ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, July 20, 2018

Court finds a no-media clause contrary to public policy

A recent case out of the Southern District of New York, Garcia v. Good for Life by 81, Inc., 17-CV-07228 (BCM) (behind paywall), is an examination of a settlement agreement implicating the Fair Labor Standards Act ("FLSA"). It's interesting for the language it's willing to approve vs. the language it says should not be contained in the agreement. 

First, the court expresses concern about the contract's releases being overly broad and rewrites them, concerned that the language as written would have attempted to bar claims by a "second cousin once removed." Upon revision, the court is comfortable with the releases, but the court declares unenforceable the no-assistance and no-media provisions. The court finds it a violation of the FLSA to bar the plaintiff from assisting other individuals who might have a claim against the employer. The court also states that the effective "partial confidentiality clause" preventing the plaintiff from contacting the media is "contrary to well-established public policy." I found this last ruling especially interesting in our age of widepsread NDAs, which I've blogged about a bunch. I agree that such a clause would "prevent the spread of information" in a way that would be harmful to other wronged victims trying to vindicate their rights; we should keep talking about that when it comes to NDAs. 

July 20, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, July 18, 2018

Surprise Charges for Emergency Room Services… Once Again

I blogged about the issue of emergency room and hospital “surprise charges” before, but this important issue is well worth re-addressing in the context of a new case.  Many court decisions and articles are still generated about the topic, but with no good solution yet from a patient/consumer point of view.

Here is the classic scenario: A person receives urgent medical care in an emergency room.  Upon admission, he or she is presented with a contract stating, for example, that he or she will pay for the services “in accordance with the regular rates and terms” of the hospital or emergency room.  But how does one ever know what those charges will be?  Does that make them an open price term?  If so, is the medical provider under an obligation to pay only the reasonable value of the services provided or can they charge pre-posted list rates?  Who decides what is “reasonable” and not in a market marked by, for most of us, very high prices?  If the provider charges what appears to be a very high amount, is the entire contract void for unconscionability?

A current case I came across addresses these issues (class certification was granted).  The uninsured “self-pay” patient, Mr. Cesar Solorio, signed a three-page admissions contract stating the above.  Once released, he got an un-itemized bill for $7,812.  He filed suit for breach of contract asking the court to, among other things, clarify how the contractual language “in accordance with the regular rates and terms of  [medical center] should be interpreted and applied.  Mr. Solorio alleges that the language constitutes an open price term that, under applicable law, is an agreement to pay only the reasonable value of the items received and not the posted rates by the medical center. Solorio also alleges that the medical charges were artificially inflated and more than four times higher than the actual fees and charges collected by the medical center. 

I still find these types of contracts highly problematic seen from a consumer/patient point of view. I have myself been subjected to a similar treatment (so to speak) by an emergency room that also, after the fact, sent me a much higher bill than what I was initially “promised” (orally and probably non-binding, but still).  Several items were double if not triple billed.  Patients can complain and complain, but what can we really do?  Not much, it seems, as these types of cases keep re-appearing. 

Yes, of course we want urgent medical treatment if we need it.  Yes, that is expensive.  But clearly, we also have a contractual (and moral) right notto be ripped off.  And maybe some services that might initially seem urgent could actually wait… In my own case and, I know, that of many others, medical providers are very eager to promote their treatment as highly necessary and urgent/”a good idea.”  That may, I hate to say, simply be a way for the medical providers to make more money.

As it is now, the burden seems to be on the patient seeking services to bargain for and document having received a promise that is limited in scope to … what?  Is this just an impossible issue to solve from a contractual point of view?  It seems to be.  That’s where health insurance comes into play, but reality remains that not everyone has that.  The “free market” takes over, but, in my opinion, that is far from optimum in this particular context.

The case is Cesar Solorio v. Fresno Community Hospital and Medical Center, Ca. Super. Ct. NO. 15CECG03165, 2018 WL 3373411. 

July 18, 2018 in Commentary, Miscellaneous, Science, True Contracts | Permalink | Comments (2)

Termination for any reason at all means that you can terminate for, well, any reason at all

A recent decision out of Ohio, Whitt v. The Vindicator Printing Company, Case No. 15 MA 0168 (behind paywall), discusses the limits of the implied covenant of good faith and fair dealing. In the case, the contract contained a provision permitting termination of the contract for "malfeasance . . . , or at the will of either party for any reason or no reason" upon thirty days written notice. Vindicator terminated the contract with Whitt after an altercation between Whitt and a temp employee working for Vindicator. Whitt sued for, among other things, breach of contract, complaining that Vindictor had wrongfully terminated the contract only seven months into its three-year term. Whitt alleged that Vindictor violated the implied covenant of good faith and fair dealing because it terminated the contract after Whitt was a victim of criminal assault at the hands of Vindicator's employee. 

The court noted, though, that the requirement of good faith should not give a court the ability to second-guess decisions made within the context of the contract. The termination provision of the contract did not require just cause, which was what Whitt was trying to read in. Rather, the contract permitted Vindicator to terminate it for no reason whatsoever, so the exact circumstances of the termination did not matter. 

I think many people assume that contracts provide a level of reliability and predictability that doesn't exist if those contracts permit termination for any reason, or for no reason. I think Whitt assumed that this contract would stay in effect unless he did something terrible, but that's not how the termination clause was worded. 

July 18, 2018 in Commentary, Recent Cases, True Contracts | Permalink | Comments (1)

Saturday, July 14, 2018

A dispute along the shores of Lake George

We went to Lake George on vacation a couple of times when I was a kid, so I am blogging this recent case out of New York, Edscott Realty Corp. v. LaPlante Enterprises, Inc., 61356, out of a sense of nostalgia. Also it's another ambiguity case, and I always find those interesting and instructive for thinking about things to watch out for. 

The parties operate two adjacent hotels on the shores of Lake George. In 1999, the parties had a dispute over water access that was eventually resolved in 2002 by dividing up the water according to a fence line "continued out into the waters of Lake George in an easterly direction along said course." The waters north of the fence line were reserved for the plaintiff and the waters south for the defendant. 

The parties are now disputing, among other things, the meaning of this division. The plaintiff alleged that it limits both the actual berthing of boats on the wrong side of this line plus ingress and egress to navigate into those berths. The defendant alleged that it pertains only to the berthing of boats and does not limit the navigation of boats on Lake George. The court found that there was an ambiguity as to how far out into Lake George the parties had stipulated their rights to extend, and so refused to award summary judgment on the issue. 

July 14, 2018 in Recent Cases, Travel, True Contracts | Permalink | Comments (0)

Friday, July 13, 2018

How does a "deemed effective" date affect a non-compete?

A recent case out of New York, Niznick v. Sybron Canada Holdings, Inc., 650726/2018, illustrates how ambiguity can crop up anywhere, sometimes no matter how careful you are; it's difficult to plan for every eventuality. 

The parties had a contract that included a non-competition clause that prohibited competition for five years after Niznick ceased to own any units in the company. Sybron tried to exercise an option to purchase Niznick's units in the company in 2014, but Niznick disputed the validity of Sybron's actions, and the parties engaged in litigation. Eventually, a court concluded that Sybron was permitted to exercise the option and that Niznick's ownership interest terminated as of the 2014 date when Sybron had attempted to exercise its option. After this decision, in 2017, the parties entered into a purchase and sale agreement "deemed to be effective as if the transfer" had occurred in 2014. Niznick also asserted that, therefore, the non-competition clause would expire in 2019--five years after the 2014 date. Sybron contested that reading. 

The parties' previous contracts had referred to the non-compete as "a material part of the consideration" of the agreement. The court, therefore, did not allow Niznick's attempt to minimize its importance. The purchase and sale agreement executed in 2017 stated that Niznick "is the owner" of the units in question (emphasis added). The "deemed to be effective" date was not considered to alter the language of the non-compete, which stated that it would commence when Niznick ceased to own units, which did not happen until the 2017 purchase and sale agreement, regardless of the "deemed effective" date. 

At the time of drafting the non-compete, it was probably thought that it would be pretty clear when Niznick ceased to own the units. Sybron probably did not anticipate that they would have a dispute about the operative date this way. 

 

July 13, 2018 in Conferences, Recent Cases, True Contracts | Permalink | Comments (0)

Thursday, July 5, 2018

Classic Case on Choice of UCC or Common Law

A recent Indiana case demonstrates the continued necessity of distinguishing between the common law and the UCC.  Nothing too new in the case legally as I see it, but it lends itself well to classroom use. Unknown

A medical center entered into two contracts with a medical billing services company for records-management software and related services.  In Indiana and elsewhere, “where a contract involves the purchase of preexisting, standardized software, courts treat it as a contract for the sale of goods governed by the UCC.  However, to determine whether the UCC applies to a mixed contract for both goods and services, Indiana uses the “predominant thrust test.”  Courts ask whether the predominant thrust of the transaction is the performance of services with goods incidentally involved or the sale of goods with services incidentally involved. Id. To determine whether services or goods predominate, the test considers (1) the language of the contract; (2) the circumstances of the parties and the primary reason they entered into the contract; and (3) the relative costs of the goods and services.

In the case, the contractual language was neutral.  Next, the primary reason for executing the agreements was to obtain billing services.  The software was merely a conduit to transfer claims data to the billing services company in order to allow it to perform those services.  The goods – the software – were incidental.  The third and final factor—the relative cost of the goods and services—also pointed toward that conclusion.  As the Indiana Supreme Court has explained, “[i]f the cost of the goods is but a small portion of the overall contract price, such fact would increase the likelihood that the services portion predominates.”  Under the agreement, the medical center paid a one-time licensing fee of $8,000 for software; a one-time training fee of $2,000; and $224.95 each month for services and support for about nine years.  Thus, for the life of the Practice Manager agreement, the services totaled approximately $26,294—more than three times the $8,000 licensing fee for the software.  Under the agreement, the medical center also paid a one-time licensing fee of $23,275 for the software; a one-time training fee of $4,000; and $284 per month for services and support for about six years.  Thus, the services totaled about $24,448—slightly more than the $23,275 software licensing fee. The relative-cost factor reinforces the conclusion that services predominated.  Thus, the ten-year common-law statute of limitations and not the four years under the UCC applied. Unknown-1

Interestingly, the case also shows that because the UCC did not apply, plaintiff’s claim for good faith performance under the UCC dropped out too.  In Indiana, a common-law duty of good faith and fair dealing arises “only in limited circumstances, such as when a fiduciary relationship exists,” which was not the case here.  The parties were thus not under a duty to conduct their business in good faith. Yikes!  This should allow for some good classroom discussions.

The case is Pain Center of SE Indiana LLC v. Origin Healthcare Solutions LLC

July 5, 2018 in Contract Profs, Miscellaneous, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, July 4, 2018

Pleading breach of contract adequately

Here's a short case out of the District of New Jersey, Hall v. Revolt Media & TV, LLC, Civil Action No. 17-2217 (JMV) (MF), in which the plaintiff failed to adequately plead his breach of contract claim. I'm blogging it because I don't spend a lot of time teaching my students about complaint-drafting; there are always just so many other things I'm quickly trying to discuss. But this case strikes me as a nice straightforward way to talk about it. The claim fails because all of the plaintiff's allegations were about contract negotiations: He contacted the defendant to discuss a contract, he sent the defendant a contract that was never signed, he continued to attempt to contact the defendant to negotiate the contract, etc. The court said there was never an allegation that any contract had actually been finalized. Nor did the complaint contain any details about the terms of the contract, such that the court could not tell what had allegedly been breached. I think this can be used as a way to focus the students on what they do need to be sure to include in breach of contract allegations. 

And being sure to also plead promissory estoppel would be a good idea. The complaint did adequately plead unjust enrichment, so this case can act as a good way to teach the distinctions of that cause of action as well. 

July 4, 2018 in Commentary, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, July 2, 2018

An "exceedingly rare" case where a court discounted testimony, relying in part on the witness's admitted "habit of routinely lying" in the course of business

A recent case out of Michigan, Strategy and Execution Inc. v. LXR Biotech LLC, No. 337105, speaks to the perils of not putting agreements in writing (or doing so and subsequently losing the writing). The parties had a written contract that stated that they would arrive at performance criteria at a later time. But the parties disputed ever entering into a later agreement over the performance criteria. No party produced any written document. LXR's principal testified that the parties reached an oral agreement that he memorialized in writing but the writing was later lost. However, this testimony was not corroborated by any other witness except for one who gave "conflicting testimony" regarding the document. LXR's principal had admitted to "routinely lying" because he apparently thought it to be "good business practice." Furthermore, none of the "voluminous" emails exchanged between the parties ever referenced any agreement on the performance criteria. The court therefore agreed that "this is one of the exceedingly rare cases in which a witness's testimony is insufficient to find a jury question." Despite the testimony, the court was permitted to enter a directed verdict on the breach of contract claim. 

Written contracts are not always required, but this case is an example of why they are often desirable to have, and to keep safe!

(There were other points of appeal in the case relating to other clauses of  the contract and some jury instruction issues.)

July 2, 2018 in Commentary, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, June 29, 2018

If you want something specific, ask for it in your contract

A recent case out of the Second Circuit, Ortho-Clinical Diagnostics Bermuda Co. Ltd. v. FMC, LLC, No. 17-2400-cv (behind paywall), is another case about interpretation of contract terms -- twice over. Because here the parties entered into a contract, fought over breach of that contract, and then entered into a settlement agreement, which they were also fighting over. The moral is that, if you want something specific, you should ask for it rather than relying on unspoken industry practices. 

The initial agreement between the parties was about an IT operating system. Although the system was going to cost $70 million, the contract wasn't very detailed, with no technical specifications or description of building methods. The parties' relationship deteriorated and they eventually entered into a Settlement Agreement to terminate the project. Under these new terms, FCM would be released from its obligation to provide the system to Ortho, while providing assistance while Ortho transitioned to a different contractor. After execution of the Settlement Agreement, Ortho apparently realized that FCM was not as far along as Ortho had thought and had not prepared certain items that Ortho had assumed it had prepared, and so Ortho claimed that as a result the IT system cost more and took longer. 

The court, however, noted that there was nothing in the contract requiring FCM to produce the certain deliverables Ortho had been looking for. Ortho claimed it was "standard practice in the industry," but the court said that wasn't the equivalent of it being a contractual obligation. FCM was contractually required to provide assistance -- no more, no less. There was nothing in the contract about the job having to be at a particular stage of completion, or that any particular deliverables or documentation had to exist. 

The court also pointed out that Ortho had released its claims regarding the original agreement in the Settlement Agreement. Ortho tried to argue that it had released claims but not damages but the court called that "a nonsensical reading." 

June 29, 2018 in Commentary, Law Schools, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, June 27, 2018

Your contract should say what you want; fancier terms are not always a good thing

A recent case out of the Southern District of New York, Treasure Chest Themed Value Mail, Inc. v. David Morris International, Inc., 17 Civ. 1 (NRB), deals with a digital marketing contract, presenting a variety of straightforward interpretation questions that could be helpful for basic examples for some things to look out for in contract drafting. 

The parties entered into a contract in which Treasure Chest was required to provide "greater than 300,000 follow up weekly digital impressions." The first dispute was over whether "digital impressions" was too ambiguous to be enforced. The court, however, easily defined "digital impression" with reference to investopedia.com. The court distinguished "digital impression" from "email," saying if the parties had meant "email" they would have used the word "email." A lesson in just using what you wish to say if that's indeed what you want; fancier terms are not always necessary and might just leave some room open for arguments about ambiguity and interpretation. 

There was also a dispute over whether it was ambiguous that compensation was "up to" a certain amount. But the court disagreed, saying it was clear that this simply meant the contract would not exceed a certain amount. 

Therefore, the court found there was a valid contract, that Treasure Chest fulfilled all of its obligations under the contract, and David Morris did not, so Treasure Chest was entitled to damages. Treasure Chest also sought attorneys' fees, but the court found that the contract was not clear enough to justify attorneys' fees. The contract said that "costs necessary to collect" past due balances could be awarded, but the court said that did not satisfy the "high standard" for collection of attorneys' fees via contract. Again, if attorneys' fees are what you want, attorneys' fees are probably what you should say. 

June 27, 2018 in Commentary, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, June 20, 2018

Is the viral umpire video a breach of contract?

Recently a video went viral showing a 2016 altercation around an umpire ejecting Mets pitcher Noah Syndergaard after he threw a fastball behind the Dodgers' Chase Utley. Umpires wear microphones during Major LeagueBaseball games, and the resulting (often loud and profane) discussions with Mets players and especially Mets manager Terry Collins was recorded. 

The video recently surfaced in an apparent leak, because MLB has announced its intention to try to scrub the video from the internet. MLB's reason for this is that it violates a "commitment" that "certain types of interactions" involving umpires during baseball games would not be made public, claiming it was "in the collective bargaining agreement" and that there was "no choice" but to scrub the video from the internet. Indeed, according to one report it had already been scrubbed

Not so fast, though, because I found it still embedded in news reports about it. It's hard to get anything to vanish from the internet, especially once it's gone viral, but it's not that difficult to locate this video at all. 

And it's not hard to see why it went viral. It's a fascinating glimpse into a part of the game fans seldom get to see. As others have pointed out, the umpire does a fantastic job in the clip, so it's hardly like he's being cast in a bad light. The manager doesn't even come across all that poorly. In fact, in my opinion, the party that comes out of the clip looking the worst is Major League Baseball and its confusing way of handling the explosive Chase Utley situation. 

It's unclear what "interactions" were agreed to be withheld from the public, but this one is certainly an interesting one. I'd love to know what the contract terms actually are. 

June 20, 2018 in Commentary, Current Affairs, Film, In the News, Labor Contracts, Sports, Television, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, June 18, 2018

A warning against trying to "nebulously" slip in language that would change an agreement's meaning

A recent case out of the District of Arizona, Colocation America Corporation v. Mitel Networks Corporation, No. CV-17-00421-PHX-NVW (behind paywall - h/t to reader D.C. Toedt for the non-paywall link!), is, in its own words, "a poster child for the rule of Section 201(2) of the Restatement." 

The dispute was over whether or not an agreement between the parties to transfer a domain name also involved the transfer of IP addresses. The section at issue was ambiguously worded: "Mitel hereby agrees to quit claim . . . the goodwill of the business connected with and symbolized by [the] Domain Name and the associated IPv4 134.22.0.0/16 and any associated trade dress . . . ." Mitel claimed this required it to quit claim the goodwill of the business associated with the IP addresses. Colocation contended Mitel was required to quit claim the goodwill AND the IP addresses AND the trade dress. 

The court found that the wording was ambiguous but that the rest of the contract supported Mitel's interpretation, since the contract did not mention the IP addresses anywhere else. At every other point the contract discussed the transfer only of the domain name. There were no clauses about the transfer of the IP addresses other than that one mention in the clause quoted. 

Furthermore, the court found that Mitel had no reason to know Colocation thought it was acquiring the IP addresses. By contrast, though, Colocation did have reason to know that Mitel thought the agreement was not about the IP addresses. In fact, evidence showed that Colocation "intentionally misled" Mitel by pretending to wish to buy only the domain name and keeping all discussions domain-name focused, while "nebulously" slipping the IP addresses into the contract. The IP addresses were worth far more than the amount the parties agreed on for transferring the domain name, and the court found that this was further proof Colocation knew that Mitel only intended to transfer the domain name, not the IP addresses. 

As the court summarized,

"Colocation's objective from the outset was to acquire the IPv4 addresses. But it purported to negotiate only for a domain name without ever leveling with Mitel Networks. Colocation not only had 'reason to know' Mitel Networks attached a 'different meaning' to their agreement, it created and promoted that different meaning on the part of Mitel Networks. Thus, the Domain Name Assignment Agreement must be interpreted in accordance with the meaning attached by Mitel Networks, that is, as an agreement to assign a domain name and goodwill and not as an agreement to transfer IPv4 addresses."

June 18, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (2)

Wednesday, June 13, 2018

Employees Beware: You are Contractually Presumed to be At-will

A new case out of Minnesota and subsequently the United States Court of Appeals for the Eighth Circuit once again confirms what we suspect already: if there is any doubt about an employee’s status, he or she is likely to be held to be an at-will employee.  Consider this:

Daniel Ayala is hired as an at-will employee in 2006 to serve as a vice president for CyberPower.  In 2012, Ayala and CyberPower agree to convert his position to executive vice president for sales and general manager for Latin America. The written contract details his salary and compensation status, stating that the agreement “outlines the new salary and bonus structure to remain in place until$150 million USD [sic] is reached.  It is not a multiyear commitment or employment contract for either party” (emphasis added).  Ayala is fired before sales could reach $150.  He claims breach of contract, contractual fraud, and unpaid wages, arguing that he was no longer an at-will employee, but rather should have been allowed to remain with the company at least until, as stated in the contract, the sales reached $150 million.  CyberPower also relies on the contractual language, arguing that it unambiguously did notmodify his status as an at-will employee as contained the phrase that it was “not a multiyear commitment or employment contract.” Unknown

The appellate court agreed with CyberPower, highlighting the fact that the text of the agreement indicates that it governed compensation only.  In Minnesota, there is a “strong presumption of at-will employment” which was applied here. The court also pointed out that Ayala did not produce any evidence supporting his claim that the company defrauded him by promising a definite term of employment and then firing him before the completion of the term.

Fair enough, it seems… until you consider the following as well: Ayala performed very well in his first sales position, bring the company’s annual sales from “virtually nothing” to almost $50 million by 2012.  He aspired to become the company’s president when the original president, Robert Lovett, decided to retire.  Lovett allegedly assured Ayala that he would be considered for that position but - surprise! - chose his son Brent as his successor when he retired in 2012.  Ayala then expressed his desire to leave the company, but was persuaded to stay to mentor Brent (thus expecting Ayala to train his own replacement, in effect.). Ayala was assured that if he stayed, he would receive “better compensation, a promotion and a written contract ensuring Ayala long-term employment.”  He was indeed promoted and, per the contract, promised to be able to stay “until” sales reached a certain amount, if the contractual language had been weighed that way.  Further, the contract does not say that his position was in fact at-will.  His previous contract had, in contrast, specifically said so. Images

Because of the parol evidence rule and, probably, the lack of written evidence of the negotiation statements, Ayala lost.  The presumption about at-will employment may have been correctly applied.  Not all court cases are resolved in a fair way for the employees.  But the case clearly reeks of nepotism, luring an employee to stay with a company under false pretenses, and broken oral promises. True, Ayala did not have evidence of the oral negotiations, but neither did CyberPower.

Why is it apparently so darned important in U.S. society to treat employees as mere objects that can be disposed of at will, by definition?  Why would it be so horrible to have to give employees a decent amount of notice and perhaps even a reasonable reason for being let go?  Many other highly developed nations around the world – especially those in Europe – do not employ such law.  These nations do very well.  Companies there make good profits.  Employees have more job security.  They are equally, if not more, productive than American workers.  What’s so bad about that?! 

Clearly, cultural factors play a role in this context. That’s unlikely to change.  In the meantime, employees in the U.S. should continue to be critical towards oral promises made by their employers and get every important term in writing.  Of course, that is easier said than done in today’s often difficult job market and resulting reasonable fears of losing or not getting a coveted position. Employees such as Ayala should not be seen as mere impersonal chess pieces that can be manipulated and moved around for employer benefits only.  But they often are.

The case is Daniel Ayala v. CyberPower Systems (USA), Inc., 2018 WL 2703102.

June 13, 2018 in Commentary, Labor Contracts, True Contracts | Permalink | Comments (4)

Arbitration clause enforceability seems like a pretty safe bet these days

There is very little you can bet on in life but it seems like the continued prevalence of arbitration clauses is one of them. We just had a Supreme Court ruling confirming that, and a recent case out of Nebraska, Heineman v. The Evangelical Lutheran Good Samaritan Society, No. S-17-983, continues in the same vein. 

In the case, a nursing home resident sued the facility for injuries he sustained while living there. The nursing home facility sought to arbitrate the dispute under the arbitration clause Heineman agreed to before being admitted as a resident of the facility. The lower court refused to enforce the arbitration clause based on lack of mutuality of obligation as well as finding it contrary to public policy. The appellate court, however, disagreed. 

First, Heineman's argument on mutality of obligation concerned allegations that the nursing home facility had filed lawsuits against its residents without pursuing arbitration first. Heineman therefore argued that the nursing home's conduct indicated that only Heineman was bound by the arbitration clause. However, Heineman's argument depended on the court taking judicial notice of those lawsuits, considering that, as drafted, the arbitration clause did bind the nursing home. For some reason, though, this was apparently not an argument Heineman made at the lower court level, because the appellate court refused to take judicial notice of the lawsuits because they had not been presented to the trial court.

As far as the public policy concern went, the lower court had relied on a federal regulation prohibiting arbitration clauses as a requirement for admission to long-term care facilities. However, that regulation was passed almost two years after Heineman signed his arbitration clause, and at any rate has been enjoined from application by a federal court. Because there was no other legislation expressing a public policy against arbitration in the context of nursing-home facilities, the court found the arbitration clause was enforceable.

June 13, 2018 in Commentary, Current Affairs, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, June 12, 2018

The Meaning of “Iced Tea”

Here’s a nice little case that lends itself well to classroom use.

The Robertson family owned Duck Commander, Inc. (“DC”), a hunting supplies company that eventually morphed into an iced tea maker after Si Robertson ("Uncle Si") became known for the its members’ affinity for ice tea on a reality TV show about duck hunting.  This was broadcast on the A&E network. Uncle-Si-Iced-Tea_0

In late 2013, DC contracted with Chinook USA, LLC (“Chinook”), a ready-to-drink beverage company, to produce and market the Robertson family’s ice teas in cooperation with the Robertsons.  A fairly elaborate contract is drawn up.  This spells out the corporations’ mutual obligations in relation to “iced tea,” “ready-to-drink [RTD] teas,” and “RTD beverages.”  This includes an integration clause purporting to make the agreement the “entire understanding between the parties.”

A few months later, in the summer of 2014, sales of iced tea apparently did not go as well as the parties had hoped and planned for.  The Robertson family thus branched out into energy drinks and vitamin water.  DC contracted with another marketer of those products.  Chinooks sued DC for breach of contract, among other things claiming that the contractual terms “iced tea,” “ready-to-drink teas,” and “RTD beverages” also encompassed vitamin water and energy drinks and that DC should thus also have dealt with Chinook in relation to those products.

The contract was held to be ambiguous.  Parol evidence was brought in showing that during the contract negotiations, iced tea accounted for about 95% of the focus of the negotiations with coffee products for the other 5%.  No mention had been made of energy drinks or similar products.  After contract execution, a Chinook negotiator sent Chinook an email stating “[T]hank you for taking the time to ask for a confirmation of Chinook USA’s rights as our exclusive licensee of tea ….  This email confirms the same.”

Oops, it’s difficult to claim afterthe fact that when you yourself – a seasoned company with professional negotiators – get a deal for “tea,” you really intended something more than that.  The appellate court thus also affirmed the district court’s judgment against Chinook on its breach of contract claims (see Chinook USA, L.L.C. v. Duck Commander, Incorporated, 2018 WL 1357986).  https://law.justia.com/cases/federal/appellate-courts/ca5/17-30596/17-30596-2018-03-15.html

This case lends itself well to students issue-spotting issues such as contract interpretation, ambiguity, the PER, etc., but could also be used to discuss bargaining powers, party sophistication, and the smartness of, if nothing else, sending confirmatory memos… only they should, of course, be drafted such that they truly represent the parties’ intent.  If that was the case in this matter, was Chinook simply regretting not getting a broader agreement at a point when sales of the originally intended product was already known to falter?  This appears to be the case here.

June 12, 2018 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 11, 2018

Saving illusory promises with implied covenants of good faith and fair dealing

If you teach Lady Duff-Gordon, as I teach Lady Duff-Gordon, you know that it's a fun case that lets you talk about a frankly pretty incredible life. But it's also an older case, so here's a more recent case out of New York using the implied covenant of good faith and fair dealing to potentially save an allegedly illusory promise, Ely v. Phase One Networks, Inc., 2667/2017 (behind paywall). 

The plaintiff is a composer. The defendant is a company that produces music albums. The parties entered into recording and co-publishing agreements. The plaintiff sought a declaratory judgment that the contracts are unenforceable because they are illusory and unconscionable and moved for summary judgment. The court found that factual disputes existed as to both the unconscionability and illusory allegations. The analysis on unconscionability was very brief, but the court did provide a slightly deeper analysis on the illusory promise front. Although the recording contract provided that the recordings were "subject to the defendant's approval in its sole judgment," the court noted that the covenant of good faith and fair dealing "implicit in all contracts" meant that "the defendant could not unreasonably withhold approval." 

June 11, 2018 in Commentary, Famous Cases, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, June 6, 2018

A good cause termination clause operates to save oral agreement from statute of frauds writing requirement

Here's another helpful teaching case, this time for the statute of frauds section. Out of Delaware, World Class Wholesale, LLC v. Star Industries, Inc., C.A. No. N17C-05-093 MMJ, discusses the "one year" statute of frauds category. The parties entered into an oral agreement "in which WCW agreed to be the exclusive distributor of Star's products in Delaware for an indefinite period of time." Star contended that the oral agreement violated the statute of frauds and should have been in writing. 

The court disagreed. WCW had alleged that the oral agreement contained a "'good cause' termination clause." This meant that either party could have terminated the agreement with good cause at any time, including within a year. Therefore, under Delaware law, there was a possibility this oral agreement could have been permissibly terminated and therefore performed within one year, and therefore the statute of frauds did not block enforcement of it. 

June 6, 2018 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 4, 2018

Why you should take that integration clause seriously

Here's a parol evidence case if you're looking for a recent example for teaching purposes. It's out of the Northern District of Illinois, Eclipse Gaming Systems, LLC v. Antonucci, 17 C 196

The case concerned licensing agreements for source code for casino gaming software. The court found that the written agreement was facially unambiguous and complete and contained an integration clause. Nonetheless, the counter-plaintiffs argued that evidence of a contemporaneous oral agreement should be permitted. But the court refused, finding that Illinois law, which governed the contract, required the parties to put any contemporaneous oral agreements into the four corners of their unambiguous integrated contract if they wished them to be enforced. The counter-plaintiffs argued that they should be allowed to present their parol evidence to show the contract was in fact ambiguous, but the Illinois Supreme Court had rejected that approach where the contract contained an explicit integration clause, as was the case here. 

Counter-plaintiffs claimed that their parol evidence would establish that no contract was ever formed between the parties but the court found that such evidence would contradict the terms of the contract, which contained explicit terms regarding its effectiveness, and parol evidence was inadmissible to "contradict the clear written provisions of an integrated contract." The written licensing agreement, the court found, was not equivalent to a letter of intent that provided some question on the parties' intent to be bound, but instead was clear on the parties' intent to be bound. 

Counter-plaintiffs tried to turn to promissory estoppel but the court noted that promissory estoppel should be used to rescue promises that didn't rise to the level of an enforceable contract. The counter-plaintiffs were instead trying to use the doctrine to vary the terms of their written contract. 

There were other allegations and analyses, including pertaining to mutual mistake and unconscionability, but these also failed. 

June 4, 2018 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, June 1, 2018

Why do employers sue employees who leave to work for companies that don't compete against them?

A recent case out of the Eastern District of Pennsylvania, Catalyst Outdoor Advertising, LLC v. Douglas, Civil Action No. 18-1470, declined to enforce a non-compete against the defendant Douglas, who had gone to work for an outdoor advertising firm that covered Manhattan and the Bronx. Catalyst, meanwhile, worked out of the Philadelphia area. The non-compete in question had no geographic limitations, which the court took issue with, noting it "covers the entire world." Catalyst asked the court to define reasonable geographic limits for the non-compete but the court declined to do so, stating, "[D]efining the boundaries is not our job." Additionally, because Catalyst operated in Southeastern Pennsylvania (with one billboard along the New Jersey Turnpike) and Douglas's new employer operated only within New York City, the court found that the two companies were not in competition with each other. 

The court also found that Douglas had no confidential information belonging to Catalyst and that there was no evidence the information she knew from working at Catalyst would be beneficial in the entirely new territory of New York City. Therefore, the court concluded there was no likelihood of irreparable harm. 

This is one of those cases that, from a pragmatic standpoint, makes little sense to me. Why would Catalyst pursue a court case against an employee going to work for a company not in its geographic area? The court's irreparable harm analysis seems right to me, that the employee here didn't have any specialized knowledge that could hurt Catalyst, given it didn't compete against the new employer. So, in that case, why is this case worth the money spent by Catalyst to bring it? Even if Catalyst had been successful, what was Catalyst's concrete gain? Is it just that companies don't want any employees to leave ever? Given the breadth of the non-compete in the first place, Catalyst might just be overprotective. Or is there some fact about this case left out of the opinion that makes it make more sense? Is Catalyst contemplating expansion down the road into New York City and is worried this employee might somehow make their plans less successful? This case is in the preliminary injunction stage, so maybe there is information that could arise later that would make it look more likely that Catalyst would succeed on the merits. It seems like Catalyst would have presented that information to the court at this point, though. 

June 1, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 30, 2018

Professor's retaliation claims mostly survive motion to dismiss

A professor at Columbia sued the university, alleging various contract-based claims. In a recent decision, Joshi v. The Trustees of Columbia University in the City of New York, 17-cv-4112 (JGK), the Southern District of New York permitted the claims to survive the university's motion to dismiss. 

The university argued that various employment policies did not constitute binding contracts between the parties. However, the court disagreed. The university had in place a Reservation of Rights that stated the employment handbook should not be treated as a contract. But there were factual disputes as to whether this Reservation of Rights applied to the other employment policies at issue, which did not seem to be found in the employment handbook. The parties disputed how clearly the Reservation of Rights was incorporated into the policies, and whether the Reservation of Rights was conspicuous. Therefore, the court allowed the breach of contract claim to survive the motion to dismiss (it also found that there were factual disputes about whether the university's actions were a breach of the policy). 

The court also allowed the plaintiff's claim of breach of the covenant of good faith and fair dealing to survive, because it was about different conduct than the breach of contract claim (regarding the university's failure to investigate and stop the retaliation at issue, rather than the retaliation itself). 

And the plaintiff's promissory estoppel claim also survived. The university argued that promissory estoppel claims do not apply to employment relationships, but the court disagreed and refused to dismiss the claim based on that alone, stating that the plaintiff was not seeking reinstatement of employment. The plaintiff's allegations, taken in the light most favorable to them, adequately pleaded promissory estoppel, so the court allowed the claim to survive. 

The court did, however, dismiss the plaintiff's claim for fraud in the inducement, finding that the plaintiff had not adequately pleaded that the university acted with an intent to deceive. 

May 30, 2018 in Labor Contracts, Recent Cases, Teaching, True Contracts | Permalink | Comments (1)