ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, December 14, 2015

DirectTV v. Imburgia - FAA Preemption Über Alles

On DeceDarth vader thumbs-upmber 14, the United States Supreme Court decided DirecTV v. Imburgia, the latest chapter in an expansion of the Federal Arbitration Act to pre-empt state law well beyond anything Congress in the 1920s could plausibly have imagined. Full disclosure: I'm not a fan of the Court's FAA jurisprudence.

The Court once again purports to place arbitration agreements "on equal footing with all other contracts," while at the same time giving arbitration clauses a force that even a Sith would have to admire.  Don't underestimate the power of arbitration clauses over all other terms in a contract.  Professor Imre Stephen Szalai (Loyola - New Orleans) may have said it best in an e-mail that made the rounds on ADR, CivPro, and Contracts Prof listervs and that is especially appropriate for this blog:

"Nothing can stand in the way of FAA preemption, not even the parties' contract."

Many commentators will write many words about many aspects of the DirecTV case in the upcoming days and weeks, such as the eloquent dissent by Justice Ginsburg addressing economic imbalances of power in consumer contracts. I want to take a moment here, however, to praise the short and lonely dissent by Justice Thomas, espousing a view on which he has been unwaivering for more than two decades: "I remain of the view that the Federal Arbitration Act does not apply to proceedings in state courts."

While that solo dissent--and five dollars--will get you a café mocha at Starbucks, he has Congressional intent right.  A pre-Erie statute intended to overcome federal courts' traditional hostility to arbitration was never intended to become a federal preemption juggernaut capable of divesting states of huge swaths of jurisdiction over state contract law.

Federal Arbitration Act rant now complete. Thank you for listening.

 

 

 

December 14, 2015 in Current Affairs, Recent Cases, True Contracts | Permalink | Comments (3)

Mineral Leases and Contract Length

I find that my students are very fond of posing hypothetical questions to me that touch upon unconscionability, even before we get to the doctrine, so I always love to see unconscionability cases in action.

This one, Roberts v. Unimin Corp., No. 1:15CV00071 JLH, from the Eastern District of Arkansas, involved a mineral lease that was entered into in 1961. Now, in 2015, the successors in interest are seeking to get out of the contract, arguing that it's either terminable at will or unconscionable and also alleging that they are owed over $75,000 as a result of unjust enrichment. The court concluded that the plaintiffs alleged enough to survive a motion to dismiss.

The parties alleged that the lease was for an indefinite term and therefore terminable at will. The lease's term was "as long thereafter as mining and/or mining operations are prosecuted." The court stated it was "plausible" that this term was so indefinite as to render the lease terminable at will.

Turning to unconscionability, the court noted the fact that the lease was negotiated shortly after the death of the father to whom the land had belonged, with children who were still reeling from the death and had had no experience negotiating mineral leases. The children therefore relied upon the defendant's predecessor-in-interest during the negotiation, according to the complaint, and that trust was taken advantage of by the insertion of a royalty price far below market value. This was enough to survive the motion to dismiss. I wonder if this case will continue and have further pleadings, because I'm curious as to how this unconscionability argument develops.

December 14, 2015 in Recent Cases, True Contracts | Permalink | Comments (1)

The UCC and "ASAP" T-shirt Delivery

A recent case out of New York, Summit Apparel v. Promo Nation, 2014-795 Q C, strikes me as being a lovely demonstration of the UCC in action. 

My favorite part of this case is the court's little aside that "ASAP" written on the order form for the T-shirts meant "as soon as possible." It's just a reminder that the things we often think are crystal-clear in our communication do sometimes need a translating step that happens so quickly in our brains that we seldom stop to acknowledge it. 

Anyway, the meaning of "ASAP" is important to this case, because the parties are having a disagreement over whether the T-shirts were, in fact, delivered ASAP. On August 13, the defendant ordered 38,640 T-shirts from the plaintiff, to be delivered "ASAP." By September 8, 16,800 of these T-shirts had been shipped. The plaintiff told the defendant the remainder of the order would be shipped by September 20, provided that payment was received before that. In fact, the defendant didn't provide payment until November 17, when it paid the balance less $10,000. The plaintiff delivered the remainder of the order the following day, November 18. However, the defendant never paid the remaining $10,000 due and the plaintiff sued. The defendant counterclaimed, saying that the November delivery was untimely and caused the defendant to lose a customer, with all attendant future business opportunities and profits, which the defendant estimated as $750,000. The defendant pointed to the fact that the inscription of "ASAP" on the order form meant that time was of the essence and yet the plaintiff nevertheless delayed fulfilling the order. 

The court turned to the UCC to analyze whether the defendant's actions permitted it to seek the $750,000 in damages. The court noted that the defendant could have rejected the T-shirts as non-conforming because of their alleged untimely delivery. Instead, however, examination of the course of performance between the parties indicated that the defendant accepted the T-shirts without raising any objection as to their timeliness at all. In fact, the timeliness was never raised by the defendant until several years later, when it was first raised by the defendant's counsel in connection with the plaintiff's attempt to collect the $10,000 balance. (Additionally, it was the defendant's own delay in payment that actually caused the delay in the delivery of the T-shirts in the first place.) 

Of course, the UCC allows that acceptance of non-conforming goods did not necessarily impair the defendant's ability to seek other remedies. However, the right to seek other remedies under the UCC is preserved as long as the defendant notifies the plaintiff of the non-conforming nature of the goods within a reasonable time after discovering it. The defendant failed to notify the plaintiff, as stated above, until several years had gone by. Therefore, the court concluded, the defendant was barred from seeking other remedies. 

The court made one last note that even if the defendant could somehow prove it had notified the plaintiff that it considered the goods non-conforming within a reasonable time, the defendant's lost profits and business opportunities were "purely speculative." 

This is a fairly brief and relatively straightforward opinion, which I sometimes think it's nice to remind ourselves exists out there. 

December 14, 2015 in Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, December 9, 2015

Fruit of the Loom's Non-Compete Provision

I am always fascinated by covenants not to compete. The facts surrounding them and their analysis are always so interesting. 

A recent decision out of the Western District of Kentucky, Fruit of the Loom, Inc. v. Zumwalt, Civil Action No. 1:15CV-131-JHM, found Fruit of the Loom's non-competition clause valid and enforceable and prohibited the employee, Zumwalt, from competing against Fruit of the Loom or soliciting any customers for a period of twelve months.

After a bit of a dispute over which state's law should apply, the court concluded that Zumwalt was violating the terms of his contract with Fruit of the Loom in having gone to work for a competitor (specifically identified in the employment contract) in a capacity that uses knowledge and experience Zumwalt gained at Fruit of the Loom. The court noted that Zumwalt was the only salesperson Fruit of the Loom had had in the Oklahoma and eastern Kansas region and had access to a considerable amount of confidential information, including pricing, sales strategies, and customer lists. The court also found that, under Kentucky law, twelve months was a reasonable period of time for competition to be restricted. The non-compete provision doesn't appear to have had a specific limitation on geographic area, but it did limit its application, the court said, to nine specific competitors, so that that set out what the geographic scope would be. 

The court also found that there was a likelihood of irreparable harm to Fruit of the Loom. There was evidence that confidential customer lists had already been provided by Zumwalt to the competitor, in violation of the agreement, and the court seems to endorse an inevitable disclosure theory: "[i]t is entirely unreasonable to expect [Zumwalt] to work for a direct competitor in a position similar to that which he held with [Fruit of the Loom], and forego the use of the intimate knowledge of [Fruit of the Loom's] business operations."

Zumwalt tried to argue that enforcement of the noncompetition agreement would result in substantial harm to him because he would be deprived of income, but the court stated that Zumwalt signed the agreement knowing that this would be the result, so that his damage "was foreseeable and avoidable." 

In conclusion, the court issued an injunction prohibiting Zumwalt from working for any of the named competitors or soliciting any of Fruit of the Loom's customers for a period of twelve months. 

I understand the enormity of the harm from Fruit of the Loom's perspective, especially given that Zumwalt was its only salesperson in the area, but I also admit to feeling a little bad for Zumwalt here, as this probably leaves him with not very many options for employment for the next year. Cases like this really feel like no-win situations. 

December 9, 2015 in Recent Cases, True Contracts | Permalink | Comments (0)

Monday, December 7, 2015

Seeking Damages of More than Just Peanuts!

(That was a terrible pun. Please let's forget that I wrote it.)

A recent opinion out of the Fourth Circuit, Severn Peanut Co., Inc. v. Industrial Fumigant Co., No. 15-1063, upheld a clause in the parties' contract limiting Industrial Fumigant's ("IFC") liability for consequential damages against arguments from Severn that the clause was unconscionable. 

The parties entered into a contract whereby IFC promised to fumigate Severn's peanut dome. (I didn't know what this was, so I looked it up. Here are my Google Image search results, but more importantly, it turns out the Severn Volunteer Fire Department has actually uploaded to Facebook video from the Severn peanut dome fire in this case. The Internet is a wondrous place. Oh -- spoiler alert -- as our story continues, there's going to be a fire in the peanut dome.) IFC agreed that it would use the pesticide in question "in a manner consistent with instructions . . . and precautions . . . ." Severn alleged that IFC threw around 49,000 tablets of the pesticide in one big pile, in a way contrary to the instructions of use and, indeed, heedless of warnings not to do this, and that, as a result (as you know if you watched the video), the tablets caught fire, smoldered despite all efforts to put them out, and eventually resulted in an explosion. Severn had an insurance policy under which it collected $19 million to cover the loss of the peanut dome, the peanuts inside it, and other various costs and lost income. 

Severn, together with its insurer, then sued IFC for breach of contract and negligence. But IFC pointed out that the contract it had with Severn expressly limited its liability for consequential damages. The contract was price was $8,604, and the contract contained a clause stating that that sum was not "sufficient to warrant IFC assuming any risk of incidental or consequential damages." The Fourth Circuit noted that such clauses are considered useful and efficient and parties are free to enter into agreements containing such clauses if they so desire. Severn tried to argue that the clause was unconscionable but the Fourth Circuit remarked that Severn and IFC were both sophisticated parties and that Severn had been free to try to negotiate that clause out of the bargain, if it so desired. The Fourth Circuit also noted that Severn had another option in the face of the limitation clause: procure insurance to cover itself in case something went awry, which Severn in fact did. The Fourth Circuit concluded: "We are not presently considering the plight of a vulnerable member of the public adrift among the variegated hazards of a complex commercial world. Instead, we are considering a rather typical agreement among two commercial entities, and we may hold them to the contract's terms."

The Fourth Circuit also did away with Severn's negligence claim, viewing it as an end run around the contract's limitation clause. Severn, the court said, could not obtain through a tort cause of action what it bargained away under contract. 

December 7, 2015 in Recent Cases, True Contracts | Permalink | Comments (2)

Friday, December 4, 2015

Settlement Agreements, Third-Party Beneficiaries, and Conditions Precedent, Oh, My!

This is the latest chapter in a long saga that started with lawsuits in 1983 and has resulted in several disputes between clients and various attorneys. This particular opinion, Richardson v. Casher, 14-P-503 (requires a sign-in to Bloomberg Law), out of the Appeals Court of Massachusetts, deals with a $9 million settlement agreement that was negotiated by attorney Casher with Travelers Indemnity Company. After the settlement agreement was reached, Casher and his clients, the Picciotto parties, entered into an allocation agreement deciding how the settlement should be disbursed. The allocation agreement included disbursements from Casher's share to the Picciotto parties' former attorney, George Richardson, and UP, a charitable organization that donates legal services in insurance cases and helped the Picciotto parties out at one point in the 30-year court battle. The court found that both of these parties were third-party beneficiaries of the allocation agreement. 

Unfortunately for Richardson and UP, when presented with the allocation agreement, Travelers rejected it. The settlement agreement was therefore amended to permit Travelers to file an interpleader action and pay the vast majority of the settlement account into the court instead of disbursing it in the way the allocation agreement had contemplated. The interpleader action then dragged on for several years. Eventually, Casher received a bit more under the interpleader action than he had expected to receive under the allocation agreement. Richardson filed a complaint in the interpleader action and the judge found that Casher was required to pay Richardson and UP under the allocation agreement, with a slight increase to reflect the fact that Casher had actually received more than the allocation agreement would have given him. Casher and the Picciotto parties appealed. 

On appeal, the court concluded that the condition precedent to Casher's obligation to pay Richardson and UP under the allocation was never met, and so no duty had been triggered for Richardson and UP to seek to enforce. Casher and the Picciotto parties argued that the condition precedent to the disbursements under the allocation agreement was the immediate receipt of the sizable first installment of the settlement money (set at $5 million in the allocation agreement), which never happened because instead Traveler paid the money into the court. The appeals court agreed with this argument. To find otherwise, the court say, would make the allocation agreement nonsensical, as it was premised on the straightforward receipt of the majority of the settlement money. The fact that Casher and the Picciotto parties eventually received the money through the interpleader action didn't matter when it was clear from the face of the allocation agreement that none of the parties contemplated that the first distribution of the settlement money would be anything other than immediate. The court therefore concluded that the immediate distribution of at least the first part of the settlement funds was a condition precedent to Casher's duties to pay Richardson and UP. When that initial $5 million distribution never happened, the condition precedent was never fulfilled, and Casher never became obligated to pay Richardson and UP. 

The lesson here is, of course, to always play the what-if game as thoroughly as you can: "What if Travelers refuses to distribute the funds the way we've contemplated?" Asking that question may have caused the allocation agreement to be re-written in such a way as to protect Richardson and UP's interests. The bigger complicating wrinkle for both Richardson and UP, however, is that they were only third-party beneficiaries who actually had no part in the drafting of the allocation agreement (they didn't even know about it until much later), so they had no ability to protect their interests in the language. 

December 4, 2015 in Recent Cases, True Contracts | Permalink

Thursday, December 3, 2015

How Much Disability Insurance Is Too Much? Well, That's a Highly Fact-Specific Question

I feel like one of the lessons of my Contracts class (aside from, you know, all the contract law stuff) is that disability insurance is the type of insurance policy most likely to end up in a published opinion in a casebook someday. Proving my point is a new opinion out of the 8th Circuit, The Northwestern Mutual Life Insurance Company v. Weiher, No. 14-3098.

In this case, Weiher, a dentist, applied for a disability policy from Northwestern in which he "specifically agreed" that he would cancel his previously existing disability policy from Great-West. As you could probably predict from the fact that this ended up in litigation, Weiher never canceled the Great-West policy. When he became disabled to the point that he could no longer practice dentistry, he submitted claims to both Northwestern and Great-West. When Northwestern found out that Weiher had never terminated his Great-West policy, it rescinded its policy, claiming that it would never have issued the policy had it known that Weiher wasn't going to cancel the Great-West policy. So Northwestern sued claiming that Weiher's promise to cancel the Great-West policy was a misrepresentation on Weiher's part that entitled Northwestern to rescind the policy. Weiher counter-claimed. The District of Minnesota granted Northwestern summary judgment because Weiher's failure to fulfill his promise to cancel the Great-West policy exposed Northwestern to greater risk and allowed Northwestern to rescind the contract. Weiher appealed. 

Weiher wins his appeal, not because his vow to cancel the Great-West policy wasn't a promise (the 8th Circuit finds that it was) and not because he didn't fail to fulfill that promise (the 8th Circuit agrees that he didn't), but because Northwestern failed to show that Weiher's failure to fulfill his promise increased Northwestern's risk. Under the relevant Wisconsin statute, the court found, Northwestern's ability to rescind the policy had to turn on specific increased risk in connection with Weiher's particular policy, not just generalized increased risk. All of Northwestern's evidence stated that Northwestern's custom was not to provide disability insurance to people who already had existing disability insurance policies because the risk of over-insurance would encourage fraudulent claims. However, Northwestern had no evidence that insuring Weiher here resulted in over-insurance to Weiher. There was simply no indication that the level of insurance Weiher was carrying between the two policies was too much. Northwestern's testimony on the subject admitted that it didn't know the specifics of Weiher's situation and could only talk in generalities. Therefore, the 8th Circuit concluded that Northwestern couldn't be entitled to summary judgment because it hadn't met its burden with regard to Weiher's specific policy. The 8th Circuit further noted that there was a factual dispute over whether Weiher's representation to cancel the Great-West policy was made with the intent to deceive Northwestern or if, as Weiher contended, he had intended to cancel the Great-West policy and had just forgotten. 

If you feel bad for Northwestern here, there's a dissent on your side: According to Judge Loken, Weiher's promise to cancel the Great-West policy was a condition precedent to Northwestern's policy kicking in, based upon widely accepted underwriting standards that warned against over-insurance. Wisconsin precedent, Judge Loken said, indicated that conditions precedent to insurance coverage should be respected if clearly stated. Based on that, the dissent would have found that Northwestern's policy was not effective until the condition precedent of cancellation of the Great-West policy had occurred (which it never did). 

December 3, 2015 in Legislation, Recent Cases, True Contracts | Permalink

Saturday, November 21, 2015

Consent Agreement on Embryo Destruction a Legally Binding Contract

A California Superior Court Judge has ruled that a consent agreement between spouses about what to do with frozen embryos in case of divorce has the effect of a legally binding contract. This was the first such ruling in California. The case is In re the Marriage of Stephen E. Findley and Mimi C. Lee.

Shortly before Dr. Lee and Mr. Findley were married in 2010, Dr. Lee discovered that she had cancer. The couple decided to create and store embryos to preserve their chances of having a child. Shortly after the marriage, the couple signed a consent decree stating that the embryos were to be destroyed if the couple divorced. They marriage went downhill and ended in an acrimonious divorce in 2015.

Dr. Lee, however, argued for her right to keep the embryos. She argued that because of her age – she is 46 – the embryos are her only chance of having a child on her own. She testified that she considered the fertility clinic agreement a mere consent form and that she thought she could change her mind about it later on.

Judge Anne-Christine Massullo found that a consent agreement is a legally binding contract. It must be upheld in order to render certainty to IVF clinics and individuals who undergo IVT treatment regarding their dispositional choices before embryos are created. Said the judge about holding IVT agreements to be mere contracts: “It is a disturbing consequence of modern biological technology that the fate of … embryos … must be determined in a court by reference to cold legal principles.” That may be a valid concern, but equally important is, undoubtedly, the rights and concerns of both marital parties.

Consider this as well: Dr. Lee had offered her ex-husband to waive child support if he would let her use the embryos. However, such a promise is meaningless in California where such an agreement cannot be enforced. In contrast, Mr. Findley testified that Dr. Lee had once asked him “how much money the embryos were worth to him” and indicated that she could turn a possible child against him in the future. The court found “well founded” Mr. Findley’s belief that Lee would use any child born of the embryos as a money extortion device. Said the judge: “Mr. Findley should be free from court compelled fatherhood and the uncertainties it would bring.”

In this case, these included potential extortion by a highly educated woman – an anesthesiologist - who seems able consider her potential children to be not only objects of affection, but also vehicles for a monetary reward. Mr. Findley testified that he would like to have children some day, just not with Dr. Lee. Wise decision, it seems, and one that the court equally wisely supported, even though it had to resort to “cold legal principles.”

11/21/2015

Consent Agreement on Embryo Destruction a Legally Binding Contract

A California Superior Court Judge has ruled that a consent agreement between spouses about what to do with frozen embryos in case of divorce has the effect of a legally binding contract. This was the first such ruling in California. The case is In re the Marriage of Stephen E. Findley and Mimi C. Lee, Case No. FDI-13-780539, http://www.sfsuperiorcourt.org/sites/default/files/pdfs/FINDLEY_Statement_Of_Decision%20Rev_1.pdf

Shortly before Dr. Lee and Mr. Findley were married in 2010, Dr. Lee discovered that she had cancer. The couple decided to create and store embryos to preserve their chances of having a child. Shortly after the marriage, the couple signed a consent decree stating that the embryos were to be destroyed if the couple divorced. They marriage went downhill and ended in an acrimonious divorce in 2015.

Dr. Lee, however, argued for her right to keep the embryos. She argued that because of her age – she is 46 – the embryos are her only chance of having a child on her own. She testified that she considered the fertility clinic agreement a mere consent form and that she thought she could change her mind about it later on.

Judge Anne-Christine Massullo found that a consent agreement is a legally binding contract. It must be upheld in order to render certainty to IVF clinics and individuals who undergo IVT treatment regarding their dispositional choices before embryos are created. Said the judge about holding IVT agreements to be mere contracts: “It is a disturbing consequence of modern biological technology that the fate of … embryos … must be determined in a court by reference to cold legal principles.” That may be a valid concern, but equally important is, undoubtedly, the rights and concerns of both marital parties.

Consider this as well: Dr. Lee had offered her ex-husband to waive child support if he would let her use the embryos. However, such a promise is meaningless in California where such an agreement cannot be enforced. In contrast, Mr. Findley testified that Dr. Lee had once asked him “how much money the embryos were worth to him” and indicated that she could turn a possible child against him in the future. The court found “well founded” Mr. Findley’s belief that Lee would use any child born of the embryos as a money extortion device. Said the judge: “Mr. Findley should be free from court compelled fatherhood and the uncertainties it would bring.”

In this case, these included potential extortion by a highly educated woman – an anesthesiologist - who seems able consider her potential children to be not only objects of affection, but also vehicles for a monetary reward. Mr. Findley testified that he would like to have children some day, just not with Dr. Lee. Wise decision, it seems, and one that the court equally wisely supported, even though it had to resort to “cold legal principles.”

November 21, 2015 in Current Affairs, Science, True Contracts | Permalink | Comments (0)

Thursday, November 19, 2015

Numismatic Information is Worth How Much?!

Serious coin collectors still exist. Very serious ones.

In a recent case before the Ninth Circuit Court of Appeals, an individual expert coin collector had offered to sell his knowledge regarding a “Brasher Doubloon” to a rare coin wholesale company for $500,000. A Brasher Doubloon is a $15 dollar coin minted by goldsmith Ephraim Brasher in late eighteenth-century New York. These rare coins are extremely valuable today. (The case is Swoger v. Rare Coin Wholesalers, 803 F.3d 1045 (Ninth Cir. 2015).

The parties met at a trade show to further discuss the coin collector’s theory that the coin in question was “the first United States coin issued for circulation … under authority of an Act of Congress.” The Act in question was “An Act Regulating Foreign Coins, and For Other Purposes,” chapter 5, 1 Stat. 300 (1793). The Act provided that certain “foreign gold and silver coins shall pass current as money within the United States, and be a legal tender for the payment of all debts and demands.” The Act also specified which countries’ coins qualified, how much the coins were required to weigh, etc.

The coin collector believed the coin to qualify under this provision because Spanish and Spanish colonial coins qualified at 27.4 Image1
grains per dollar. By analogy, the expert thought, that would require a Brasher Doubloon to weigh 411 grains. The coin collector reasoned that because the coin in question weighed 410.5 grains (oh, so close), it must have been minted pursuant to the Act. The wholesale coin company, however, refused to pay the collector for his information, not believing it proved that the coin really was minted “pursuant to the Act.” The expert brought suit, alleging fraud, breach of contract, and asserting damages under a theory of quantum meruit, among other things.

The appellate court found that the collector could not recover because he did not provide the information required under the contract. The Act, said the court, pertains to foreign coins only, not American ones.

Appellant also asserted a new theory on appeal: that because the coin was struck to “conform” to the weight in the Act for Spanish coins, it was used in commerce; in other words, “passed current as money” under the Act. That argument got swift treatment as well: the collector had promised information showing that the coin was, under a Congressional Act, legal tender, not that it was merely used as such by members of society.

As always, exact statutory reading is key, even in today’s contractual disputes.

November 19, 2015 in Labor Contracts, Legislation, Miscellaneous, True Contracts | Permalink | Comments (0)

Friday, November 13, 2015

Airline Change Fees

A few days ago, the Los Angeles Times published an article on airline change fees. At bottom, the article asked whether customers are entitled to a refund of their tickets if they discover that the price has been dropped for the route and time in question so that they can buy the cheaper fare. Most of us probably buy the cheapest form of tickets, i.e. “nonrefundable” ones. For those, the answer lies in the name: they are simply not refundable. Under Department of Transportation rules, however, airfare is fully refundable within 24 hours of making the purchase.

The article misses an important legal issue, namely whether it is unconscionable that airlines typically charge $200-$300 dollars in change fees plus any increase in the actual price (and as we all know, when the departure time approaches, prices typically go up). To the best of my knowledge, only Southwest Airlines does not charge any change fees. Kudos to them for that.

Unconscionability requires the familiar inquiry into whether the substance of the contract is oppressively one-sided and whether the complaining party had any meaningful choice when entering into the contract. In my opinion, such steep change fees are unconscionable, at least in cases where customers change for a reason other than simply trying to get a refund in cases of cheaper fares. Because apparently all airlines other than Southwest charge these high change fees for economy-class, no-frills tickets, and because it is not always possible to fly Southwest Airlines (they only fly to certain locations, most of them within the United States), customers in effect have no choice in avoiding such fees if they have to change the tickets. Often, tickets have to be bought months ahead of time to either get the best prices and/or to get the desired departure dates and times. In today’s ever-changing work environment, many people may have to change their tickets for valid work-related reasons, not to mention changing private circumstances. If that is the case, one may simply have to give up an existing ticket as the rules are today since buying a new one may well be cheaper than trying to change the existing one. And while it is possible to get insurance for illness-related cancellations, travel insurance covering work reasons typically only covers changes in employment and the like and thus not changes required by changed circumstances one’s current position, even though those may be outside one’s control.

Substantively, it seems uniquely and highly oppressively one-sided for airlines to charge hundreds of dollars for a change that a customer can, with a few clicks on a secure website, implement in minutes himself/herself. Even if the airline had to have an actual person make the change (and those days seem gone), that person would similarly only require minutes, if not only seconds, to do so.

Until someone challenges the airlines on this account, they seem intent on continuing this profit-increasing device. As Hans Christian Anderson said: “To travel is to live.” For now, it seems that we have to live with not being able to change our airline tickets once purchased.

November 13, 2015 in Current Affairs, E-commerce, Travel, True Contracts | Permalink | Comments (0)

University of Illinois Settles Its Case with Steven Salaita

We have reported on this case numerous times, and the ordeal is finally over.  Here is our overview of the dispute from last year:

The very short version of the story, as best I can cobble it together from blog posts, is that the University of Illinois offered a position in its American Indian Studies program to Steven Salaita, who had previously been teaching at Virginia Tech.  According to this article in the Chicago Tribune, the U of I sent Professor Salaita an offer letter, which he signed and returned in October 2013.  Professor Salaita was informed that his appointment was subject to approval by the U of I's Board of Trustees, but everyone understood that to be pro forma.  In August 2014, Salaita the U of I Chancellor notified Professor Salaita that his appointment would not be presented to the Board and that he was no longer a candidate for a position.  According to the Tribune, the Board next meets in September, after Professor Salaita's employment would have begun.  The Chancellor apparently decided not to present Professor Salaita's contract for approval because of his extensive tweets on the Isreali-Palestinian conflict, which may or may not be anti-Semitic, depending on how one reads them.  

As reported here in Inside Higher Ed, the University of Illinois has agreed to pay Steven Salaita $875,000.  The University has now severed all ties with Professor Salaita who will not teach there.

November 13, 2015 in In the News, True Contracts | Permalink | Comments (0)

Thursday, November 12, 2015

Library Fines, Oliver Wendell Holmes and Libertarian Paternalism

NickelIn The Path of the Law, Holmes wrote that “[t]he duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,—and nothing else.”  

I was thinking of that dictum this morning as I renewed an overdue library book (on CD, to be honest).  The librarian graciously renewed the item but noted that I owe a five cent fine because I renewed one day late.  I threw a hissy fit.  Yesterday was Veterans Day!  The library was closed.  How could I renew when the library was closed?!?  I'm a poor law professor on a very fixed income! Have you no sense of decency, sir, at long last? Have you left no sense of decency?

No, I didn't.

My public library seems to understand that there is no moral opprobrium associated with a breach of this kind of implied promise.  Since I became addicted to listening to books on CD in the car, I have borrowed well over 100 such books from my public library.  Almost invariably, I have to renew them, as it takes me more than two weeks to finish them.  Only once have I had to return a book that I wanted to renew because it had been requested by another reader (listener).  My delict is de minimis and likely harms nobody.

But here's the rub.  I used to always return/renew my library materials on time.  But a few times I've held on to the items a few extra days so that I could finish them and make just one trip to the library to renew and pick out a new book.  That saves me time, which I value more than the five cents a day.  Still I feel a bit guilty about this new habit (that's why I am busy rationalizing my behavior), and I wish my library would charge me $1/day for overdue books.  I can afford it, but it would hurt enough to nudge me into being a better citizen.

November 12, 2015 in Commentary, Teaching, True Contracts | Permalink | Comments (2)

Wednesday, November 11, 2015

Arbitrating Rape

Must a rape be arbitrated if an employment contract calls for “any and all disputes” to be resolved by arbitration?

Thankfully not, at least in Ohio, according to a recent Court of Appeals decision (Arnold v. Burger King, No. 101465, 2015 WL 6549138).

When Ms. Arnold obtained employment with a Burger King franchisee, she signed a contract that, among other things, provided as follows:

Under this arbitration program, which is mandatory, Carrols [the franchisee] and you agree that any and all disputes, claims or controversies for monetary or equitable relief arising out of or relating to your employment, even disputes, claims, or controversies relating to events occurring outside the scope of your employment (“Claims”), shall be arbitrated before JAMS, a nation arbitration association.

Ms. Arnold alleged that she was harassed and sexually abused over an extended period of time by her supervisor who, among other things, forced Ms. Arnold to perform oral sex on him in the men’s restroom at the restaurant during working hours. Ms. Arnold brought suit, claiming sexual harassment; respondeat superior/negligent retention; emotional distress; assault; intentional tort, and employment discrimination. The franchisee sought to compel arbitration, arguing that Arnold's claims were subject to arbitration under the mandatory arbitration agreement because they “arose out of Arnold's employment.” (That’s right: the company wanted JAMS to resolve a serious rape case…) Ms. Arnold answered that her claims fell outside the scope of the arbitration agreement and that the agreement was, furthermore, unenforceable because it was unconscionable.

The court agreed with Ms. Arnold. “When claims may be independently maintained without reference to the contract or relationship at issue,” they do not have to be arbitrated. CITE. Clearly, a civil complaint can be brought for sexual assaults and harassment even without the existence of a contract. “Arnold's claims relating to and arising from the sexual assault exist independent of the employment relationship as they may be maintained without reference to the contract or relationship at issue.” Ms. Arnold thus did not have to arbitrate the claims for that reason alone.

As for unconscionability, the court found the agreement to be procedurally unconscionable because Arnold, a previously unemployed entry-level employee, signed the agreement, drafted by the employer, when it was presented to her as a condition for hiring her. “As for Arnold's bargaining power, the choice was either sign it or remain unemployed. There is no evidence that Arnold could alter any of its terms.” The court found the agreement substantively unconscionable as it sought to include “every possible situation that might arise in an employee's life” and because it failed to set forth the potentially high costs of arbitration.

What makes this case even more stunning is the fact that the franchisee was aware of the very troubled employment environment at its restaurants. This led to several other sexual harassment charges, including sexual assault allegations, filed by the EEOC and which were ongoing for more than a decade. One might have hoped that an employer such as this would want stricter measures, and not arguably more lenient ones, against those of its employees that have violated norms and rules of appropriate workplace behavior to signal that such behavior is unacceptable in 2015. Apparently, in at least some geographical and socio-economic locations, that is too much to hope for.

November 11, 2015 in Labor Contracts, True Contracts | Permalink | Comments (0)

Monday, November 9, 2015

Is Steve Irwin Really Dead?

California takes its laws against minors contracting seriously.  Very seriously.  Dancing with the Stars favorite Bindi Irwin, daughter of “Crocodile Hunter” Steve Irwin, must prove that her father was really killed in 2006 in order for her to get the earnings from the popular dancing show.  So far, Bindi Irwin has allegedly presented “insufficient proof” that her father has waived those earnings.  This despite worldwide shock that the beloved wildlife TV show stars was killed in a freak accident by a stingray in 2006.

California law requires underage entertainers to get court approval of their contracts to avoid the rampant abuses of minors in the industry of yesteryear. Parents of minors must now sign a quitclaim waiving any rights to the child's earnings.  Bindi's mother, Teri, has already signed, but Steve has not, for obvious reasons. 

The show’s owners, BBC Worldwide, is working with the court to work out the situation. 

Under her contract with BBC, Bindi earns a guaranteed salary of $125,000 as well as weekly sweeteners for each week she stays on the show.  So far, Bindi has done very well, even earning top scores one week.  The shows airs on Monday nights on ABC.

November 9, 2015 in Celebrity Contracts, In the News, Labor Contracts, Television, True Contracts | Permalink | Comments (0)

Monday, November 2, 2015

Lego Turns Down Order for Millions of Lego Bricks to be Used for "Political" Purposes

Danish toy building brick maker Lego recently turned down an order for several million lego bricks that were to have been used in an art exhibit by Chinese artist and human rights activist Ai Weiwei in Melbourne.   Why?  Because Lego refrains from “actively engaging in or endorsing the use of Lego bricks in projects or contexts of a political agenda.” 

The bricks would have been used for two projects, one of which would have consisted of mosaic portraits of twenty Australian advocates for human rights and for information and Internet freedom.  Prominent lawyers such as Michael Kirby and Geoffrey Robertson would have been depicted as would have WikiLeaks founder Julian Assange.

Last year, Mr. Ai used Legos to create mosaic portraits of 176 political exiles and prisoners of conscience in an exhibit on Alcatraz Island in San Francisco.  At that time, Mr. Weiwei bought the toys via a nonprofit helping him develop the Alcatraz exhibition.

This is apparently not the first time that the Lego Group is turning down otherwise valuable contracts for its popular bricks.  Just this year, Lego rejected a proposal to make Lego figures of the female United States Supreme Court justices, also because such use was considered “political.” (Huh?!)  Previously, Lego has tried to persuade a Polish artist to withdraw an installation that used Lego bricks to depict a Nazi concentration camp (Lego, in turn, withdrew that request after lawyers got involved.).

China’s reaction to the Ai Weiwei story? The state-run Chinese Global Times reported that “as China becomes more powerful, commercial organizations and national governments will become more well behaved and more scared to apply a double standard to China.” (Link to Global Times not available, but see here for coverage from NPR and the NY Times)  Surely, at least part of that statement must be a mistranslation.  If not, then let’s indeed hope that governments and corporations alike become better behaved (if not, could we give them time out?).

Does this case make sense from a business point of view?  Perhaps, if the company wants to err on the extremely cautious side of avoiding negative PR in general.  Or is this perhaps rather an issue of not risking to upset a very valuable and increasingly affluent country such as China?  Should it matter to a manufacturer what its products are sold for?  Said Weiwei: “A company that sells pens [also] cannot tell a writer that he or she can’t do political or romantic writing. It’s really none of their business.” 

Having been born and raised in Denmark, Lego’s attitude surprises me somewhat.  Danes – whether organizations or individuals – often weigh in on important social issues.  Danes are often not afraid to speak their minds on important social issues.  That is simply how “small talk” and opinion-making is formed in the nation.  As a nation, Denmark often touts itself as a world leader when it comes to other complex issues such as comprising the environment, energy and health care even though those could also be seen as “political” in nature.  On that backdrop, Lego’s attitude seems even more conservative from a PR point of view, but of course, it is a multi-million dollar company worried about the bottom line.  Fair enough, but in a way, it would be refreshing if companies would take more responsibility for the ultimate effects of their products.  Some are.  For example, some companies are voluntarily reducing the sugar content in their products or at least providing less sugary alternatives to traditional products.  Others are not (the gun industry, to mention one).  But where, such as in the Lego case, companies decide to be overly cautious in relation to issues that do not seem all that controversial and that are not even funded or otherwise supported by the vendor itself, it seems that we are risking censorship via corporatism. 

The future of Weiwei’s exhibits is unknown, but he is reported to be making use of Lego collection points after having received numerous offers of Lego donations on social media. 

November 2, 2015 in Commentary, Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0)

Wednesday, October 21, 2015

Online Reviews – Are You Hot or Not?

Amazon is suing approximately 1,000 individuals who are allegedly in breach of contract with the Seattle online retailer for violating its terms of service.  Amazon is also alleging breach of Washington consumer protection laws.  

In April, Amazon sued middlemen websites offering to produce positive reviews, but this time, Amazon is targeting the actual freelance writers of the reviews, who often merely offer to post various product sellers’ own “reviews” for as little as $5.  (You now ask yourself “$5? Really? That’s nothing!”  That’s right… to most people, but remember that some people don’t make that much money, so every little bit helps, and numerous of the freelancers are thought to be located outside the United States.)  The product sellers and freelancers are alleged to have found each other on www.fiverr.com, a marketplace for odd jobs and “gigs” of various types.

There are powerful incentives to plant fraudulent reviews online. About 45 percent of consumers consider product reviews when weighing an online purchase.  Two-thirds of shoppers trust consumer opinions online.  For small businesses, it can be more economical to pay for positive reviews than to buy advertising. For example, a half-star increase in a restaurant's online rating can increase the likelihood of securing, say, a 7 p.m. booking by 15 to 20 percent. “A restaurateur might be tempted to pay $250 for 50 positive reviews online in the hopes of raising that rating.”

As law professors, we are not beyond online reviews and thus potential abuses ourselves. See, for example, www.ratemyprofessor.com.  There, anyone can claim that they have taken your course and rank you on your “Helpfulness,” “Clarity,” and “Easiness,” give you an overall grade as well as an indication of whether you are hot or not (clearly a crucial aspect of being a law professor…) To stay anonymous, people simply have to create a random anonymous sounding email address. Not even a user screen name appears to be required. Hopefully, that website does not have nearly as much credibility as, for example, Yelp or TripAdvisor, but the potential for abuse of online reviews is clear both within as well as beyond our own circles.

As shown, though, some companies are taking action.  TripAdvisor claims that it has a team of 300 people using fraud detection techniques to weed out fake reviews.  But fraudulent reviews aren't thought to be going away anytime soon. One source estimates that as many as 10-15% of online reviews are fake (to me, that seems a low estimate, but I may just be a bit too cynical when it comes to online reviews).

So, next time you are reading reviews of a restaurant online, I suppose the learning is that you should take the reviews with a grain of salt.

October 21, 2015 in Current Affairs, E-commerce, Food and Drink, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

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 www.pissedconsumer.com, a third-party website that, as the name indicates, allows negative reviews of companies. http://www.cbsnews.com/news/ftc-lawsuit-roca-labs-weight-loss-powder-gag-clause-customers-sued/

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)