of good faith and fair dealing by including a “Compare At” price that “does not exist in the marketplace within the meaning of the requirements of the Code of Massachusetts Regulations.”  Having found that the common law allegations are not coextensive with or suffice under a regulatory claim, the court found no breach of the good faith covenant since the “complaint does not allege that the sweater was worth less than what plaintiff paid, or that plaintiff did not receive the benefit of the bargain. By charging this agreed price in exchange for ownership of the clothing, [Nordstrom] gave the plaintiff[ ] the benefit of [her] bargain.” 

This case shows what we probably all know: you cannot really trust retailers’ “sales” prices, “before and after” statements and the like. They simply rank alongside puffery. Whether this is acceptable under the common law or state regulations is another story. The practice seems widespread, however, so buyer beware. “The more you shop, the more you save”? I don’t think so. As one of my students recently commented in class when I asked the somewhat philosophical question of why businesses exist: “to rip you off.” Well, maybe not quite, but some business behavior does seem questionable and at least unnecessary.

September 11, 2015 in Commentary, Recent Cases, True Contracts | Permalink | Comments (3)

Friday, September 4, 2015

Uber's Employees: Employees or Independent Contractors?

Yesterday, we blogged here about important considerations regarding whether an employee will be seen as an employee or a contractor.

In O'Connor v. Uber Technologies, U.S. District Judge Edward Chen just ruled that Uber's drivers may  pursue their arguments that they were employees in the form of a class-action suit. One of the reasons was that Uber admitted that they treated a large amount of its drivers "the same."

Of course, millions of dollars may be at stake in this context.  Profit margins are much higher for companies such as Uber, Lyft, Airbnb and other so-called "on demand" or "sharing economy" companies. That is because the companies do not have to pay contractors for health insurance benefits, work-related expenses, certain taxes, and the like.  But seen from the driver/employee's point of view, getting such benefits if they are truly employees is equally important in a country such as the United States where great disparities exist between the wealthy (such as the owners of these start-up companies) and the not-so-wealthy, everyday workers.

Plaintiffs are represented by renowned employee-side attorney Shannon "Sledgehammer" Liss-Riordan who represented and won a major suit by skycaps against American Airlines some years ago, so sparks undoubtedly will fly in the substantive hearings on this issue.

September 4, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, August 31, 2015

Washington Post Exposes Scam that Takes Advantage of Recipients of Structured Settlements

The article is here.

It speaks for itself.

There are a million reasons why these contracts, which offer pennies on the dollar on the present value of the settlement, should not be enforced.  Feel free to offer your legal theories in the comments!

August 31, 2015 in In the News, True Contracts | Permalink | Comments (0)

Monday, August 17, 2015

Contract Dispute Keeps Top Athlete off U.S. Track & Field Team

By Phil Roeder from Des Moines, IA, USA

I often begin my course by telling students that contracts facilitate mutually beneficial transactions.  So, if they want to be the kind of attorneys who make the world a better place, transactional work is the place to be.  But sometimes one-sided contracts drawn up in a context of vastly unequal bargaining power can prevent mutually beneficial transactions from taking place.  This seems to be occurring in the case of Nick Symmonds, a six-time U.S. outdoor champion at 800 meters who won a silver medal at the 2013 World Championships.  According to this story in the New York Times, Symmonds has been left off the U.S. team for the 2015 Worlds taking place later this month because he refused to sign a contract.

Symmonds refused to sign a vaguely-worded document that seemed to require that athletes wear Nike gear exclusively, even in their free time.  Nike, according to the Times, has committed to sponsoring U.S. Track & Field to the tune of $20 million per year through 2040.  But that contract might interfere with Symmonds' contractual obligations with his own sponsor, the running-shoe company, Brooks.  According to the Times, athletes were instructed to pack only Nike-branded or non-branded apparel for the World Championships.  Symmonds points out that Brooks is paying for him to wear its brand at important events.  If he is prohibited from doing so, why would Brooks continue to sponsor him.  Symmonds is all for the Stars and Stripes, but he also has to worry about dollars and cents.  He estimates that 75% of his income comes through sponsorships.

Symmonds does not object to wearing Nike apparel at official events.  He objects to the vague language that seems to preclude him from supporting his sponsor when he is not at official events.  Some are saying that Symmonds is taking this position because he has no chance to medal at the Worlds anyway, so he has nothing to lose.  The photo above shows him winning the US championships in 2010.  He won again in 2015.  If that guy has no chance, what does it say about the rest of the team?

August 17, 2015 in Celebrity Contracts, Sports, True Contracts | Permalink | Comments (0)

Friday, August 14, 2015

Contractual Issues and the Resignation/Termination of University of Illinois' Chancellor Phyllis Wise

Phyllis WiseAccording to this Chicago Tribune report, the University of Illinois' Chancellor, Phyllis Wise (pictured), and its Board of Trustees are fighting over whether she can resign or whether it is too late for her to resign because she has been terminated.  The exchange reminds me of a scene from the old Dick Van Dyke Show.  Laura (Mary Tyler Moore) has been helping out her husband, Rob (Dick van Dyke), by working as a typist, but Laura keeps making jokes that the other writers think are funny, which gets under Rob's skin.  She storms out saying: 

The only reason I came here was to help you, and if I have annoyed you, I sincerely apologize, and to keep from causing you any further annoyance, I want you to know that I'm fired! 

To which Rob responds,  "You can't fire! I quit ya!"

That fight was a product of marital discord, but the current dispute is about contracts and money.  Wise apparently tendered her resignation first, which would have triggered a $400,000 payment.  The Board rejected that resignation and has chose instead to initiate dismissal proceedings.  Wise has responded by tendering a second resignation.  Wise characterizes the $400,000 payment as a pro-rated portion of a retention bonus to which she was entitled under her 2011 contract.  But U of I's President was also offering to keep Wise on in an administrative capacity, which seems like a nice way to justify the payment.  Wise claims entitlement to the payment even though she is now refusing the administrative post.  

Wise stands accused of having used personal e-mail accounts to conduct official business, allegedly in order to escape rules requiring disclosure of official correspondence.  Sound familiar?  

August 14, 2015 in In the News, True Contracts | Permalink | Comments (0)

Thursday, July 30, 2015

Contracts for Trophy Hunting A Bad Idea

I earlier blogged on an American TV personality's contract to hunt and kill one of the most highly endangered species on earth: a black rhino.  That hunt has now been completed at a price tag of $350,000.  The asserted reasoning for wanting to undertake the hunt: the money would allegedly help the species conservation overall and the local population. Studies, however, show that only 3-5% of that money goes to the local population. Some experts believe that the money could be much better spent for both the local population and the species via, for example, tourism to see the animals alive.  This brings in three to fifteen times of what is created through so-called "trophy hunting."

This past week, the world community was again outraged over yet another American's hunt - this time through a contract with a local rancher and professional assistant hunter - of Cecil the Lion.  The price? A mere $50,000 or so.  This case has criminal aspects as well since the landowner involved did not have a permit to kill a lion. The hunter previously served a year of probation over false statements made in connection with his hunting methods: bow and arrow.

This is also how the locally famous and collared Cecil - a study subject of Oxford University - was initially hunted down, lured by bait on a car to leave a local national park, shot, but not killed, by Minnesota dentist Walter Palmer, and eventually shot with a gun no less than 40 hours after being wounded by Palmer.

Comments by famous and regular people alike have  been posted widely since then.  For example, said Sharon Osbourne: ""I hope that #WalterPalmer loses his home, his practice & his money. He has already lost his soul."

I recognize that some people - including some experts - argue for the continued allowance of this kind of hunting. Others believe it is a very bad idea for many biological, criminal, ethical, and other reasons to allow this practice.  If you are interested in signing a petition to Zimbabwe Robert Mugabe to stop issuing hunting permits to kill endangered animals, click here.  It will take you less than 60 seconds. 


July 30, 2015 in Celebrity Contracts, Commentary, Current Affairs, Famous Cases, In the News, Legislation, Science, Travel, True Contracts | Permalink | Comments (0)

Wednesday, June 17, 2015

Sign of the Times - The Post-Prom Waiver

The New York Times had an article in last weekend's Style section about the post-prom waiver.  Apparently, in some suburbs, liability conscious parents and schools hosting a post-prom after party are asking teenagers and their parents to sign a waiver.   My initial reaction was, Really?  Has it come to this?  But the more I thought about it, I could understand why some schools and parent- hosts might think it was a good idea. I did a quick search of "post prom waivers" and it seems that they serve several purposes. 

First, they waive liability.  The waiver would probably not be enforceable to stop lawsuits based upon negligence -- none of the ones I found even sought release for negligent acts on the part of the host - and certainly would not be effective to bar suits claiming gross negligence or recklessness on the part of the host.  They generally did not overreach by which I mean they did not seek to waive liability for everything under the sun (like this Borat release). 

Second, and related to the waiver, was an assumption of the risk clause.  This requires the student and the student's parent to knowingly and voluntarily assume the risk of harm relating to the student's participation in post-prom activities.  It seems as though post-prom activities have become much more active than when I was in high school - I found parties where there are extreme sports challenges and what looked like sumo wrestling!(?)  The waivers also contained a medication release form, which given the laws in this area, is a prudent measure.

Third, and most useful, all the post-prom waivers I found established guidelines or rules of conduct.  These clearly outline the school's (or host's) expectations for student behavior as well as parental responsibilities.  They establish, for example, whether the event is a "lock-in" (meaning the students can't leave the premises) and the rules regarding pick-up times and who may attend the event.  Given this is prom night, they also set out very clearly the expectations regarding drugs and alcohol - i.e. there will be NONE of that.  Students and parents know that drugs and alcohol are not allowed, but putting this in the waiver allows the conversation to happen.  More importantly, I think, it communicates to them that the school is not messing around. The language tends to be very express that illegal activity will not be tolerated and police will be called.  Some people may think these types of reminders (and other disclosures) are not useful.  I think it depends upon the disclosure.  In a post-prom waiver, where the students and parents will be reading it for useful information, such as what to bring, etc, it reinforces expectations and allows parents to set up their own rules in the event the student breaks the school rules (i.e. no leaving the house all summer if I have to bail you out of jail at 3am...)   All the waivers I read were also short and, for the most part, clearly written.

Finally, there are the indemnity type clauses.  Unlike exculpatory clauses (which free the school/host from liability), an indemnity clause makes the student responsible for harm caused to others.  Most of the ones I saw seemed fine - they required the students/parents to assume responsibility for any damages they caused.  Again, I don't think this gives the host any more rights than they would otherwise have since you are generally liable for any property damage that you cause.  It is useful, however, for setting expectations for conduct.  Sure, you might have to check some of your wild physical activity -  no whirling dervish dancing around the Ming vases - but from the host's point of view, understandable.  It's also useful for setting expectations after you break the vase.  You can't pretend it's unfair that you have to pay for it because you knew in advance.  Kind of like those "You break it, you buy it," signs in stores.

I'm still not convinced that these waivers are a good idea although I don't think they are necessarily a bad idea as long as they are clearly written, short and, most of all, reasonable and limited in scope.  It's unclear whether they will be enforceable, and again, I think it depends upon how reasonable they are in terms of scope and  process (they are signed well in advance of the event and both the student and a parent/guardian must sign it).  Given our litigious and form contracting society, I don't think they are going away.


June 17, 2015 in In the News, Miscellaneous, True Contracts | Permalink | Comments (0)

Monday, June 1, 2015

Opt-out arbitration provisions

As I mentioned in a previous post, I recently took a look at Instagram's terms of use.  I found it interesting that it contained an opt-out provision for arbitration.  A clause at the top of the page states the following in bold:


(Side note - I found it rather lazy for Instagram not to include section numbers in its TOU.  One of the reasons to have an opt-out provision is to guard against claims of unconscionability as in Hey, they had a choice!  They could have opted out!  It doesn't make sense then to make the user scroll through the entire agreement and try to find the arbitration clause instead of just referring to it). 

The arbitration clause itself permits the user to opt-out "within 30 days of the date that you first became subject to this arbitration provision."  Furthermore, the user has to provide written notice and send it to Instagram's offices. 

Of course, very few users will opt-out.  First of all, very few people read TOU.  Second, a lot of people don't know what arbitration is so they don't know to opt-out.  Finally, Instagram puts a "hurdle" in the user's way - they have to send a written notice.  The last time I had to mail a card, it took me several days.  I had to find an envelope, for one thing.  Then I had to find some stamps.  I don't even know where the post office is near my house and when I asked the cashier at the grocery store, he looked at me as though I were Rip Van Winkle --stamps?  

Contrast the written notice requirement to opt-out with how Instagram updates its TOU: 

"You agree that we may notify you of the Updated Terms by posting them on the Service, and that your use of the Service after the effective date of the Updated Terms (or engaging in such other conduct as we may reasonably specify) constitutes your agreement to the Updated Terms."

So, Instagram only has to post changes to its website but the user has to mail a notice to its headquarters in order to opt-out of arbitration? Why not have all notices be effective if sent via email?  Maybe because some people might actually choose to opt-out of arbitration then.

Instagram's opt-out clause is not unusual - in fact, it's quite common.  The CFPB recently issued  its report on the use of arbitration clauses .  It found that a  fair number of banking and credit card agreements contained provisions allowing consumers to opt-out of arbitration clauses but that very few consumers chose to opt-out.  There were a number of other interesting findings and the report is well worth reading although the report is rather long.  Professor Jean Sternlight of University of Nevada - Las Vegas summarized some of the key findings here





June 1, 2015 in Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, May 20, 2015

Rising Minimum Wages

Should salary levels be regulated or mainly left to individual contractual negotiations between the employee and his/her employer?  The former, according to the Los Angeles City Council and governance entities in several other cities and states.  

On Tuesday, Los Angeles decided to increase the minimum salary to $15 an hour by 2020.  Other cities such as San Francisco, Chicago, New York, and Seattle have passed similar measures.  Liberal strongholds, you say?  Think again.  Republican-leading states like Alaska and South Dakota have also raised their state-level minimum wages by ballot initiative.  Some companies such as Walmart and Facebook have raised their wages voluntarily.

But the effect is likely to be particularly strong here in Los Angeles, where around 50% of the work force earn less than $15 an hour.  That’s right: in an urban area with super-rich movie studios, high-tech companies, hotels, restaurants, health companies and much more, half of “regular” employees barely earn a living salary.  In New York state, around one third of workers make less than $15 an hour.  Take into consideration that the cost of living in some cities such as Los Angeles and maybe even more so San Francisco and New York is very high.  In fact, studies show that every single part of Los Angeles is unaffordable on only $15 an hour if a person spends only the recommended one third on housing.  

“Assuming a person earning $15 an hour is also working 40 a week, which is rare for a minimum wage employee, and that they're not taking any days off, they'd be earning $31,200 a year.  An Economic Policy Institute study released in March found that a single, childless person living in Los Angeles has to make $34,324 a year just to live in decent conditions (and that was using data from 2013).”

Opponents, however, say that initiatives such as the above will make some cities into “wage islands” with businesses moving to places where they can pay employees less.  Others call the initiative a “social experiment that they would never do on their own employees” (they just did...)  But “even economists who support increasing the minimum wage say there is not enough historical data to predict the effect of a $15 minimum wage, an unprecedented increase.  A wage increase to $12 an hour over the next few years would achieve about the same purchasing power as the minimum wage in the late 1960s, the most recent peak.”  

Time will tell if the sky falls from the above initiative or if the system in a rich urban area such as Los Angeles can cope.  Said Gil Cedillo, a councilman who represents some of the poorest sections of the city and worries that some small businesses will shut down, “I would prefer that the cost of this was really burdened by those at the highest income levels.  Instead, it’s going to be coming from people who are just a rung or two up the ladder here.”

This is, of course, not only an issue of the value of low-wage work and fending for yourself to not end up at the bottom of the salary chain.  It is a matter of alleviating urban poverty and improving the nation’s overall economy for a sufficient amount of people to better get the economy back on track for more than the few.

May 20, 2015 in Commentary, Current Affairs, In the News, True Contracts | Permalink | Comments (9) | TrackBack (0)

Monday, May 18, 2015

Retirement Investment Brokers Contractually Bound to Act as Fiduciaries

Under a United States Labor Department plan, investment brokers may be required to bind themselves contractually as fiduciaries for their clients in the future.  Only a few states such as California and Missouri require brokers to act as fiduciaries at all times.  In others, brokers must simply recommend investments that are “suitable” for investors based on various factors, but are not required to adhere to the higher fiduciary “best-interest” standard.

The contemplated advantages are two-fold.  First, the rule is thought to better protect investors from broker recommendations that, if followed, would help the brokers earn more or higher fees, but fail to meet investors’ best interests.  A contractually stipulated duty would also help “deflate arguments that brokerages typically raise to deflect blame for bad advice, such as that an investor has in-depth financial know-how.  

Second, arbitration cases would be easier to prove.  This is so because arbitrators currently rely on state laws when determining the standard of conduct to be followed by the brokers, which is one of the threshold issues to be analyzed in investor cases.  A uniformly required fiduciary standard would, it is thought, be more investor-friendly.

Needless to say, there are also contrary views.  For example, some attorneys fear that investors’ lawyers will start or increase a hunt for more retirement account cases to represent.  Others worry about an increased amount of class action cases.

Regardless, given the complexity of today’s investment world, requiring brokers to act as fiduciaries for their clients does indeed seem like the “good step in the right direction” as the president of the Public Investors Arbitration Bar Association recently called the initiative. 

May 18, 2015 in Current Affairs, Legislation, True Contracts | Permalink | TrackBack (0)

Thursday, May 7, 2015

West Virginia Supreme Court of Appeals Refuses to Enforce Unethical Fee-Splitting Agreement

WV SealGary Rich and Joseph Simioni met in connection with an asbestos case involving West Virginia University.  Rich is an attorney.  Simioni has a J.D. but was never admitted to the bar.  Starting in the 1990s, the two men collaborated on two additional asbestos cases and contracted with out-of-state law firms to help them class action litigation.  It appears that until 2002, the men agreed that they would split the proceeds of their work 50/50.  but then Rich announced there would be an 80/20 split in his favor. The parties then proceeded on this basis and committed their agreement to writing in 2005.  

Rich now contends that he was under the impression that Simioni was a licensed attorney, and he did not realize that Simioni was not licensed until 2000 or 2001.  He consulted with the former Chief Lawyer Disciplinary Counsel of the West Virginia State Bar, who told him that Sinioni “might not be able to get paid ethically."

Simioni eventually filed sued in District Court against the out-of-state law firms, seeking recovery based in quantum meruit, unjust enrichment and breach of an implied contract.  The District Court certified the following question to the Supreme Court of Appeals:

Are the West Virginia Rules of Professional Conduct statements of public policy with the force of law equal to that given to statutes enacted by the West Virginia State Legislature? 

The Supreme Court of Appeals answered in the affirmative, at least with respect to Rule 5.4 of the Rules of Professional Conduct. which prohibits fee-sharing between lawyers and non-lawyers..  The Court held for the first time (but based on numerous authorities) that fee-sharing agreements between lawyers and non-lawyers violate public policy.  The parties sought to persuade the court to find an alternative mechanism for compensating Simioni by setting aside the agreement to share fees and compensate Simioni in quantum meruit, but the Court rejected that as an attempt to circumvent the rule.

May 7, 2015 in Recent Cases, True Contracts | Permalink | Comments (1) | TrackBack (0)

Friday, May 1, 2015

Caveat Vendor in a Banksy Sale in Gaza?

Banksy in BethlehemIn March, while I was co-teaching  a course called International Humanitarian Law in Israel and Palestine with Professor Yaël Ronen, I visited Bethlehem with my students.  Among other things, we saw the image at left, attributed to Banksy, on a wall in Bethlehem.

So today's New York Times story about Banksy's other creations in Gaza caught my eye.  The heart of the story, for the purposes of this blog, is that Banksy apparently painted an image of a weeping Greek goddess an the iron door of a destroyed home in Gaza.  An enterprising Gazan artist bought the door for less than $200, saying he wanted to protect the goddess.  The owner of the door was unaware that the painting could be worth hundreds of thousands of dollars.

According to the Times, the local authorities, Hamas, have confiscated the door, and its ownership and value are to be determined by a court.  I'm not sure what law the courts in Gaza would apply to such a dispute.  Does anybody think the buyer of the door has a duty to disclose its possible worth to the vendor?  

May 1, 2015 in In the News, Recent Cases, True Contracts | Permalink | Comments (1) | TrackBack (0)

Friday, April 3, 2015

Playing Fair Down Under

In New Zealand, a ban on unfair terms in consumer contracts has taken effect and will, according to the Commerce Commission, will be enforced starting immediately.   The regulation forms part of the 2013 Fair Trading Act.  Australia introduced a similar ban in 2010.

The Consumer Organization “Consumer NZ” has launched its “Play Fair” campaign to increase awareness of the new law and related consumer issues.   According to Consumer NZ, companies had been given plenty of notice of the upcoming ban and thus to review their contracts in order to remove unfair terms, but had to a large extent failed to do so.

The Act will apply to standard-form consumer contracts often used by electricity retailers, gyms, TV service providers and many others.

But what makes a term “unfair”?  The Act defines a term as unfair if it would “would cause a significant imbalance between the rights of the company and the consumer, is not reasonably necessary to protect the legitimate interests of the company, [or] would cause detriment, whether financial or otherwise, to the consumer if it were to be applied or relied on.”   The Act contains a list of terms that courts are likely to regard as unfair.  This covers terms that would allow a company to unilaterally vary the terms of the contract, renew or terminate it, penalize consumers for breaching or terminating the contract, vary the price without giving consumers the right to terminate the contract, or vary the characteristics of the goods or services to be supplied.  

After intense lobbying by the insurance industry, that industry was exempted from the ban.

Even though this Act is a consumer protection device, only the New Zealand Commerce Commission can, for now, enforce it.  The contemplated fine for violations is $600,000.

In the USA, there are, of course, various statutory and common law protections against unfair terms such as those contained in the UCC as well as fraud protections.  However, the deterrence effect of these does not seem effective in relation to at least some industries.  Alternatively, perhaps the protections are not broad enough, sufficiently well-known, or sufficiently easy to enforce.  Or perhaps people just give up and deal with other companies, or pay what they are asked to do by the companies. 

I personally just spent no less than two hours chatting online with a major health care provider over their sudden allegation that a certain doctor I had used was “not in network” (with me thus allegedly owing a few thousand dollars to the insurance company) despite that particular provider being listed on the provider’s own website as “in network” and the doctor having confirmed this.  Eventually and after numerous contractual and factual arguments, I was able to persuade provider that I was right.  But how many others in my situation would simply give up and cave in to, as was the case, the provider’s repeated bootstrapping arguments that “their ultimate price was fair”?

Only two days later, I heard from a moving company that had agreed to move a car for me for $500 (and confirmed this twice) that the “price is actually $600.”  When I told them no, it is not, they repeated their allegation that “we did not have a contract.”  After telling them a few things about contract formation and modification principles and after declining listening to their attempted, time-consuming warnings about using other companies that were “scam artists,” I am now looking for a new contract another vendor.

Despite whatever legal protections we may officially have in this country against consumer fraud, it is still rampant.  New Zealand’s government enforcement system is interesting, but time will tell if they have more success preventing consumer fraud than we do here.

April 3, 2015 in Commentary, Current Affairs, Legislation, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, March 30, 2015

On a Lighter Note: Valet Service Companies Needing to Take Crash Course on Contracts

Earlier this month, Los Angeles-area media reported a somewhat humorous of a valet service that gave away a relatively expensive new car to a random guy claiming that he had "lost the [valet] ticket."  Yup, the valet service actually just gave the car to the man who was sporting an Ohio state tattoo.  (Of course, this story is not funny for the frustrated car owner).

But wait, the story gets weirder than that (it is, after all, LA, where we worry a lot about our cars...): the valet service sent the responsible employee home and referred the customer to his insurance company.  Initial reports indicated that the insurance company did not want to pay for this loss as no theft had occurred... as is always the case, however, the media did not follow up on the end of this story, to the best of my knowledge.

Another valet contract that you must read and that was shared today on the AALS listserv for Contract Professors reminded me of this story.  Hat tip to Professor Davis!


Valet companies may have to brush up on their contract writing skills soon...

March 30, 2015 in Commentary, Contract Profs, Current Affairs, Famous Cases, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Eric Goldman on Consumer Review Bans

Eric GoldmanWriting for, Santa Clara Law Prof Eric Goldman (pictured) reports on a recent SDNY case, Galland v. Johnston The case is similar to others about which we have blogged recently.  Plaintiffs rent out their apartment in Paris through a website.  The rental agreement associated with the property provides that defendants would “not to use blogs or websites for complaints, anonymously or not."  Notwithstanding this clause, defendants posted reviews of the apartment that were not entirely positive.  In one case, plaintiffs offered a defendant $300 to remove a three-star review from a website.  The defendant refused and complained to the website.  Plaintiff then sued defendants for, among other things, breach of contract, extortion and defamation.

The magistrate judge dismissed all of the claims except the breach of contract claim.  Plaintiffs objected to this disposition.  Defendants did not, which may be a good reason why the District Court let the breach of contract claim stand while upholding the Magistrate's dismissal of the remaining claims.  Indeed, the District Court's opinion did not address the breach of contract claim.  

Professor Goldman expresses surprise that the Magistrate allowed the breach of contract claim to stand.  Other New York courts have found that contracts clauses that prohibit customer reviews are a deceptive business violate New York's consumer protection laws.  Professor Goldman also points out that they violate public policy regardless of New York law.

March 30, 2015 in In the News, Recent Cases, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, March 26, 2015

Water Contracts and Adequate Assurances (to Continue Business as Usual)

Some weeks ago, I blogged here about water rights and shortages in drought-ridden California.  Of course, California is not the only state where contractual water rights interface with development and public health concerns. 

In Ohio, shale driller Gulfport Energy recently filed suit against the town of Barnesville for rights to extract water for Gulfport’s fracking operations.  Gulfport had a contract with Barnesville entitling it to draw water from a local reservoir at one cent per gallon.  Under the contract, Gulfport would be able to draw the water unless the village determined that such action would endanger public health.  Water rights were subsequently also issued to another driller.  In the fall of 2014, the village told Gulfport to stop drawing water from the reservoir because of too low water levels.  Gulfport’s suit now asks for adequate assurances of performance of the water contract to ensure that it can continue its fracking operations. 

Whether that is a good idea is another story.  From a short-term perspective: yes, we need energy preferably domestically sourced to avoid international supply interruptions and the geopolitical problems that are associated with importing energy raw materials.  But fracking and fossil fuel production in general are associated with other severe problems including heavy water usage in the case of fracking.  Such water, the argument goes, is better used for other things such as farming and household consumption. 

Business as usual for fracking companies may not be the best idea seen from a societal point of view.  Contracts rights are only a small part of this much bigger problem.  However, time seems to have come for governments to incorporate escape clauses not only for “public health concerns” into water contracts, but also for drought concerns.  This is not always done, as the above case shows, but such a relatively easy step could help solve at least some contractual disputes.  In times of increasing temperatures and decreasing rainfall in some areas, such contract drafting may well make sense.

March 26, 2015 in Commentary, Current Affairs, Food and Drink, Government Contracting, True Contracts | Permalink | TrackBack (0)

Where Congress Won't Act, Private Ordering Fills a Gap

ThermometerToday's New York Times reports that Microsoft will require the companies with which it partners, its contractors and vendors who employ more than 50 workers, to provide their employees who do work for Microsoft with 15 days of annual paid sick leave and vacation time.  Microsoft expects that it will have to increase its pay to these partners to help them with the added expense of the policy.  

As the Times points out, it is a very American approach to the protection of workers' rights.   Congress will not act and only a few state legislatures have done so.  Microsoft, like other large technology companies, can afford to provide decent wages and benefits to its workers.  However, companies increasingly prefer to contract work out to small companies that do not treat their workers nearly as well.  

The Times notes that the gap is not only between skilled computer programmers and unskilled or semi-skilled janitors or groundskeepers but also between whites and African Americans and Latinos.  While the latter, traditionally-underrepresented minorities account for our 3-4% of tech workers, they account for 75% of janitorial and maintenance workers.  Eschewing Google's and Facebook's approaches of replacing contract workers with its own employees, entitled to company benefits, Microsoft has explained its move in a manner also consistent with the great American tradition of enlightened self interest.  Microsoft general counsel explained that: 1) happy workers are more productive; and 2) sick workers who come to work can infect others.  

This move can have a big impact, especially if other major companies follow Microsoft's lead, but I'm not sure that the effects will all be good for workers.  If a contractor has some workers that work for Microsoft and some that don't, the Microsoft jobs suddenly become highly sought-after.  A company may try to stay below the 50-employee threshold to avoid the private regulation.  Or it may divide Microsoft work among its staff (in the interests of internal morale), which might dilute the effects of the regulation.  If you do only 20% of your work for Microsoft, do you only qualify for three days of vacation/sick leave?  It may take a few years (and a few contracts disputes) to work out the kinks.

March 26, 2015 in Commentary, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 11, 2015

Contractual Dispute over Pricey Airport Water

We all know the feeling of having to pay twice as much - or more - for food and drink in airports compared to most other places.  Two vendors at the Los Angeles International Airport (“LAX”) are now taking this practice to the next level: they are suing each other for alleged contracts violations and price gouging.

Boutique retailer Kitson Stores runs two stores at LAX.  It apparently charges around $2.55 for a liter of water (roughly a quart) at those stores.  Competitor Hudson Group charges $5 a bottle (size unknown, but presumably roughly the same and expensive at any rate).  Kitson is alleging that Hudson is gouging passengers with its “hugely inflated” water prices and is trying to force Kitson out of business at the airport.  Hudson is countering that Kitson is hardly concerned about consumer price protections, but that this lawsuit is really a diversion from Kitson’s alleged contractual violations. 

Whichever turns out to be the case, airport prices are well known to be very high for everything from chewing gum to dinner.  Perhaps higher-than-usual rent prices are to blame, at least in part.  Of course, airport retailers also enjoy a captive market (almost literally).  Consumers are, however, still allowed to bring an empty bottle to the airport and fill it with free water from, for example, the increasing number of “bottle filling stations” that are thankfully also appearing in more and more airports.  This does seem to be a case of fake altruism, but is nonetheless a lawsuit that may resolve an important issue.

March 11, 2015 in Food and Drink, Miscellaneous, Travel, True Contracts | Permalink | Comments (0) | TrackBack (0)