Friday, September 29, 2017
"You can stay here until we come to an agreement!" Watch out for what happens if you never reach an agreement!
One of the thorniest issues I find to teach students is when an agreement is enforceable vs. when it is merely an agreement to agree. A recent case out of Wisconsin, Adrikos Real Estate Holding LLC v. Murphy, Appeal No. 2016AP1313, addresses this very issue. The document in question read,
The seller, Murphy, shall retain the right to occupy the Property for a period of 15 days following the closing date of the agreement . . . . Thereafter, the seller, Murphy, shall retain the right to occupy the Property until such date that parties reach an agreement for the purchase and sale . . . .
The parties never reached an agreement for the purchase and sale. Instead, Adrikos sought to evict Murphy. Murphy, however, argued that the contract gave him the right to stay on the property until they reached agreement for the purchase and sale--which they hadn't.
The lower court found the agreement to be unenforceable as merely an agreement to agree. This court disagreed. The agreement explicitly granted Murphy the right to occupy the property until a purchase and sale agreement was reached. This didn't render the contract an agreement to agree; rather, it made a future agreement a "triggering condition" of the presently enforceable first agreement.
Having found the agreement enforceable, the court then considered if, because it didn't have a particular end date, it was terminable at will and Adrikos could evict Murphy at any time. The court found that the agreement did have an end date, though: the agreement for the purchase and sale. The court found, though, that, depending on the circumstances, this could convert the contract into a perpetual lease, which was disfavored under Wisconsin law, and if so, the court should read in a reasonable duration for the occupancy right. It remanded for further determination on this question.
Wednesday, September 27, 2017
A recent case out of the Southern District of New York, Betty, Inc. v. Pepsico, Inc., No. 16-CV-4215 (KMK) (behind paywall), tackles a fairly common issue: Often people make pitches based on ideas they have. Ideas aren't copyrightable, so often the only protection people have is contract-based. But, also often, they don't actually have a written contract, so they have to rely on an implied-in-fact contract theory. However, as this case reiterates, an implied-in-fact contract is more than just a conclusory allegation that "oh, we had an agreement that they'd pay me something for my pitch."
The case in question involves an advertising agency, Betty, who pitched a commercial to Pepsi for use in the Super Bowl. Pepsi invited Betty to participate in a telephone pitch meeting, during which Pepsi provided the "general outline of what it envisioned for the Super Bowl commercial," followed by a more formal face-to-face presentation. At the presentation, Betty presented eight different ideas and provided Pepsi with a USB drive with some concepts contained on it. Pepsi allegedly reacted favorably and asked for more details about some of the concepts.
About a month later, Pepsi informed Betty that it had decided to go in another direction with the commercial. However, when Betty saw the commercial during the Super Bowl, it thought it was substantially similar to one of the concepts it had pitched to Pepsi. The decision itself is behind a paywall but the lawsuit's filing was reported in some outlets.
This lawsuit followed, alleging copyright claims as well as a variety of contract-based claims. The breach of contract claim faltered, though. In the complaint, it consisted of just three paragraphs of conclusory allegations that didn't appear to rise to the level of an agreement. In the most generous reading, it sounded like an "agreement to agree" that can't be enforced. The complaint contained absolutely no terms of the contract. The fact that the contract was an implied-in-fact contract didn't excuse the plaintiff from having to allege facts sufficient to allow the court to draw an inference that the parties had entered into a contract based on their conduct and the surrounding facts and circumstances. That didn't happen here. Therefore, the court dismissed the breach of contract claims.
The copyright infringement claim, though, survived, and the court granted leave to amend on the breach of contract claim, so the plaintiff does live to fight another day.
(This post has been edited to correct a typo in the previous version. Pepsi provided the "general outline" over the phone, not Betty.)
Wednesday, September 20, 2017
I have actually seen a bunch of cases lately where people have either sued the wrong company in a complicated corporate structure (understandable) or where they have brought suit on behalf of the wrong company, which seems less understandable to me since you should presumably know your own corporate structure and which companies are bound by which contracts. But, as a recent case out of the District Court for the District of Columbia, Washington Tennis & Education Foundation, Inc. v. Clark Nexsen, Inc., Case No. 15-cv-02254 (APM), shows: not always.
The parties entered into an agreement where Clark Nexsen would design a tennis and education facility. About a year after entering into this agreement, Washington Tennis & Education Foundation, Inc. ("WTEF") assigned "all of [it]s right, title and interest" in the contract to Washington Tennis & Education Foundation East, Inc. ("WTEF East"), a related company that was not a party to this lawsuit. After growing dissatisfied with Clark Nexsen's performance under the agreement, WTEF sued for breach of contract. Clark Nexsen moved for summary judgment that WTEF lacked standing to sue because all of its contractual rights now belonged to WTEF East by virtue of the assignment.
The court agreed with Clark Nexsen. WTEF and WTEF East were two separate and distinct legal entities. It was true that they were related but they had separate boards of directors and separate records, etc. WTEF was not entitled to bring claims on WTEF East's behalf. Once WTEF assigned the contract to WTEF East, it became a "stranger" to the agreement and could not enforce it.
WTEF tried to argue that it and WTEF East were, for all intents and purposes, the same. However, the court pointed out that WTEF created WTEF East in order to put itself in a position to secure extra financing. The court said that WTEF couldn't have its cake and eat it, too: If it wanted to have separate entities when it was advantageous for it to do so, then the court was going to treat them as separate entities even when it became disadvantageous.
WTEF also tried to argue that it was a third-party beneficiary of the contract at issue, but there was nothing about the contract that indicated WTEF should be treated as a third-party beneficiary, and in fact the contract explicitly disclaimed that the contract should be construed to have any third-party beneficiaries. Nor was there anything in the assignment agreement indicating WTEF should now be treated as a third-party beneficiary of the original contract. In fact, the assignment agreement named Clark Nexsen as a third-party beneficiary to it, so it was clear the parties had thought about third-party beneficiary issues and had not given such status to WTEF.
The court ended up dismissing all of WTEF's claims but maintaining jurisdiction over Clark Nexsen's counterclaim moving forward. Not a good outcome for WTEF. Double-check your corporate structure before deciding which entity needs to sue on a contract.
Tuesday, September 19, 2017
The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.
Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale.
Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).
The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).
Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”
So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.
Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”
I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter?
I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.
The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).
Monday, September 18, 2017
If you, like me, just taught about letters of intent and also promissory estoppel, then here's a case with both for you, out of the District of Minnesota, City Center Realty Partners v. Macy's Retail Holdings, Civil No. 17-CV-528 (SRN/TNL). (The decision is behind a paywall, but you can read about the background of the lawsuit here.)
The parties were negotiating a sale of Macy's property in Minneapolis and had executed a Letter of Intent before (predictably, since we're in court) the deal fell apart. City Center brought claims against Macy's, including breach of contract based on the letter of intent. However, Macy's argued that the letter of intent was not binding, and the court agreed. The clauses in the letter of intent referred to a future purchase agreement that was never executed, and so, absent this purchase agreement, the letter of intent only bound the parties in very limited ways.
City Center also brought a claim that Macy's breached the covenant of good faith and fair dealing in delaying the finalizing of the transaction. However, the actions that City Center complained about were not things that Macy's was obligated to do. Macy's fulfilled its obligations under the letter of intent and City Center's other allegations of delay and obstruction on Macy's part were not actionable.
Finally, City Center brought promissory estoppel allegations based on oral statements Macy's made in the context of the parties' negotiations. But the court pointed out that the letter of intent represented the parties' agreements about their negotiations. City Center could not use promissory estoppel to alter the terms of the written contract. And, to the extent that City Center alleged other terms had been agreed upon not written in the letter of intent, the court refused to use promissory estoppel to save the statute of frauds problem (since this was a contract for the sale of land). Under the circumstances here, City Center knew that it and Macy's were engaged in ongoing negotiations that might not pan out. If City Center wanted assurance that Macy's would keep certain promises, it should have had those put in the letter of intent in a binding way. This was not a situation where Macy's had committed some kind of fraud where justice would require the enforcement of Macy's oral statements; it was just a situation where negotiations fell apart in a way that City Center didn't like. That didn't justify the application of promissory estoppel.
Friday, September 15, 2017
A recent case out of California, Pimpo v. Fitness International, LLC, D071140 (behind paywall), finds an arbitration clause in a contract unenforceable due to unconscionability.
In the case, Pimpo worked at one of Fitness International's fitness centers, where another employee sexually harassed her. Pimpo made several reports about the other employee's behavior and ultimately ended up suing over the sexual harassment. Fitness International responded by moving to compel arbitration based on a contract Pimpo electronically signed when she submitted her application for employment with Fitness International. However, the very terms of that agreement said it was only effective for 45 days, so it had expired by the time Pimpo filed suit. Fitness International tried to argue that Pimpo had signed a different arbitration agreement upon accepting employment but the trial court found no evidence of such agreement and the appellate court said that Fitness International's statement that it moved to compel arbitration based on this other agreement for which there was no evidence "border[ed] on a misrepresentation to this court."
So the appellate court already wasn't too happy with Fitness International as it began its unconscionability analysis, which it turned to in the interest of thoroughness. The arbitration clause that Pimpo signed when she applied for employment, the court concluded, was unenforceable due to unconscionability. Because the contract was a contract of adhesion presented to Pimpo on a take-it-of-leave-it basis, the court found that it was "by definition procedurally unconscionable." The court then went on to note, though, that Pimpo was in the usual position of someone applying for a job: She needed money to survive and did not have the resources to hire an attorney to look over the contracts for every application that she submitted.
The court also found substantive unconscionability because the clause was drafted to be breathtakingly broad. It explicitly required Pimpo to give up her right to a jury trial on all claims, "even those unrelated to the application or her employment," against Fitness International and "its officers, directors, employees, agent, affiliates, entities, and successors," forever. The court noted that this language meant that if Pimpo got into a car accident with a Fitness International employee, it was covered by this arbitration clause. Fitness International tried to argue that the clause should be read more narrowly than that but the court noted that that was not how it was drafted (and Fitness International had drafted it). In addition, the discovery procedure that the arbitration clause allowed for placed Pimpo at such a disadvantage that the court agreed that was substantivaly unconscionable, too.
Beware of drafting your clauses too broadly. Such can be the outcome. Even arbitration clauses can have their limits.
On Sept. 12, 2017, Senate Bill 33 was approved by the California Senate and now awaits Governor Brown’s approval before becoming law.
The legislation was designed after the Wells Fargo scandal to block legal the legal tactic of keeping disputes over unauthorized bank accounts out of public court proceedings an favor of private arbitration.
Said the law’s author, Sen. Dodd (D-Napa): “The idea that consumers can be blocked from our public courts when their bank commits fraud and identity theft against them is simply un-American.” It is also clearly unethical and, once again, emphasized how difficult it can be in modern times to strike a fair contractual bargain with a party that has much greater bargaining power than individuals and that uses lengthy and often complex boilerplate contracts with terms few read and understand.
Tuesday, September 12, 2017
The U.S. Court of Appeals for the Second Circuit recently reversed a district court’s decision to deny Uber’s move to compel arbitration in a contract with one of its passengers, Spencer Meyers.
The district court had found that Meyer did not have reasonably conspicuous notice of Uber’s terms of service (which contained the arbitration clause) when he registered a user, that Meyer did not unambiguously assent to the terms of service, and that Meyer was not bound by the mandatory arbitration provision contained in the terms of service.
The Second Circuit summed up the usual difference between clickwrap agreements, which require a user to affirmatively click on a button saying “I agree” and which are typically upheld by courts, and browsewrap agreements, which simply post terms via a hyperlink at the bottom of the screen and which are generally found unenforceable because no affirmative action is required to agree to the terms.
In the case, Meyer had been required to click on a radio button stating “Register,” not “I agree.” But in contrast to browsewrap agremeents, Uber also informed Meyer and other users that by creating an account, they were bound to its terms. Uber did so via a hyperlink to the terms on the payment screen.
Meyer nonetheless claimed that he had not noticed or read the terms. The Court thus analyzed whether he was at least on inquiry notice of the arbitration clause because of the hyperlink to the terms. This was the case, found the court, because the payment screen was uncluttered with only fields for the user to enter his or her payment details, buttons to register for a user account, and the warning and related hyperlink. Further, the entire screen was visible at once and the text was in dark blue print on a bright white background. Thus, the fact that the font size was small was not so important.
Mayer was bound to the arbitration clause because he had assented to that term after getting “reasonably objective notice.”
Friday, September 8, 2017
In my head it's still the beginning of the school year, even though at my school we just finished our third week of classes already. This means that, because we only have a one-semester Contracts course, I'm just finishing up contract formation and moving on, and this case is kind of a nice little reminder review about the principles surrounding offers.
The case out of New Jersey, Kristine Deer, Inc. v. Booth, No. C-29-16 (behind paywall), involved a luxury active wear company, K-DEER, for which the defendant, Booth, worked. Booth had several conversations over the course of her employment with K-DEER's sole shareholder, Kristine Deer, about Booth receiving possible equity interest in the company. However, every one of those conversations was fairly vague. Deer seemed to always finish the conversations with some kind of demurral: that she had to "think about" it more, or that she wasn't "ready to have the conversation." Eventually, Booth resigned with an e-mail that read "If you are not willing to pursue an active dialog about ownership I am not interested in working at K-DEER."
The parties are now involved in litigation, which included, among other things, Booth's counterclaim for breach of contract. She alleged that "Deer led [her] to believe she was a partner and had a right to equity in K-DEER," because she "did not explicitly deny her requests for equity" and called her a "partner" at times. However, the court quoted at length from Booth's deposition, where she admitted that Deer did not offer her any equity and that, in fact, her unwillingness to do so was why she resigned. Under these circumstances, it was impossible to find an offer from Deer to Booth. There was no expression of commitment on Deer's part. In fact, all of Deer's statements seemed to evince the opposite. So the court found no contract existed between the parties.
As I am teaching my students to do now, the court then moved on, examining Booth's claim for quantum meruit. However, Booth never alleged that she wasn't adequately compensated, just that she would have left K-DEER earlier had she realized Deer wasn't going to give her equity. That did not justify quantum meruit. The court found that Booth had been compensated for all the work she had performed, so there was no unjust enrichment on K-DEER's part.
Tuesday, September 5, 2017
Crumbling foundations are happening all over Connecticut, and the insurance policy fights are underway
I'd been seeing a lot of insurance cases come across my alert dealing with crumbling house foundations in the District of Connecticut. This one, Roberts v. Liberty Mutual Fire Insurance Co., No. 3:13-cv-00435 (SRU) (behind paywall), tells us why. Apparently it's part of an epidemic across Connecticut that so far has affected at least four hundred homes and may ultimately affect as many as 34,000 (!). The mix used in the concrete to pour these foundations contained a naturally existing mineral called pyrrhotite that degrades rapidly, causing the issues the homeowners are seeing. You can read more about this horrible situation here.
The Robertses are one of the homeowners caught up in the deteriorating foundation issue. They brought a claim under their homeowners' insurance policy, which was denied because the policy excluded coverage based on faulty construction, which Liberty Mutual explained was the problem at issue with the foundation. However, the policy did cover loss due to defective construction if it resulted in "collapse." The issue in this case revolved around the definition of the word "collapse." The Robertses claimed the cracks in the foundations will eventually cause the walls to give way and collapse and so they should be covered.
The insurance policy did not define the term "collapse," and previous Connecticut precedent had found the term in homeowners insurance contracts to be ambiguous. Because insurance contracts are construed against the insurance company, these courts had concluded that "collapse" could be something beyond just "a catastrophic breakdown" to include the "substantial impairment of the structural integrity of a building." But what does "substantial impairment" mean? Does it mean the building has to be in "imminent danger" of falling to the ground? Precedent suggested no. Connecticut courts had allowed recovery under "collapse" where the house never caved in and indeed the homeowners continued to live in it. So this court concluded that "substantial impairment" means that the building would cave in without repair to the damage. The judge found that there were factual disputes in this case involving whether the Robertses' home was in this state and thus summary judgment was inappropriate.
This series of cases is painful to read and made me walk around my house worrying about what's not covered by my howeowners insurance that could destroy it...
Saturday, September 2, 2017
There's an interesting case out of the Eastern District of Pennsylvania, The Dille Family Trust v. The Nowlan Family Trust, Civil Action No. 15-6231, dealing with issues around the trademark BUCK ROGERS. But it also has a breach of contract angle that requires us to learn the history of Buck Rogers. So let's dive in!
Philip Nowlan wrote a story called Armageddon 2419 A.D. that appeared in August 1928, starring a character named Anthony Rogers. In 1929, Nowlan wrote a sequel to the story, also starring Rogers. Nowlan, identified as the "creator of . . . 'Buck' Rogers," entered into a contract in 1929 with a newspaper service owned by John F. Dille to syndicate the comic strip "Buck Rogers." This contractual relationship seemed to survive through the 1930s, until Nowlan died in 1940. Nowlan's widow, Theresa Nowlan, then sued the newspaper service alleging underpayment under the contracts. The parties settled in 1942, which is where the breach of contract claim in the current case arises from. The agreement provided that Theresa Nowlan and her "heirs, executors, or administrators" released all claims against the newspaper service related to Buck Rogers and also conveyed all intellectual property interest in Buck Rogers to Dille.
Neither the Dille Family Trust nor the Nowlan Family Trust were parties to this settlement agreement. They were not even in existence until decades after it was signed. However, the Dille Family Trust asserted that it is the successor in interest to John Dille and that the Nowlan Family Trust is the successor in interest to Theresa Nowlan. Therefore, it contends that it can sue the Nowlan Family Trust for breach of the 1942 settlement agreement.
The court, however, disagreed. While there was no dispute that the trustee and beneficiaries of the Nowlan Family Trust were descendants of Theresa Nowlan, that was not enough to establish that the Nowlan Family Trust was an "heir, executor, or administrator" or otherwise a successor in interest to Nowlan's obligations under the 1942 settlement agreement. The Dille Family Trust did not show any sort of transfer of the agreement to the Nowlan Family Trust, nor did it introduce any other document (such as Theresa Nowlan's will) that might have indicated that the rights and obligations of the 1942 settlement agreement passed to the descendants in question. Therefore, the Dille Family Trust could not maintain a breach of contract action against the Nowlan Family Trust based on the 1942 settlement agreement.
Thursday, August 31, 2017
I just taught modification of terms earlier today so this recent case out of Missouri, Andes v. Dickey, Docket Number WD80135 (behind paywall), caught my eye. It involves an agreement regarding a jointly-owned residence between a woman and her daughter, which to me tinges the entire litigation with an extra layer of tragedy over the fact that they ended up in litigation against each other.
Andes and Dickey bought a house together and reached an agreement with each other (unsurprisingly not involving legal counsel) regarding use of the house, payment for the house, etc. One of the terms of this agreement between Andes and Dickey was that Andes would buy Dickey out through payment of monthly installments of $2,000 until the amount of $66,875.50 was reached (roughly thirty-three months of payments). The parties reduced this agreement to writing and signed it. They then also obtained a line of credit together to make the extensive renovations and repairs that the house turned out to need.
Andes and Dickey began clashing over the terms of their joint ownership of the house. Andes threatened to terminate Dickey's access to the line of credit and then suggested that Dickey take the remaining balance in the line of credit (around $70,000) as satisfaction of the buy-out provision, giving Andes the house. Dickey rejected Andes's proposal that she accept the line of credit as buy-out. Instead, worried that Andes would cut off her access to the line of credit, she withdrew the remaining balance of the line of credit and deposited it in a different account that she claimed she intended should still be used for renovations. Andes, finding out that Dickey had withdrawn the balance, asserted several times that Dickey should accept the line of credit balance as buy-out under their agreement. Every time, Dickey continued to state that she would not so accept it and that the money should continue to be used to renovate the house.
This led Andes to sue, claiming that she had bought out Dickey and seeking specific performance that Dickey's interest in the house be transferred to Andes. The trial court found that the buy-out provision had been satisfied and gave Andes the title to the house. Dickey appealed.
The appeal centers on whether or not the original buy-out provision was effectively modified so that the line-of-credit balance would satisfy it. This was not a situation where Andes simply tried to accelerate payment. Both Andes and Dickey were obligors under the line of credit. So, in giving Dickey the line-of-credit balance, Andes was not paying funds from herself to Dickey, as the parties had agreed. Instead, Andes was promising to assume sole liability for the line of credit. This, the court found, was materially different from the terms the parties had reached and so Dickey needed to accept the new terms. Both parties agreed that Dickey had consistently rejected Andes's proposals regarding the line of credit, so there was no acceptance, so there was no effective modification. No buy-out happened and the original buy-out terms remained in effect.
At any rate, the new supposed deal regarding the line of credit concerned real estate and so should have been in writing, which it was not.
Saturday, August 26, 2017
There has to be some evidence that you were intended to be a third-party beneficiary in order to be able to enforce the contract.
This reminder courtesy of a recent case out of the Southern District of New York, Fashion One Television LLC v. Fashion TV Programmgesellschaft MBH, 16-CV-5328 (JMF), where Fashion One Television tried to sue on a contract between the defendant and Fashion One LLC. Fashion One LLC was a "direct affiliate" of Fashion One Television, with the same owner and principal place of business. However, that doesn't change the fact that Fashion One Television was still a separate legally distinct entity who did not sign the contract, and nothing on the face of the contract indicated that Fashion One Television was an intended beneficiary of the contract entitled to enforce the contract. The contract had a merger clause and a clause that prohibited it from being assigned. So, Fashion One Television was not an intended third-party beneficiary, could not enforce the contract, and lacked standing, and its complaint was dismissed.
Friday, August 25, 2017
When I poke through recent contracts cases trying to find ones to blog about, I tend to decide pretty quickly whether I want to spend time reading an opinion or not. This recent case out of Virginia, American Demolition and Design v. Pinkston, CL16000199-00 (behind paywall), caught my eye because the very first paragraph sounds like a hypo:
This case arises out of a contractual negotiation for sale of real property . . . from . . . Pinkston to . . . Sweet. The negotiations never resulted in a final contract for sale of the property and no conveyance of the real property ever resulted. After the parties entered into contractual negotiations, but before the parties terminated contractual dealings, with oral permission from Pinkston, Sweet began preliminary construction on the property for the purpose of improving parts of the farmhouse located on the property. Although Pinkston discovered that Sweet’s work on the property had exceeded the scope of their discussions, Pinkston never stopped Sweet from performing further work on the property. Finally, when Sweet and Pinkston learned that a lien against the property hindered Pinkston from conveying title, Sweet stopped all work on the property. The property was subsequently rendered to be worth only a fraction of what it was previously worth before Sweet began working on the property.
So, naturally, I stopped to read the rest. Sweet brought the suit quantum meruit, for recovery of the value of his work performed on the property.
The court acknowledged that there was no written contract about Sweet's work on the property, but the parties did make oral agreements on the subject that the court used in evaluating the quasi-contract claim. The work that Sweet performed on the property apparently brought the value of the property down, raising the question of whether it conferred a benefit on Pinkston as is required for recovery. However, the court noted that Pinkston knew Sweet was doing the work and did nothing to prevent him from doing it. In fact, they negotiated that Sweet would do the work. Therefore, the court found the work was a benefit that Sweet conferred on Pinkston with Pinkston's knowledge, despite the effect of the work on the value of the property at issue.
But mere rendering of the services is not enough to merit recovery. The circumstances also must indicate that it would be inequitable for Pinkston to retain the benefit of Sweet's work without compensating him for it. There was no evidence that the parties ever thought Pinkston would pay Sweet for his labor. It was very clear that Sweet, expecting to buy the property, was in fact performing the work for himself, not Pinkston. Not only did Sweet not expect Pinkston to pay him, he expected to have to pay Pinkston when he bought the house. Therefore, the circumstances did not indicate that Pinkston needed to pay Sweet for his work.
The case stands as a word of warning: be careful expending time and effort on a piece of real estate before negotiations for it have concluded.
Thursday, August 24, 2017
As first reported on Above the Law, the Federal Circuit Court of Appeals has just ruled that Amazon is nothing but a simple purveyor of “online services” and does not make “sales” of goods. Although the issue in the case was one of intellectual property infringement and thus not the UCC, the differentiation between “goods” and “services” is also highly relevant to the choice of law analyses that our students will have to do on the bar and practitioners in real life.
How did the Court come to its somewhat bizarre decision? Amazon, as you know, sells millions, if not billions, of dollars worth of tangible, physical products ranging from toilet paper to jewelry, books to toys, and much, much more. They clearly enter into online sales contracts with buyers and exchange the products for money. “Amazon” is the name branded in a major way in these transactions whereas the names of the actual sellers – where these differ from Amazon itself – are listed in much smaller font sizes. Often, it is Amazon itself that packages and ships the products to the buyers, whereas at other times, third party buyers are responsible for the shipping. Amazon “consummates” the sale when the buyer clicks the link that says “buy” on the Amazon website. Amazon then processes the payments and receives quite significant amounts of money for this automated process.
Clearly a “sale,” right? Nope. I guess “a sale is not a sale when a court says so.” As regards the IP dispute, the crucial issue was whether or not Amazon could control the acts of the third-party vendors. You would think that even that would clearly be the case given the enormous control Amazon has over what is marketed on its website and how this is done. Amazon, however, argued that it sells so many items that it cannot possibly police all of them. Thus, it won on its argument that it was not liable under IP law for a knock-off item that had been sold on the Amazon website as the real product (cute animal-shaped pillowcases).
Had this been an issue of contracts law and had the court still found that the transaction was not a sale of goods under UCC Art. 2, would it have erred? Arguably so. Under the “predominant factor test” used in many, if not most, jurisdictions, courts look at a variety of factors such as the language of the contract, the final product (or service) bought and sold, cost allocation, and the general circumstances of the case. When you buy an item on Amazon, it is true that you obtain the service of being able to shop from your computer and not a physical location, but at the end of the day, it is still the product that you want and buy, not the service. Apart from the relatively small service fee (which gets deducted from the price paid to the seller), the largest percentage of the sales price is for the product. Modernly, online buyers have become so used to that “service” being provided that it is arguably not even that much of a service anymore; it is just a method enabling buyers to buy… the product. Clearly, it seems to me, a “sale” under Art. 2.
Again, this was not a UCC issue, but it does still show that courts apparently still produce rather odd holdings in relation to e-commerce, even in 2017.
The case is Milo & Gabby LLC v. Amazon.com, Inc., (Fed. Cir. 2017)
Monday, August 21, 2017
This case, out of the Northern District of California, Chaquico v. Freiberg, Case No. 17-cv-02423-MEJ, concerns a fairly common entertainment law issue that results when bands lose and gain members: who gets to still use the band name? Jefferson Starship has a fairly rocky naming history, having originally been called Jefferson Airplane and later morphing into Starship after a prior fight over the name. Because band name ownership can be a tricky thing to decide under intellectual property law, and because it might result in rulings that the band members (current and former) might not like, bands frequently try to handle these disputes by contract. Like with any contract, the efficacy of this approach differs based on the wording of the particular contract, which is what happens with the contract claims in this case: based on wording and timing and the interplay of other contracts, the court dismisses all of them but those that happened after January 2016.
(If you're interested in this sort of thing, Rebecca Tushnet writes up another of these cases, this one involving the band Boston.)
Sunday, August 20, 2017
Beauty Salon's Customer Lists Weren't Confidential When They Were on Social Media (and more beauty salon rulings)
A recent case out of New York, Eva Scrivo Fifth Avenue, Inc. v. Rush, 656723/2016, stems from the defendant, Rush, being discovered working for a rival beauty salon, Marie Robinson, while still employed by the plaintiff, Scrivo. Scrivo terminated Rush upon learning of this. Rush spoke to two clients in the Scrivo salon before exiting the salon, allegedly saying she would get in touch with them, and at least one of the clients left the salon, refusing to be serviced by anyone but Rush. Rush also posted a note on her personal Instagram saying that she would be moving to Marie Robinson and people should get in touch with her for appointments.
Scrivo sued alleging, among other things, breach of contract, based on the restrictive covenant contained in the Employment Agreement, which prohibited Rush from, among other things, soliciting Scrivo's clients and disclosing confidential information and trade secrets. Scrivo sought to enjoin Rush from soliciting, communicating with, or providing services to anyone she serviced while working for Scrivo, for a period of one year.
Unfortunately for Scrivo, the court denied its motion. The court noted that the noncompete needed to protect Scrivo's legitimate interests, avoid undue hardship on Rush, and be in the public interest. The court found that Scrivo failed to demonstrate the that noncompete was necessary to protect its interests. There was nothing about Rush's services that were "unique or extraordinary," and Rush was replaceable. Scrivo's customer lists were not confidential information, because the identity of its customers was pretty readily available online in social media posts and Scrivo never attempted to hide any of it. None of the skills Rush used in cutting hair were confidential, either. Rush claimed to be self-taught, claimed not to have taken any customer lists, and claimed that any clients that followed her did so of their own accord and initiative and that she did not solicit them.
Not only was the court dubious that Scrivo had legitimate interest to protect, the court also thought the sought injunction was unduly burdensome on Rush. Scrivo provided evidence that Rush had serviced 900 clients over the course of six years at Scrivo. Rush would surely have to therefore affirmatively ask each person who came to Marie Robinson if they had ever been serviced at Scrivo in order to ascertain if there was a possibility Rush had worked on them. Scrivo wanted Rush to turn away clients who came in independently, and the noncompete had only required Rush to refrain from soliciting clients.
Finally, the court didn't think Scrivo would suffer any irreparable harm without injunctive relief. If Scrivo could prove Rush violated the noncompete, then Scrivo could get the value of the services the client didn't purchase from Scrivo.
Pershing Square in downtown Los Angeles is an outdoor area that is regularly the home of free summer concerts and demonstrations of various kinds throughout the year. You would think you could snap as many photos as you wanted of events there since it is an outdoor, public area, right?
This past summer, the answer was no. A photojournalist wanted to take pictures of, among others, the B-52s. However, he was informed of a policy that had been set up with the performers per contractual agreement. The policy barred professional photography equipment, albeit not cell phone usage, from the square during concerts.
ACLU has complained to the Los Angeles City Attorney and the General Manager of the Department of Recreation and Parks, claiming that the city does not have a right to contract away the general public’s First Amendment rights because some performers want it that way.
How do you see contractual rights intersecting with the First Amendment in the government contracting context? Comment below!
Friday, August 18, 2017
Having disappeared for a couple of weeks into frantic preparation for the new semester, I thought I would re-emerge by sharing a hypo that I do with my students on the first day of class, based on Conan O'Brien's contract dispute with NBC from a few years ago. The hypo goes something like this:
Brian O’Conan is a comedic host who has helmed a show on CBN, Later at Night, for sixteen years. Later at Night airs at 12:30, and Brian has always wanted to “move up” in the world of late night hosts to host a show at the earlier time of 11:30. Five years ago, in order to keep Brian at the network, CBN promised to give Brian hosting duties for its legendary 11:30 show, Somewhat Late at Night, as soon as Len Jayo’s current contract was up. Somewhat Late at Night is a flagship show that has aired in its time slot on CBN for 43 years; prior to that, it started at 11:15 for 14 years. For its entire 57-year existence, Somewhat Late at Night has begun directly after the late local news.
Brian and CBN enter into a contract with the following terms:
- Brian is guaranteed that he will be the host of Somewhat Late at Night.
- Both Brian and CBN promise to act in good faith in executing the contract.
- Both parties will mitigate any damages caused by a breach of contract, but CBN agrees that it will pay Brian $40 million if it breaches the contract.
- Brian is prohibited from being a late-night host on any other network in the event of a breach of the contract.
As promised by the contract, Brian becomes host of Somewhat Late at Night. After a strong start, Brian’s ratings trail off. Six months into Brian’s stint as host, CBN makes a public announcement that Somewhat Late at Night will be moved to start at midnight. It will use the 11:30 time slot for a new late-night show with old Somewhat Late at Night host Len Jayo.
Brian, learning all of this for the first time from the public announcement, tells CBN it has breached the contract, demands payment of $40 million, and also opens discussions with a competing network, Wolf, to host a new late night show at 11:30.
I like this hypo because, even though it was several years ago now, most students recognize the real-life situation this problem was based on and so feel somewhat engaged with it. In addition, even though I have taught them literally nothing about contract law at this point, I think they gain a lot of confidence from being able to examine the problem and come up with ideas for how the analysis should begin. I usually split them up and assign them a side to represent and have them make arguments on their client's behalf, and then allow them time for rebuttal. Along with discussing the contract's terms around the show itself, the students get into discussions about good faith, mitigation of damages, and just basic fairness. When we're done with the discussion, I then ask them how they felt about the side they had been assigned to, and if any of them had wished they'd had the other side. I think it is a good basic introduction to the task of being lawyers that I find relaxes them a little on the first day: If they can already talk about this problem on the first day, imagine how much better they'll be once they know some law!
If you're starting school years like I am, good luck!
Wednesday, August 16, 2017
In times when it seems that employers often not only attempt to, but also often get away with, unreasonable demotion and/or termination attempts, the Eighth Circuit Court of Appeals has upheld the rights of employees not to be forced into unreasonable demotion “agreements.”
The crucial facts of the case are as follows: In 2011, Timothy Gilkerson was hired by Nebraska Colocation Centers (“NCC”) as a Vice President and General Manager in an IT function that also included Gilkerson’s expanding the company’s customer base. Among other things, the employment contract stated that Mr. Gilkerson could only be fired for cause defined as the “willful misconduct in carrying out Executive’s duties which causes economic harm” to NCC or the “persistent failure to perform the duties and responsibilities of his employment hereunder….” The contract also specified various generous sales and retirement bonuses.
NCC subsequently became dissatisfied with Gilkerson’s sales-related performance. Gilkerson received an employee performance review with an “Unsatisfactory” rating for “Achieved Sales Goals” and “Fulfills the terms of his contract.” Gilkerson signed the review document, but noted his dissatisfaction with the sales goal rating. NCC ultimately determined that Gilkerson was not “effective” in his role, announced the hiring of a new Vice President and, the same day, told Gilkerson that 1) the new employee would be moving into Gilkerson’s office and 2) that Gilkerson’s job ti
tle was changed to something less desirable from his point of view.
Crucially to the case, Gilkerson was presented with a “Mutual Rescission” to rescind the employment contract and a “Term Sheet” which set forth new and much less desirable terms of Gilkerson’s employment. In other words” NCC sought to demote Gilkerson. Importantly, the “mutual rescission” sought to convert Gilkerson’s contractual status to be an at-will employee. Gilkerson smartly consulted with an attorney who told him not to sign the Mutual Rescission. At a subsequent meeting with the NCC president, Gilkerson was told he had two choices: Accept the rescission and term sheet or be fired for cause; an obvious Hobson’s choice. Gilkerson signed. You guessed it: he was then also fired.
Gilkerson filed suit, claiming contractual duress which, in Nebraska, involves a two-part test: First, the agreement obtained must have been obtained by means of pressure. Second, the agreement itself must be unjust, unconscionable, or illegal. Whether particular facts are sufficient to constitute duress is, in Nebraska, a matter of law.
The duress test sounds like a high standard to meet. Sure enough: on a motion for summary judgment, the trial court found that “had the revised terms … been given to a newly-hired employee, they would certainly have been seen as fair, or even generous.” However, as the Court of Appeals pointed out: Gilkerson was not a new employee. It was just wrong for the employer and court to treat him as such. The Court found the new “term sheet” unjust because, after analyzing case precedent, there was no economic justification for requiring Gilkerson to accept an at-will employment agreement, other than “it allowed NCC to avoid the provisions of the Contract that were most favorable to Gilkerson.” No kidding. The court also specifically took issue with the provision that made Gilkerson an at-will employee after having served in a contractually better position for quite some time. The appellate court thus found duress to lie.
Contracts are, of course, negotiable at the outset. However, in times of fierce competition in many job markets, it is good to see that courts standing up for employees presented with clearly unreasonable employment “choices” and decisions by employers well into an employment situation. It is one thing if an employee is at working will. It is quite another if he/she is not, as this case clearly demonstrates. Contracts must be performed in good faith by both parties. That, of course, includes the employer as well. In times when unemployment rates are dropping, hopefully employees will obtain stronger bargaining positions both at the outset of and during the employment relationship. Nonetheless, presenting employees with unreasonable “choices” such as the above. Of course, employees should rise to the reasonable expectations of employers. But employers do not and should not have carte blanche to do whatever they wish to contractually bound employees. This can hardly come as a surprise to any reasonable employer.
The case is Gilkerson v. Nebraska Colocation Centers LLC., 2017 WL 2656073.